Debates of Oct. 25th, 1995

Petitions

[Peter Adams, Liberal, Peterborough, ON]

Mr. Speaker, I have a petition from the citizens of Peterborough and elsewhere in Ontario concerned about the massive spill of cyanide in the Essequibo River in Guyana, South America. They point out that the spill was the direct responsibility of a Montreal based Canadian gold mining firm called Canbior. They also point out that the safety, livelihood and well-being of some 18,000 Guyanese citizens are affected.

Therefore the petitioners call on Parliament to direct an independent inquiry into the incident in order that the Canadian residents and citizens who have a humanitarian and an environmental responsibility in this matter are informed of the steps being taken to arrange for the adequate compensation of people affected and have steps taken to ensure that necessary measures are being taken to correct this environmental disaster.

I have a second petition on the same topic, in which the signers point out that the river in question is the largest in Guyana; that it passes through the rice producing belt of Guyana, rice constituting one of the country's main exports; and that this is one of the worst environmental disasters since the incident in Bhopal.

Therefore the petitioners call on Parliament to intervene on behalf of the Guyanese people affected by sending a trained team of environmentalists to determine the nature and extent of the danger to residents and the environment, and to aid the Guyanese government.

[Tom Wappel, Liberal, Scarborough West, ON]

Mr. Speaker, I have two sets of petitions to present.

The first set contains somewhat over 500 signatures from all over Canada including my riding. It requests that Parliament not amend the charter of rights and freedoms or the Canadian Human Rights Act in any way that would tend to indicate societal approval of same sex relationships or of homosexuality, including amending the Canadian Human Rights Act to include in the prohibited grounds of discrimination the undefined phrase sexual orientation.

[Tom Wappel, Liberal, Scarborough West, ON]

Mr. Speaker, I have a second group of petitions, again from all across Canada including my riding, numbering some 800 signatures, which prays that Parliament act immediately to extend protection to the unborn child by amending the Criminal Code to extend the same protection enjoyed by born human beings to unborn human beings.

Question Passed As Order For Return

[Peter Milliken, Liberal, Parliamentary Secretary to Leader of the Government in the House of Commons]

Mr. Speaker, if question No. 215 could be made an order for return, that return would be tabled immediately.

[The Speaker]

Is it agreed?

[Some hon. members]

Agreed.

Question No. 215-

[Jim Abbott, Reform, Kootenay East, BC]

What are the names of all the Department of Justice Standing Legal Agents (including civil and criminal legal agents) as of September 1993 and as of June 1995?

Return tabled.

[Peter Milliken, Liberal, Kingston and the Islands, ON]

Mr. Speaker, I suggest that all remaining questions be allowed to stand.

[The Speaker]

Is it agreed?

[Some hon. members]

Agreed.

Motions For Papers

[Peter Milliken, Liberal, Parliamentary Secretary to Leader of the Government in the House of Commons]

Mr. Speaker, I ask that all notices of motions for the production of papers be allowed to stand.

[The Speaker]

Is that agreed?

[Some hon. members]

Agreed.

The House resumed consideration from October 24, 1995, of the motion that Bill C-99, an act to amend the Small Business Loans Act, be read the second time and referred to a committee.

Small Business Loans Act

[Pierrette Ringuette-Maltais, Liberal, Madawaska—Victoria, NB]

Mr. Speaker, it is a privilege to speak to the House today regarding Bill C-99, an act to amend the Small Business Loans Act.

This is a very important bill, because the program administered under the Small Business Loans Act has an impact on the Canadian economy. The amendments before the House today, which are part of an ongoing process aimed at reinforcing the Small Business Loans Program and making it sustainable, will help improve the climate in a sector that today generates the strongest economic growth and increase in employment in Canada, and I am referring to small business.

It is common knowledge that small businesses have become a major moving force in the Canadian economy. During the past 20 years, we have seen a remarkable increase in the number of new small businesses in Canada. That small businesses are so important is borne out by the fact that in 1991 Canada had, if we include self-employed workers, more than two million small businesses with fewer than 100 employees, an increase of 50 per cent over 1981.

