Debates of Nov. 24th, 1998

Canada Small Business Financing Act

[Nelson Riis, NDP, Kamloops, BC]

Mr. Speaker, I appreciate being recognized for this important third reading debate of Bill C-53, an act to increase the availability of financing for the establishment, expansion, modernization and improvement of small businesses.

I wish to spend a moment or two elaborating on the purpose of this legislation. This bill replaces the Small Business Loans Act in order to reform the small business loans program. The purpose of the program is to increase the availability of financing for the establishment, expansion, modernization and improvement of businesses with gross annual revenues of up to $5 million by allocating between the minister and lenders portions of eligible losses incurred by lenders in relation to loans up to $250,000 to such businesses for those purposes.

The key elements in this legislation include the following. It provides for the continuing operation of the program, subject to a comprehensive program review every five years. It limits the minister's aggregate contingent liability to $1.5 billion for each of these five year periods. It authorizes the minister to conduct compliance audits and examinations. It authorizes the establishment and operation of pilot projects to determine whether the program should be extended to include loans to the voluntary sector, and involving capital leases. Finally, it reforms the offence and punishment provisions.

That is the summary of the major thrust of this legislation, but let us acknowledge the environment in which it is introduced.

All of us in this House are well aware of the fact that if we are interested and concerned about the employment situation in the country we have to acknowledge that most of the jobs that have been developed in our country over the last number of years have been developed by the small business community. Certainly the vast number of jobs that will be developed in Canada in the foreseeable future will be developed by the small business community.

In 1996-97, a year for which we have good data, small business created more than 80% of all new jobs. If we look at the last two or three years, a significant number of new businesses and new jobs included people who we would generally refer to as self-employed; people who have been unable to find a job with a firm, a government organization or a non-profit group who have gone out and created a new enterprise.

This legislation acknowledges this reality in terms of the development of employment opportunities in our country coming largely as a result of the initiative of small and medium enterprises in Canada.

It is also acknowledged that most of the businesses that were operating in this country in 1989 were still operating in 1996. The idea of many businesses starting and then ending is a trend that is shifting greatly.

Recent surveys by the Business Development Bank of Canada have indicated that small business operators work between 50 and 70 hours a week on average. Most work evenings in one capacity or another related to their business. They inevitably work either on Saturday or Sunday, or both. Almost half said that they take less than seven days of vacation each year.

We are talking about Canadians who work very hard to make Canada work. These are the people who spend an extraordinary amount of their energy, time and talent making the Canadian economy tick, making the economy of Canada grow, and in the process providing employment opportunities not only for themselves and in many cases for members of their family on a full or part time basis, but for others as well.

One of the most successful programs that I have seen in my time as a member of parliament has revolved around the community futures program. This program is a federal initiative that provides capital for communities which is administered and managed by local individuals in terms of really offering micro credit to people who have good business plans that are brought forward. I am proud to say that in the city of Kamloops and the surrounding area hundreds and hundreds of new enterprises have started at least partly, if not largely, because of this community futures program.

Another important aspect of the program is that people who are presenting collecting employment insurance can make the case to a local board that they have a great business idea. If it is approved by the board they are able to not only start a new business, perhaps even borrowing up to $50,000 or $60,000, but they are able to continue collecting employment insurance for a period of time while the business gets started. I do not overemphasize this. This has resulted in hundreds of new jobs and hundreds of new businesses being developed in this part of Canada. It is a tremendous success. The success is due in part to the program being there and the credit that is offered, but it is also due to the people who have managed the program and who have very seriously reached out to the business community, particularly the newly emerging business community, to provide support.

I set myself aside from some of the previous speakers who said that government has no role in business. That is absolutely not true. The fact that we have the Bank Act which encourages banks to do certain things, and I think that they need to do a lot more, is obviously an indication of how government can involve itself in business. The amount of support that we have for research and development in this country, some of the most lucrative tax credits for firms that are interested in research and development, and programs like community futures are means by which governments can provide an environment for businesses to grow, to expand the economy and to create employment opportunities.

I am pleased to say that we will be supporting this legislation. We think it is a continuation of a relatively good program and it comes at a rather opportune time.

I had a lot of advice on this legislation, in a sense inadvertently. On the weekend I was invited to a Grey Cup gathering. It was a tremendous game. It was one of the best Grey Cup games I have ever seen. People were asking what was happening in the nation's capital. I explained that we were going to be discussing Bill C-53, the small business financing act. Immediately the whole room lit up. I asked people what their relationship was with business.

It was interesting because every single person in the gathering owned, operated or was a major employee of a small business. I recorded a handful of those businesses in anticipation of today's presentation. They included the following: a small insurance company, a ski resort, a snowboard-rollerblade store, a hair salon/barber shop combination, a nine hole golf course, a landscaping-snowplowing operation, a horse training and horse boarding operation, and a fur trapper. This person traps animals for eight months of the year, obviously for their fur.

One was a rather interesting entrepreneur who had started a mining development company. However, he is not mining in Canada, he is mining old Aztec mines in Central America. The Aztecs and the Spanish developed these mines hundreds of years ago. He went into the jungle and found these locations and is now re-mining the old mines. It is an interesting initiative.

One person is running a firm that is into geographic information systems and mapping. Another is running a small gift shop. Two run restaurants. One runs a pub and a grill, and one runs a tattoo parlour and suntanning salon. I could go on. These were all people very interested in small business financing. They all had very interesting stories to tell about the problems and the hurdles and the difficulties that confront young, newly emerging businesses today.

Fundamental was the access to capital. This was crucial. I think everyone indicated that they had experienced a problem in terms of accessing adequate capital, particularly working capital. They were pleased that some of these changes were being made, but they pointed out that this was certainly only a step in the right direction, that there was much more to do.

In an effort to identify what more has to be done, I think we should consider the MacKay report recommendations in terms of the future of financial institutions. I think we can say that most Canadians believe that our financial institutions could be doing more, particularly to support the small and medium size business sector.

The United States has the community reinvestment act which requires banks to provide capital support to businesses in the areas where they have branches and where people make deposits. In other words, if people are going to put their money into a bank in community x , there is an obligation on behalf of the bank to support business enterprises in that area.

We do not have that in Canada. I suspect that we would find in many cases branches where all sorts of people are depositors, but very little small business investment is taking place. I think at least the theory behind the community reinvestment act of the United States that compels banks to invest in those areas where they have branches, particularly in terms of supporting the small business sector, makes a lot of sense.

Let me share with members a number of things the MacKay report recommends. It recommends that the government should undertake a substantial program of information collection and analysis to ensure that there is adequate information relating into the financing needs of small and medium size businesses for effective public policy development.

To that end, the report suggests that Statistics Canada should collect data on the supply of debt and equity financing to small and medium size enterprises, including, in particular, coverage of knowledge based industries, aboriginal enterprises and other sectors or subsectors determined from time to time to be of particular public interest.

The data question program should cover all regulated and unregulated private and public sector financial institutions engaged in significant loan, lease, equity investment or security activity in the small business market.

Details of the information collection program, which should be comprehensive, should be determined by Statistics Canada in consultation with data providers, potential users in the community and representatives of Industry Canada.

The MacKay report says a number of things which I will get to in a moment, but I want to say something about the banks.

We have once again heard today that the profits of one of the major banks in Canada are at historic highs. There are incredible profit margins. I know the banks are complaining that times are tough and they are not doing as well as they could be, but I think that whining falls on deaf ears when people are reminded once again that profit levels are at historic highs.

Setting aside the discussion around the size of the profits, the point is that banks from day one have operated in a privileged business environment, a protected business environment. Can we think of another free market player which has been protected from any foreign competition in its sector?

Imagine if the Canadian forest industry had laws which said that no foreign companies could invest in the forest sector, or no foreign companies could invest in some other sector. That would create a privileged environment for a Canadian investor or a Canadian business.

The banks have done that since day one. They have operated under the Bank Act in a relatively privileged business environment. As a result, the banks have done incredibly well. One of the strong things we can say about the Canadian banking system is that it is recognized as a strong, stable banking system and is very profitable in terms of its shareholders and investors.

