Debates of Sept. 28th, 1998

Business Of The House

[The Acting Speaker (Mr. McClelland)]

The House has heard the terms of the motion. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

(Motion agreed to)

The House resumed consideration of the motion that Bill C-53, an act to increase the availability of financing for the establishment, expansion, modernization and improvement of small businesses, be read the second time and referred to a committee; and of the amendment.

Canada Small Business Financing Act

[Eric C. Lowther, Reform, Calgary Centre, AB]

Mr. Speaker, I have a few brief comments and perhaps a question for the previous speaker from the government side.

I want to clarify a couple of things that have been said back and forth here. First, the Reform Party is very much concerned about the health of small business in Canada. I guess the debate here today is whether or not the changes to the SBLA really help small business. Is it the best place where we can spend some of our efforts to help small business?

Our approach is adding to the amount of money that is available to small business ventures. The SBLA is perhaps one way to go, but we do not feel it is the best way to go.

I refer to a letter I recently received from the Canadian Restaurant and Food Association. I will read from it and ask the member to comment on what would really help small business. The letter states “As noted in previous correspondence, the huge and growing federal payroll tax burden on food service businesses is constraining job growth among the association's 40,000-plus members. Economic theory and empirical evidence both support the strong correlation between significant payroll tax reduction and employment generation, particularly in labour intensive industries like food service”.

There is one industry that is pointing to the common sense solution to help small business. We seem to put huge burdens like high taxes, and the high payroll taxes to which this association refers, in front of small businesses and then help them to get access to capital so they can effectively go out there and hang themselves.

Would the member across the way comment on the relative priority of expanding the SBLA as opposed to giving small business, particularly those in this industry, a break on payroll taxes?

[Alex Shepherd, Liberal, Durham, ON]

Mr. Speaker, I am happy to reply to the member for Calgary Centre.

I understand the issue of payroll taxes. All of us would like taxes, no matter where they are, to be lower than they currently are. We have heard the Minister of Finance say it in his view, and indeed that of the Prime Minister, taxes in Canada should be reduced. I am very heartened that we are actually moving in the right direction.

To answer the member's direct question, I suggest that he should read the OECD report on Canada's economy. It will show that payroll taxes in Canada are one of the lowest in the OECD. In other words, once again we are looking at the competitive global environment in which we are competing. The reality is Canada's payroll taxes are one of the lowest.

I am not saying that is something of which we should be totally and utterly proud. Certainly we would like to reduce taxes at all levels, but relative to the ability of the restaurant industry to compete both domestically and in the tourist industry, which is very related to international competition, our payroll taxes are one of the lowest. They already have a competitive advantage because of that.

[Gurmant Grewal, Reform, Surrey Central, BC]

Mr. Speaker, I rise on behalf of the people of Surrey Central who oppose Liberal government Bill C-53, an act to increase the availability of financing for the establishment, expansion and improvement of small businesses in Canada.

The lofty claims of the title of the bill as we shall see are not accurate. The contents of Bill C-53 do not live up to the claims in the title of the bill. It looks on the surface very good, yet it needs improvements and we need to modernize the act.

Canadian taxpayers, Canadians without jobs and Canadian small businesses are disappointed with Bill C-53 that we are debating today. On this side of the House we wish the government would introduce legislation that would be of assistance to Canadian small and medium size businesses. The official opposition would support modernization of the small business loans program and would like to support the improvements in financing for small businesses, but what the Liberals are proposing is not good enough. No one is fooled by Bill C-53. The Liberals are ignoring small business.

Earlier we debated Bill C-21 to extend the Small Business Loans Act to March 1999 and to raise the government's total liability to $15 billion. The official opposition opposed it because the government was failing to address the real issues.

The government does not listen to the official opposition or the other opposition parties, to small businesses, to the Canadian Federation of Independent Business or to the auditor general. In terms of the Small Business Loans Act the auditor general has some concerns.

For example, I would like to address some of the main concerns the auditor general has cited in his report. There is a need to define the results expected from the SBLA program. We need to ensure that it is designed to maximize its impact. The department needs to clarify expectations and to develop indicators of the program performance in establishing, expanding, modernizing and improving small businesses. What is needed is a performance evaluation framework to ensure the program is achieving its intended results.

There is a need to strengthen SBLA program management and delivery mechanisms. Incrementally, it is also critical for the purpose of this program that lending should be additional to lending that would have occurred anyway and not merely replace it. The latest study indicates that only 54% of loans, particularly to newly created enterprises, could be considered incremental. It is important for Industry Canada to define the levels of incrementality it expects for these loans.

The department should provide parliament with better information to assess whether the program is achieving its objectives. For example, the auditor general estimated that the program will incur a net loss of $210 million for loans issued between April 1993 and March 1995. This compares with a surplus of $72 million reported for those years on a cash basis. The difference occurs because the department does not include a provision for loan losses in its annual report.

In the last two years, Industry Canada has placed considerable emphasis on moving the program toward full cost recovery. Under the present fee structure and loss sharing ratio, it is uncertain whether full cost recovery will be achieved. The department should carefully study the extent to which the objective of increasing the availability of loans at reasonable rates can be achieved simultaneously with the objective of full cost recovery.

The government does not listen to the opposition parties, nor to the small businessmen, nor to the auditor general.