Small businesses today, many of which are dynamic innovators, will help to define the future development of the Canadian economy. In fact, according to the statistics, Canada increasingly relies on the growth of small businesses to create jobs, diversify economic activities and compete effectively on global markets.

Small business has a profound impact on the Canadian economy and will remain the main source of economic growth and job creation.

That is why the present government's main priorities include ensuring that the small business sector is healthy and prosperous.

Take, for instance, the issue of access to adequate financing. As the government was told repeatedly by members of the industry committee, the ability to obtain financing by contracting loans is extremely important for small businesses. Lack of adequate financing will restrict the growth of small businesses and jeopardize the future prosperity of this country. That is why the government passed a bill that will enable the Federal Business Development Bank, once it has been restructured, to improve its response to the needs of small businesses. As a result of changes introduced by the government, the bank will be in a better position to finance innovative small businesses in the new economy.

The amendments to the Small Business Loans Act before us today were drafted in the same spirit as the changes giving a new impetus to the Business Development Bank of Canada. In both

cases, the underlying motive is the same: providing an appropriate policy framework that supports the development and prosperity of Canadian small businesses from coast to coast.

Given its broad scope for action and implementation under the act, the small business loan guarantee program plays a large role in the launching of small businesses and in other aspects of their operations across Canada. It also has an impact on similar Canadian programs.

The difficulties experienced by small businesses in securing loans on reasonable terms have been described in great detail in recent years. The extensive consultations held with representatives of both borrowers and lenders during the drafting of Bill C-99 showed that most stakeholders are concerned mainly about access to financing and not so much about its cost. As far as access to financing is concerned, both borrowers and lenders confirmed the usefulness of the small business loan program as administered under the act.

They recognized that the program was especially helpful in times of economic slowdown. With the exception of farms, religious businesses and charities, Canadian based businesses with annual revenues of $5 million or less may apply for loans under this act.

Almost every small business operating in Canada can now get a loan under the program. Loans made under the act are approved by private sector lenders and guaranteed by the Government of Canada. Loans can be as high as $250,000 but in the past most loans were for less than $50,000.

The small business loans program is an important tool to encourage lenders to provide access to debt financing for high risk small businesses, including those which find themselves in one of the following situations: they wish to borrow a small amount or obtain a start up loan; the goods that they must provide as collateral are inadequate or insufficient; they wish to obtain funds to buy new technologies or specialized material; they are active in sectors which are generally considered more risky, such as tourism, retail sales or services; they are not located in urban centres, or they are in regions which are not major economic activity centres.

Clearly, the small business loans program is important to small businesses. Since 1961, when the act came into effect, over 420,000 loans amounting to more than $15.5 billion were extended to small businesses.

Given the importance of the loan program run under the act, it was a real concern when its annual deficit increased to the point where it might have exceeded $100 billion per year. Some measures had to be taken, and they were taken. Again, this shows how the program has constantly evolved, thanks to the Canadian government's ability to implement the necessary changes.

Two major changes were made to the program on April 1, 1995. An annual fee of 1.25 per cent is now collected from each lender, on the average outstanding balance of loans granted after March 31, 1995. The maximum yearly rate which a lender can set under the program was increased by 1.25 per cent, making it equivalent to the prime rate plus 3 per cent for floating rate loans, and equivalent to the residential mortgage rate plus 3 per cent for fixed rate loans. Thanks to these changes, which will be followed by those proposed in the bill before the House, the program will be completely self financing and can therefore be maintained.

Future access to the loan program by small businesses is now basically guaranteed, but the changes included in Bill C-99 are necessary to complete the process. The bill will make it possible to complete the transition to full cost recovery and to improve the mechanisms of the program relating to borrowers and institutions making small loans.

