House of Commons Hansard #157 of the 36th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was businesses.
Canada Small Business Financing ActGovernment Orders
The Acting Speaker (Ms. Thibeault)
Pursuant to agreement made earlier, all motions in Group No. 2 are deemed put, recorded divisions deemed requested and deemed deferred.
The House will now proceed to the debate on the motions in Group No. 3.
Pursuant to order adopted earlier today, the motions in Group No. 3 are deemed to have been moved and seconded. This group contains Motions Nos. 6 and 11.
Jim Pankiw Reform Saskatoon—Humboldt, SK
moved:
Motion No. 6
That Bill C-53, in Clause 8, be amended by replacing line 26 on page 5 with the following:
“(a) 50%, or any prescribed lesser percent-”
Motion No. 11
That Bill C-53, in Clause 15, be amended by replacing lines 20 to 22 on page 9 with the following:
“15. (1) The Minister will routinely conduct an audit or examination of the”
Gurmant Grewal Reform Surrey Central, BC
Madam Speaker, I am delighted to lead the debate on the Group No. 3 motions. Before I do that, I would like to show my disappointment and that of other opposition members. We had an agreement that we were going to move to Group No. 3. The government knows there are more members who want to speak on this bill, however the government has put time allocation on this bill.
Walt Lastewka Liberal St. Catharines, ON
Madam Speaker, I rise on a point of order. We were going to spend time discussing the motion directly. This was put by the member from the Reform Party. If my memory serves me right, the previous 25 to 30 speakers did not speak on the motion but decided to speak on the whole general bill.
Canada Small Business Financing ActGovernment Orders
The Acting Speaker (Ms. Thibeault)
We are getting into debate now. I would ask the hon. member to please focus his remarks on the debate.
Gurmant Grewal Reform Surrey Central, BC
Madam Speaker, I was leading into the debate but I wanted to show my disappointment that the Liberal government has used time allocation or closure 44 times since it came to power. We have more speakers. I was sitting here waiting for my turn. More speakers are coming up and they will be disappointed.
Getting back to the bill and the group of amendments, I have read the bill very thoroughly. I attended the auditor general's briefing on Bill C-53 and the Small Business Loans Act.
From the beginning I have been addressing the issues on Bill C-53 and the particular amendments. I addressed this bill at the first stage. I proposed right from the beginning certain amendments or recommendations and I am very delighted to speak on those recommendations.
Group No. 3 contains two motions, Motion No. 6 and Motion No. 11. Motion No. 6 deals with clause 8 and Motion No. 11 deals with clause 15. I will go over these clauses separately. These amendments are put forward by the official opposition. I am very delighted to speak on them and I will support them.
Clause 8 deals with the liability of the minister. We are proposing that the liability should be reduced to 50%, or any prescribed lesser percent. The rationale behind that reduction of the liability of the government is that lowering the percentage of the government's liability for a defaulted loan means that the lender must also assume a larger portion of any loss. By lowering the government's liability from 85% to 50%, the lender also assumes a greater risk in making the loan. In fact the risk would be equally shared.
The default rate under the old Small Business Loans Act was nearly 10 times higher than that in the private sector. This bill does not provide an adequate review of risk analysis. There is no provision for losses. Borrowers are not guaranteed but financial institutions are guaranteed. If bad decisions are made by the financial institutions, they are guaranteed.
Furthermore the bill does not put a mechanism in place to prevent financial institutions charging administrative fees when small businessmen go to them for loans. They should not be charging a fee in the first place but the auditor general has reported that they have been charging a fee in the past.
By lowering the government's liability from 85% to 50%, it will be the lenders who will be given more responsibility to share the risks.
The auditor general has noted various cases where major borrowers were able to obtain numerous loans with totals exceeding certain limits because they were operating the same businesses. In one group, 23 related corporations obtained more than $4 million in loans.
This practice are contrary to the intent of the act. Currently there are no provisions under the Small Business Loans Act to prevent this practice, even though such rules exist under the Income Tax Act. That act has provisions designed to limit access to the corporate tax rate for small business and to prevent abuse by the creation of a number of related corporations. The government needs to address that issue more rigorously in the bill.
I am delighted to support Motion No. 6.