The department needs better tools to properly forecast future loan losses and monitor any changes in its loan guarantee portfolio. For example, the auditor general finds that the files did not show information on thorough credit risk analysis. In some instances, lenders had charged administration fees for granting loans, contrary to the act. Also, related borrowers were found to have obtained numerous loans whose total exceeded the $250,000 loan limit to operate the same business.

These practices are contrary to the intent of the act which we are debating today. Currently there are no provisions under the SBLA to prevent this particular abuse.

The Canadian Federation of Independent Business would remind the government to stick to its knitting with respect to this program. It says that working capital needs should not come under SBLA because it could ruin the entire program. The government should test a program on its own merits and see whether it works because lending for working capital purposes is a different game altogether.

We worry about the long term sustainability of the SBLA program. Every conceivable need cannot be put under the umbrella of the SBLA.

The government must reject the suggestion that the only way the banks will lend to a small business is under a credit guarantee scheme. SBLA in no way is to be used by the banks as their response to the broad financing problems experienced by the majority of small firms in Canada. The objective of SBLA is to ensure the sustainability of this program and keep it effective and relevant.

The present SBLA loan size threshold is $250,000. There should not be any increase in the threshold because the average loan size is well under $100,000 for small businesses. If the limit is increased, it will create problems related to larger firms trying to beat the system. They will abuse the system.

Similarly, the sales volume threshold is set too high. According to the CFIB only 7% of firms are larger than $5 million and 18% of firms are larger than $4.2 million. Statistics Canada numbers indicate much the same. Loans of this size are beyond the fundamental intent of this program.

The SBLA application forms also must be transparent. Loan officers should fully explain the opportunities and the costs of this form of financing. Many loan applicants do not know what they are receiving. They do not know they are receiving money under a government guaranteed program for which they are paying the premium.

In the past the method of assessing the program has been a weakness. Tighter monitoring and program evaluation is a must. For those issues that are fundamental to the program, for instance, structural changes to the program such as lenders permitted, loan thresholds, qualifying loan recipients, et cetera, these should be dealt with under this legislation, not regulation, in order to ensure accountability and transparency under the program.

It is important to differentiate between loans under the SBLA and normal bank loans. Solutions practical to small firms must be pursued with more vigour. Better solutions to the equity issue for small firms will do much to build not only the financial health of the firm but also its ability to grow and contribute to the economy in terms of jobs and wealth creation. The outcome would be less reliance on government subsidized credit guarantee programs such as the SBLA. Government should use instruments of fiscal policy to resolve the equity gaps for small firms.

The legislation governing the program has remained unchanged since 1961 with respect to the types of assets eligible for financing. It needs to be reviewed and will need to continue to be reviewed as our economy becomes more complex. For example, the service sector and the knowledge sector are expanding and create significant numbers of new jobs. The Small Business Loans Act needs to take into account the needs of these sectors. At present the SBLA is not considering these needs.

Financial institutions are coming up with new services and new products. Are these institutions able to take full advantage of the SBLA? Are the Liberals investigating the financial, service and knowledge sectors of our economy in order to ensure that small businesses in these sectors are receiving the assistance they need to develop, to compete internationally and to create jobs at home for Canadians? The answer is no. By introducing Bill C-53, the Liberals are not concerned. They are not looking to the future.

For about 10 years the CFIB has been fighting the changes the Liberals are going to make with this bill. Before the Liberals came to power, the Tories were trying to increase the financing along the same lines as the Liberals are finally doing with this bill without cleaning up the operations of the act.

The CFIB has been saying that if the current abuses of the Small Business Loans Act were curbed and if the parameters of the program were restricted, this program would require less of an allocation of funds while being effective in meeting the program's objectives. The Liberals are not addressing these issues in Bill C-53.

The thresholds for financing are too high. The legislation defines small businesses as those firms that have up to $5 million in sales. That is not a small business. That is a medium business.

The 1998 CFIB presentation is remarkably similar to its 1993 letter to the prime minister. In other words the CFIB has been asking for these changes for five years. What does the minister responsible for small business give us? Bill C-53 indicates only the amount of money that Canadians can lose on small businesses that fail.

If the size of the loan and the size of the annual sales of the business were reduced, we would have a system that serves small businesses. We would also have a system with a drastically reduced rate of abuse.

Small businesses create jobs. It is not the government that creates jobs.

Why should Canadian taxpayers support the increase in the amount of money taxpayers are on the hook for if the program is flawed and we are not fixing the program?

This is the same government that gives big businesses big subsidies. The Liberals have just given Bombardier a $25 million interest free loan. Do the Liberals give interest free loans to small businesses? No. Canadians know they do not. The Liberals are also giving big corporations sole source contracts, for example a $2.85 billion sole source NATO contract.

The Reform Party is not in accord with the Liberal government but is in accord with successful business. We will continue to push for transparency in government. It is not enough for the government to say that the loans are fully repayable on commercial terms. At the heart of it, we want to see it as a payment so that taxpayers can be confident that arrangements can be made. We will welcome Bombardier's help in pushing the government to implement a reporting regime that would protect both the company's competitive position as well as allow public scrutiny of the grant program.

Canadians know the abuses in the small business loans program. We know that the parameters of the program need to be constricted. We know that a lot of work needs to get done so that financing is available to small businesses in our country. Helping our small businesses access financing is one of the most important things we can do for job creation in the country.