Setting that aside, I think most Canadians would say that because of the privileged business environment in which the banks have found themselves since day one there goes with that some social responsibility. It is almost like a banking utility. A protected group of businesses ought to feel some responsibility to do something more than simply make a profit in Canada. There should be some feeling that they have an obligation to assist in the development of the Canadian economy beyond the bottom line consideration.

If we think of the banks as business utilities, I think it is fair to say that they should be doing a lot more. I am pleased to say that the MacKay report seems to agree.

The MacKay task force suggests that Industry Canada should assume responsibility for co-ordinating an annual survey of the attitudes of small and medium enterprises to examine the availability of financing from the perspective of small business. This is something that Industry Canada should do.

The task force also says that Industry Canada should conduct and publish periodic benchmark surveys of small business users, including knowledge based firms, to provide a comprehensive benchmark picture of the financing they require and the source of financing upon which they rely as the various markets evolve.

The task force goes on to say that the government should urge depositing institutions, particularly the banks, to find new and creative ways to address the problem in small business financing created by the frequent turnover of business account managers, including the establishment of career paths and compensation incentives that would provide long term, meaningful careers for community based small and medium enterprise account managers.

What they are basically saying is that since so much of the financing of small business is done by the banks, the banks should be particularly sensitive in terms of their employment and career path development to ensure that when a person comes into a community to develop the small business lending portfolio, that person stays for a while and gets to know the community, the business and the changing marketplace, as opposed to simply popping in for a few months and then moving on to another position.

The report also suggests that Canadian financial institutions should be prepared to make credit available to higher risk borrowers with more innovative financing packages and appropriate pricing.

What they are getting at is a knowledge based economy. This requires a whole new mindset in approaching financing. The old asset based financing, when people were able to have all sorts of guarantees for loans, is not necessarily available for the knowledge based economy like with the young entrepreneur who walks in with a baseball cap on sideways and wearing a creative T-shirt and is the creative force in that business because of the human capital that individual brings to that business.

Imagine when that young entrepreneur walks into the bank. The banker is sitting there is his three piece suit. He sees this young guy sitting across from him in a T-shirt and with a baseball cap on backwards. He wants to get financing to start a knowledge business. This person is going to have a tough time. That is the way of the future. This is one of the major cutting edges in entrepreneurial change that is taking place in Canada. Our lending institutions need to be more supportive of that, as the MacKay report recommended.

It suggests that a medium enterprise group should be established within Industry Canada to undertake continuing research on financing this sector, particularly the knowledge based sector, and this group could oversee the key user surveys and analyse the data collected by Statistics Canada and report annually not only to the industry committee but also to the House of Commons on the state of small business financing. It is fair to say that if we talk to anyone in the small business sector they would agree that financing is a crucial issue in terms of their success. This is where the government could play a role in providing more access to capital.

The MacKay task force makes a very good point that there are a whole set of initiatives the government should take to ensure that adequate financing is available to those entrepreneurs who are moving in the direction of the emerging economies.

This legislation moves into two rather interesting areas. It moves into the area where we are going to do some pilot projects. One is to extend the program guarantees to cover capital leasing. Increasingly in the world of franchising the whole issue of leasing equipment often results with ownership of the proprietor at the end of the lease and has never been possible. Under this legislation it will be. It also includes the voluntary sector. This is critical. This pilot study will have major implications in providing a whole group of people access to capital who right now have difficult a time.

I want to identify the work done by the Digby Network which is an association of 17 organizations involved in community economic development. The community economic development organizations play a crucial role in helping small enterprises, particularly at the grassroots level, at the entry level. These are people who are new to the world of business and who are starting new enterprises. They do not have the basic knowledge of a business plan. They do not know what the funding opportunities are. Under these community economic development structures they can find this information.

This legislation is a step in the right direction. Over the next couple of years it will be interesting to watch how these the two pilot projects develop. There are many sectors yet that have to be addressed in order to provide the support and nurturing the small business sector in Canada deserves.

[Jim Peterson, Liberal, Secretary of State (International Financial Institutions)]

Mr. Speaker, I was pleased to listen to the constructive presentation by the hon. member opposite. He brings to this debate a long record of having worked on behalf of not only his constituents but also small business across this country. He has made a number of very important recommendations. A lot of them are based on the MacKay report.

I would like to ask the member a question on the problem where we do not have a continuity of bank managers. Customers are not dealing with the same person all the time and the individual cannot get to know their character, history, background or potential. They cannot assess whether they are capable of carrying out the business plan they put before them.

How does the member feel the banks could go about changing this? Would it mean paying much more at the branch level? Does government have a role in terms of achieving the goal the hon. member has adumbrated for us?

[Nelson Riis, NDP, Kamloops, BC]

Madam Speaker, I appreciate the comments by the secretary of state for finance indicating what I assume he agrees is a problem probably in all financial institutions, particularly the banks on which the small business sector depends so much in terms of access to capital.

There are two things that can be done. One is for the banks to show some sensitivity in this area. I know they are promising the creation of a small business bank and so on if the mergers are approved. This is a pretty desperate sop at this eleventh hour but we appreciate at least that they are saying the right things.

If they were serious about supporting that small business sector, which they say they are, they would be putting more resources into creating a more stable environment in terms of working with that sector, in terms of paying people adequately so that they stay in a community, that they develop the necessary expertise and understanding, that they are able to visit some of the more creative business opportunities as opposed to simply sitting in their offices and waiting for people to bring in their business plans.

I also want to acknowledge what I think is a changed mandate for the business bank of Canada. In the past this bank used to do much more in terms of advising people in terms of business opportunity, advising individuals on how to proceed in business as opposed to simply providing the traditional banking function. That is still done to a certain extent in the various branches but I think this is one area where the government can move.

Second is the area of community economic development organizations. There are all sorts of models across the country and spinoffs of what I would describe as a small business incubator centre, a place where individuals can go who are perhaps new to the business world.

Let us face it, during this period of downsizing and during these periods of massive layoffs a lot of people are entering the world of business who never had any intention of doing so. They had been a whatever in a large corporation or they had been a government employee and can no longer find employment in those sectors. They cannot find a job in the traditional economy and so they are, if you like, almost forced into being a business person. They are forced into opening up a home based business or a small business, a self-employed initiative whether it is a consultant or whatever.

Often there is a role where government can assist those people who are newly emerging entrepreneurs, who perhaps lack some of the crucial skills, certainly lack some of the critical background in terms of technology development and so on and can be assisted in a variety of ways.

I want to mention one thing about the EI surplus as mentioned by the previous speaker. If there is one thing the EI surplus could be put toward that I think most people would support it would be retraining people who presently have lost their job, retraining into areas that would enable them to open up an enterprise or enable them to be more marketable in the job market. I would like to see some of these EI funds, after the benefits have been increased, put into more training and skilling of people who need to be upgraded, as we all do, in order to play a rightful role in the knowledge based economy of the 21st century.

[Jim Jones, Progressive Conservative, Markham, ON]

Madam Speaker, I rise today to speak on Bill C-53, an act to increase the availability of financing for the establishment, expansion, modernization and improvement of small businesses.

For the purpose of brevity, this bill seeks to replace the Small Business Loans Act with a new Canadian small business financing act. In essence, parliament will be guaranteeing that the principles of the success story known as the Small Business Loans Act will continue into the next millennium.

Since 1961 the Small Business Loans Act, implemented by the Progressive Conservative government of John Diefenbaker, has helped over half a million Canadian businesses. In the 37 years that have followed parliament has shown its resolve to assist small business by continually updating and innovating the act to ensure that it remains responsive to the needs of Canada's small and medium size enterprises.

By and large, this duty has been discharged with commitment and diligence.

Since its inception, the SBLA has experienced a successful repayment rate in excess of 94% of all loans. When we consider that during this period the program has guaranteed loans worth $22 billion, the numbers become all the more impressive.

In 1997-98 SBLA borrowers reported that they would create 74,600 new jobs. This is even more significant when we understand that over 50% of all loans made under the provisions of the act would never have been made under conventional lending practices.

This is easy to believe when we note a 1996 study entitled “Economic Impacts of the SBLA”. The study found that approximately 45% of the borrowers in this sample were companies less than a year old. In comparison, only 5% of non-SBLA loans went to start up firms.