In Motion No. 11 we are making an amendment in clause 15 which deals with the audit or the examination of various files. We are recommending that lines 20 to 22 on page 9 of the bill be replaced with “the minister will routinely conduct an audit or examination of the” files.
Industry Canada does not audit any account until the file becomes a claim file, which is absolutely wrong. It should audit files that need to be audited.
The rationale in putting forward this recommendation is that as presently worded Industry Canada officials must give written notice to a lender before conducting an audit of the lender's records or documents. This change would allow officials to conduct an audit routinely. Moreover, they could do so whenever they desired. It would ensure federal accountability in the process.
The December 1997 auditor general's report highlighted examples where lending institutions have not exercised due care in making a loan. In short, better auditing provisions need to be in place and it becomes very important that we deal with these issues.
Industry Canada introduced a policy of full cost recovery for loans issued after April 1, 1995. The department reduced its loss sharing ratio from 90% to 85% and imposed on lenders a 1.25% annual administration fee. According to Industry Canada projections, these modifications to the program should result in full cost recovery over a 10 year period.
The auditor general has reservations regarding the department's ability to move toward full cost recovery, noting an increased proportion of riskier loans in its guaranteed loan portfolio.
An internal study undertaken in 1997 by the department confirmed a significant increase in risk in the program's loan portfolio, stating higher default rates which are occurring earlier in the life of a loan. As a result, the auditor general urged the department to undertake greater efforts to develop systems and practices to better evaluate program performance in order to assist in monitoring loan portfolio risk so that smaller businesses get the benefit from this whole program.
The auditor general recommended that industry take steps to ensure that lenders have complied with the regulations of this act. It was found that some loan files did not contain the information necessary to perform a total credit risk analysis.
This bill does nothing to address the shortcomings of the audit process outlined above. It is likely that the same criticism levelled by the auditor general in this regard will continue. As a part of its review, Industry Canada does not assess whether the lender has exercised due care when making a loan.
The amendments would make the process more accountable. The auditor general's recommendations would be in place. Small businesses would be getting the advantage, not the large businesses.
Ken Epp Reform Elk Island, AB
Madam Speaker, again it is a pleasure to speak on the very important topic of the well-being of small business in Canada.
I would like to say something very obliquely about the whole issue of closure. The government uses that technique in order to stop the debate. It wants to have the bill finished, in this case today, and it is at a loss to try to persuade us to pass the bill really fast. We want to discuss it and see whether we can persuade the government to make some amendments. This is very important to us. I believe that we represent the well-being of the taxpayers much more than does the government side. It is important for that point of view to be stressed.
We are talking about the government's inability or lack of desire to seriously consider our amendments. If the government would say that the amendment makes a lot of sense and that it would go along with it, that would be the end of the story. We would not have a long debate. It would not take a whole week of debate to come to a conclusion.
However, the government says “It is our way or the highway. We are the only ones who know perfectly how this should be done”. That is not an accurate assessment of the government's abilities. Undoubtedly the government has very capable members of parliament but their ability to represent their constituencies is severely hampered by the fact that they do not have the freedom to vote according to the wishes of their constituents, even on amendments to a bill. I cannot understand that. I want that to be changed.
This group of amendments has two very important components. One is Motion No. 6 put forward by one of my colleagues. This is an amendment which protects the people who earn the money, the taxpayers.
It has already been alluded to that some people and some small businesses are concerned because as taxpayers they have to pay their taxes both as individuals and as businesses. That money is taken by the government whether they want to give it or not. It is not a voluntary fund. It is not a charity.
It is not a case of somebody from the government or elsewhere coming to the people in the little towns which I represent and saying “There is a person in your town who wants to start a business and we would like to give them a little bit of help. They are just not quite solid enough to qualify for a loan from the bank, so we would like to give them your money. How much money would you like to give them?”
In the event that the person has a solid business plan, a good reputation in the community and is not seeking to undermine by direct competition a business which is already in that town, then perhaps the individual business person would say “Yes, having this business in my town is going to be helpful. I trust this person. I will give you a cheque for $500 to help”. That would be a voluntary way of collecting this money, but that is not how it works.