The Liberals are tinkering with the small business loans program. The Liberals do not see the need to improve the program. There is a need because if the problems of the program were addressed, there would be more financing for small businesses.

Small businesses face a high tax burden. The government has placed tax increase after tax increase on Canadian businesses and individuals. We must not forget that individuals own small businesses.

Payroll taxes, including the CPP and EI premiums, and the GST are killing jobs in Canada. The personal and retail tax rates are killing small business owners.

The Liberals are doing nothing about the underlying economic problems small businesses face. The Liberals by ignoring these issues are killing job creation. I want to find out from my colleagues, where are those jobs which they promised?

The Liberals are failing us in this regard. They are not taking advantage of the opportunity Bill C-53 offers to create jobs. They are not even doing what the CFIB has been asking them to do for the last 10 years. The CFIB represents 90,000 businesses across Canada from virtually every sector of our economy.

We can see the long laundry list of problems and areas that need to be improved in the operation of the small business loans program which the CFIB presented to the Standing Senate Committee on Banking, Trade and Commerce in July 1998. The CFIB's presentation to the committee refers to the CFIB's 1993 letter to the Tory minister responsible for small business. The department should look into and correct various elements of the act such as capital leasing and delivery mechanism. Lack of working capital is not covered in this bill. The department needs better tools to monitor the loan program. The department needs better forecasting techniques. The department is not reviewing risk analysis in this bill. Loans made to related parties and charging of administration fees are not reviewed. Related articles in the Income Tax Act need to be fixed so that this bill can be effective. The financial information presented to parliament is not enough, following a cash basis versus accrual system.

There is no provision for losses on outstanding balances in this Small Business Loans Act which is $6 billion. The borrower is not guaranteed but the bank is guaranteed for its bad decisions. Thus the objective is to promote the small businessman and not the small business. The job creation record is very bad. The displacement effect is negative. Job creation figures under SBLA have been inflated by this government as much as five times. Industry Canada does not do an audit of an account until a file becomes a claim file. A complete cost benefit analysis has never been done.

The list is long but my time is up. I urge Industry Canada to look into these conditions so that we can improve and make this program effective. Therefore we cannot support this bill.

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

Mr. Speaker, I listened very intently to my colleague from Surrey Central. But I am really not sure what is happening.

My understanding was that the Bloc was looking at expanding the bill in some areas that were not included but should be. Another party said that there are some improvements required in amendments. I welcome the NDP's concern with small business now.

My understanding from the Reform Party is that it does not want the bill at all. I might be wrong on that. I think it needs to clarify it because my understanding from another colleague from the Reform Party is that it would like to just do away with it. It wants to support small business but not through the Canada small business financing act.

I would like the member to clarify his position. I did hear that there are items like audits and so forth which by the way, I would like to inform my colleague, are included in the bill. So it will be very interesting when this bill goes to committee.

I would like the member for Surrey Central to enlarge on his suggestions for improvements.

[Gurmant Grewal, Reform, Surrey Central, BC]

Mr. Speaker, I thank the member for his question. He has been frank because he does not know or probably is not up to date on how many recommendations from the auditor general's report have been incorporated into the new act.

When we debated Bill C-21 we had concerns and we mentioned them. The auditor general has a full chapter on this, chapter 29, and he has included all the details. I had a long list of the changes which are expected to be made in this bill so that this bill can be effective.

We will support this bill once it is effective. It will be a good bill provided these changes are introduced which are not introduced at this time. Who would not support modernization and improvement to small businesses? Who would not support increasing the availability of financing for small businesses for their expansion? We will, but only when this whole program is effective.

The system is abused. The banks are using all kinds of practices to abuse the system. It is not the small businessman who is taking advantage of the system. There are many examples that can be put together.

This bill needs a lot of amendments. The whole small business loans program, introduced in 1961, has not been renovated.

Once the changes I mentioned in the conclusion of my speech are incorporated, we will be more than happy to support this bill. Until then, we ask the government to take this opportunity, take the free advice from the official opposition and include it in the bill so that it affects small businesses.

We want small businesses to progress in this country because they are the ones creating jobs. Let us create the tools. Industry Canada has the opportunity to have those tools in its hands and to give those tools to small businesses to take advantage of.

[John Bryden, Liberal, Wentworth—Burlington, ON]

Mr. Speaker, I wish to draw the attention of the House and anyone watching this debate to the fact that there has been quite an innovation introduced into this bill that I am very much in favour of. I do not think members of the House have noted it.

There is the suggestion that the small business loan program will be extended as a pilot project to the voluntary sector. In other words, the minister is suggesting this at least as an experiment to see what it is like to provide loan guarantees to organizations financing charities and non-profit organizations.

What is important here is that very clearly the not for profit sector is taking more and more of a role in society in providing certain social services, certain benefits.

In many senses this is a positive thing and in another sense it is a negative thing. What it really means, especially in Ontario, is that the Ontario government is getting out of providing the social services that governments normally provide. It is leaving it to non-governmental organizations like charities and non-profit organizations.

This minister has recognized that there is a major change coming in society. He is obviously, in this legislation and in the regulations that will follow, preparing for it by providing at least an experimental try at how we go about financing or giving loan guarantees to those who would finance not for profit businesses.

There are dangers to this because not for profit organizations operate as businesses but they have advantages in the sense that they do not have to pay taxes. If they are a charity, they actually can issue tax receipts that help them cut their costs when they enter into the marketplace.

