Debates of Feb. 25th, 1998

The Budget

[The Deputy Speaker]

The hon. member presumes a little on the Chair.

[Tony Valeri, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, with respect to the change in personal income taxes paid in 1995, I urge the member to be a little more careful in his analysis of the tax trends. In comparing the tax burdens between 1995 and 1994 the member does not consider the one time increase in capital gains income reported on 1994 tax returns made in anticipation of the elimination of the capital gains exemption.

As a result, an unusually high amount of capital gains exemptions were claimed in 1994 which lowered the overall tax rates in that year to below normal levels. Any comparison between 1994 and the more typical 1995 average tax rates which does not take into account this fact exaggerates the rise in tax between these two years.

Growth in federal revenues since 1994 is primarily due to an increase in economic activity as reflected in the annual nominal GDP growth in the range of 4%. As we witnessed yesterday, this government has taken the first step to reduce taxes for lower and middle income Canadians.

The Reform Party may think that tax relief for 13 million Canadians, for low and middle income families, for single mothers and working parents, for 90% of taxpayers is a waste of time, but we do not.

[John Solomon, NDP, Regina—Lumsden—Lake Centre, SK]

Mr. Speaker, in question period on November 25, I raised the issue of the need for a community reinvestment act in Canada. At that time I asked the finance minister why, if the United States has a community reinvestment act and if Canadian banks such as the Bank of Montreal have to live by its provisions when they buy American banks like the Harris bank in Chicago, we could not enact a community reinvestment act in this country.

The Liberal reply was right out of the briefing book supplied by the Canadian Bankers Association to all members of Parliament. I wish his officials would expand their reading list a bit on this topic. He misstated the purpose of a community reinvestment act and implied that it would ghettoize parts of Canada in terms of loans and investments made by the banks.

I will explain what a community reinvestment act really is for the secretary of state in the House. I will also explain why the New Democratic Party advocates this policy. When the Bank of Montreal wanted to buy the Harris bank in Chicago in 1993, U.S. regulators delayed approval until it met obligations under the American community reinvestment act to provide loan funding for small business and community development in the Chicago area. Eventually about $497 million Canadian in loan commitments was made to local housing projects and area small business over a five year period.

This idea has never been more relevant with the announcement of the monster merger of the Royal Bank and the Bank of Montreal. According to last Saturday's Globe and Mail , 206 communities in Canada rely solely on either the Royal Bank or the Bank of Montreal for banking. Matthew Barrett of the Bank of Montreal said yesterday that none of them will close but I think there are 206 communities in Canada waiting for the other shoe to drop.

Other banks are pulling out of communities. In January, on the day it announced record profits to its annual shareholders meeting, the CIBC closed a branch, the only financial institution in Lynn Lake, Manitoba. A Braxton Associates study last year estimated that 5,700 bank branches will close over the next decade, putting as many as 35,000 employees out of work. We will start to see bank branches in small communities closing as fast as post offices. The merger mania is one of the reasons these branches will close. It is a sad commentary on the declining attention being paid to the needs of rural life in Canada.

A community reinvestment act makes financial institutions accountable for their behaviour in our communities. It requires the banks to invest in the communities deemed in need. In the U.S. banks have to prove they are meeting the credit needs of small business, community economic development and low income residential mortgages. They have to keep lending statistics on loan requests, denials and approvals, and report their record in lending to visible minorities, women, low income neighbourhoods and so on.

It requires those financial institutions to commit funds in order to meet these needs and to work together with community groups and businesses to make plans for doing so. It is not rocket science. At first, U.S. banks did not like the idea but now they have found they have very low default rates on residential mortgages. Matthew Barrett knows all about it. He had to comply with these regulations before he bought the Harris bank in Chicago.

My point is this. We need jobs in Canada. We have a higher unemployment rate than in the U.S. Banks are making record profits in Canada but they are not investing in small businesses that create jobs or meeting their responsibilities to smaller communities in Canada. In the U.S. they have to do it by law.

Here is one way for them to do it. Why does the government not consider this idea?

[Tony Valeri, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, the availability of credit to the small business sector remains a critical issue for this government.

We are very aware of the importance of the small business community and its impact on our domestic economy. That is why the government has worked hard over the past few years to improve the environment for small businesses in Canada.

The views of the task force on the future of the Canadian financial sector will be helpful to the government in deciding whether to approve or reject the particular merger transaction.

I would like to assure my hon. colleagues in the opposition that this government will not allow this merger to proceed without the understanding of its impacts on the small business community in Canada and without the full input of all Canadians, including the small business community.

We said from the beginning that this government will not allow any financial institution to jump the cue. We set a process in place. That process was to allow the MacKay report to report. Once the MacKay report comes back to this House, the standing committee on finance will tour the country.

I offer the invitation to the hon. member who brought this question to the House to join us to hear from Canadians and to have input into what this government is prepared to do with respect to the merger of any financial institutions in this country.

[Antoine Dubé, Bloc, Lévis, QC]

Mr. Speaker, on the last day of the session before the holidays, or December 11, 1997, I questioned the Minister responsible for International Trade about what was happening about the guarantee of funding for the Spirit of Columbus platform, which MIL Davie had managed to bring in after several months of efforts.

That platform has been anchored in the port of Quebec since August 30 of last year, but the wait on the guarantee of financing from the Export Development Corporation, which reports to the Minster of International Trade, has been going on for more than a year.

As the minister's response was not very helpful, I am back at it again today to try and get some more details.

The minister said:

I spoke with Mr. Landry some months ago. I directed the EDC to speak with the Quebec SDI. Meetings were held. He had spoken with the MIL-Davie union president.