When the tax man comes, it is not a voluntary donation that we make. The tax man reaches into our pockets and takes our earnings, against our will in some cases. Certainly it is true in my part of the world that most Canadians whom I speak to are quite happy to pay a reasonable level of taxation. However, in this case, that money to be taken is to be given to another business person. We are taking money away from those who are successfully earning it and giving it to others in the hopes that they will also earn it, which is not entirely a bad premise.
However, statistics show that many of these small business people who get started have a much higher than average rate of default. I guess that is to be expected because not everyone's good dream will come to fruition. Some people unfortunately will not be able to put their dreams into action and things will not quite work out the way they wanted them to. That is why ordinary banks and lending institutions will not advance the money to them. Hence they come to the government, to the taxpayer.
The amendments we are proposing are reasonable. They are probably going to be rejected by the government. Instead of listening to reasoned debate, the government would rather call all its members on command to stand up and vote for time allocation so we cannot talk about it.
We will vote on these amendments and the government will say to vote against the amendments. All the individualized robots will stand up when their strings are pulled and say that they are against the amendments, without having heard the arguments, without having heard the reasoning. Meanwhile, it all comes to an end and the taxpayer gets to pick up the bill.
I am talking about these two amendments, the first of which says that the liability that the taxpayers should pick up should be restricted to 50% of the loan. This has two effects.
The first one is very important. When a loan is granted under this program, the bank or financial institution administering it on behalf of the government will be a little more careful. It is too easy right now to say “We will decline you. Go to the Small Business Loans Act people and they will give you the money”. The banks and other institutions basically cut their potential losses but they cut them at the expense of somebody else.
I have discovered over the years that people generally are much more careful with their own money than they are when they spend someone else's. This is the premise here. The administrators of the loan system are spending someone else's money. They say “Sure, we will pick up 85% of the responsibility if this person wants to start a business. We do not think it will work but it is tough to say no to someone. Let's just say yes. If they do not make it, we will pull it out of the taxpayers' pockets. We will pull it out of the pockets of those who are competing against this person. We will end up being covered. Spread out over all the taxpayers, it does not make that much difference”.
I appeal to the Liberal members, all the green Liberals over there. I am not permitted to point out to people that empty chairs in this House are green so I will not say that. I am making an appeal to the Liberal members to vote in favour of the amendment in order to protect the taxpayer. The taxpayer is footing the bill.
It is an added incentive on the part of the person granting the loan to say “We carry a full 50% of the responsibility and therefore we must be careful”. The second reason this is a good amendment is that it saves the taxpayers money. It saves the money of the person who has put a successful business together, is earning money and is paying taxes.
Hopefully by putting in measures like this one, we can look forward to that great and glorious day when we will actually have some tax cuts, some real tax cuts and not some phony declared cuts from the other side.
Madam Speaker, I would like to have another 10 minutes to speak on Motion No. 11. If you would seek unanimous consent, I would be quite willing to do that.
Canada Small Business Financing ActGovernment Orders
The Acting Speaker (Ms. Thibeault)
The hon. member would like to have an extra 10 minutes. Is there unanimous consent?
Roy H. Bailey Reform Souris—Moose Mountain, SK
Madam Speaker, I am very pleased to speak to this group of amendments.
I come from a province where $250,000 is a lot of money and $250,000 in risk capital would do a whole lot for my constituency and for industry at this time.
Let us take a look at the maximum of $250,000 and what it would do for my constituency which grows the world's best durum to produce the world's best pasta. That industry could not get a loan because the government would not allow it. I challenge members opposite the next time they or their spouses go shopping to see if they can find a pasta product in any mall in Canada that is packaged in Canada.
This $250,000 strikes home. I had some producers who wanted to borrow money to produce organic grain. They could not get a loan because the government said that grain could not be handled in that way. It is making quarter of a million dollar loans to people in some areas of Canada, but raw material producers cannot even get a loan for the grain and meat packaging that should be done in my constituency and in western Canada because it violates some government bill.
I want members to think for a moment about where I live. We have the largest inland terminals. We handle more grain in one town than in any other place in Canada. No one is allowed as a private individual to turn that grain into flour, let alone borrow the money from the government to do so. While the ceiling is being raised from $100,000 to $250,000 it is not going to produce raw materials in our province, particularly in grains.