There is a lot of controversy out there right now with not for profit organizations competing with for profit organizations in the marketplace. As an example, in my riding there is quite a controversy about the YMCA coming in to build an enormous facility for one of my communities. It will be financed entirely out of memberships.

The YMCA is a charity and the complaint is that private entrepreneurs who are selling fitness in the area are complaining that they are getting unfair competition from a charity.

There is some merit to the complaint of for profit companies when they find themselves up against a charity or non-profit organization that has the advantage of tax receipts or tax breaks.

Another instance is in Winnipeg where the Habitat for Humanity charity is in competition with a for profit used lumber recycler called Happy Harry's. Happy Harry creates jobs. He pays taxes and he is up against a non-profit organization that has advantages in the marketplace.

The warning is simply this. A not for profit organization is an umbrella term for non-profit organizations that do not pay taxes and for charities that do not pay taxes and issue tax receipts. Those are two categories of not for profit organizations that stand to benefit from the proposal in this legislation.

We cannot assume that because this is a non-profit organization or a charity it will be running more efficiently. The reality is that no matter what kind of business someone is in, if there is a profit incentive it usually leads to efficiencies. Take away the profit incentive then we run into the danger of a lack of accountability in the actual organization, the actual costs and the revenues and expenditures.

While I think this is a very intriguing and interesting experiment proposed by the minister and it is a good thing that we do this pilot project, I stress that we need to have a strong debate at the committee level and we need to make it very well known in the entire business community that we are proposing this initiative. We then may find a way we can support particularly charities that are engaged in business activities to the public good. However, we have to define the parameters and those parameters can only be defined through proper debate in this House and in committee.

[Gerry Ritz, Reform, Battlefords—Lloydminster, SK]

Mr. Speaker, it is certainly a pleasure to rise today and speak in this debate on Bill C-53. I will be splitting my time with my colleague from Prince George—Bulkley Valley should we have time left.

The title of this bill is a real mouthful in itself. Bill C-53 is an act to increase the availability of financing for the establishment, expansion, modernization and improvement of small businesses. It sounds like we are going to be all things to all people here.

In every area of economic activity we find taxpayer sponsored programs whose objectives claim to be that they will help people work more or expand their businesses or make more money. The problem is this is precisely what people naturally want to do with their businesses in the first place. What we see is that many of these government efforts are actually taking resources away from people in taxes who would otherwise prosper on their own.

Some members of this House may accuse me of preaching some form of economic Darwinism, that the government should disappear and let the strong survive at the expense of the weak. I do not believe this would be a formula for success right across the board. There are many situations in which incentives can be provided to encourage certain outcomes but clearly we cannot be all things to all people and we have to let small businesses make many choices on their own.

As I said, people naturally want to succeed. That is the direction that many small businesses like to see.

There are a variety of things a government can do to encourage business success, just as there are many things it does to defeat that success, and this bill does little to address either side of those conditions.

At the moment we have many questions about government participation in small business financing. The auditor general raised several of them in his spring report. His figures indicated that 46% of loans under the SBLA could have been handled privately through normal financial channels. We have to wonder if a moral hazard is not at work here. By that I mean because the banks have a way to deflect risk on to the taxpayer through this program, are they inclined to get on the SBLA bandwagon because it is there?

We have no hard numbers to say this program is the difference between success or failure at getting that financing. We know that the CFIB places a high priority on access to financing as a major factor for business success, and I do not question those numbers, but do we have in this bill the best or most effective way of doing that?

Recent figures indicate that 80% of small business loan applications are successful but we have no figures to indicate whether that is an optimum level or not. Is 100% a healthy level, for example, or would that expose lenders to extraordinary risk? In other words, should the government step in and drive that loan approval rate up to 100% as a policy objective using taxpayer money to subsidize it?

As a small business owner in a couple of different fields, I have a great deal of sympathy for people who want to go into business and need that first boost of capital to get them going. Of course that does not mean that everybody with the same dream is equally qualified to pursue it, so there are bound to be rejections for a variety of reasons.

If we look at where those applications ended up we see that 68% went to the chartered banks, 27% went to other financial institutions, credit unions and such, and 11% went to the small business loans program. No one on the government side of the House can say that the 11% would go without financing if the SBLA were not there. As we know from the principle of moral hazard, people choose the easy route only if it is available. Without the vast web of bureaucratic programs paid for by an equally vast web of taxation, factors in the financial services sector of this country could behave in a different fashion.

As it is, the number of high risk loans has been increasing along with the default rate and bankruptcies, although Industry Canada has so far kept that report very close.

Speaking of missing documents, we also have to wonder about the cost benefit of this program. This is one argument that pops up to try to legitimize many government programs, particularly when taxpayers see those billion dollar bottom lines starting to add up.

As the finance minister often reminds us, governments have to make tough choices. What we rarely see is this government making a choice to give up on a cherished boondoggle when it is shown that money is not being spent in a way that has a clear, positive return to the taxpayer.

Often we see good money chasing bad in a futile effort to prove that a program is working, not because it was wrong or unnecessary in the first place, but because not enough money has been poured down that sinkhole. This kind of thinking is epidemic in government and never leads to good choices.

We should be looking at innovative new ways of making financial support more available to our small and medium business sector. In many countries around the world, and I understand even in certain regions of this country, there is a system of micro lending. Loans as small as a few hundred dollars show a tremendous return on the dollars placed.