Among other things, the bill will accelerate the coming into force of the reduction from 90 per cent to 85 per cent in the amount of the state's loan guarantee under the act; authorize the making of regulations for setting processing fees; authorize the making of a regulation on the release of securities and personal guarantees accepted by lenders against repayment of small business loans under the act.

It will also serve to improve the situation of institutions making small loans, from the point of view of applications involving guarantees; to ensure that the small businesses loans program can be adapted more promptly to changes in the program and in the economy, by allowing readjustments in the proportions of the guarantee via regulation rather than legislation.

The government is clear in its intent to support small business, which it considers the motor of Canada's economic growth. It has been pointed out to the government on numerous occasions that the best way of helping business, whether small or big, was to control the deficit. The modifications to the Small Business Loans Act are obviously proposed with this in mind.

Thanks to the introduction of a mechanism for users' fees, this program will no longer add to the federal deficit. I would like to take this opportunity to again point out the particularly pleasing fact that transition to full cost recovery has received unanimous support from all interested parties consulted during the drafting of Bill C-99, lenders and borrowers alike.

Bill C-99 will be the end point in a process which will allow a program that is already a nationwide success to continue that success. The amendments will ensure that the Small Business Loans Act remains an important mechanism for implementing government policy in order to foster the growth of small business across this great land of Canada. These amendments merit the full assent of the House of Commons.

[John Williams, Reform, St. Albert, AB]

Mr. Speaker, I listened to the member for Madawaska-Victoria's speech on Bill C-99 which of course was a Liberal point of view. It was just a reiteration of what she has been told to say by the government frontbench. The things she was saying do not seem to make a lot of sense to me.

The hon. member talked about how the government supports small business. Then she went on to say that the new user fee mechanism will no longer contribute to the deficit because the program is going to be on a full cost recovery basis. The reason the government was putting it on a full cost recovery basis was its concern and desire to try to balance the budget.

I agree with the government's desire to balance the budget but typically, here we are again; the government is going to do it on the backs of private enterprise. The Liberals are going to charge the businesses that borrow money under this act an excess premium on the interest rate. This money will be put into the government coffers and will be channelled through a bureaucratic system to reimburse the lenders that make the bad decisions and lend to small businesses that cannot under whatever circumstances repay the loan. If the Liberals are concerned about supporting small business, why are they doing that?

Some private sector businesses are going to reimburse the losses of other businesses. It will not cost the government one single nickel under this process, yet the hon. member says that the government supports small business. There are two contrary situations here. I would like to hear what the member has to say.

[Pierrette Ringuette-Maltais, Liberal, Madawaska—Victoria, NB]

Mr. Speaker, I am pleased with the question put forward by the hon. member. Notice that the question is consistent with the third party policy of double talk. I have been here for the last two years and I have listened to the hon. member and his colleagues from the third party in this House talk about the fact that businesses in Atlantic Canada were receiving grants here, there and everywhere.

I am talking today about the federal government taking its responsibility toward the small and medium size businesses throughout this country. We are making sure that as responsible politicians, as a responsible government, we can provide the right environment and opportunities from coast to coast to coast for small businesses to create jobs, to look forward to competition and to make sure they can get ahead and increase exports. The member is saying that we do not know what we are doing.

On the one hand Reform Party members are saying to cut grants, cut everything, to even cut health care. Now they rise in this House to say it is not proper for us to make sure there is security for small businesses to have access to capital and on the same wavelength to have access to exporting their technology.

For nine years I have heard political questions in the New Brunswick legislature and in the House of Commons, but I have never heard double talk to this measure from an hon. member.

[Dennis Mills, Liberal, Parliamentary Secretary to Minister of Industry]

Mr. Speaker, I congratulate the member for Madawaska-Victoria for her intervention today on behalf of small business. She has shown great leadership in the last two years for small business in her community.

No one in this House will ever forget the member for Madawaska-Victoria's very first intervention on this floor two years ago when she said: "We will be a government that is lean but not mean". Reform Party members obviously heard her say that but they do not understand where she was coming from.

