Evidence of meeting #35 for International Trade in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was julian.
A recording is available from Parliament.
11:05 a.m.
Conservative
The Chair Conservative Leon Benoit
Monsieur Cardin, for clarity, are you speaking to Mr. Julian's amendments, to amendments NDP-1 and NDP-2?
11:05 a.m.
Bloc
Serge Cardin Bloc Sherbrooke, QC
Yes, both. I would also like to provide some clarification.
Subsections 4(1) and 4(2) are fundamentally different. The first deals with the interest rate people pay to government and the second deals with the interest rate that government pays to people. If we increase the amount under paragraph 4(2)(b) from 2% to 4%, the government's accounts payable will increase. You cannot know by how much, since accounts payable and receivable fluctuate.
I would also like clarification about the amendment to paragraph 4(1)(a). Madam said earlier that it would change the whole system. Does it mean that all the government's interest rates are based on this formula? The one proposed here is almost double jeopardy. Treasury bills return a given yield at a specific time, which would reflect the market rate, and then you add 4% on top.
This is tantamount to saying that the government essentially views people who owe it money as deadbeats since it wants 4% more than the normal rate. This must be emphasized because it is important. Whether we get paid interest or pay interest, it should be the current rate with a little extra added on, as banks do.
If we change the percentage under paragraph 4(2)(b) to 4%, it will cost the government more, but requiring individuals who owe money to the government to pay 4% more than the Treasury bill rate is not showing great esteem for Canadians.
11:10 a.m.
Conservative
Le président Conservative Leon Benoit
Thank you, Mr. Cardin.
We'll now go to the vote on amendments NDP-1 and NDP-2.
Do you have a point of order, Mr. Julian?
11:10 a.m.
NDP
11:10 a.m.
Conservative
The Chair Conservative Leon Benoit
No, actually we're not. I've made a ruling on that, Mr. Julian, and we're going ahead with the vote now.
11:10 a.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
--so obviously the debate is already engaged. I would like now to speak to NDP-2. I didn't have the opportunity to speak.
11:10 a.m.
Conservative
The Chair Conservative Leon Benoit
We'll go to the vote on NDP-1 and NDP-2, a recorded division. Mr. Julian, we have completed the debate on those motions. We have no one else asking to speak.
11:10 a.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
I indicated very clearly I wanted to speak on amendment NDP-2, and I would like the opportunity to speak now. Mr. Cardin spoke very eloquently on NDP-2 and NDP-1, obviously raising the point that essentially you've combined these two amendments. I'm not objecting necessarily to the combination. I am objecting to it taking place after the fact. But you've already allowed debate, so in a sense we're already engaged in the debate. You can't refuse me from debating an issue, which is amendment NDP-2, even if we have had debate on NDP-1.
11:10 a.m.
Conservative
The Chair Conservative Leon Benoit
Mr. Julian, in the future I'll certainly try. If I see subsequent motions, I'll certainly try to point that out ahead of time. Sometimes it's not clear at the start. It does take some thought here.
11:10 a.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
No, that's understood. I'm not blaming you. I'm just saying that if you're establishing after the fact that it is consequential, then in a sense you have to allow us to discuss the two motions. I won't refer to NDP-1, but I would certainly like to refer to the logic around NDP-2, which you've now grouped with NDP-1.
I'm not admonishing you for your mistake. It's an honest mistake. It's a long committee meeting, because we've extended it, in cooperation--the opposition party is cooperating with the government. But now we have to have that debate on NDP-2, which is on a different clause from NDP-1.
We're talking about two different components here. The first component is very much about moneys that are owed to the government and stopping that penalty that companies would have to pay, the double taxation. But in this case, when we look at NDP-2, clause--
11:10 a.m.
Conservative
The Chair Conservative Leon Benoit
Mr. Julian, just before you go on here, I was referring, of course, to the vote when I said that NDP-2 is subsequent to NDP-1. You are, of course, allowed to debate motion NDP-2. I failed to point out before that they would be debated together, so you do have a right to debate NDP-2.