There is a system in the U.S. where lenders are required to commit 6% of their profits to the communities in which they are located. Of course there are hundreds of banks in the U.S. versus a dozen in Canada, so the locality does not have the same relevance. But perhaps there is a way to implement such a requirement in Canada, as long as it does not lead us back to the same situation we have now where the government seeks to force choices on its lenders.

I think more important than inventing new government programs, however, is taking a good look at the environment that exists for business in Canada. Should we be rushing to enact this kind of legislation when this government has yet to digest the Mintz report on business taxation? The professor warned that governments were relying increasingly on profit insensitive taxes; taxes and charges that were not related to whether the business was succeeding or failing, but were demanded of the business owners regardless.

We have seen in recent years an explosion of user fees, which are not by themselves a bad thing. That is, they are not bad if the fee goes to the service being charged in the first place. This government is not alone in preferring to pour all of its revenues into one basket, but it has a lot to answer for in many areas.

Gasoline taxes are outrageously high by themselves, but we see very little of this windfall going toward transportation infrastructure that would assist businesses of all kinds. Worst of all are the payroll taxes that are a direct and undeniable killer of jobs and entrepreneurship in Canada.

Not only does this government insist on imposing ridiculously high rates, it also raises rates such as the CPP under the auspices of what I mentioned earlier. Is the program not working? Pour money down that sinkhole.

The case of employment insurance premiums has already been broached in this House and by no means are we done with that topic. Yes, the premiums have been reduced from the highs under the former government, but this government's own experts are declaring that they must go lower. Under the law they are supposed to go lower, but the finance minister, instead of returning money to employers and employees, threatens to change the law and keep the money for choices that have nothing to do with the original tax.

Canadians should take note that the finance minister has in fact already taken that money to apply against his deficit last year, so it is actually part of the Liberal smoke and mirror budget plan to argue about where else to spend money that is already owed to another program.

My point is that this bill is a questionable necessity and fails to address the real needs of the business constituency that it claims to help. What entrepreneurs in Canada need is the ability to keep more of the profits they generate. Capital gains taxes need to be at least minimized and at best eliminated. Payroll taxes need to be kept low and directed where they were intended.

There has to be a serious study of the burden of paperwork and overlapping regulations that exist in this country.

The GST regime should be overhauled for one thing, but the layers of bureaucracy between federal, provincial and municipal administrations have to be examined as well.

Employers need a flexible, well educated, motivated labour force. Workers obviously need to keep more of their money as well.

Finally, this government has to take a serious look at the flexibility and competitiveness of our whole financial services sector. We have the MacKay task force report to look at. We should take the opportunity, use our combined imagination and innovation in reforming the regulations of this industry to provide real access to reasonable cost financing for business.

It is unfortunate that this government is in such a hurry to push through Bill C-53 without answering some of the problems that have been mentioned here today. What Bill C-53 represents is not a helping hand to business but the hand of a government stuck in the past with no new ideas.

I certainly commend and agree with my colleagues on their motion earlier today to send this bill back to committee for more study.

[Dick Harris, Reform, Prince George—Bulkley Valley, BC]

Mr. Speaker, I am pleased to rise again in the House to speak to Bill C-53.

I am probably somewhat qualified to speak about small business and some of the challenges it faces, particularly when it comes to financing, having spent my entire life before politics in small business. I certainly understand the challenges that small business faces today.

The thing that really disturbs me about the Liberal government is that it truly believes that the best help it can give to small business is to be in its face with programs, regulations and plans. It thinks it is being of assistance to small business.

CFIB surveys over the last few years have asked the question: What can government do to help you? The number one answer, year after year, has been “Just get away from us and let us run our businesses. We know better than you how to run them”.

The Liberal government does not understand that request. It believes it has to be involved in every single part of the economy and in businesses whether they are large or small, either through regulations or programs.

I am not convinced that it is the government's place to be a guarantor of small business loans through its small business program. I think the small business community in this country would be quite happy for government to get out of that and let the private lending sector look after their requirements.

There are those who say that the banks are not doing it. I think that the regulations which are in place are a disincentive for banks to get involved in small business financing. They are trying. Let us give them credit for what they are trying to do. But the fact is, if we look at the banking community in other countries, and we will take the U.S. as an example, they have some very creative ways of lending to small business that we do not have in Canada because our regulations do not permit it.

I remember in the 1980s there were many small businesses moving from Vancouver down to Bellingham and Blaine in the state of Washington because the banks down there were saying “Come down here and we will show you how you can establish your business, how you can expand your business and even how you can start up a business”. The banks would provide the funding. They had a number of plans and options, ranging from some sort of involvement in the company itself that was phased out over a number of years while the loan was being paid off, to some very creative venture capital financing.

We simply do not have that in Canada because the government's regulations have forbidden it.

The best thing this government could do, instead of bringing in, extending or amending yet another program that will keep it involved in small business lending, would be to get out of the way of bona fide private lending institutions and let them do the lending. Let them bring in some sort of risk-based lending for small business. They have said in their presentations that they think this is a possibility, if they were allowed to do it.

There are many people in the country who have some great ideas about how to start a small business, whether it is a small home-based business or a business they are going to set up in an industrial park or retail area, but they just do not have the assets needed to go to the traditional lending institutions to get the money.

They cannot do it through small business loans either. They have to have some sort of security to offer.

