Mr. Speaker, I am pleased to rise to speak on this very short bill which basically increases the limit of loans under the Small Business Loans Act by $1 billion.
While we may think that another $1 billion to help business might be a good idea, I would have thought the government would have given us some real information on how well the program is doing.
We now have improved reporting to parliament documents. Industry Canada has put one forward under the pilot project. I looked at the improved reporting to parliament to find out exactly what is happening with the Small Business Loans Act which is being administered by the Department of Industry.
On page 5 under the title “Industry Sector Development” it states that in this overall context the department also has several specific activities directed toward small businesses such as the small business loans administration. It continues, but that is the sum total of the reference to the $15 billion program offered to small business.
When we take a look at the numbers, page 43 of the same document tells us the amount of the fees collected. In 1995-96, $18,742,000 were collected. The following year, 1996-97, $23,448,000 were collected. Page 42 tells us that there is a $44 million liability.
That improved reporting to parliament is the sum total of the information the Department of Industry is prepared to provide to us. It names the act, tells us how much revenue it has collected, tells us the liability is twice the revenue and that is it. We are supposed to make our decisions based on that.
I doubt that parliamentarians are getting very much improved reporting here and the department has a long way to go in its reporting to Parliament if it wants to call it an improvement. This to me is a shocking disgrace.
However, I do have some other information regarding the program. Coincidentally the auditor general did report on the program in his December 1997 report. It is a whole chapter. He managed to get 25 pages on the program, whereas it just gets a mention by the Department of Industry.
One of the things I notice quite alarmingly when I look at exhibit 29.5 on page 29-12 of the auditor general's report is that the value of claims paid to lenders is going up astronomically. In 1994-95 it was about $30 million. In 1996-97 it is up to $150 million and I understand it has continued to grow from that point on because the claims are far in excess of what the government expected.
We have a program that is now going to on the face of it cost us $150 million to $200 million a year based on the fact that the government has to pick up the cost of the bad debts under the Small Business Loans Act. That is the philosophy. Financial institutions lend the money, the debt goes bad and 85% to 90% of it is picked up by the taxpayers.
Why did this happen? Why did the write-offs rise astronomically? It is all in the auditor general's report. If we take a look at exhibit 29.1, it tells us that in 1993 we changed the maximum percentage of financing for equipment from an 80% maximum to 100% maximum which means that if individuals wants to buy a $100,000 piece of equipment they do not even have to put $1 down. They can go to the bank and say, “Under the Small Business Loans Act I would like $100,000 to buy a $100,000 piece of equipment. Thank you very much. I am going to go out and use it and make some money”. But if it does not turn out too well the borrower can walk away from his investment which was the maximum of $1 and the taxpayer is left on the hook.
Therefore it seems to me that Industry Canada was not thinking it out very well when it approved this change to go from 80% to 100% financing and the borrowers get off the hook because they have no money. They have no risk involved. They have nothing to say they have to make this project work.
If that is helping small business, I think it is helping small business people who perhaps are less ethical than they otherwise should be to obtain financing under very high risk procedures. That is the type of thing that should not be happening.
I have to give the government its due. By 1995 it realized that perhaps it had made a mistake and changed it. It reduced the amount of the maximum level down to 90%, which is still 10% higher than before. However, the losses continue to grow and the write-offs continue to grow.
The report by the auditor general would suggest that rather than asking for another $1 billion, as the government is doing, the government should go back and review the auditor general's report and perhaps fix the program first before asking us for another $1 billion.
What does the auditor general have to say? On page 29-16 he states: “Industry Canada does not assess whether the lender has exercised due care when making the loan”. On the next page it states: “Some loan files did not contain information necessary to perform a thorough credit risk analysis”.
On the same page we found a number of cases where, contrary to the Small Business Loans Act, the lender had charged administration fees. Carrying on, on page 20, there are no provisions in the Small Business Loans Act to prevent a group of related entities from gaining access to loans beyond the maximum amount allowed.
Finally, on page 22, parliamentarians do not have the information necessary to assess whether the small business loans program is managed efficiently and it is achieving its objectives. Here we are, as parliamentarians, being asked to give them another billion dollars when the auditor general says we do not have the information in this House to make a proper assessment.
That is why the Reform Party says not at this time. The government should do its homework. It should clean up its act and make sure the act is working the way it was intended to work before it comes here asking for another billion dollars.
I am critical of the way the department managed this act. As I say, the lenders, the banks and the financial institutions give out the money and have the government's guarantee to fall back on. However, I understand that the Department of Industry does not audit one file until such time as the loan goes bad, is a write-off and it all lands on the department's desk. Do we think these financial institutions are so good that they are not going to make any mistakes and are going to follow the law to the letter?
In a small statistical sample, the auditor general finds that not to be the case. Therefore why does the government not audit the financial institutions to ensure that the law is being followed? It makes simple sense to me yet it is not being done. That is the type of thing we would like to see rather than being asked to put up another billion dollars.