Much has already been done to facilitate the work of this House as well as the industry committee when it begins its indepth examination of Bill C-53. To date a comprehensive review of the financing needs of small business has been completed with special emphasis on economic impact studies, compliance and default studies, stakeholder consultations, cost benefit analysis and future evaluations, and capital leasing studies.

As well, our hon. colleagues in the other place finished their committee work, a review of the Small Business Loans Act.

I am very pleased that an issue I raised at second reading and with the department has been addressed, specifically the treatment of non-arm's length transactions under the new Canadian small business financing act. At that time I spoke about a clause in Industry Canada's review of the SBLA. Specifically in the booklet entitled “Meeting the Changing Needs” on page 27 there is a reference to asset transfers. Included in this is a reference to non-arm's length transfers of assets of going concerns.

The issue I raised was that the sale of a business from a parent to a child was specifically itemized as being excluded from the CSBFA guaranteed loan. This needed to be reviewed, and for a very good reason. We no longer live in a time when the purchase of family businesses is financed by long apprenticeships; that is to say, children working at below market value with the understanding that some day the businesses will be theirs.

Instead, the inherent value of small businesses represents the equivalent of an RRSP to many business owners. This provision would have resulted in children being unable to secure the proper financing. Then what would have happened? I suggest parents who are facing the insecurity of retirement would have been forced to look at selling their businesses to a non-relative who would not know the ins and outs of that business but who would have access to the Canadian small business financing loans guarantees, a possibility that would have been inconsistent with Canada's reputation as a fair, small business-friendly nation.

At a time when high taxes and a lack of opportunity is leading to brain drain and breaking down the family unit, we do not need to make this situation worse with punitive anti-family legislation.

For that reason I am pleased that the industry department reversed this decision and saw fit to withdraw this provision.

The other contentious provisions of Bill C-53 would have seen leasehold improvements removed as a valuated asset for financing purposes. This would have had a huge negative impact on several industries but especially the restaurant industry. This is an industry that has suffered particular difficulties accessing financing over the years. Once again the process works and this provision was successfully removed.

I have spoken thus far about the positive outcomes of the efforts of my colleagues on the industry committee. I think we have accomplished much as a committee in an exceptionally co-operative manner. The reason for that is very clear. We trust one another and the process that allows us to make changes to legislation.

In light of this I feel I must comment on the decision by the government to invoke closure on debate for the ninth time in this parliament. Sixteen amendments to Bill C-53 were listed on the order paper. Some may have more merit than others. However, through the course of parliamentary debate members of the House may have come to appreciate the motions put forward by others. Unfortunately we will never know. If the government has a problem with the process perhaps it should undertake to reform it. The censoring of members should only be undertaken as a last resort.

Many provisions of the SBLA have remained unchanged. The loans loss ratio remains at 85% of the cost of claims for loans in default. This is same rate it has been since 1995. Lenders remain responsible for the remainder. The Liberal government reinstated this ratio in 1995 after the Conservative government reduced the risk to lenders in 1993. The Conservative government did this to encourage greater financial sector participation in the SBLA.

When a government sets up a program like the SBLA, which guarantees loans for small business, it does so for one very obvious reason. Without such an act, loans would be labelled too high risk by lenders and they simply would not be given. Therefore I have to question the judgment used by the government when it increases the risk to lenders. At the risk of attributing motives, this appears to be an instance where good politics took precedent over good policy.

I say that because since the Liberals did this, studies have shown that SME lender dissatisfaction has been steadily increasing. Rather than point fingers at the lenders or the borrowers the legislation should instead be focusing on improving the environment for both.

A few other program parameters have not changed but should be noted. The maximum loan size remains at $250,000. My colleagues in the Reform Party have been actively working to lower this figure to $100,000. However, while the average loan is still well under the $100,000 threshold, there are numerous examples of situations where that figure is just not enough.

I have heard from many individuals in the tourism and restaurant industries. They face large equipment and infrastructure costs before they are able to open for business. Therefore the Progressive Conservative Party is pleased to see the $250,000 threshold remain.

The percentage of the cost of eligible capital assets accepted for financing remains at 90%. This is a reasonable figure and there is no need to review it.

If there is a shortcoming in the bill, it lies in its failure to come to grips with the issue of the lack of access to the SBLA that currently exists for knowledge based industries. The minister raised hopes when he asked for a report on whether the SBLA should be expanded to target knowledge based industries. When the answer came back that something definitely needed to be done unfortunately he chose to ignore it.

Knowledge based industries are among the most dynamic job producing companies in Canada today. The problem lies in the fact that their major assets are intellectual and thus are not capable of being financed under current criteria. In the past the Minister of Industry has indicated his willingness to encourage the development of knowledge based industries. My party stands ready to assist, although it is possible that we have missed an opportunity to use Bill C-53 toward this end.

I turn my attention to the specific changes that will come about when Bill C-53 is implemented. First is the mandatory program review provision. This will mean the end of current provisions that require an automatic ending of lending authority if a new bill is not passed, as we saw last year with Bill C-21. While we are still a little short on the details of what would constitute this review process, it appears to be a good idea in general terms.

Under the current system the government is in a situation in which it must present a bill to parliament in order to keep the program alive. The bill could potentially contain clauses the government of the day would like to slip through while at the same time keep the opposition handcuffed by inherent time constraints.

With this in mind, the review process is a better way to deal fairly with any necessary changes. Under the proposed process the review would see data collected over a five year period prior to the review used to give parliamentarians and policy makers the tools needed to evaluate where changes need to be considered.

At the end of the five year period currently designated as March 31, 2004, the minister would have 12 months in which to cause a comprehensive review. At this point we are not prepared to comment on the reasonableness of these time constraints and we look forward to reviewing them at committee stage.

There is a new component to the act that Bill C-53 proposes, that is the idea of pilot projects both for capital leasing and for the voluntary sector. Capital leasing has been an ever growing and popular financing option for SMEs. This type of lease ensures that the lessee will own the equipment at the end of the lease. A provision of this nature seems to protect the interests of taxpayers, as the equipment would become an asset of the company at the end of the lease.

A revealing analysis of the financing realities of the SME sector was brought to light in the conference board study published last fall entitled “What is new in debt financing for small and medium size enterprises”.

The study highlights two major findings. First, the size of the business debt financing market targeted at SMEs continues to be misunderstood usually because analyses limit their review to term loans and lines of credit provided by the large deposit taking institutions. In the process they capture only about half the financing provided to SMEs. Sources of SME funding are much broader. One of the main conclusions of the report is that SMEs are being funded by a wide variety of providers of financial services using various innovative products, services and delivery channels.

The second major conference board finding was that while the total business debt financing market has grown, increasing 7% over the last two years to $271 billion, growth has been relatively even. The bulk of the growth has come from specialized finance companies that experience a 31% increase in total business debt financing. The study identifies the specialized finance institutions as heavily represented in the financing and leasing industries. At present the leasing industry does not approve leasing for firms under two years old that are seeking less than $100,000. This typically excludes a majority of present SBLA borrowers.

The other proposed pilot project deals with the voluntary sector. The document “Securing our Future Together” made a commitment to reviewing federal small business programs with a view to extending their mandate to the voluntary sector. This program raises many questions. In fact in recent hearings concerning this issue witnesses generally were opposed to extending provisions of the SBLA to the voluntary sector. Some of the reasons cited included cost as well as instability of revenues.

These are legitimate concerns. I am also concerned that we are about to put in place a program which would allow non-profit or voluntary organizations to unfairly compete with other business interests. If Bill C-53 is passed, it will be incumbent upon all MPs to monitor any negative impact this pilot project might have on businesses in their ridings.

Cost recovery is a worthy goal in the Canadian Small Business Financing Act. Toward the achievement of that, Bill C-53 seeks to allow the government the ability to restrict access to program loans or guarantees. I would caution that any legislation covering this area must be generous in scope with allowance for various contingencies. We already have a heavily regulated financial services sector. If any abuse of process is suspected, other avenues may exist to achieve compliance.

