Mr. Speaker, I am delighted to take the floor on behalf of the Official Opposition in this debate on the second report of the Standing Commit-
tee on Industry, since I am also the vice-chairman of this committee.
The committee sat from February to September and then prepared the final text of its report. We heard from 58 witnesses and received 62 submissions. I must stress that proceedings were conducted in a very constructive, cordial and non-partisan atmosphere. The problem of business financing is, obviously, a non-partisan issue and, although we are particularly interested in the political status of Quebec, an issue which will remain important and forever present irrespective of the political status we choose.
In all, the committee came up with 22 recommendations. We totally agree with some; we agree with others with some reservations; but there are three recommendations on which we totally disagree with the view and direction expressed by the committee.
At this stage, I should probably remind you of the reason why the committee considered credit or rather the tightening of credit. Because of the recession, many members, especially in Ontario, received representations protesting the attitude of the business and banking worlds towards small businesses when it came to credit. This generated a consensus among members of the committee to study this question and find out whether or not there was indeed a credit crunch. As we shall see it is not all that clear.
Concerning the 22 recommendations, I would like to draw your attention to the major ones, those that seem to me the most significant, starting with the ones we totally agree with.
The first recommendation we agree with and the most significant is the second one, a recommendation to the business world, and to banks in particular, that they report quarterly on lending to small business. The collection, compilation and publication of the data would give a picture of past economic activity based not only on actual loans, but also on loan applications. The information requested would include the size of the business, the nature of its activities, the gender of the applicant, the number of employees at the time of application, the volume of sales and the location of the company, so we could have, ideally by municipality, a true picture of the situation.
As I mentioned earlier, it proved impossible for the committee to demonstrate, appearances notwithstanding, that credit was tighter. In spite of all the horror stories which were related to the committee and are familiar to any well-informed citizen, especially the way borrowers are treated by bankers, the committee members were unable to demonstrate that credit was indeed getting tighter, due to the lack of proper data. We could have demonstrated that credit was tighter if we could have shown how many applications had been turned down and how many had been accepted. But without the total number of applications and the total number of loans, we are not in a position to prove that credit was indeed tighter. All we can say is that there was a drop in lending and that it may be due to a drop in demand; we have documents from the Bank of Canada to back this up.
It is presently impossible to prove anything, which justifies this seemingly technical but very important recommendation to the effect that, from now on, all business stakeholders, especially the banking world, should report their activities on a quarterly basis.
The second recommendation we totally agree with is recommendation no. 3; it deals with the drafting of a code of conduct which would compel both sides to better manage their activities, especially with regard to interpersonal relationships. On one hand, borrowers would have to disclose a certain amount of information in an objective manner, and on the other, lenders would have, of course, to behave constantly in an ethical manner, avoiding arbitrary decisions and clearly stating all the reasons why the loan is refused, and suggesting alternative sources of financing. Moreover, all lending establishments would create internal complaints-handling mechanisms.
As I said, we do agree with the establishment of a code of conduct; we understand that one is already being drafted by the Canadian Bankers Association.
The third recommendation of the committee with which we agree is recommendation no. 5. It concerns the establishment of an office of bank ombudsman, in case the internal complaints-handling mechanism described earlier fails to address the concerns of disappointed and frustrated clients. The ombudsman would be independent, impartial and could investigate complaints of breach of duty or maladministration by the banking world. Also, following the British model, if the complaint is well-founded, the bank could be required to pay compensation.
These are the three recommendations of the committee with which we readily agree.
We agree with the rationale behind two other recommendations, although we have some reservations. First of all, there is recommendation 14 which promotes the creation of a new category of banks, the so-called schedule III Banks. Let me remind hon. members that Schedule I Banks are the banks we are familiar with, that is the six major Canadian-owned banks, and Schedule II Banks are foreign owned banks, for example, the Banque nationale de Paris and the Hong Kong Bank. Now, we would have Schedule III Banks, institutions set up by Canadian stakeholders, like Canada Trust, mentioned in the report, or by existing groups or very wealthy individuals in Canada who would now be able to create their own banks.
We have reservations, because this recommendation, as worded, does not limit the size of these institutions, of these Schedule III Banks. There is no restriction to avoid extreme concentration of financial powers that would let some groups or very wealthy individuals become even richer.
We also have reservations about the fact that there is no restriction to avoid what can be called incestuous relationships between the parent corporation and the subsidiaries set up by this parent corporation. There is currently no code of conduct for related companies, but what makes it worst is that this kind of relationships can be set up at the expense of the people dealing with these financial institutions.
Moreover, we have no guarantee that the Schedule III Banks, these new banks, will be particularly concerned about small businesses, even though this bill tends to promote competition in the current banking system, by opening the door to new players who would be more sensitive to the needs of small businesses. The current recommendations include no measures to ensure that these new banks deal more specifically with the small and medium-sized businesses.
As I said, we agree with the principle, but with the reservations I just mentioned.
