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.