The next area I wish to address is that of the proposed accountability framework. This proposal by Price Waterhouse will access the CSBFA over the next five years. Several criteria will be used including the visibility of the program to potential borrowers, its impact on creating and maintaining jobs, and the performance of the borrowers.

The auditor general in his report, “Management of the Small Business Loans Program”, pointed out that claim audit procedures needed to be strengthened. This is an area that will have to be dealt with, with great sensitivity to the viability of the program as a whole.

I remind the House that the reason this act exists is due to the unidentifiable fact that a program exists. The problem was the unwillingness of banks to lend to SMEs. Any attempt to change the program so as to put greater compliance demands on lending institutions will only result in fewer small businesses getting the financing they desperately need.

I am not opposing the provision at this time. I am suggesting that we tread carefully. As I have indicated throughout my address today, my party is supportive of Bill C-53 and much of its intent. However there is an issue that needs to be raised in the interest of full disclosure.

When the comprehensive review was undertaken one of the issues to be reviewed was the issue of personal guarantees and whether or not they should remain in effect. In the end personal guarantees were deemed to be a necessary component and thus they were retained.

The PC Party has no problem with this. When we were in government and performed a review of the SBLA we did not remove the personal guarantee either. However there is a difference. Perhaps members across the way will want to brace themselves, as I am going to discuss the entire discredited Liberal red book of 1993. In that fictional collection of whimsical vote getting prose on page 49, for those keeping score at home, a commitment was made to remove personal guarantees from the act.

I realize this was just an election promise much like eliminating the GST or tearing up the free trade agreement. The new leader of our party has certainly seen this in the past. He saw the willingness of Liberals to promise anything to get elected, and they turned around and increased the gasoline tax anyway. Some of the hon. members across the way will remember this incident.

I reiterate that my party has no problem with the personal guarantee being retained. We just wish the Liberals had recognized its importance before they started making wild promises to voters which they knew they could not possibly keep.

In conclusion, my party is pleased with Bill C-53 and the work of the industry committee in making it a better piece of legislation. All members of the committee deserve special commendation for their co-operative approach in making necessary changes to the bill. Out of this process we now have a small business loans tool which will stand up to any comparable legislation in the world.

[Lynn Myers, Liberal, Waterloo—Wellington, ON]

Mr. Speaker, I will be sharing my time with the member for Scarborough East.

It is a pleasure to rise in the House today to debate this important matter, and I do so on behalf of the residents of Waterloo—Wellington.

I note at the outset that the proposed Canada Small Business Financing Act builds on the proven success of the previous loan guarantee program which has a 37 year history of meeting the needs of small business. It introduces features that will continue to guarantee stable access to financing for one of Canada's most dynamic growth sectors.

I also note at the outset that the Standing Committee on Industry did an excellent job and excellent work on Bill C-53. Committee members have been conscientious and helpful in improving the legislation and the regulations. I think that is important to note. They understood the needs of stakeholders and the bill is stronger for their scrutiny and their attention.

We are all aware that the legislative and regulatory process is evolving. The bill is one of the first to have the proposed legislation and regulations before a committee at the same time. That too is important to note. It is worth noting that we have all learned some important lessons from this process. We still need to work on improving that process to meet the expectations of parliament. In particular, we have to make sure we consult affected stakeholders about regulatory changes well before a bill is considered in committee. Members of the Standing Committee on Industry were sensitive to this issue and we need to thank them for their assistance in this matter.

This raises a second point about regulations under the new process. It is an issue that came up in committee and it is one to which I would like to draw the attention of members of the House. This legislative initiative reflects a new way of drafting legislation. The details of the administration of the program are now to be found in the regulations. Members have expressed some concerns about how this may impact on the scrutiny of the program. Nevertheless the government has responded to their concerns by agreeing to table all regulations.

The amendments adopted by the committee require that every proposed regulation be laid before both houses of parliament before it is made. They also require that the regulations be referred to the appropriate committee of each house.

The intent of these amendments is to impose an obligation on the government to notify parliament of proposed regulations and ensure these are brought to the attention of the appropriate committees. If they choose to do so, committees would then have an opportunity to schedule time to study the proposed regulations and to provide comments.

Although this notice requirement would not delay the making and coming into force of the regulations in accordance with the established regulatory process, where the proposed regulations are prepublished in the Canada Gazette , the committee's comments as well as those of other interested stakeholders made during the prepublication period would be taken into consideration.

I will now turn to another example of this government's openness and willingness to consult stakeholders. I refer to the bill's provisions for pilot projects in capital leasing and the voluntary sector, and the greater involvement of parliamentary committees.

I reiterate what the minister said and the promise that he made when introducing the bill. He said then that he intended to call on the advice of hon. members through the Standing Committee on Industry to help in designing the pilot projects.

Capital leasing is a rapidly growing form of financing for small business, but our consultations indicated that the leasing industry generally does not approve leasing for firms under two years old and which require financing of less than $100,000. Similarly, our consultations indicated that a number of voluntary groups would find the loan guarantee program useful, given that these groups are also an integral part of the economy and the labour market.

The pilot projects would determine the feasibility of extending the program to the capital leasing market and the voluntary groups. I believe that the input of committee members will be most important in devising sound pilot projects.

This is above and beyond the notification of the committee in respect of any proposed regulations for bringing in the pilots provided for in subparagraph 13(5). In essence we hope to benefit from the committee's expertise at both stages, program design and examining regulations.

I have just mentioned that this bill embodies provisions for greater accountability to parliament in regulatory matters. In calling for greater committee involvement in designing the pilots, I hope that hon. members will also see this correctly as a response to members' desires to be involved earlier in the policy development process.

I would like to conclude with a brief overview of the main strengths of the proposed Canada small business financing act. Most significantly, this bill meets the needs of small business, the entrepreneurs who are the driving spirit behind nearly 80% of new jobs in this country. They are the young small firms recognized and targeted by the bill's loan guarantee provisions. Bill C-53 offers them continuing stable access to financing even as the financial services industry is restructuring, access that a large majority would not have without this program.

The bill offers taxpayers the reassurance that the loan guarantee program will continue to move toward cost recovery. It is delivered by private sector professionals, not bureaucrats. It uses private sector money, not taxpayers' dollars.

Under the revised program, parliament will release more accurate information and performance measurements by which to judge the program's effectiveness. The new five-year review provision gives parliament a closer and more active role in scrutinizing the program. That is very important.

Canada's 2.5 million small businesses and self-employed entrepreneurs can flourish and grow in an encouraging environment. That environment is exactly what Bill C-53 will continue to provide, and rightfully so.

Our women and men in small business need to see that the federal government values and encourages their willingness to take risks. It is our small businesses after all that devise new products and services, and create jobs by their hard work. This bill recognizes and supports their contribution to Canada's prosperity. Their financing needs are exactly what this bill recognizes.

The bill before the House is a product of informed review by financial and audit experts, of widespread consultations with borrowers and lenders, and of exhaustive examination by members of this House. It meets the demonstrated requirements of small business people, large and small lenders, and taxpayers.

On all accounts it is a very sensible and integrated set of improvements to an already strong and creative program. Therefore I would urge all members in this House to support the passage of Bill C-53, the Canada small business financing act. It is an important piece of legislation and is deserving of our support.

[John McKay, Liberal, Scarborough East, ON]

Mr. Speaker, I appreciate the enthusiastic support of certain members of the House on this important matter. There is quite a number of very enthusiastic members in the House, at least on this side.

I wanted to speak to this bill from the perspective of a member of the national Liberal caucus task force on the future of financial services. We spent some eight months canvassing and listening to Canadians on this issue. We heard from 150 witnesses in seven different cities.

At the beginning of the day and at the end of the day the issue Canadians spoke to us about most was that of access to capital. After all strangely enough it is their money. Canadians want to use it as they see fit, subject to prudent lending principles.

Bill C-53 is about access to capital, a loan guarantee program which will fill a gap where private lending is reluctant to go.

Let me concede that the task force got somewhat hijacked by the proposed mergers. I would say that the banks proposing the mergers did themselves no service when they tried to jump the gun with their proposals. I would suggest that the biggest reason Canadians are leery about the proposals is their sense of discomfort with respect to access to capital. Canadians intuitively feel that when four banks become two banks it will reduce their access to capital on a competitive basis.