There is hardly a butchering plant left in western Canada. Most of them have closed out. At one time the city of Winnipeg had four plants. The policies of the government removed the ability of wheat and meat producers to sell finished product.
It is against the law for individuals to obtain a loan of $250,000 to build a plant to sell organic flour. As a result, the people in my area of the province are not interested in increasing the ceiling of the loan or in increasing the risk of a business to the tune of $250,000.
Again I challenge members to go to a mall to see if they can find pasta produced and packaged in Canada. We do not do it. We do not allow for that. We ship it to Minneapolis by train load and buy it back, but it must never be produced in Saskatchewan because it is a crime.
At the present time prairie pasta producers have the biggest project going. Would they be able to get a loan? Not on their life. The government would deny them a loan because they are violating some antique policy in the Canadian Wheat Board. The government is telling the people in the west that they are hewers of wood and drawers of water and will stay that way. That is the policy of the government.
The state of North Dakota which borders my constituency is to put up millions of dollars to build a pasta plant near the U.S. border within a few miles of my constituency. Should I come to the House to congratulate the Liberals for moving the loan level up to $250,000 when they deny western Canada the right to produce its raw products and make a sale? I will not support it for the simple reason that most of this money would be denied entrepreneurs in my province.
For that reason and until the government recognizes that we in the west have a right to produce products from our natural resources—and I am talking about grain, flour and the packaging of meat and so on—I cannot support it. When it comes to raising the amount of money that we will be put at risk I will not support it, and the people of Canada should not support it either.
The Canadian Federation of Independent Business said $100,000 is plenty. If $100,000 will not get a small business going, $250,000 certainly will not either. I will not support it.
Dennis Mills Liberal Broadview—Greenwood, ON
Madam Speaker, I am happy to have the opportunity to speak to the motions and to speak to the bill.
I return to the remarks of the member for Elk Island. When we were in opposition, which is almost 10 years ago, this bill was on the floor of the House of Commons. At that time Minister Tom Hockin from London, Ontario, was responsible for amending the Small Business Loans Act, amending the legislation, and we decided that the bill was so important for activating entrepreneurial spirit that we supported the government's bill.
I must say that it was not perfect. I have never seen an absolutely perfect piece of legislation in the House in the 10 years I have been elected or in the previous 10 years that I was a minister's assistant or a prime minister's assistant. The reality is that legislation is never perfect but we try. The art of politics is to try to design something that is doable and something we can activate as soon as possible. At the time when we were in opposition we put the legislation through the House in one day. We supported the government and in fact—
Dennis Mills Liberal Broadview—Greenwood, ON
The hon. member for Elk Island is asking a question. Why are we amending the legislation? This is the nature of this place. We are constantly amending, updating and refining laws. This is the Small Business Loans Act. This is a bill which normally all members of parliament in all parties get behind. This is the first time in the history of this bill where we have the Reform Party using a delaying tactic.
In the end the bill will go through. The Minister of Industry and his parliamentary secretary have done a great job in listening to witnesses and in listening to literally thousands of small businessmen and women who participated in the Small Business Loans Act. Anything the government has done in the bill in consultation with opposition members and with the small business sector is a result of that listening experience. Yet here we are today and Reform Party members are almost being obstructionists. We should put the bill through with a snap of our fingers.
If there is one thing we have done in this House in the last 10 years—and I believe we have done it with the help of all parties—it is that we have created a sense of importance and a sense of urgency that we all must get behind the small business community.
Here we are on the eve of Christmas and they are doubting and questioning. I have heard remarks from members of the Reform Party on the bill over the past couple of weeks. They are wondering whether or not small business deserves the legislation. We have heard them say that the legislation is essentially no different from another tax on all Canadians.
There is nothing further from reality than that assertion. The loan loss provision in the Small Business Loans Act is absolutely minuscule in comparison to the number of jobs that are being created which are generating billions of dollars worth of income tax revenue for the treasuries of Canada, the provinces and the municipalities. That activity emerging from the small business community is something we can all be proud of.
The notion that the Reform Party would try to take us off focus by proposing amendments and distractions linked to tax reform is going in the wrong way. We will lose some of the momentum we have been building in the House. Over the last 10 years we have been a fist in support of small business. It does not matter whether it was the Reform critic of Industry, the NDP, the Bloc or the Conservative Party. We have all worked together. We have all been in unison. This legislation was one of the prize pieces that managed to go from first reading to third reading in no time flat.