Reformers forget about some of the great wins Canadians have experienced from Atlantic Canada in terms of business enterprise.

I want to talk specifically about a very small business which received a bit of help in 1979-80 from a Liberal government. I was there. It received about a $4.2 million grant.

[John Williams, Reform, St. Albert, AB]

Sounds like patronage to me.

[Dennis Mills, Liberal, Broadview—Greenwood, ON]

It was not patronage. I remember the principles of the country tended to be more Liberal than anything else.

It was the McCain organization. That very small business has grown to be one of the absolute jewels of industry not just in Canada but throughout the world. It has expanded its business not just in Canada but all around the world. It has created jobs and developed technology.

The Government of Canada got its $4 million back within the first year. Since 1980 we have probably received 100 times that amount in taxes and job creation.

Reform members really irk me from time to time. They talk about the importance of entrepreneurship. They talk about the importance of enterprise having a proper environment to get the job done. Most of them come from western Canada. Companies in western Canada receive the biggest grants of all, especially in the oil and gas sector. They are given grants which are buried in the tax act. Those tax grants are no different than direct cash grants.

I support the thrust of Reform Party members when they talk about cleaning up, simplifying and developing a fairer tax system.

However, they cannot take a cheap shot at an act of Parliament that is trying to help small business without realizing they are giving tens of millions of dollars worth of grants to businesses in their ridings through the tax act.

[Pierrette Ringuette-Maltais, Liberal, Madawaska—Victoria, NB]

Mr. Speaker, I thank my colleague for his remarks. Bill C-99 is obviously another example of the way our country is constantly changing. The government cannot create employment as such, but we have a responsibility to create a suitable environment for the development of small and medium size business in Canada, right across the country, from Atlantic to Pacific.

I consider the bill to be a responsible way to meet our obligations to the people of Canada, including the people of Quebec.

[English]

[Alex Shepherd, Liberal, Durham, ON]

Mr. Speaker, I am pleased to speak on Bill C-99, an act to amend the Small Business Loans Act.

I believe it is the responsibility of governments to create an environment in which businesses can flourish. This is where most of our jobs will be created. On the history of job creation in Canada in the last year, 90 per cent of all new jobs have been created by small and medium size business. It is interesting to focus on this because this is small business week. Of these 200,000 jobs, one-quarter were created in the province of Quebec; 48,000 new jobs were created by small and medium size businesses.

I talked about creating an environment in which these businesses can flourish. There are two aspects that create a stable environment in which small and medium size businesses can flourish and be effective in their operations of creating new and challenging jobs for a new generation of Canadians.

These two areas are access to capital and access to stable markets. The area of access to capital deals pretty much with the meat of this bill. We have been told time and time again by some of our critics that we must make government more efficient, that we must find ways of cutting costs.

The bill recognizes the federal government was in the position of picking up bad debt losses created by lending practices, loaning to some of these businesses which obviously failed.

There is nothing unusual about that. It is not a calamity. It is not a disaster. The loan loss rate within that program was somewhere between 2 per cent and 4 per cent. This is quite normal in the banking industry.

Basically the Small Business Loans Act attempts to create a federal government guarantee which encourages financial institutions to loan to small and medium size businesses.

Some may ask why these institutions do not do it without the guarantee. Most of these loans were for capital projects. Our financial institutions for a variety of reasons have become very much short term lenders. They lend on the strength of things like accounts receivable and inventory, things they believe they can quickly liquidate.

When a small business is setting up it needs manufacturing equipment, possibly delivery vehicles, whatever the case may be, equipment that has a long and useful life, but it also clearly takes a long time to pay off a loan based on the income flow from that.

Banks have not always been as active as perhaps they should. Small or medium size businesses, which are sometimes emerging businesses, also have instability to some degree in their financial records.

Quite often banks, being very conservative lenders, are looking for a long track record. Our emerging industries today do not necessarily have a long track record. Consequently they may have one or two-year financial statements and so forth but the banks are very cautious. They would rather loan to governments than to businesses.

