My worthy opponent says of course it did. He comes from one of the banks that was not represented by those other two, so I suspect he would agree.
The cost of administering the program exceeds two per cent of administration, which is another problem. At the present time the Small Business Loans Act tacks onto the loan a two per cent administration fee, which becomes part of the principal and can be amortized over the length of loan, or I suppose the individual can pay it off up front if he wishes to do so. In any event, the two per cent is not sufficient to cover the loss or the administration of the loan.
The third point is institutional loans. Under this provision it suggests the loan level is rather high in this way of doing business between financial institutions and their various lenders. I want to draw the Haines-Riding study into this a little later in my remarks, when I will get into this in more detail.
I now want to go on to the specific provisions of this act as it is before the House today. The first of these is the reduction of the government's liability from 90 per cent to 85 per cent. In other words, the loan guarantees are now no higher than 85 per cent of that loan. That is one provision.
The second provision, which we should all pay very special attention to, says that future changes to the rate of the liability of government are transferred from Parliament to cabinet. This means that in the future the liability that will be incurred by this government and will rest upon the shoulders of every Canadian who pays taxes will be decided not by the people's representatives but by the cabinet. I think that is an abrogation of democratic responsibility. I want to take very strong exception to this. In fact I want to introduce right here the notion and the statement that the Reform Party will not support this bill on the basis of that provision alone. Unless an amendment is made to withdraw that provision and that transfer of power from the Parliament to the cabinet, we will oppose this bill, even if we would agree with everything else in the bill. We do not agree with everything else, but that is sufficient in my opinion to oppose the bill in its entirety.
Why do I take such a strong view of this? This is a democratic country. This country is based on the principles of democracy, which means that the people in this House who are elected to represent the Canadian people have been elected to look after the best interests of those people who have elected us. That means we should represent them as honestly as we possibly can, and do so fairly, justly, and equitably. That is what I was elected to do.
This kind of amendment takes away the right of parliamentarians to represent their people on the floor of this House. That is wrong. It is wrong in principle. The time has come for us to take very strong exception to this kind of amendment.
We all know that within the platform, the philosophy, and the principles of the Reform Party of Canada we stand for precisely the ability to represent our people. We want more free votes in this House. We have had some examples of free votes in this House, and the government is to be commended for those few instances. However, the government is to be severely chastised for those moments when its members did exercise their free vote and were punished for doing so. That is a fault, a blemish on this government's record in terms of its democratic principles and the application of democratic decision making.
We talk about a referendum. There certain instances when every person in Canada should exercise their right directly and immediately not only at the time of exercising a ballot in favour of a particular person but also in favour of major social, ethical or moral issues on which they feel very strongly and about which the majority should decide what the issue in Canada ought to be.
One which has been well publicized is capital punishment. We go on from there as well. There is the other place, the Senate of Canada, and we believe there is also responsibility that it be democratized; that the individuals who sit in that chamber to provide and exercise sober second thought be elected and that they fairly and accurately represent the various regions of Canada so there can be fair representation not only by individuals but by the various regions of Canada as well.
Therefore within that framework of deep philosophic orientation we oppose the provision in this bill which would amend the act in such a way that the power moves from the House of Commons, the Parliament of the country, to the cabinet.
Another provision is the application of an annual fee of 1.25 per cent to the administration of a loan, the outstanding balance, paid by the lender. It is very interesting how this fee is to be administered. It is to be paid by the lender and the lender may not recover the cost of that 1.25 per cent except through an increase in interest rates.
It is interesting what the act does. The earlier limit on the interest rate was 1.75 per cent above prime. The amendment proposed says the new limit is 3 per cent above prime. It does not take a mathematical genius to add 1.75 and 1.25 and come up with 3, which now means very clearly that the bank or any lending institution may increase its interest rates 3 per cent above prime and thereby recover its full 1.25 per cent. That is what this provision is.
Another provision provides for a claims processing fee. When we ask the various department officials how much that fee will be, when will it be applied, under what conditions will it apply, will it be a standard fee across any loan, will it make any difference, they say they do not really know because they have not yet decided whether they will apply such a fee.
Why does the act have this provision in it? They might want to recover certain costs associated with claims. That is very interesting but it begs the question of what kinds of conditions must a lending institution meet in order to avoid being assessed a claims processing fee.
There is absolutely no provision in the act that would suggest the parameters, the guidelines, the details under which a claims fee would be applied. It is dangerous when we have open ended legislation of that kind when nobody knows how much, nobody knows under what conditions, nobody knows under what guidelines it will be applied.
I was absolutely astounded when I read this. When we got the briefing, it sounded very different. When I went back to the actual act I discovered that really the slant was quite different. I want to read this exactly as it is written. Section 4(1)(e.1): "The minister may prescribe the terms and conditions on which a lender may release any security, including a personal guarantee, taken for the repayment of a business improvement loan".
We were told in no uncertain terms that this dealt with guarantees, the actual phrase being personal guarantees. I can see where a small businessman getting started who becomes a little bit desperate will actually provide a personal guarantee. He will say: "Here is my house and my personal effects. I will stand good on a personal basis for this part of the loan". When half the loan is paid the lender says he will now take the personal guarantee away.