If the traditional lending institutions were permitted to bring in creative lending for small business, right down to micro lending, then I think this would probably be the greatest gift the government could give to small business.

There are even greater disincentives to small business that this government refuses to recognize. I cannot talk about small business without talking about the incredibly burdensome tax regime that the government has laid upon the backs of small business in this country.

Small businesses create about 90% of the employment in this country, and yet they are overburdened by the current tax regime. Taxes eat into their profits. Taxes eat into their opportunity for expansion. Taxes eat into their opportunity to hire more employees. The regulations are all very costly. These are all tremendous disincentives for small business to grow, prosper and expand, and yet the government does not recognize it.

I am not just talking about the regular corporate taxes they pay. The government has effectively decided that it is not going to change the capital gains taxes which small businesses have to pay. No matter how many times the CFIB has told the government that the capital gains tax is a terribly burdensome tax, the government has done nothing.

I take exception to the member for Broadview—Greenwood who said earlier that the Reform Party has just woken up to the plight of small business and taxes in this country. Since 1993 when we arrived in the House we have been talking on a daily basis about the tax regime in this country. Since 1988 we have been talking about the tax regime in this country and how it affects people in every walk of life, small business or otherwise.

Incidentally, that is why there were 52 of us elected in the 1993 election. We were talking about the very things that were bothering Canadians. That is why, contrary to the wishes and the dreams of the Liberal government, we returned in 1997 as Her Majesty's loyal official opposition, to the surprise of the Liberal government. We were talking about taxes. We were talking about a government that was in the face of not only private citizens, but small businesses all across this country. Those are all disincentives. That is why we are here.

We will talk about this on a daily basis. We will never stop because it is a big issue in this country. When we talk about an engine that creates 90% of the employment in this country, it is not something we could ever stop talking about.

Now we find that the government is about to do it again with the EI surplus. The finance minister knows very well that a surplus over a certain level, according to the guidelines that have been set down by the EI commission, has to be returned to the people who pay into the fund in the form of EI premium reduction. That is perfectly clear. That is what the law says.

The finance minister, by continuing to take the surplus after the date laid down, will be breaking the law. It has come to our attention that he is going to change the law.

As I pointed out the other day in question period, it is sort of like Jesse James making bank robbery legal. We can draw the same comparison. He did not want to break the law, so he changed the law to make it legal to rob banks. That is what our finance minister is going to do. He is planning to change the law. He is going to scoop that $6 billion over and above the allowable rainy day surplus, the amount set down by the commission to sustain the EI fund, when that money should be going back into the hands of the employers and the employees in the form of EI premium reductions.

Each percentage of increase in EI premiums costs about 40,000 jobs in this country. Each time EI rises by 1% that is 40,000 jobs. It is estimated that since 1988 when the Tory government was in power, the way it set EI rates cost the country 130,000 jobs. The Liberals have reduced it somewhat but it has another $6 billion to pour back into it by reducing it by one per cent or one and a half per cent more. If we work the numbers back, that would probably create 40,000 or 50,000 jobs. Who would not want that? The unemployment rate in my city is at about 17% right now. If we had some tax relief and if we had a premier who knew something about how to run a province we might have an unemployment rate that was comparable with that of the rest of the country.

While the Liberal government believes this bill will be a big help to small business in Canada, it will not be. The best help the government can provide is to lower EI taxes. It can reduce regulations, in particular the federal-provincial regulations that overlap and cause a lot of confusion and expense to small business. In general it can get its hands out of the pockets of small businessmen and let them do business. Let them continue to expand, be prosperous and hire people in this country.

[The Deputy Speaker]

Is the House ready for the question.

[Some hon. members]

Question.

[The Deputy Speaker]

The question is on the amendment. Is it the pleasure of the House to adopt the amendment?

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Deputy Speaker]

All those in favour of the amendment will please say yea.

[Some hon. members]

Yea.

[The Deputy Speaker]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Deputy Speaker]

In my opinion the nays have it.

And more than five members having risen:

[The Deputy Speaker]

Call in the members.

And the bells having rung:

[The Deputy Speaker]

At the request of the chief government whip, the vote is deferred until Tuesday at the conclusion of the time provided for Government Orders.

Criminal Code

[Anne McLellan, Liberal, Minister of Justice and Attorney General of Canada]

moved that Bill C-51, an act to amend the Criminal Code, the Controlled Drugs and Substances Act and the Corrections and Conditional Release Act, be read the second time and referred to a committee.

Mr. Speaker, as part of its legislative agenda this government is committed to the ongoing review and adjustment of the criminal law. My officials and I routinely meet with the provinces and territories, the police and interest groups on a range of criminal justice and sentencing issues to consider the state of the law and what could be done to improve it. We also receive and review numerous proposals from ordinary Canadians about criminal law, criminal justice and public safety issues.

As a direct result of this review process I have developed and placed before this House Bill C-51, a series of omnibus amendments to the Criminal Code and related statutes. These are intended to address a range of specific policy concerns and to make changes to correct drafting errors, cross references and other legislative oversights which have been identified in recent years.

These amendments would normally have been included in a regular omnibus bill. I felt that several were too important to wait until the next major criminal law amendment package. The government is particularly concerned about making changes to the Criminal Code year and a day rule and conditional sentence provisions, and the provinces are seeking other important changes so we have decided to proceed with them at this time.