It has been necessary for the government to recognize there are inequities within our capital markets and create a program that will attract financial institutions to loan to small businesses to get them established and create jobs.

It is no small miracle that the government can claim some responsibility for these 200,000 new jobs created in Canada in just the last year because at the same time we have witnessed the increase in the small business loans program. This program loaned $500 million prior to 1993. That moved up to $2.5 billion in 1993-94 and to over $4 billion in 1994-95. That kind of tremendous growth shows the demand in the small business sector for this kind of lending.

If we take our loan loss provisions of 2.5 per cent roughly and move them through that increase in volume we will see it is possible the government could be facing loan losses of $100 million.

What has the government done? It has recognized it should do, not unlike what any financial institution would do, and build that cost into the lending provisions. Essentially it has created a fund as part of the application fee, a new 1.5 per cent fee added to the cost of borrowing this money and then it is spread out over the term of the loan in order to provide for as much as $100 million of loan losses.

All banks do this. All financial institutions carry on this way. It is not unusual. I am surprised the third party takes some exception to this. Small business people understand it. We realize even when we go to our local supermarkets to buy consumer goods that within the cost of purchasing are things like theft. There are other provisions for products that go bad and so on. That is the normal course of business.

I commend the government for getting its economic house in order by recognizing, as small business people do, that it cannot be responsible for all small business ills. The government has created a situation in which small business can get access to capital. That is really the whole point of the Small Business Loans Act, to provide access.

I served on the industry committee which produced the report "Taking Care of Small Business". Over and over we heard from small and medium size businesses that their major concern and problem was access to capital; not so much the cost of the capital but the access.

In some of the provisions we talk about increasing the lending interest rate from prime plus one to prime plus three. Emerging businesses do not like to pay more interest than they have to but realize that a 1 per cent or 1.5 per cent increase in interest rates is still well worth it to them to get this seed money to get themselves established.

When I talk about access to capital it is interesting also to note capital markets. What has happened with our debt and deficit situation is many governments are competing in the marketplace with small and medium size businesses for capital. This is why we have to get our debt and deficit under control and why I am happy the government is very much on that course and on a target to effect that.

In Quebec a referendum is due next week. Quebec borrows something over $70 billion. That is the size of its debt right now. Interestingly, 54 per cent of it is financed outside of Canada. It seems odd that we are going through the process of a referendum in Quebec which costs $66 million, as stated in La Presse recently. By extrapolation almost $35 million of the cost of the referendum will have to be borrowed from people outside of Canada to ask the people of Quebec whether they want to be an independent country. It seems ludicrous.

That is the problem of the capital markets. I would like to address the issue of markets. Clearly, the small business man or woman is not just looking for capital for machinery. He or she needs a market to serve.

There has been much talk about the globalization of our economy and the need to have easy access to markets. Indeed, agreements like the North America Free Trade Agreement and the GATT address that cause.

A recent study by the OECD on the whole aspect of small and medium sized business is very interesting. The European Union and other members of the OECD are very interested because all these countries recognize that small and medium sized businesses are going to be the employers of the future. In a recent report, I believe from October 1995, they said: "Sudden national economic growth will be enhanced if government policies are co-ordinated and targeted so that they strengthen and reinforce regional and local systems. This should improve the conditions that encourage new and small firms."

While we are talking about these markets, once again we are talking about a debate that is going on in the province of Quebec that would basically balkanize those markets, would create barriers to markets, would make the markets much smaller for these 48,000 people who are employed in small business in Quebec, because a nation defines its markets within its political boundaries and operates within those political boundaries to its own best interests.

I am trying to say that the bill is very much a necessity and should be supported. More importantly, some of the debates that are going on within our country today are simply ludicrous. I am talking specifically about the referendum in Quebec. It will create more barriers for small and medium sized businesses. The ability to create new and challenging jobs within Quebec and to some extent in the rest of Canada is going to be adversely affected by that process.