We also agree with recommendations 18 and 19, which we find a good lead that should be explored and which provide for owners of small businesses to invest up to 20 per cent of their own RRSPs in their businesses.
Since small businesses in general lack capital, we consider this to be a good idea even though we should keep in mind that the primary goal of RRSPs is to help Canadians and Quebecers to better prepare for their retirements. We must realize that this will always be some kind of alteration of the terms of reference.
The main objective is retirement planning. Until now, people were allowed to use this fund to buy a first house; they would now be able to invest up to 20 per cent of it in their own businesses. This is not a bad idea, but we must remember that it is an alteration in the terms of reference. So much so that if the businesses go bankrupt, owners will not only lose their businesses but up to 20 per cent of their RRSPs also. The loss could be significant.
Also, nowhere is it stipulated that business people who have invested part of their RRSPs must pay it back over a certain period of time. Thus, the risk is all the more important. In any case, we think that this recommendation is not supported by a sufficient number of studies and that an in-depth study should be carried out before anything is done.
I will now turn to the three recommendations we completely disagree with, as shown in the minority report which is an integral part of the report. These recommendations are about section 22 concerning labour sponsored venture capital corporations, section 8 on the Small Businesses Loans Act and section 10 on the Federal Business Development Bank and more specifically on changing the name of the FBDB.
In case the minister has to leave to attend to his numerous obligations, I will speak first on the changing of the name of the FBDB. Personally, I find this proposal rather ludicrous. The name of the Federal Business Development Bank is known in Quebec as well as in English Canada. I think I forgot to mention that one of the proposals is to change the name of the Federal Business Development Bank to Small Business Bank of Canada. This is nothing more than a business decision. It limits considerably the bank's mandate because it is not only the small business sector that has legitimate needs which have to be addressed.
Of course, as a nationalist and a sovereignist from Quebec, I cannot help but think that the minister and his parliamentary secretary want to use the name Small Business Bank of Canada as part of their referendum campaign strategy. It is very obvious, Mr. Speaker. Every Quebecer will know it. I would almost like to see the name changed just before the referendum campaign because it would give us one more example to show the people the kind of things that the federal government is doing, to show them what is going on in the Langevin Block.
It is similar to what the government just did with the new tourism policy, increasing the budget by $35 million to sing the praises of Canada and Canadian federalism from coast to coast. It is easy, especially when it is done with the taxpayers' money.
There is something indecent about changing the name of the Federal Business Development Bank in this period of fiscal restraint, right after the announcement of a new war budget. The government wants to spend a lot of money at the taxpayers' expense to play politics so that Quebecers will soon be able to see, as my colleague the parliamentary secretary was telling me, nice signs announcing the Small Business Bank of Canada in all of the province's regional capitals. This must mean that the government is short of arguments, which is comforting to us.
Labour sponsored venture capital corporations were our first point of dissent. It is a very subtle way for the federal government to interfere in an area under provincial jurisdiction. I will read to you proposal no. 22. "Labour sponsored venture capital corporations. The committee recommends the adoption of a new self-regulating mechanism for labour-sponsored venture capital corporations. This mechanism would link the annual supply of federal tax credits to the labour-sponsored venture capital corporation's prior investment in small and medium-sized Canadian businesses, and be subject to a strict annual audit."
And here is where the shoe pinches: "Where such a self-regulating mechanism exists under provincial legislation, the federal government would limit its review to ensuring that the labour-sponsored venture capital corporation's performance meets the objectives for which the federal tax credits were provided".
This is a very subtle, technical way of interfering in an area of provincial jurisdiction, especially, in the case of Quebec, in an area which is very well managed by the Quebec government. That government, together with the Solidarity Fund, represents a third of all labour-sponsored venture funds in Canada.
The Solidarity Fund was set up under a legislation which also defines its objectives. The application of that legislation is well managed, and we do not accept that the federal government could be coming in through the back door, by defining objectives for the Solidarity Fund because of the tax credits it gives to Solidarity shareholders. If, in the final analysis, and hypothetically, these objectives were not met by the Solidarity Fund, the federal government could come in and change the rules of the game, interfering with the Fund's mandate and its portfolio management, because of the tax credits given to Solidarity Fund shareholders. That scheme should be exposed. It is also an attack on shareholders of the fund.
If the federal government wants to do away with this tax shelter, let it be upfront and say so publicly. Let it be open about this, and wage the political fight that will ensue. It should be warned, though, that we will join the fray, all the more so because the Parti Quebecois government has kept its word and eliminated the ceiling forced upon the QFL Solidarity Fund by the former Liberal government in Quebec.
When this government tries to restrict such a positive initiative, an initiative that is costly for the government but maybe not that much, when it dares to create difficulties for an institution such as the Fonds de solidarité, which is more than a mere investment mechanism but is also a means to foster regional economic development-together with other actors in Quebec such as Mouvement Desjardins, the National Bank, the Quebec Deposit and Development Fund, and local actors, the Fonds de solidarité managed to create regional units in order to fulfil specific regional needs-when this government dares to interfere with instead of improving such an initiative, we have to expose that action, which we will oppose as forcefully as we can.