Parliament has the responsibility, and the constitutional power, to pass legislation on criminal law, but the provinces are the ones responsible for their application. We must therefore take into consideration what the people who administer these administrations tell us works and what does not.

We meet with the provinces regularly, and take their expectations into consideration in drawing up action plans relating to criminal law. Many of the proposed changes to the legislation are the result of that process. When these changes are being deliberated, we need to keep in mind that they are the outcome of provincial demands and proposals, and that the provinces play a significant role in the application of criminal law in Canada.

I draw the attention of my colleagues to some of the more important changes were are proposing. Concerns have recently been expressed about the Criminal Code rule which limits prosecutions for homicide and other offences which involve the death of the victim. These offences can be prosecuted only if the victim dies within one year and a day of the last act of the accused on which the offence is based. Needless to say, this is a very old rule. It predates Confederation and the first Criminal Code of 1892. Authors have traced it in English criminal law back to the middle ages.

In the modern era the rule can only serve to block prosecutions which could now be placed before the courts on their merits. It has been criticized by lawyers and academics. After due consideration this government agrees that it should be repealed. Modern forensic science has increasingly made it possible for us to prove that the accused caused or contributed to the death of the victim even where the victim survives for an extended period. At the same time advances in medical science can result in victims who would have died quickly in earlier eras surviving for extended periods on life support systems before they eventually succumb to injuries.

Such cases are best placed before the courts for a determination of whether the accused committed a crime which caused death. The year and a day rule prevents this.

The legislation proposes to simply repeal the time limit. This would leave the existing Criminal Code and case law rules for establishing the causation of death intact. Essentially the rules say that where the accused is proven to have done anything which contributed to the victim's death in any way, the accused can be convicted of having caused that death if the contribution was more than minimal or negligible. This was always the case where victims died soon after the offence. We now propose to apply the same principle regardless of when the victim dies.

We cannot reopen cases where the year and a day period has already expired when the repeal takes effect. The charter prevents parliament from creating retroactive criminal offences or expanding existing offences to capture actions which would not have been caught by the legislation when they occurred. As a matter of policy, however, we are anxious to have the changes apply as soon as possible. There is a good argument that cases in which the time period is still running when the law changes may be be affected by the repeal without infringing the charter. The legislation provides for this. There is also no reason to delay proclamation of this change. The bill provides that the repeal will take effect on the day of royal assent.

As part of Bill C-51, the government also proposes series of changes to sentencing provisions. These address policy concerns and correct oversights which have been identified since the 1995 overhaul of sentencing law. It took effect in September 1996.

The most important of these are changes to the provisions dealing with conditional sentences. These sentences are an important means of dealing effectively with offenders while ensuring that custodial resources are focused on those who require custody under established sentencing principles. But concerns have arisen which must be addressed.

Since September 1996 it has become apparent that in some cases where offenders breach sentence conditions they cannot effectively be brought before the courts and dealt with before the sentence runs out and the courts lose jurisdiction.

To deal with this problem the amendments I am proposing would stop the running of time on the sentence when the offender is in breach. The time period, starting when a warrant to arrest the offender was issued or the offender was arrested without one and ending with the conclusion of court hearings into the alleged breach, would not count as time served on the sentence.

Where an offender is found not to have committed a breach, to have had a reasonable excuse or there is some other compelling reason, the lost time could later be recredited by the court. Other than this, offenders will not get any credit for the time lost. Stopping the running of the sentence will also ensure that the courts retain jurisdiction over offenders serving conditional sentences until they have served all their time without breaches.

If an offender absconds, his sentence remains in effect indefinitely until he can be arrested and brought back before the courts. The amendments would also clarify arrest powers to ensure that those in breach of conditional sentences can be arrested on the same basis as if they had committed an indictable offence.

The proposed legislation also contains other changes to Criminal Code sentencing provisions. The 1995 amendments created general rules for the administration of fine penalties and several of the proposed amendments will clarify the application of these rules to more specific offence provisions of the Criminal Code and other statutes.

Where an offence carries a minimum prison term the amendments provide that a fine could be imposed in addition to the minimum but not instead of it. Where the offence provision requires a minimum fine, the amendments would make clear that the general rule which requires the courts to consider the offender's ability to pay in setting fines does not allow judges to go below the mandatory minimum levels.

As hon. members who represent northern constituencies will know, a new diamond mine industry is beginning to take shape in the Northwest Territories. This is expected to bring employment and economic benefits to the territories, but the high value of uncut diamonds has raised concerns about the potential for theft and the possible use of diamonds as a means of smuggling or money laundering by organized crime.

To protect the new industry and Canadians, the proposed amendments would modernize old provisions dealing with the theft and illegal possession of precious metals and ores. The term previous metal would be replaced with valuable mineral to include diamonds and other non-metallic minerals.

The legislation would also create a federal power to prosecute some offences where uncut diamonds are involved to respond effectively to organized crime and interprovincial smuggling activities. This would be concurrent with provincial jurisdiction so that either level of government could prosecute. This would allow for federal prosecutions where an offence which started in the territories involved one or more provinces as well or where a major domestic or international organized crime interests are involved.

The law does not affect any existing provincial powers and would leave it open to federal and provincial officials to co-ordinate who would prosecute on a case by case basis.

Fighting against organized crime effectively is a priority of this government, and we are proposing many other changes to fight various activities involving organized crime.