The federal government feels this is a very important undertaking. I respect the recommendations made by the EDC and the SDI on behalf of the governments of Quebec and of Canada.

We have been waiting ever since. From time to time in this House, every couple of months, I bring it up again. I know this is a complex matter, but we are now at the end of February, and next week the House adjourns. Dominion Bridge, which owns the shipyards, is doing everything it can. It has even got new investments from American ECO, which is currently discussing a take-over of Dominion Bridge, and therefore of the yards.

There are two other platform projects, each costing in excess of $100 million, Amethyst II and Amethyst III, for which applications have been made. The Government of Quebec is prepared to contribute. As long ago as September 20, the SDI had given its agreement in principle for this project. Now that we are talking in excess of $300 million for these platforms, we are still waiting on the federal government and the Export Development Corporation to find out what is going on about the guarantee of financing.

I would like to give a quick review, in a few seconds, of one other Liberal government commitment. In 1993 it had promised a summit on the future of marine construction in Canada. This was picked up on by then New Brunswick Premier McKenna who reminded the government of it at a federal-provincial conference before his resignation.

Now here we are in 1998, 5 years later, and there is no sign whatsoever of a symposium or summit on marine construction in Canada.

[Bob Nault, Liberal, Parliamentary Secretary to Minister of Human Resources Development]

Mr. Speaker, the Export Development Corporation, EDC, has been in regular contact with Davie Industries, Société de Developpement Industriel du Quebec, SDI, and the other participants in this transaction.

EDC has provided two separate financing options to the project sponsors in support of the Davie contract. The first was dated June 17, 1996 and the second, October 10, 1997. Both proposals, however, have been put aside by the project sponsors that would like EDC and SDI to participate in a structure which the sponsors have engineered.

Unfortunately, following a detailed review by EDC and SDI it was determined by both that the project sponsors were asking EDC and SDI to assume unacceptable commercial risks.

Regardless, upon the request of Davie Industries, in conjunction with EDC and SDI, we have continued discussions on this transaction. At the present time EDC and SDI are working on a viable financing structure in co-operation with Davie Industries and the project sponsors.

It should be emphasized that EDC is a self-sustaining crown corporation operating at arm's length from the government and is not part of the government per se. We also want to make it very clear that EDC could act quickly to implement the financing question once a structure has been agreed to.

EDC appreciates the urgency Davie Industries faces in having to secure financing for this project. We await an acceptable proposal.

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

Mr. Speaker, a recent report was prepared for Human Resources Development Canada based on an 18 month study into underground economic activity, the $92 billion a year construction industry. The report was prepared by the consulting firm, KPMG.

The study which ended last fall was conducted by a working group headed by a consortium of consulting firms and involved a half dozen federal departments and agencies including Revenue Canada, Finance, Statistics Canada, Industry Canada and Canada Mortgage and Housing Corporation.

Government suspects and those in the industry claim the construction workers operating in the underground economy are padding their untaxed earnings with EI, welfare or workers' compensation. Governments fear that underground activity in this area is undermining their ability to fund those same social programs, as well as the Canada and Quebec pension plans.

The abuse and undermining of social programs are only two of the disturbing findings of the study into an industry long suspected of being a major player in the underground economy where otherwise legitimate activities are hidden and not taxed or regulated.

When the untaxed wages of workers in the underground economy are added on to social program payments, they often earn more than workers on legitimate construction jobs, according to the report, and it so notes. Those workers are also putting their future financial security at risk.

Workers are being pressured into accepting less than legitimate working arrangements under which employment insurance premiums are not deducted, workers' compensation is not provided, and there is no protection against dangerous or unhealthy working conditions.

It would appear that while economic factors are the largest factor in driving the underground economy, the picture is complicated by other factors including politics, an inverted sense of self-righteousness, various forms of sociocultural motivation and the role of EI, workers' compensation, social assistance and other benefits. The underground economy therefore is not only flourishing, it would appear, but it is also growing.

I would like the parliamentary secretary to outline exactly what the government plans to do to correct the abuse and what the government plans to do to stop the undermining of our social programs as a result of this underground activity.

[Bob Nault, Liberal, Parliamentary Secretary to Minister of Human Resources Development]

Mr. Speaker, I thank the hon. member for Waterloo—Wellington for bringing this important issue to the attention of the House.

Underground economic activity is indeed a problem in Canada which should be reduced. Representatives of the construction industry take this issue very seriously, so much so that they expressed concern about the growing problem of underground employment and its implications for the future of their industry directly to the Minister of Human Resources Development. In response to their concern the minister agreed to work with them and subsequently developed a joint industry-government working group to examine this important issue.

The report the member brought forth in his question in the House a number of months ago referred to the results of the working group's study. Its focus on labour market implications of underground employment in the construction industry is exactly what the member is asking about today.

Contrary to what the member is suggesting and suggested in his question not too long ago, there was no leak to the media. The fact is that over 1,000 copies of the report were made available to the working group members last December. The intention of that was to get some input from all those members as to what was the best solution to deal with the underground economy.

Because of the somewhat sensitive nature of the report—it describes in some detail how frauds are accomplished—the working group decided that its individual members could best determine how to distribute the report to their constituent organizations and concerned stakeholders. The report will be used by the individual working group members to create action plans to reduce underground employment in the construction industry.

Once that work is done I assure the member, the people at home who are watching and the House, that we will move very quickly on the underground economy.

[The Deputy Speaker]

The motion to adjourn the House is deemed to have been adopted. The House stands adjourned until 8.30 a.m. tomorrow pursuant to the special order of February 23, 1998.

(The House adjourned at 6.51 p.m.)