Madam Speaker, it is a pleasure to rise in the debate on this very interesting motion. In some ways it sounds very good in principle. In another sense, I have great difficulty with it.
I would like to review some of the provisions of the Small Business Loans Act itself and what it is doing. I noticed the hon. parliamentary secretary to the Minister of Industry alluded to the exposure of the government and the liability that is incurred on behalf of the government for the people of Canada under the Small Business Loans Act. It is rather substantial. Last spring the $4 billion ceiling was increased to $12 billion, which is a threefold increase. It is very interesting that at that time the government's liability was 90 per cent of that $4 billion, which works out to about $3.6 billion. That costs roughly $100 million a year in terms of the non-payment or the defaults on various loans.
The current amendment proposes to reduce the liability for the $12 billion ceiling to 85 per cent, which still means a liability for the government of approximately $11.2 billion or $11.3 billion. If that proportion of $100 million goes with a $4 billion ceiling, this could now go to $300 million with this new ceiling, which is pretty substantial. We have to be very careful about this.
We have to recognize that Professors Haines and Riding did a very interesting study about small business loans and what happens. The cap of the individual borrower under the Small Business Loans Act is now $250,000; it was $125,000. The ceiling or the size of the business has increased. It was limited to any business that had $2 million or less of sales on an annual basis. The new ceiling goes up to $5 million.
It is very interesting what this study of Haines-Riding showed. It showed that businesses below the $2 million ceiling had a default rate of somewhere between 7 and 8 per cent. Those with sales between $2 million and $5 million had a default rate of 14.7 per cent, which is much greater.
We can see the exposure under the new provisions, under the new ceilings, are rather interesting because they increase the risk to which the government has exposed itself.
To combat that the bill comes forward and says that there will be an administration fee. As we all know there is a 2 per cent registration fee right off the top which is added to the principal. Then there is a 1.75 per cent fee in terms of cost to make the costs of defaults and various other administrative items recoverable. It was not good enough that it resulted in a $100 million loss. That has been increased by another 1.25 per cent which means a total of 3 per cent. The 1.25 per cent can be recovered in only one way, and that is through interest rates.
The earlier situation was that the Small Business Loans Act used the prime rate that could be increased by 1.75 per cent. It went up to 6.75 per cent. Now it is 3 per cent above prime, which means that we will probably run the new small business loans under that provision.
To give us the context of what is happening, the liability of the government is increased under the Small Business Loans Act by about 300 per cent over what it was before. It is our responsibility as elected representatives of our constituents to protect their interests. If we are exposing their risk from $4 billion to $12 billion, it should not be delegated to the executive council of the government. It should be the responsibility of parliamentarians in the House of Commons.
The bill had the provision that it should be delegated to the executive council. We proposed an amendment. The hon. parliamentary secretary referred to the amendment in his presentation a few moments ago. It was accepted by the committee. It has now been taken out of the bill so that parliamentarians have control over fixing whether it will be 90 per cent or any other percentage. It is a real positive move for democracy.
When I look at the amendment before us I notice that it has been adulterated because it is neither fish nor fowl at this point. It is being proposed that parliamentarians in the House of Commons should not have control but the committee should have control. Admittedly the committee is made up of parliamentarians elected from all parties represented in the House. They are elected representatives of the constituents.
However when we are talking about $12 billion it is a lot of money. I do not think a committee should have the authority to make those kinds of decisions on behalf of Parliament. If we thought the executive council should not have that kind of power, it is much less that a committee of the House should have the authority.
While the direction of giving authority to the people is a good one and while the intent is noble, the way it is being proposed will not achieve what we really need. We need to recognize that as representatives who have been elected by the people we represent them in a threefold way. First, we represent them because of the party we are a member of that presented the candidates to the people. They knew we were to present certain things. I appreciate the parliamentary secretary's statement that gave us credit for the fact that the Reform Party is here to bring about an awareness of the fiscal responsibility and the need to get our house in order financially. That is absolutely superb. We need to do that.
The difference I have with the hon. member opposite is that it is not an obsession. That is a reality. That is something we have to come to grips with. It is high time that we do it just as soon as we can. If truth is an obsession it is time we were all obsessed because truth is what we need. That is the first point.
As we represent our people we have another responsibility to detect very clearly what they feel about certain kinds of issues. They want a voice and they have told us clearly that we have to get our financial house in order. That was not a mandate that we in the Reform Party said we would have, but the people told us quite independent of it being a Reform platform that it was what they wanted us to do.
Second, as representatives we actually go out and represent the people in what they think. Finally, we apply our best judgment to ordinary everyday housekeeping items where we do the things that have to be looked after.
This is a very critical and important issue. To put this into the context of only a one-industry committee is not enough. The whole House of Commons is involved in financial issues of major import affecting small business, the engine that generates about 85 per cent of new employment in Canada. It is the issue.
Also that group, especially the high tech group, is bringing about innovations to make our economy grow. There is no question that today we will move faster and faster not because we are so smart but because we bring about new innovations, new applications of new knowledge. That is what we need to do. The small business component is the absolute number one component in the economy that will help Canada grow to where it becomes a truly competitive industrial nation in the world. That is where we need to move.
I appreciate the opportunity the motion has given me to express some ideas although I oppose the motion not because we do not need to deal with small business and not because we do not need representatives of the people but because the method is wrong.