I talked about the taxpayer being on the hook for these things. Actually the government's intention is to alleviate the responsibility of the taxpayer and make this a full cost recovery program. I scratch my head when I say full cost recovery because here we have the government saying it wants to help small business so it has a program to help small businesses borrow money so they can get the business up and going and be more prosperous. Then it says it wants to recover all its costs. Where is it going to get the money back from?
First, when a businessman goes to the bank and tries to borrow money under this program he has to pay a 2% fee right up front. If he wants to borrow $100,000 he has to pay a $2,000 application fee. Then every year the bank has to pay to the government a 1.25% administration fee which it can recoup from the borrower through interest rates. Now we have a 2% application fee and a 1.25% annual administration that the borrower pays. This money goes into the government coffers and then, when the government has a bad debt, it hopes to be able to have enough money in this pot so it can pay back the financial institutions.
Who is left holding the bag? It is obviously not the government because it is on a cost recovery program. It is obviously not the financial institutions because they turn around and claim back from the government. Therefore the only person who can pay is the successful businessman who borrowed the money, paid his application fee, paid his annual administration fee, paid the interest to the bank, tried to make a go of his business and maybe did so with reduced profitability of course because of all these front end charges, and he ended up having to subsidize and reimburse the government for the bad debts it ended up paying for.
Here we have the idea of helping small business which turns out to be a tax on small business. It is a tax on the successful small business people who end up having to reimburse the government to pay for the bad debts and they did not even have a say on who received the money. That is why I scratch my head. It gets a little convoluted when the government stands up in the House and says it wants another billion to help small business. When we analyse the program we know that small businesses are helping themselves despite the government being on their back. That is what is amounts to.
The auditor general confirms that by telling us that it is a poorly run and poorly administered program.
It gave the financial institutions the right to lend 100% to buy equipment and the losses went sky high. Therefore the taxpayers are on the hook to some degree and the successful businesses are on the hook for the rest.
We call this help for small businesses. My God, they would be far better off if the government said “we will stay out of your hair and you go ahead and make money”.
The other thing we found out was this concept of what is called incrementality. It is a little complex to deal with, but the concept is that the banks only accept a bit of risk and if there is a bit more risk they say they do not even want to lend to these people because they have all these profits to make. The government says with the government guarantee they will accept a little more risk.
What the auditor general found was that 40% to 50% of all the loans granted under the Small Business Loans Act would have been given by the banks anyway. But they just wanted this extra piece of protection so they can get reimbursed either by the government and taxpayers or by the successful borrowers.
Shareholders are not at risk. Bank profits are not at risk. They just want to get the extra piece of protection, and surely that was not what the program was designed to do, to protect the banks so they can increase that $6 billion or $7 billion profit up by a hint more. I did not think that was the idea.
I did not think that banks fell under the qualification of small business, and I do not think that Canadians think that banks are small businesses and that we have to help them make profits. That is not the idea.
I come back to my original point. Why is the government asking us to increase the guarantee by another $1 billion when we know the program is poorly managed? We know that it is a tax on small business. It is not helping small business. We know the Liberals need to clean up their house and get it in order and they are supposed to make these improved reportings to Parliament a real improvement rather than more paperwork that does not mean anything to us. They are supposed to give us the real information for us to make an intelligent decision rather than just endorse the request by the government.
We have a long way to go in building accountability into the Small Business Loans Act, into the Department of Industry, into the way this government spends taxpayer money.
Next Tuesday the Minister of Finance is going to bring down a budget. And he is going to stand up in this House and tell us what a wonderful job the Liberal government is doing. He will have platitudes and one will think this country has to be the best run country in the world.
But scrape away that very thin veneer and what do we find? We find reports such as the auditor general's which say this program and every program he reports on need dramatic improvement. We find that the improved reporting to Parliament is no improvement at all.
We find that money is being spent frivolously. There is no control on the management of programs. That is the story and it is the taxpayer who gets to pay the bill, and it is the small businessman who gets to pay the bill. As government members stand up in the House and tell us what a wonderful job they are doing, when we look underneath, when we look at the actual programs being delivered, we find they are woefully inadequate.
Here is an opportunity for the government to listen to the opposition, listen to the auditor general and say “we hear what is being said, let us go back to the drawing board, let us keep this $1 billion request on the table at the moment and wait until we have this program running efficiently”.
If that is the case and if we have the proper information, I am sure we would have a much better debate in this House. We would not be so critical of the government in its poor and inadequate attempts to help small business.
When we look at this program, helping small business is the name of the game according to the government, but small business is succeeding in spite of the government. Small business is creating jobs in spite of high taxes and overregulation. It is creating jobs in spite of the fact that CPP premiums are going up 73%, in spite of the fact that we are carrying a $45 billion a year interest on our backs that is paid for by the business and economic activity of this country. Yet we are still able to compete and succeed to some degree.
We must take our hats off to the business people in this country. In spite of all the pressure this government has imposed on them, they are still able to compete in the world marketplace. They are still able to create jobs and maintain some level of prosperity for the citizens of Canada. Again, let us take our hats off to small business people. They are doing a great job in spite of this government.