11:10 a.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Thank you very much, Mr. Chair.
I will say you're guiding us very effectively through this.
I am pleased to be able to speak now to what we will be voting for together, which is essentially NDP-2.
There are two components to that. There is a link, as you mentioned, which is reducing the percentage that is paid--and the companies would be paying it in treasury bills--down to the inflation rate. We don't have those numbers yet, but presumably we would be able to get them at some point through the course of these hearings. I believe what we do find, as I mentioned earlier, is that indeed we would bring down the treasury bill cost to the inflation rate and then we would increase...in paragraph 4(2)(b), which would be from 2% to 4%.
Effectively, what is the impact of that? In this case, we are talking about moneys that, in a sense, the government actually owes to softwood producers. When we look through all the many clauses of Bill C-24, and I won't use the words “draconian” or “dictatorial”--somebody suggested mean-spirited--we see many provisions of the bill that are so. There's very little in this that actually helps to support the companies that are suffering the brunt of this across the country, whether we're talking about the seed for Alberta, Saskatchewan, or Manitoba...certainly northern Ontario, northern Quebec, and even the Maritimes.... We'll be coming back to the issue around the Maritimes a little later on in our considerations as we move through clause-by-clause.
I will come back to what these companies are suffering and how best, as a committee, to respond to what they've been going through over the last few years. What they've been going through is cruel, and certainly being punished by these illegal, punitive duties is something no industry in Canada has had to suffer to the same extent.
We come to Bill C-24, and to the interest charges that would be levied to them. Essentially, the way Bill C-24 was originally crafted, in subclause 4(2) it said:
For the purposes of every provision of this Act that requires interest at a specified rate to be paid on an amount payable by the Minister to a person or applied by the Minister against an amount owed by a person, the specified rate in effect during any particular calendar quarter is the total of
(a) the rate determined under paragraph (1)(a) in respect of the particular calendar quarter, and
(b) 2%.
If we look at line 35, at the rate determined, that is essentially the treasury bill rate that we mentioned earlier, the rate of the treasury bills. Essentially what we did, looking at NDP-1, which this modifies also...as you mentioned, it is consequential, so we have to, in a sense, go back and forth between the two amendments to ensure everyone understands the full ramifications of these particular amendments.
By going back and forth between the two amendments, and I am putting the primary focus of my comments on NDP-2, what we do, for the purposes of subclause 4(2), is we reduce the rate that would be paid by the government to the company, in the case where there's interest payable by the minister.
Hopefully, other amendments that we'll consider later on in our deliberations will also help to right the playing field that exists so that we're not talking about this mean-spirited bill, but something that softwood companies can actually use in a much more effective way to help them further their business interests.
One of the key aspects of that is furthering business. As you know, Mr. Chair, and any other member of the committee who has been involved in business knows, the cost of capital, the cost of money, is a key component to that. How do you access funds? How do you access funds that are actually owed to you by the Government of Canada?
Mr. Chair, there are a variety of ways of doing that. We've reviewed some of the calculations around the core measure of inflation and how that in effect lowers the cost of capital when companies owe money to the government. Essentially, because we're talking about a big, big stick contained within this legislation, when money is owed to the government those companies are very much in trouble.
So by lowering the rate of money owed to the government, or by lowering the cost to companies so that they're not paying these excessive punitive penalties, we've lowered the cost of capital, in a sense, to those companies. They won't be paying, and won't be seeing, corresponding increases in the amounts of money owed.
Where do those go? They go, of course,
to accounts payable.
Mr. Chairman, when I was taking financial management classes, proper management of accounts payable was considered extremely important. Businesses that know how to adequately manage their accounts payable are able to lower their costs, whether these amounts are owed to other businesses or, such as here, to the government. The ability to reduce these costs is extremely important. This is what we are doing here with the first amendment.