I hope members of the Reform Party would reflect on whether it is good to be seen as breaking rank from the special collegial approach we have always had in terms of the Small Business Loans Act. Before they drag out the debate much longer maybe we could say they have some concerns and made their points, but it is time to put the legislation through the House and obtain royal assent so that all financial institutions in Canada use the Small Business Loans Act to keep the focus, to keep the morale and to keep the energy of small business moving forward.
I appeal to members of the Reform Party to end the debate so that the bill will go through all readings and bring the act up to date.
Ken Epp Reform Elk Island, AB
Madam Speaker, I rise on a point of order. I wonder if you would seek unanimous consent for me to ask the hon. member a question or two.
Canada Small Business Financing ActGovernment Orders
The Acting Speaker (Ms. Thibeault)
Is there unanimous consent of the House to let the member ask a question?
Marlene Jennings Liberal Notre-Dame-de-Grâce—Lachine, QC
Madam Speaker, I am pleased to speak today to the motion of the hon. member of the official opposition. Yet I am sad at the same time because, as my colleague on this side of the House has just pointed out, all members of all parties worked together on the industry committee on this legislation introduced by the Minister of Industry, and I find it regrettable that the hon. member of the opposition has moved this motion.
Let us see what the motion is, and I shall then address the main points.
The member for Saskatoon—Humboldt is proposing in Motion No. 6 that Bill C-53 in clause 8 be amended by replacing line 26 on page 5 with the following:
(a) 50%, or any prescribed lesser per cent.
What does that mean? It means that under the present legislation the loans which are awarded under the small business loans program are guaranteed up to 85%. He wishes to reduce that to 50%. What impact will that have on our small and medium sized businesses?
It is quite simple.
There are two types of businesses that run into particular difficulties in obtaining financing. These are the very small businesses and the very new businesses. The current legislation helps remedy this double shortcoming. As far as size is concerned, close to three-quarters of businesses obtaining loans under the present legislation have fewer than five employees. This is a far higher fraction than for those obtaining loans from the banks in general. That is one very important point.
Research and recent experiences with this program show that the level of loan guarantee has a major impact on use of this program and the banks' interest in it. I would point out that there are 1,300 institutions using this program in Canada, via 13,000 service points. Someone on the other side mistakenly referred to 13,000 borrowers. The right number is 1,300 borrowers using 13,000 service points.
Lowering the guarantee rate given by government on each of these loans would have a negative impact on the entire sector of small and medium size business, particularly the very small and the very new.
As far as the number of years in existence is concerned, the gap is still more striking. Some 38% of small businesses benefit from a loan guarantee under the act. These have been in existence for less than one year. When we look at regular bank customers, however, only 5% of small businesses are less than one year old. It is therefore clear that the act must maintain the 85% guarantee. This is one of the main reasons I cannot support the motion of the hon. member for Saskatoon—Humboldt.
Another reason has to do with the businesses owned by members of ethnocultural communities. All the surveys tell us that members of such communities have trouble getting access to credit and capital. These are people starting small, and often very small, businesses.
If the figures show that the impact of reducing the guarantee from 85% to 50% would be very negative for small businesses in general, it would be even more negative for small businesses managed and operated by members of ethnocultural communities. The same would hold for businesses run by women.
I fail to see how someone with a certain degree of intelligence—and I have to assume that we are dealing with an intelligent individual, because he did, after all, have the trust of his constituents—cannot understand that lowering the guarantee from 85% to 50% would have a very negative impact on the development and growth of small businesses in Canada.
As for the second motion, I frankly find it a bit confusing. It asks, and I quote:
The minister will routinely conduct an audit or examination—
This motion eliminates completely the notice of several days the minister must give a business subject to an audit.
This amendment completely eliminates the notice period for audits of loans under the act and provides that they be done on a routine basis. What does routine basis mean?
I am not an accountant, but I have taken accounting classes. I also studied fiscal law when I was in law school. When we talk about audits it is very clear that notices are given when we are talking about specific legislation.