That is only one small part. It includes the release of any securities, which includes anything else. It could be a facility, a building, equipment, land, a variety of things. If there is a loan outstanding of $250,000 and half of it is repaid, that is a $125,000 liability. If at that point the lender can now release security, where is the security left for the balance of that loan? I can see the understanding that it goes to the personal guarantee because the building is probably worth the $125,000, but if the lender cannot take that off too and the act allows him to do that then I ask myself what kind of protection there is for the Government of Canada on the hook for the guarantee of 85 per cent of that loan.
So much for a review of the particular provisions. There are some issues we should be aware of. I referred earlier to the Haines-Riding study from Carleton University in Ottawa. It makes some very interesting observations. I think we should go back into history a little. The Small Business Loans Act up until this point had a ceiling of sales of $2 million; in other words, a business that
had sales of more than $2 million would not qualify for the SBLA loan. Under this act now that level is $5 million.
The Haines-Riding study shows very clearly that businesses with sales of $2 million or less have a much lower failure rate when it comes to the repayment of loans than those with sales between $2 million and $5 million. The differential between those loans is a failure rate increase of 14.7 per cent. That is pretty significant.
We need to combine that with the increase in the amount of loans outstanding as well. In the past the maximum SBLA loan one could have was $150,000. That has now increased to $250,000, which means, although we cannot say for sure, if the size of the business and maximum loan has increased we can conclude the loss rate will increase proportionately. Therefore if it costs $100 million now on an annual basis to run this program what will it be under the new provisions? I think the answer is very obvious. It will be higher than it is today.
That brings us into a very serious conundrum. On one hand we have an act that is supposed to build and encourage businesses. It will do that in a variety of cases. It should then generate more tax revenue and things of this nature which would then increase the economy of Canada and everything would roll along more smoothly than it did before.
The maximum of the SBLA loan ceiling has now moved from $4 billion to $12 billion, a threefold increase. If it now, under the $4 billion ceiling, runs at $100 billion, what will it do under the $12 billion? If the proportion remains constant it will also be a threefold increase. We cannot afford that.
The national debt is somewhere around $560 billion, growing at about $1,000 per second. About $45 billion to $60 billion is paid out in interest, much of which is foreign currency denominated. With the Canadian dollar being where it is today, can anyone imagine what this is doing to our social programs? That is why we are in trouble with the health care system. That is why we are in trouble with transfer payments. That is why we are in trouble with welfare payments. That is what makes this kind of bill questionable.
Yet people say they were told at the beginning that 80 per cent to 85 per cent of the new jobs are created by small business. Right. Should we not encourage small business? Right. Should not our government programs to the greatest degree possible be self-financing? Right. This bill is supposed to do all those things.
If it does that, then we can support that. However, we still want to go back to the earlier point I made about this democracy. That is absolutely at the heart of this issue and we cannot, we dare not allow that to get in the way of implementing this bill.
I want to address one final point, competition. I want to read a very extensive point made very effectively by our study on small business. We were told by Mr. Doug Robbins of Robbinex that financial institutions are increasingly using the Small Businesses Loans Act-get a load of this-to finance assets, for example cars and trucks, that are able to obtain financing without a government guarantee.
Data provided by the Scotia Bank on its small business lending portfolio show that SBLA lending is more heavily concentrated in areas of transportation by as much as 25 per cent than the bank's total small business lending portfolio in which transportation and communication lending represents only 6 per cent. The representatives of Newport Credit and the Canadian Financing and Leasing Association, specializing in asset based financing, told the committee they are having difficulty competing with lenders who benefit from government guarantees.
Since when has the government become that great and wonderful arbiter to determine winners and losers in the marketplace? The government has no business getting into this area. If a business cannot succeed in the marketplace it should not be there. That is the part that bothers me more than anything else in a bill of this kind, this orientation. We need to recognize this is not a simple, easy answer to our economic problems.
The committee received conflicting views on the future of the Small Businesses Loans Act as well. It was suggested the act be expanded by extending it to working capital. Neither the Small Businesses Loans Act nor this bill does that. It was also suggested that it be restricted by focusing on rapidly growing business that enhances the country's knowledge base and generates skilled employment, which we already talked about.
With increase lending comes increased taxpayer exposure. We have already dealt with that. This amendment, although it goes part of the way, does not go all the way. It should go further.
The committee suggested we reduce the percentage of government guarantee, which has been done, reduce the percentage of assets that can be financed, and reduce the maximum loan amounts, which the bill does not do. In fact it goes in the opposite direction. It doubles the exposure that would have been happening under the act as it is now.
The bill has numerous shortcomings like releasing securities, any kind of securities as well as personal guarantees. We need to be very clear and an amendment is needed in this area.
This bill also increases the liability of government even though the minister stood up in the House and said the bill, because it is a self-financing or a cost liquidating kind of a program, does not increase the liability of government. I dare suggest the experience will show that it does increase the liability of government. If it does
not increase the liability of government then I ask the minister whether there is any need for a program of this kind.
Let me emphasize once again that the most serious flaw in the bill is that it disenfranchises parliamentarians. It moves the authority to make decisions and obligations on behalf of the people of Canada from the House to the cabinet. That is wrong. Democracy must never be denied.
I reiterate that unless that provision is removed from the bill we will oppose it.