This will benefit small businesses like those of the Estrie, and more particularly in Northern Quebec, in the Saguenay—Lac-Saint-Jean area, in Northern Ontario, in Timmins, in James Bay and other regions, because they have very little room to manoeuvre. They have to make money every day in order to pay their bills and taxes. This is why properly managing their accounts payable is so important to them.
I often congratulate the member for Sherbrooke, because Sherbrooke University is a good university. I studied financial management there and I found that the approach they took to financial management of a business was very well balanced. One must begin by adequately managing accounts payable, and then reduce the cost of these payables. This is what we are doing with our first amendment.
This is why our motion reads:
That Bill C-24, in clause 4, be amended by replacing line 38 on page 3 with the following: “(b) 4%.“
Motions NDP-1 and NDP-2 go together. They are somehow twin motions. I agree to putting them to a vote together, even though I was less pleased with the fact that this was decided after the fact, but this has been corrected. Thank you very much, Mr. Chairman, for having made the correction.
By passing those twin motions, we will reduce the cost of accounts payable because we will reduce the interest rate on amounts owed to the Government of Canada. At the same time, this reduction, due to the wording of paragraph 4(b) which says that the rate should be based on the yield of Treasury bills, has a real impact on both money to be paid and money to be collected.
Therefore, if we lower the interest rate on the government's accounts receivable, we also reduce the rate it pays out to companies. This is an important aspect.
It is just as important to manage accounts receivable as accounts payable. Accounts receivable of a business are a very important asset when you have to go meet with your banker. We know that the government approached bankers to get them to push companies to sign the softwood lumber agreement, which they did. The reason why the government approached banks is that banks are important for businesses.
Banks play a major role, just like the network of credit unions, which is very extensive in Estrie and elsewhere in Quebec. The Mouvement Desjardins is the largest financial cooperative in North America and it has enormous capital at its disposal. This coop does a very good job with softwood lumber companies. But the caisses populaires, the credit unions or banks that finance those companies always want information on their accounts payable and the applicable rates of interest. The issue of accounts receivable is therefore extremely important. We should not underestimate its importance, because accounts receivable are more than simply being owed money. These accounts appear in the financial statements that are established at year-end. Accounts receivable can have very broad implications. This is not an insignificant subject we are discussing today.
What we are seeking is a better balance. On the one hand, we reduce the amount companies have to pay to the government by bringing down the interest rate. This is important in terms of the accounts payable. On the other hand, this does not reduce the interest rate that the Government of Canada must pay to those companies.
Let us take for example a small softwood lumber company located in Estrie. It deals with the caisse populaire of Sherbrooke, which is a credit union that has great involvement in the life of business people in this whole area. When the manager or the representative of that institution sits down with the representative or the head of that business, the first thing he or she will ask to see are the financial statements of the previous year and whether these have been audited by a chartered accountant. Without financial statements, you cannot even sit down with a banker. When you are dealing with a credit union, where people know each other better, the business person will be able to meet with the manager but will not be able to discuss financing without showing financial statements.
The first thing banks or credit unions look at in the financial statements of a business is the assets and liabilities, including accounts payable, their percentage, their turnover, whether they have increased or decreased over the last few months or the last year or couple of years, whether the business has financial difficulties, etc. All of those aspects are shown in the financial statements as audited by a chartered accountant. Accounts payable play an important role.
Next, banks will look at accounts receivable, at the assets of a business, whether there are substantial accounts receivable from the government and whether this will have an impact on the financing of the business. It is a critical aspect because if it appears that accounts payable increase and that accounts receivable decrease, the business will be told to at least try to get that money as quickly as possible. But the law gives very few tools to corporations to make the government pay them the money it owes, which is why we have a rather draconian way of doing things.
So, with those measures, companies cannot go to the government and insist that they immediately need the money owed them. We cannot ask these companies to live with such uncertainty. It is not only companies who are faced with uncertainty, but also their employees, the financial institutions that provide financing to them, such as caisses populaires, credit unions and banks.