The government is proposing that Industry Canada have the power to conduct audits on the basis of lenders' application of the program. However, neither the auditor general's audit nor the sample audit which was done for the department indicates pervasive or systemic compliance problems. Only such circumstances would justify routine audits without notice. It is quite clear that the member's motion calls for routine audits, but provides no notice period.
Research has shown that compliance is sufficiently ensured through sample audits. As well, the notice period of at least 21 days was added in response to the concerns which were expressed by the stakeholders. The lenders who deliver the program originally asked for a notice period of 45 days.
Eliminating that notice period would be a reversal of a commitment made to the financial institutions which deliver this program. This was a commitment negotiated by all parties represented on the industry committee. All of the members who sit on the Standing Committee for Industry negotiated that commitment. Now we have one of those members submitting a motion which goes completely against it. Here again, without calling into question that member's intelligence, I wonder where his head is. The member obviously has a short memory.
The proposed amendments are simply unacceptable. They go against all of the discussions that took place in the industry committee. The amendments go against the very objective of the legislation. I do not understand the member. I wish the member were here in the House right now. I would like to be able to ask him a question privately, outside of the House.
These two motions simply cannot be supported. They go against the very objectives of the legislation and they go against the objective of the government, which is to assist small businesses.
Lee Morrison Reform Cypress Hills—Grasslands, SK
Madam Speaker, the hon. member for Broadview—Greenwood made a very telling remark during his dissertation on these amendments. If I may paraphrase, he asked why we were bothering to debate this. It is all decided anyway. We are wasting time. The government knows what it wants. The government knows what it is going to do. This is all theatre.
I sincerely compliment the member for Broadview—Greenwood because he has reached the nub of what this place is all about. I could not have said it better myself. I know I was paraphrasing his words, but that in essence is what the hon. member said.
Canada Small Business Financing ActGovernment Orders
An hon. member
That is not paraphrasing, that is distorting it.
Lee Morrison Reform Cypress Hills—Grasslands, SK
The hon. member says I am distorting it. I would invite him to check Hansard when he gets home.
With respect to Group No. 3, the member for Notre-Dame-de-Grâce—Lachine stated that it is totally unacceptable that the level of government responsibility for defaulted loans should be decreased from 85% to 50%. Why should the taxpayers of this country be on the hook to support bad management decisions by the poor, impoverished, helpless chartered banks? Good heavens. These are small business loans. These are small loans, period. Do we have to carry the can for people who are talking about annual profits of $1 billion or $1.5 billion? It is absurd.
The eminent economist Walter Williams once made a statement about this sort of thing which I think should be engraved above the Speaker's chair so that everyone can read it. He said “If someone with a business venture of doubtful credibility came to me and asked me to loan him $50,000 to support the business, I would tell him to go play in traffic. But when this gentleman who needs the $50,000 to support a dubious business venture wants money, he does not come to me but to the government, which has the coercive power of the majesty of the law to say `You have to give this business some money. If it goes broke, that is your bad luck. But you have to give it to him because we the government say that we are going to force you to do it through your taxes. Mr. Walter Williams, if you do not pay your taxes, we will put you in jail”'.
By a very direct and easily chartered course we can see that by giving this huge degree of guaranteed support to what may be loans of rather dubious quality we are telling ordinary taxpaying Canadians that they are going support to the utmost these dubious business ventures. If they do not, the government will put them in jail. That is the simple, very easily traced path of what we are talking about.
I do not feel as strongly about the second amendment as I do about the first. The hon. member for Notre-Dame-de-Grâce—Lachine became very emotional about this. I would like to know what is wrong with performing audits without notice. Do we have to allow loans of dubious quality not to be audited through the lending institutions? What is going on? Taxpayer money is being put up to guarantee these loans. Surely we can have the privilege or the right to audit these things without notice. But the hon. member for Notre-Dame-de-Grâce—Lachine says no, that would be a terrible thing to do. She has not heard of accountability.
Dennis Mills Liberal Broadview—Greenwood, ON
It happens all the time.
Lee Morrison Reform Cypress Hills—Grasslands, SK
The hon. member for Broadview—Greenwood should get together with the hon. member for Notre-Dame-de-Grâce—Lachine to discuss this because they are obviously coming from two diametrically opposed directions on this question.
Dennis Mills Liberal Broadview—Greenwood, ON
You guys are just stalling.