That is what this bill is all about. It allows small business access to start up capital and financing which is fair, equitable and competitive.

In our analysis we looked at the competitive environment. In chapter 3, titled Access to Capital for Small Business, our analysis was as follows. The existence of adequate competition in the financial services sector is vitally important to ensuring SMEs have adequate access to financing at affordable rates. Small businesses are highly dependent on the chartered banks for financing. This dependence has been increasing over the last few years.

The conference board has shown that domestic chartered banks held 50.3% of the SME financing in 1996 compared to 48.4% in 1994. In addition they held 72% of the outstanding commercial loans to SMEs in 1996, up from 66%. There is a significant linkage between SMEs and chartered banks.

Then we looked at the gaps. While the overall situation in SME lending markets has improved in absolute numbers, and I stress absolute numbers, over the past few years due to the development of innovative products and general growth in the volume of demand for financing, the proportion of SME financing to total business financing by the chartered banks actually declined by about a full percentage point.

Testimony to the industry committee over the past few years from bank representatives indicates that the loan loss ratios of SMEs is lower, if not the same, to large businesses.

We then turned to government involvement. The Small Business Loans Act was one of those issues. We said that one of the principal programs is the Small Business Loans Act. The SBLA has been focused particularly on assisting young, small and new business in accessing financing through private lenders. The SBLA is currently being revised and will continue to be a vital participant in small business lending. I emphasize it will continue to be a vital participant.

We did identify one notable gap and that is the absence of support for working capital financing which this bill does not address. I think it appropriately does not address this because access to that kind of financing premises an involvement on the part of the government which in our view is inappropriate.

The quarter ending December 31, 1995, which was the earliest date that the Canadian Bankers Association supplied any lending statistics to the industry committee, reported lending to small and medium size business at $45.4 billion. Lending to large businesses at that time amounted to $123.7 billion, making SME lending account for 26.8% of the total loans. This is a significant portfolio and is of great significance to Canadians.

As I said, we have noted the gap in working capital. We encourage governments to consider other ways of accessing this particular financing need.

One idea is being circulated by the Canadian Community Reinvestment Coalition and is relatively simple. A scoring report card would be developed whereby lending activity would be assessed by geographic area; by numbers and volume of loans in assessment areas; the numbers and volume of loans to low and moderate income loans; small business; farmers and community development loans. Banks and other lenders would have a score card and would be assessed annually on their performance.

This idea originated in the United States. While translating American experience here has some limitations, it is an idea that merits consideration on the part of the government and indeed on the part of all members of parliament.

May I say that initially the U.S. banks resisted fiercely this kind of report card, but now they embrace it with enthusiasm. They see it as a promotional tool they never had before and a way to access loans they have never been able to access before.

Incidentally, when the Bank of Montreal took over the Harris Bank of Chicago, the Harris Bank had one of the poorest records in the United States on this issue. It now has one of the best. In speaking to representatives of that bank and other large banks, I am encouraged to see that none of them vigorously oppose the report card concept. They do have concerns about what goes into the report card and how it is initially scored, but as an overall idea they are not resistant to it.

I am a believer in the concept that government should not be unduly involved in the financing of the lives of Canadians. The attraction of this idea is that it would not involve direct government participation. However, I am knowledgeable enough and after having had 22 years of law experience, there is a role to be played by government to come alongside Canadian entrepreneurs. This bill addresses that need.

Ultimately one would wish that the private financial market would step in. The indication from the United States is that their experience in this particular area is that those in the private financing market like to poke into these areas and to access places where they have been very reluctant to go. They want to show that they are involved in their communities. In the interim, there is this need for continuing government involvement.

I would like to again leave the House with what I consider to be the benefits of this bill. Most significantly, this bill meets the needs of small business, the entrepreneurs who are the driving spirit behind nearly 80% of new jobs. They are the young, small firms recognized and targeted by the bill's loan guarantee provisions.

Bill C-53 offers them continuing stable access to financing even as the financial services industry is in the throes of restructuring. We have heard how that the status quo cannot remain the same. We all agree. The question is how.

The bill offers taxpayers the assurance that the loan guarantee program will continue to move toward cost recovery. It is delivered by private sector professionals, not bureaucrats. It uses private sector money, not taxpayers' dollars.

Under the revised program parliament will release more accurate information and performance measurements by which to judge the program's effectiveness. I would suggest that the proposal being floated by the coalition is in fact one of those report card concepts that needs to be worked into the analysis of whether the private financial sector is in fact accessing these areas. The new five year review provision gives parliament a closer and more active role in scrutinizing the program.

Canada's 2.5 million small businesses and self-employed entrepreneurs can flourish and grow in an encouraging environment.

Our women and men in small business need to see that the federal government values and encourages their willingness to take risk.

The bill before the House is a product of an informed review by financial and audit experts, widespread consultations with borrowers and lenders and extensive examination by the House and its members.

On all accounts it is a sensible and integrated set of improvements to an already strong and creative program. I urge all members to support the bill.

[Jim Peterson, Liberal, Secretary of State (International Financial Institutions)]

Mr. Speaker, I think all of us owe the member for Scarborough East our thanks for a very eloquent and content charged presentation.

I have two questions for the very diligent and eloquent member for Scarborough East. In his experience did any of the other parties in the House of Commons undertake the type of detailed and consultative process for dealing with the issue of the future of Canada's financial institution?

I know the hon. member has done considerable work on the issue of coercive tied selling within the context of financial institutions. Would he care to elaborate on his conclusions?

[John McKay, Liberal, Scarborough East, ON]

Mr. Speaker, as far as I am aware no other caucus has undertaken any review of the financial services sector and has tried to piggy-back on some of the work of our caucus.

This was a very extensive consultation. As I indicated in my main speech, we did it through 7 different cities with 150 witnesses. We did all this on our own budgets and on time outside of the House and outside of our committee responsibilities.

I have to commend the members who participated in that task force because I think it made a very useful contribution to the dialogue.

With respect to the second question on tied selling, the report is divided into two parts. The first part deals with mergers. The process of the dialogue has been hijacked by the merger discussions.

The second part of the report deals with a number of contributions by a variety of members on issues such as bank governance, competitiveness, community credit unions, et cetera. My contribution was in the area of tied selling. I appreciated the responsiveness by the Secretary of State for Financial Institutions in looking into that area and making amendments to section 459 of the Bank Act so that the area of coercive tied selling is something Canadians can be somewhat comforted about.

In my paper my argument is essentially that when a Canadian has a complaint about coercive tied selling there be a reverse onus. This would mean that the person is presumed to be correct in his legitimate complaint and then the bank has the onus to say that the individual was not coercibly tied sold.

Cross-selling is of benefit to all of us. We get benefits in rates and in terms and conditions. However, coercive tied selling is an area that we need to continue to monitor.

My argument is that we need to look at the issue of a Canadian financial ombudsman and whether it is an appropriate area for the government to go into. This is also an area of jurisdiction for a Canadian financial services ombudsman. The idea of a reverse onus would level the playing field and allow all of us to feel comfort that as an unequally resourced Canadian we can deal with the overly resourced financial institution.

[Werner Schmidt, Reform, Kelowna, BC]

Mr. Speaker, I am thrilled that the hon. member knows so much about financial institutions.

I will ask him a very simple question about the office of the superintendent of financial institutions. Is he convinced there is a sufficient number of personnel in the office of the superintendent of financial institution? Is the superintendent exercising the kind of monitoring and control he ought to in cases of coercive tied selling? Can they be reversed? Is there the clout in the office of the superintendent of financial institutions?

[John McKay, Liberal, Scarborough East, ON]

Mr. Speaker, I thank the hon. member for his questions.

My reference was to a Canadian financial services ombudsman which is a differently mandated concept from OSFI. The office of the superintendent is directly responsible for the soundness of financial institutions. It does not necessarily directly involve itself in complaints between consumers of financial services and those who lend in the financial services. They are different offices and different concepts.

I encourage all hon. members to urge the government to consider the concept of a Canadian financial services ombudsman so Canadians can have some meaningful recourse when they find themselves aggrieved by financial service providers.