These people look at every line in the financial statements to make sure that the business is solvent. One important factor in this review of financial statements is the turnover in the accounts payable and receivable, as well as the amounts that the business can expect to receive.
It is important to provide this service to softwood lumber companies, whether they be located in Estrie, in Abitibi, in Northern Ontario or in British Columbia. On Vancouver Island, for example, the softwood lumber industry is very strong. Local credit unions and lumber companies are jointly making a large effort, but nevertheless, due to the situation that we know all too well, 4,000 jobs have been lost over the last few weeks and many operations had to close. The situation is very serious for these people.
Bill C-24 allows us to offer something substantial to those companies. On the one hand, in terms of the credit unions and banks that provide financing to them, we must reduce the interest rate they pay when they owe money to the government. This is the first step, a first improvement. At the same time--and just as important--, when the government owes them money, they should be entitled to a better balance. I could read that subsection again, if a member so requested, but I do not think it is necessary. I believe everybody understands very well. We reduce the rate from the annual yield of Treasury bills down to the rate of inflation, while increasing from 2% to 4% the additional percentage paid to those companies.
Why is this important? We know that the lumber industry is seasonal, that the labour turnover is important at certain times of the year and less so at other times. Bill C-24 recognizes the seasonal nature of some parts of the industry, for example in the calculations based on the months of production.
Since Canada is a northern country, it is obvious that during the winter months, in some areas, it is not possible to log trees and to do all the field work that is required. We also know that in some areas, manpower is unavailable to the lumber industry at certain times of the year, for example in the fishing season or during periods when other primary industries are active. Therefore, we have workers going from the lumber industry to other industries.
Why is the seasonal nature of the softwood lumber industry significant? Because it is part of the factors that the industry and all businesses taking part in it must take into account in terms of financing. All companies must adjust to these fluctuations between periods in a year. We are not talking here about manufacturing a toy or a car, which entails steady levels of performance throughout the year.
Things are different in the natural resources sector. This is why financing is such a critical aspect for those companies. They have no other choice but to rely on the support of financial institutions. They are not doing so out of self-interest or because they like having a cup of coffee with the credit union manager, but because they have no other choice.
11:30 a.m.
Conservative
The Chair Conservative Leon Benoit
You know, Mr. Julian, there is a relevance issue here. We're debating your second amendment, which is the difference between 2% and 4%. If you're finished with the debate....
You're not debating that issue now, Mr. Julian. There is a relevance issue.
11:35 a.m.
Conservative
The Chair Conservative Leon Benoit
Go ahead if you want to, but I'll be watching carefully. If you stray from the debate on that 2% to 4% issue, then we will call the question.
11:35 a.m.
NDP
11:35 a.m.
Conservative
11:35 a.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
I think it's important to respond to you on that before I come back to my remarks.
The point that's important about NDP-2 is its relationship directly to the lending institutions. This is the foundation of the argument, that indeed--
11:35 a.m.
Conservative
The Chair Conservative Leon Benoit
Mr. Julian, if you want to argue my decision, we can go to a vote on that. If you do not get back to the debate on the 2% to 4% issue, we will go to the question.
11:35 a.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Agreed, Mr. Chairman, I will deal with the next issue.
If we pass amendment 1 and not amendment 2, and reduce the rate from the yield of Treasury bills down to the rate of inflation, there will be repercussions. We do not have the benefit of an assessment of this impact, but it is clear that there will be consequences.
Let us suppose we do not increase the rate to 4% in paragraph (b) in order to compensate for the reductions made elsewhere. Of course, there are good reasons to implement those reductions since they will bring down the cost of accounts payable the companies would have to pay. But if we were to do this without increasing the second rate to 4%, we would reduce the amounts payable by the government to those companies. This would have two consequences. If we pass amendment 1 without also passing amendment 2, we would reduce the interest rate paid to those companies to whom the government owes money.
11:35 a.m.
Conservative
The Chair Conservative Leon Benoit
Mr. Julian, I've heard this before--more than once, actually--so we will go to the vote now on NDP-1 and NDP-2.