In conclusion, I would like to say that I am very supportive of the bill. I am certain that the small business community is also very supportive, understanding, and respectful that the government has taken the initiative to continue this program to increase the volume that is available to small businesses. I am sure we will see creation of more new jobs within our economy in the near future because of it.

[Dennis Mills, Liberal, Parliamentary Secretary to Minister of Industry]

Mr. Speaker, I want to compliment the member for Durham on his remarks. I especially want to thank the member for Durham for all his work in committee during the last two years since his coming to the Parliament of Canada.

One reason we have had such success and why I believe small business is heading in the right direction is because our team of Reform Party members, the Bloc, and Liberals all worked together on the committee to try to make sure we had a fist when we went to the banks and other financial institutions as we were pleading for help in accessing capital for small businesses.

My question for the member has to do with start-up. In his experience as an accountant helping small businesses deal with banks, does he not think that one area we are going to have to do a lot more work on is making sure that the attitude and culture of

bank mangers changes dramatically toward people who are starting businesses, versus people who have been in business for a long time?

With all of the downsizing going on in both large businesses and governments right now, we have many people who are starting a business for the very first time. In order to really achieve success they are going to need help from financial institutions in this country. I believe that banks are going to have to change their attitudes dramatically for start-ups.

I wonder if the member for Durham, who is also an accomplished accountant in his field, could comment on that.

[Alex Shepherd, Liberal, Durham, ON]

Mr. Speaker, I would like to thank the member for Broadview-Greenwood. I have always been interested in what he says. We do not always agree 100 per cent of the time, but basically our orientations are in the right area, which is to increase capital for small and medium sized businesses.

The member is absolutely right. Banks in this country have forgotten just what they were doing. Banks originally started off many centuries ago investing in ideas. They invested in people's grey matter. They invested in their ideas about making life better and increasing people's standards of living. I have noticed that banks now invest in financial transactions. Our banks in North America are very oriented toward paper currency transactions. Indeed, I think if we were to study the balance sheets of most of our banks we would see a high percentage of their assets being held in government securities, et cetera. This has become a linkage in the global environment.

The reality is that these debts and financial instruments do not do anything. They do not create any more jobs. They do not create or take a piece of technological science and turn it into something useful.

What do we see in North America? We see people like Bill Gates, who had to work out of his garage to get his ideas going. People have to go and find others who will give $50 to buy so many shares and maybe later on some of that will come back. The banks say that sounds pretty wild.

I have a specific example of this in my own riding. I had the pleasure only last week of congratulating an entrepreneur for winning the Canadian woman entrepreneur of the year award in the area of export. This woman many years ago was my client. She was making strips of fur and putting them on strings. I must admit that even to me it sounded ridiculous at the time. What she did with that was to create a reversible fur coat. I went to various banks for her, and they said: "What are you going to give us as security, strips of fur? Get out of here." Do you know who finally picked up this account? It was a bank from England, not a Canadian bank.

That woman today employs hundreds of people. It is a small business in my riding that has given jobs in basically a rural area. Her product is shipped all over the world, mainly to Japan and Southeast Asia. She is creating jobs and hard currency exchange for our government and our country without the support of banks.

Yes, the member is absolutely right. This whole attitude in our banking system has to change. We have to get on board and support our small and medium business sector.

[John Williams, Reform, St. Albert, AB]

Mr. Speaker, I have one simple question I have asked of other members. It is on the full cost recovery being put forward by this particular legislation.

The hon. member for Broadview-Greenwood talked about the fact that small businesses needed the impetus available under the Small Business Loans Act. But here they are being asked to pay for something they think they are getting from the government. Small business people who borrow under the Small Business Loans Act are being asked to pay for absolutely everything, every benefit that is being provided under the Small Business Loans Act, which seems to me a big circle of laundering the money through the government. I would like the member's response as to what benefit this will really provide to people who are borrowing under the Small Business Loans Act.