[Rahim Jaffer, Reform, Edmonton Strathcona, AB]

Mr. Speaker, I will be sharing my time with my hon. colleague from Calgary Northeast.

I would now like to recap the key elements of Bill C-53. According to the purpose of the existing Small Business Loans Act, which will be maintained with Bill C-53, the government, and therefore the taxpaying public, take on more risk than private lenders. Even with the changes proposed in Bill C-53, the government will still cover 85% of any defaulted loan.

We must ask ourselves two important questions. Does the Minister of Industry think it reasonable to use tax dollars in such a risky manner? And why should taxpayers take more risk than the banks?

It is widely understood in economic circles that government intervention leads to a misallocation of resources. The intervention by the government maintained by Bill C-53 will remove important market forces from the lending process and will lead to the funding of less viable business ventures, which will do nothing to foster a healthy economy.

Clause 5 of Bill C-53 illustrates the government's indifference to the fact that it is playing politics with the paycheques of Canadian people. This clause refers to the minister's liability should a loan not be repaid. However, it is clear that the liability is that of Canadian taxpayers.

As for risk, which is a key element in the proper functioning of a free market, eliminating it creates a moral hazard, in that lending institutions will be less inclined, despite the provisions for due diligence contained in Bill C-53, to evaluate the long term viability of a business venture. This situation will lend itself to the financing of unsustainable market ventures and, under this regime, it is the taxpayers who will inevitably be the losers. This is supported by the government's own statistics, which show that the default rate under the SBLA is 5.6%, compared to 0.8% in the private sector.

The impact of small business on the Canadian economy is substantial, and Reformers have always supported the needs of small business. However, the debate on Bill C-53 is not about whether small business is valuable, but about whether small businesses can get access to financing without government intervention.

I would like to point out that the importance of small and medium size businesses in the Canadian economy must not be under-estimated. The question we need to ask ourselves is the following: Is it possible to use deregulation in Canada to create a framework that will provide this financing in a more efficient way?

I believe the answer is yes, and that is why I cannot support this bill.

What we have heard from all sides has been interesting during the course of the debate on Bill C-53. Members from all parties have said how much they care about small business. In summarizing their comments on Bill C-53, my colleagues outlined how important small business is to this economy and how important it is to them as members of the House. Many of those members actually were small business people prior to becoming involved with the House. No matter where members stand in the House, no one is against small business.

The fact remains that we all have different views as to how to support small business and as to what should be done in providing that support. As I outlined in my brief address, the suggestion of members opposite has always been to implement various programs in order to intervene in the economy which can cause an unfortunate obscurity in the economy. Members on this side of the House have always argued that we should leave the business of business to the business people. I am sure the solutions will be found.

Government members have a responsibility to create a framework for a positive business environment. That is what many of us from this side of the House have argued. We have said that Bill C-53 is a sort of band-aid solution for the problem of small business financing. We have encouraged members opposite to look at the fundamental problems in relation to access to financing for small business and to look at ways to reduce taxes and other burdens on small business as opposed to implementing other government programs that will only add more paperwork and put taxpayers and small business people at risk in the sense of liability. This is the basis of our argument. It is the basis of what this side of the House has been offering as a suggestion. It is an alternative approach to what we believe has been a flawed direction on behalf of the government.

I commend all members of the House on their input as to how to help small business. Let us really look at ways to reduce the burden on small business. Let us reduce taxes. That is one of the reasons my colleagues and I oppose Bill C-53.

[Art Hanger, Reform, Calgary Northeast, AB]

Mr. Speaker, I thank my colleague from Edmonton—Strathcona for sharing his time with me. I appreciate his comments and I agree with them for the most part. I make it absolutely clear that I am also opposed to this bill. I do not know if my colleagues across the way would really understand that or if they suspected anything different but that is the case. There is good reason for that.

All this bill does is put a band-aid on the problem. It seems the Liberal government is good at putting band-aids on what could be and should be considered as systemic problems, and those solutions really do not hold up.

There is no question that all businesses need capital, they need cash. They need equity investment. There are presently certain inhibitors to the cashflow process. Those who have cash should be able to create a situation in which small businesses could flourish more than they do.

What they do not need is for the government to drive them into more debt when it does not have to, and too often that is the case. I can cite example after example in and around the region where I came from in Alberta with government interference. A lot of that so-called easy money seems to go to friends of the Liberal government. The playing field is not even when it comes to government distribution of money to the small businesses to help them develop. I find it reprehensible for the most part.

Why is it that the government turns to debt to solve cash shortages? It wants businesses to do the same thing. It is like most Liberal initiatives. Bill C-53 addresses only the symptoms of the problem. Canadian small businesses do not need more access to debt. They need more access to equity. They need more access to customers with money and they need the government to leave them alone.

It is not government that creates small businesses or all that much employment. It is the small businesses that create employment for the most part. They do not need more debt.

We say that until the systemic problems associated with excessive taxation are addressed small business will continue to struggle for more available cash. We recognize the concerns of small business owners. We know they need more disposable cash and I have had many come to me in my riding. Members across the way undoubtedly have had the same experience. They are just so much short of operating capital. Their businesses are close to being very viable. It is just that they need to get over that hump. So many of them fail because they do not have access to the cash they need. I am not saying that every business will be a viable one but there are many that are and just do not have the cash they need.

We strongly feel, though, that the way to address these concerns is through lowering the tax burden on individual Canadians as well as businesses. More money in the hands of customers, the wage earners, means more money spent on and at Canadian businesses. More money in the hands of businesses means stronger businesses, more jobs for Canadians and more opportunities for new business ventures as well as expansion.

I think we have seen some examples of some profitable businesses over this last bump up in the economy where businesses have expanded in a substantial way just through their own initiatives. It certainly was not as a result of the government. It was their own initiatives.

Addressing a short term cash crunch through more government loan programs will only exacerbate the existing problem. Bill C-53 does nothing to address the underlying causes of small business troubles. It deals merely with the symptoms of larger economic problems which are the responsibility of the government. The government should be creating an atmosphere for business to thrive in.

Unfortunately this bill not only skirts the real issues facing small business it actually creates more of the same problems which led to small business failures in the first place. I have seen government intervention in Alberta where it encouraged farmers to invest money into expanded operations. It would even lend money. It almost threw it in their faces to expand value added businesses that were in a way on shaky ground because there was no telling what the commodity markets were going to do. It was not a natural process of expansion.

The banks were also involved and then the crunch came. Millions of dollars were invested. What happened? The farmers lost their equity. They lost their new business ventures plus the land. That has happened in far too many cases because of government involvement in lending money or pushing it on them. There were some who of course jumped at it. Instead of letting the normal flow of business take its own course, this is what happens. As a result we end up with many failures, far above what it should be.

The other case at hand when we come to government throwing capital to small businesses is who pays when a venture collapses. It is the taxpayers of course. It falls on their shoulders. The tax situation in this country is unbearable. The responsibility lies across the way here. I do not have to tell you that, Mr. Speaker. You are a small businessman and would know full well what expansion would mean. I am sure that when you expanded your business you went to the government to get more capital. It is a foolish thing. There are many entrepreneurs that do not need to do that.

I think the government should be addressing the economic problems. There are ways it can do that. I am urging the government to implement substantive systemic change that will address the underlying causes of business failures, freeing up for instance capital gains. Get rid of the capital gains tax and there would be more capital to actually invest. I do not think that is a bad idea. I think it is something that should be addressed in a substantial way.

There are trade barriers between provinces and from one region to the other that should be removed. What does that cost the business community every year? If I remember correctly, it is somewhere between $5 billion to $6 billion. Let us work toward eliminating some of the trade barriers.

There is high taxation. Money placed in the hands of a wage earner is more profitable than in some government bureaucrat's hand. That would be money spent and it would assist the business community in establishing a firm base. There are payroll taxes and employment insurance both from the business community and the wage earner.

We have a surplus right now. The Minister of Finance cannot wait to get his hands on it. Really it is money that should be placed in the hands of the wage earner and the businessman. What would they do with that money? I know exactly what they would do with it. The wage earner would spend it. The businessman would look at it and say “here is an opportunity for me to buy another machine and employ two or three more people”. That is what would happen. But on the other side, it is gone. It is going to disappear.