It would be ill-advised for me to do otherwise, since my riding benefitted immensely from the Solidarity Fund. When you think that CIP Forest Products, a well established pulp and paper company, almost a multinational company, which closed its doors for all kinds of reasons is now reopening with the help of the Solidarity Fund which invested $28 million in Trois-Rivières so that the plant can resume its activities and put 350 people back to work, you have to admit we will never be grateful enough for the Solidarity Fund.
The other important point on which we disagree entirely, as in the first two cases, has to do with recommendation No. 8 on the Small Businesses Loans Act. That act is very popular and increasingly put to use. I think it is a sound measure implemented by the federal government which supports the development of small businesses.
However, some committee members were of the opinion that the administration of this act is too expensive for the public purse. I think that is wrong. We will not successfully fight the deficit by reducing investments. On the contrary, we should think of investing much more in order to promote the establishment and development of small businesses. That is how we can promote economic growth.
Section 7 proposes the creation of a new program that would help export businesses since we know that banks shrink from lending on the basis of accounts receivable from foreign customers. If memory serves me well, banks will guarantee approximately 75 per cent of domestic accounts receivable but in the case of foreign accounts receivable, bankers are very hesitant, perhaps with good reason. That new program would give some form of assurance to the banks.
We feel that this program should not exist by itself but be included in an broader version of the Small Businesses Loans Act. In that way, exporters would benefit from the act, but so would the new economy types of businesses, those based on technology, research and development, patents, those who have no tangible assets as collateral to lenders. The act, therefore, should have a broader scope and cover the working capital of these small businesses. Then, given the guarantee offered by the Small Businesses Loans Act, banks would lend greater amounts to these businesses. That would show some vision, some innovative spirit in dealing with those who represent Canada's economic future, the young entrepreneurs of our new economy. We think that is the key to fighting the deficit on the home front.
As I said before, according to one school of thought, this legislation is too expensive for the public Treasury. We think that before any attempt is made to downsize the cost of this legislation, there should first be a cost-benefit analysis to evaluate the number of jobs created as a result of this legislation: the amount of taxes paid directly and indirectly and the money saved on unemployment insurance benefits and welfare payments. To say that this legislation costs the public Treasury millions of dollars shows a lack of vision and innovative spirit and a failure to see the medium- and long-term benefits. That was the third recommendation with which we entirely disagreed.
Before I finish, I would like to touch on two aspects that were not included in the committee's recommendations or in representations by the Liberal caucus, although the red book, their major source of inspiration, mentioned two measures that could very well have been included among the committee's recommendations.
The first measure was the elimination, as planned in the red book, of personal guarantees under the Small Business Loans Act. The Liberals had promised to get rid of this provision under the Small Business Loans Act; so that personal guarantees could be used to obtain loans from other sources. The Liberals conveniently forgot a promise that would have been a great help to small entrepreneurs.
A second and more substantial measure was a commitment by the Liberal Party of Canada to establish an industrial investment fund to the tune of $100 million, four times $25 million, Mr. Speaker! It was made quite clear during the election campaign that the money would be there, and the mood was very optimistic. Strangely enough, very little was said about this in committee: no recommendation on the allocation or use of such financing, of this amount of $100 million.
We can only hope that, if the matter is ever raised again, the $100 million or $50 million-which is more likely-will not be spent on a new program within a new framework but within an existing framework and especially one that already exists in Quebec.
On a more personal point, something was left out, something I myself recommended which was considered for awhile but, unfortunately it was dropped from the recommendations. It is common practice among banks, and I know this from personal experience, that when a business is in trouble or proves to be a bad risk, the lender has the right to have an outside firm go and check the financial status of the business. It does this at the request and for the purposes of the bank, which bills the individual, who is already in trouble, for the expenses incurred.
This means that the borrower is hit with a so-called double whammy: he is already in financial difficulty, and then he gets the bad news when this outside firm comes, not to further his interests but those of the lender, and in the final instance charges a fee that is often quite substantial and may mean the difference between survival or going under altogether.
I had suggested that responsibilities be at least shared if they could not be completely assumed by the lending institution. This was under consideration for a while, but it does not appear as a recommendation in the final report. Personally I deplore it.
In concluding, I would say that we must always keep in mind that when we talk about small and medium sized businesses, in Canada, we are talking about 900,000 small organizations, a good third of which are located in Quebec; this is more than just a number, it is something we should never lose track of. Small and medium-sized businesses are our hope for the future. If they flourish, the economy in Canada and in Quebec will benefit. If they vegetate, so will our economy. I hope that the report will help improve the situation as a whole.
I would like to point out that regional economic development is a provincial jurisdiction to which Quebec is deeply committed. The Canadian government should always keep in mind that, when it deals with regional development, it must be in a supportive role, not as the driving force.