The bill, if passed, would amend the Corrections and Conditional Release Act so that persons found guilty of organized crime activities would not be entitled to any sort of accelerated parole review.

The legislation would permit electronic surveillance in the case of serious offences involving prostitution and investigation of prostitution telephone networks and indirect involvement in organized crime.

Organized crime in Canada has also been linked to telemarketing fraud and related offences. My colleague, the Minister of Industry, already has amendments before parliament to criminalize various forms of deceptive telemarketing activity and to allow wiretapping to investigate them.

In this legislation I am proposing an additional amendment which would allow the proceeds of deceptive telemarketing offences, which can be a major source of income for organized crime groups, to be targeted using the existing Criminal Code proceeds of crime provisions.

The government is concerned about telemarketing fraud and related practices, and we regard the confiscation of illegal profit as a major step to counteract it.

The government has also been asked by the provinces for changes to Criminal Code provisions dealing with gambling. Generally gambling is a criminal offence unless the activity involved falls within one of a series of exemptions created in the Criminal Code such as those for operations conducted or licensed by the provinces or parimutuel betting on horse races approved by the minister of agriculture.

The changes I am proposing would create two new exemptions. First, it would allow dice games in operations that are conducted and managed by the provinces. Second, it would allow gambling operations on international cruise ships.

I want to assure the House that changes are not intended to increase the level of gambling activity in Canada. Nor do we expect them to have this effect. What we are seeking to do is to ensure that gambling and tourism operations in Canada compete with those of other countries, especially the United States, on an equal basis.

Dice games are not a major part of casino gambling, but casinos which offer them may have a competitive advantage over those in adjacent jurisdictions. Ontario is particularly concerned that its operations offer a similar range of games to those in neighbouring U.S. states. Once this amendment takes effect it will be up to each province to decide whether it wishes to allow dice games in its casinos.

In the case of international cruise ships, the amendments would allow Canadian registered cruise ships which fall under Canadian law regardless of where they are and foreign registered cruise ships in Canadian waters to offer gambling to passengers. The changes also ensure that the operators of cruise ships which enter Canadian waters will not be charged with importing the gambling equipment in their casinos. This is expected to provide direct benefits to the cruise industry itself and indirect benefits to tourism and other business in the ports where cruise ships call.

Canadian registered cruise ships can compete effectively while abroad and foreign registered ships will not be deterred from calling on Canadian ports.

The cruise industry is an important and growing part of regional economies, particularly in the St. Lawrence valley of Quebec and the coastal waters of British Columbia.

I am happy to be able to propose amendments which will address the economic concerns and interests of these provinces and their populations.

Another area of the criminal law which is of concern to my provincial counterparts is that of prostitution. Concerns have been expressed to my predecessor and myself that the 1997 Criminal Code amendments making it an offence to obtain the prostitution services of a person under 18 would be difficult to prosecute. The provinces had asked us to bring forward an amendment changing the offence from obtaining the services of a young person to communicating with a young person for that purpose. I am happy to propose such an amendment in this legislation. Similar wording in other prostitution offences has been held not to offend the charter by the courts.

Several changes in the area of search and seizure are also proposed in this legislation. The Criminal Code already provides the courts with the power to authorize the use of electronic surveillance of telephones and specified locations. Where this permission is given, it also authorizes police to install the necessary listening devices, but the legislation says nothing about their subsequent removal. The proposed amendments would address this situation by clarifying that judicial permission to install and use these devices also includes permission to remove them.

In many cases, the initial authorization runs out before police can safely go back to retrieve the devices. In such cases, the proposed amendments would allow the courts to specifically authorize their removal. The wording governing a series of search warrant provisions would also be amended to standardize the provisions and ensure that only public officers who have law enforcement responsibilities and peace officers could execute search warrants.

In 1997 the Criminal Code was amended to allow a justice who denies an accused person bail to also order that the accused not communicate with any witnesses or victims while in custody. This was identified by the provinces as particularly important in domestic violence cases where victims are often subjected to immediate pressure not to provide evidence or co-operate with the police.

Provincial authorities have subsequently pointed out that these non-communication orders are effective only after the accused has been brought before a justice for a bail hearing. This could be several days after the initial arrest, during which time accused persons can and do contact victims or witnesses.

To respond to the province's concerns, the proposed legislation would create a parallel provision allowing the first justice who sees the accused after arrest to make an immediate non-communication order. Once imposed, the temporary order would bar communication while the accused is held pending the bail hearing. It would be reviewed by the justice who hears the bail application, who could replace it with a non-communication order pending trial whether the accused is held in custody or released on bail.

This government is committed to the ongoing review of the criminal law and to the maintenance of effective legislative measures to protect society. As part of this effort, this legislation contains a series of other measures to address concerns about the legislation, adjust offences and punishments, modernize the statute and correct oversights enacted in other recent legislative initiatives.

We will continue to monitor the legislation and bring forward further changes as the need for them becomes apparent.

I look forward to the support of all members of the House for this important Criminal Code omnibus legislation.

[The Deputy Speaker]

In conformity with an order adopted earlier this day, I believe it is in order now to see the time as 6.30 p.m. even though it is not quite that.

It being 6.30 p.m., the House stands adjourned until 10 a.m. tomorrow, pursuant to Standing Order 24(1).

(The House adjourned at 6.08 p.m.)