[Sarkis Assadourian, Liberal, Brampton Centre, ON]

Mr. Speaker, I have followed with careful consideration the hon. member's speech. I found the speech by my colleague from Scarborough much more logical.

There are a few points I want to bring to the member's attention. He opposed the policies of this government for the last five years. That is fair game. But he has to admit the record is that we have the lowest inflation ever over the last 10 to 15 years; 1.4 million new jobs were created; the lowest interest rate in 25 years; from $42.5 billion we now have zero deficit; it is the first time ever we have had a surplus and we are paying down the debt; higher disposable income for Canadians; four times in a row we have cut EI.

Why does the hon. member not speak about this record? He chooses to be negative, negative, negative.

[Art Hanger, Reform, Calgary Northeast, AB]

Mr. Speaker, it has become more than clear about the situation as far as the economy is concerned. It certainly was not as a result of this government's action. The hon. member should not pat himself on the back for something he had nothing to do with.

Employment insurance is a tax cutting into the wages of employees and beating up on employers. How was the deficit reduced? Was it with the austere program this Liberal government put forward? No. It was an increase in the economy that, in spite of what this government has done, allowed more revenues to come into the coffers. That is how the books were balanced.

If the government were truly interested in creating a level playing field for businesses it would attack the more significant problems. It is not willing to do that.

Trade barriers should come down. There should be some tax relief. Where is the tax relief? There is none. The Liberal government has increased payroll taxes through bracket creep by $3,500 for a family of four. That is disgraceful. It is money taken out of their pockets.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Mr. Speaker, the hon. member talks about tax cuts with the surplus that we have.

The surplus was accumulated on the backs of those people in this country who can least afford it. Now we have a record number of children in poverty. We have record numbers of people who pay into EI and who cannot collect it because of the changes in the rules.

Would the member not agree that the surplus is really money that was confiscated from employees and, I am sure they will argue employers as well, and that money should go back to the employees? When they could not find work or when they were displaced from the work force, they at least had EI to fall back on while they were looking for other work.

[Art Hanger, Reform, Calgary Northeast, AB]

Mr. Speaker, I thank the member for that question. I certainly agree with him regarding employment insurance.

Much of the deficit reduction has been on the backs of individuals and the provinces. Look at the social commitment the Liberal government has in plain terms. It has betrayed the taxpayer and has cut back on transfer payments to the provinces. Really, looking at the situation plain and simple, it betrayed the social contract. There were health care cuts to the point where there are line-ups in the hospitals and where there is a serious technology gap in our hospitals as far as treatment is concerned.

I agree with the hon member that the money taken in this regard should go back to the wage earner and to the businessman.

[Elinor Caplan, Liberal, Parliamentary Secretary to Minister of Health]

Mr. Speaker, I am pleased to have the opportunity to rise in the debate today to discuss Bill C-53, the Canada Small Business Financing Act.

I speak today on behalf of my constituents in the riding of Thornhill, the businesses of Markham, Vaughan and Concord, the many small and medium size businesses that have taken advantage of the long history of small business loans in Canada and those that will be looking in the future to this kind of assistance.

I also speak today on behalf of the residents of Thornhill who, over the next numbers of years, will want to start businesses of their own and who will need a helping hand.

Bill C-53 deserves, and I expect to see, the unanimous support of the House because it is a bill to help small business.

When we talk about the climate in Canada in which small business can and should flourish, we have to look at what exists today. We have heard a lot about the climate that is needed for small business and business development.

I am proud to say that as a result of the policies of the government we have low inflation. Inflation in Canada is among the lowest in the world. We have low interest rates. As a result of prudent fiscal management and the balanced budget, we have not only low interest rates and low inflation. We also have the lowest payroll taxes in the western world.

As well we have a very high quality workforce. People in Canada are well educated. The work they perform is considered among the best in the world. We know Canada is a good place in which to start a business and to invest.

What is missing? Too often small entrepreneurs who are just getting started and may not have anyone to support and finance them may not know how to go about getting the support and capital they need. Access to capital, particularly for small and medium size businesses, and particularly for new businesses, is still a key component of creating jobs in Canada and creating the kind of climate where young entrepreneurs will flourish and succeed.

Often it is the young entrepreneur who is the individual with a good idea, the individual with expertise in one area. However there may be a number of areas where the person needs help and support.

When I looked over some of the research surrounding the bill I found interesting that in the last three years some 70% to 80% of all new jobs in Canada were created in the small business sector. It was not only the small business sector. It was in new job start-ups. It was entrepreneurs with good ideas, making it happen, creating jobs not only for themselves but often for others in the community. Small businesses have contributed enormously to prosperity and job creation.

Small and medium size businesses are a very important component. Some would say they are the anchor for our national economy. They make a crucial contribution to our collective economic well-being. This is one reason I expect to see overwhelming and unanimous support for this endeavour by the Liberal government. I believe everyone on all sides of the House recognizes that we must do our part as a national government in helping small business secure the dollars they need to succeed.

We know there are 2.5 million small businesses in Canada which include many self-employed individuals. If we were to do a scan of my riding we would find that in Markham, Vaughan and Concord many of the businesses that are working very hard to succeed would fall into the category of small and medium size businesses.

The Small Business Loans Act has been serving Canada's small business community since 1961. Bill C-53 that is before parliament today improves upon the existing Small Business Loans Act. The existing act has been an effective tool for small businesses accessing financing over the last 37 years. That is why I was surprised by some of the rhetoric I have heard from the other side of the House.

I stand in the House as an advocate of small business, as an advocate of job creation, as an advocate of a strong economy, and as an advocate of government playing its important and rightful role in ensuring that small business has all the tools it needs to succeed in this great country.

Bill C-53 was designed to meet three objectives to continue helping small businesses, young businesses, that need access to financing. Since this act is supported by taxpayers there is an important need for increased program accountability. Accountability, openness and transparency are values to which the government has committed itself. Bill C-53 is another important step in ensuring appropriate accountability of a government program designed to assist small businesses.

As well, this program is moving toward cost recovery, which is appropriate. As those businesses succeed, and we all hope they will, it is important that we have the resources and that they are available to help the next young generation of entrepreneurs trying to succeed in making their mark and helping Canada to maintain its leadership in the world when it comes to knowledge based and communication industries.

Bill C-53 contains no changes to the basic program parameters. However it meets the program long term viability and cost effectiveness requirements. It will provide greater stability, which I believe will better meet the needs of small business. Stability is a very important word for business. Recently we saw unexpected volatility in currency and in trading markets. We are all concerned and should be concerned about that.

That is why the bill is important. That is also why it is important to have sound and consistent public policy so that the business sector, and particularly the small business sector in this case which is so vital to Canada's economy, will have some sense of confidence in terms of what will be in place for the foreseeable future.

Last year Canada's small business loans program helped some 30,000 small businesses across the country to access nearly $2 billion in financing from Canadian lending institutions. Without this program many of the small businesses among those 30,000 may not have been able to secure financing without a guarantee from the Government of Canada. Too often major lenders do not respond as we all wish they would.

Back in the early 1970s I had my own small business which I was financing out of my household account. It seemed appropriate after having been in business for six months to go to the bank and say “I am quite successful. I do not need a big loan; $500 will do. I own my own car so I have some security, but that is all I have”. I also had a list of clients and thought any bank would judge me a good risk. I was young. I was an entrepreneur. I needed a little help.

[Hec Clouthier, Liberal, Renfrew—Nipissing—Pembroke, ON]

You are still young.

[Elinor Caplan, Liberal, Thornhill, ON]

I hear my colleague. I still feel young although a little older and wiser.

As I was saying, I had a car that was worth about $4,000 as security. The bank said to me “You will need your husband to guarantee this loan for you”. I think things have changed since those days in the early 1970s. However, I am not so sure they have changed enough to help young entrepreneurs or older workers who are starting businesses later in life and may not have a pile of money either to put into their business or put up as security. Or, they may be people like I who resented being asked to have my spouse as a co-signator. I felt I had the stature and the ability not only to look after my own business but to have a relationship as an individual with a lending institution.

While I admit that times have changed, it took me two years before I was able to secure a loan from a lending institution. By that time I was very grateful for my tenacity. I was sorry I did not know about this program. I now know it was in place then. I was so busy growing my business that I did not have the energy to keep fighting lending institutions.

Therefore I ended up financing my business out of my household accounts. I was fortunate to be able to do that. Many people starting businesses today should not have to juggle worrying about putting food on the table for their families and financing their businesses. Businesses with timely and appropriate access to capital are set up in a way that creates jobs for Canadians and contributes to their communities.

The story I told relates directly to why I am supportive of Bill C-53 which results from a comprehensive program and policy review conducted over the past year in private as well as with public consultations with stakeholders. It took into account the recommendations of the auditor general and the work of the Standing Committee on Public Accounts of which I was a member last year.

I will refer to the basic parameters of Bill C-53. It is important for business people or Canadians watching this debate to understand the types of things the government is doing to assist small business. Under the provisions of the act loans may be made by approved lenders for up to a 10 year term. Businesses will be able to borrow up to $250,000. We also know that there will be a one time up front 2% registration fee for lenders which can be charged to borrowers. In addition, lenders must pay an annual administration fee of 1.25%.

Bill C-53 is also a step forward in streamlining, improving and stabilizing the existing Small Business Loans Act. The key provision I wanted to point out is that the bill will provide authority for the Department of Industry to conduct audits to ensure compliance with the act and regulations. That is part of the accountability mechanisms I spoke about earlier.

For the first time it provides the authority to create limited pilot programs on a cost recovery basis on capital leasing and lending to the voluntary sector. That is a very important part of the bill. Organizations in the voluntary sector sometimes have difficulty in accessing the capital they need.

Today with computerization there is a need to upgrade systems, especially as we face the year 2000. As has come to be known, the Y2K problem is putting many public and private sector organizations in the situation where it is in everyone's interest for them to ensure they are Y2K compliant, that their computer systems are compatible, and that they have dealt with the problem posed by the year 2000 for all of us.

I believe that Bill C-53 will provide an opportunity that is extremely important for small business and entrepreneurs, as well as voluntary, not for profit agencies.

A very important provision of this bill is that there will be a program performance review tabled in parliament every five years which will be available for committee consultation. Rather than the sunset provision of the past, where automatically a program is sunsetted unless we keep it alive, this provision allows us to say that this is a good program. It has proved itself. It has been in place for 37 years. We have had it in place since 1961. It is now 1998. What we want to know now is, will this program on a continuing basis remain effective and relevant? If we can look at it every five years we will be able to make recommendations for change. This gives security to the business community. It gives stability.

Canada's small business financing act will provide an even more effective mechanism for government and financial institutions to share the risk of lending to small businesses. That shared risk is really what the essence of this program is all about. The federal government says to the major lending institutions in this country “We want you to do your part. We want you to support small, growing businesses like the ones in Markham, Vaughan, Concord and others in the great riding of Thornhill”. The federal government is saying “We want you to support those businesses. That is the way we grow jobs”.

Yes, it is important to have low inflation rates. Yes, it is important to have unemployment coming down. Yes, it is important to have low interest rates. Yes, it is very important to have strong fiscal management, a balanced budget and the kind of climate in which business can grow and flourish. But it is also very important for those small and emerging new businesses to have access to the capital they need.

While we are saying to the lending institutions that we want them to do their part, this Liberal government with Bill C-53 is saying that we are committed to doing our part. We are prepared to share the risk. That is what this bill is about. I support it on behalf of the riding of Thornhill and the many people who will benefit from this bill. I hope that all members of the House will join me in supporting this important and worthwhile initiative.

[Ted White, Reform, North Vancouver, BC]

Mr. Speaker, I would like to make a comment with respect to the speech that was just made. The Liberal government claims that it has had to force closure on this bill because it is so interested in helping business that it actually has to take away our right to speak on the bill. But I think government members are just paying lip service to this whole process. As long as they do not actually physically have to do something to help business, it is very easy for them to give away other people's money.

There is a group from British Columbia here in Ottawa this week from the forest industry. It is a broadly based group of unions and businesses which is trying to meet with the Minister of Foreign Affairs and the Minister of Labour to ask for help in countering a Greenpeace attack on the British Columbia forest industry. It is eco-terrorism. Greenpeacers are boarding vessels in Los Angeles. They are chaining themselves to the doors of Home Depots in the United States. This is a more broadly based group than one could find. It is desperately trying to meet with the government to ask for help, internationally, to save businesses and jobs in British Columbia and the government will not meet with them.

The government has done everything it can to fob them off, to make excuses and to cancel meetings. It has been impossible for a broadly based group of business interests and union interests to meet with the government.

If the Liberals are so concerned about small business, why do they not actually do something physically and go into a meeting with this group to discuss its concerns and to see what the government can actually do? We have made many suggestions about how government can help businesses by getting out of their lives, by cutting their taxes and by cutting down on regulations. Here is a role for government play.

In international aspects of trade, the government has a role and this government is refusing to fulfil its role.

I would ask the parliamentary secretary why the government is refusing to meet with the delegation from B.C.

[Elinor Caplan, Liberal, Thornhill, ON]

Mr. Speaker, I would point out to the member opposite that we are in this House today discussing a bill that is going to, I believe, improve the climate for small businesses and entrepreneurs in this country.

This government cares about small businesses and does everything it can to support them. I want the member to know that Canada has low inflation and that our unemployment rates are coming down. We know they are still too high and the way to deal with that is by encouraging small business development. We have low interest rates. We have payroll taxes that are amongst the lowest in the western world.

Because we have balanced our budget and have a good international reputation, small businesses are flourishing and will continue to flourish. If the member would put his mind to the bill that is before the House today and support it we could resolve many of the problems that are before us. Instead, what I have heard is too much rhetoric and not enough support for important, good government programs.

[Angela Vautour, NDP, Beauséjour—Petitcodiac, NB]

Mr. Speaker, the member just said that this government cares about small business.

I come from a region where unemployment is very high. I know the importance of making sure that small and medium size businesses are not only going to be created but that they are going to survive.

Through changes to employment insurance, $927 million has been taken out of the New Brunswick economy. We have the HST of 15% on electricity, heating fuel and children's clothing. We have toll highways that have already been paid for by both the federal and provincial governments, but they are going to cost thousands and thousands of dollars for the same small and medium size businesses that this member is saying the government cares so much about.

Members should take a look at the communities, which have been deprived of $927 million. That money was removed from rural communities where the unemployment rate was very high, where people received unemployment insurance benefits. Small businesses in these communities are not only suffering, they are closing.

The hon. member just said that her government is doing everything it can to help small and medium size businesses. How can she reconcile that statement with the fact that employers in New Brunswick have all these burdens to contend with?

[Elinor Caplan, Liberal, Thornhill, ON]

Mr. Speaker, as I said before in this House, some 30,000 businesses across the country have access to this program. We know that businesses in New Brunswick have access to this program. Without this program businesses in New Brunswick, British Columbia and provinces from coast to coast to coast would not have the same access to capital that they need to start and to flourish. Whether it be in New Brunswick or anywhere else, without this program we would not have the same strong, viable small business community.

Bill C-53 is very important to the people of New Brunswick. It is also very important to entrepreneurs across the country. There are many issues facing businesses across this great country and access to capital is one of the most important.

She must be aware that in the province of New Brunswick young entrepreneurs and small businesses need help and assistance, and Bill C-53 is designed to do just that. I know she will support it.

[Grant Hill, Reform, Macleod, AB]

Mr. Speaker, I am sure the parliamentary secretary missed the question from my colleague because she did not answer it, so I will rephrase it in a way that she can understand it.

The individuals who are here from the B.C. forestry industry cannot meet with government officials. They have tried everything they can.

Why will government officials not meet with these individuals? Is it because they are too far away from B.C.? Is it because there are too many Reform Party MPs from B.C.? Is it because B.C. is not important to this government? Why will the government not meet with forestry people from B.C. on an issue specifically related to small business? Why will they not meet?

[Walt Lastewka, Liberal, St. Catharines, ON]

Mr. Speaker, I rise on a point of order. I believe we are talking about the Canada small business financing act. The Reform Party has complained that it has not had time—