Debates of May 26th, 1999

Motions For Papers

[Rahim Jaffer, Reform, Edmonton Strathcona, AB]

Mr. Speaker, I would like Motion No. P-54 to be called.

Motion P-54

That an Order of the House do issue for copies of all documents, reports, memos, letters, correspondence, minutes of meetings, and notes used by the government to substantiate its claim that the Patented Medicine Prices Review Board is responsible for driving down drug prices.

[The Deputy Speaker]

I call Motion P-54. The motion is transferred for debate pursuant to Standing Order 97(1).

[Peter Adams, Liberal, Peterborough, ON]

Mr. Speaker, I ask that all Notices of Motions for the Production of Papers be allowed to stand.

[The Deputy Speaker]

Is it agreed that all remaining Notices of Motions for the Production of Papers stand?

[Some hon. members]

Agreed.

The House proceeded to the consideration of Bill C-67, an act to amend the Bank Act, the Winding-up and Restructuring Act and other acts relating to financial institutions and to make consequential amendments to other acts, as reported (with amendment) from the committee.

Bank Act

[John Manley, Liberal, for the Minister of Finance]

moved that the bill, be concurred in.

[The Deputy Speaker]

Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

(Motion agreed to)

[The Deputy Speaker]

When shall the bill be read a third time? Now?

[Some hon. members]

Agreed.

[John Manley, Liberal, for the Minister of Finance]

moved that the bill be read the third time and passed.

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

Mr. Speaker, it gives me great pleasure to present Bill C-67 for third and final reading in the House of Commons.

The legislation before us would allow foreign banks to establish branch operations in Canada.

The idea is to increase competition in our banking sector. This should help increase sources of funding for small and medium size businesses, and certain types of consumer loans.

Competition will be greater because for many foreign banks the establishment of a Canadian branch will be more profitable than the current system. A branch could use the funds of its parent bank to finance its loan operations in Canada, while foreign bank subsidiaries must use separate funds.

This bill will also make the Canadian system compatible with that of the other OECD countries, with the exception of Mexico.

Let me briefly summarize what we are now proposing in this legislation and how it will meet our goal of enhanced competition in Canada.

Currently, foreign banks can take retail deposits in Canada by setting up a fully regulated subsidiary corporation here. Under this new regime this option is going to remain open to them, but in order to give these foreign banks greater flexibility with respect to their lending operations in Canada this bill proposes two branching operations, either a full service branch or a lending branch. The full service branch would be entitled to take deposits of greater than $150,000, whereas a lending branch could not take any deposits, large or small.

The benefit of offering two branching options is that the level of regulatory requirements can be tailored to match the banks' activities in Canada. Since lending branches would not be taking deposits of any sort they would face fewer regulatory requirements than would full service branches.

I believe that these measures will help foreign banks to enter our current market and will help the 45 foreign banks that are currently here to expand their existing operations.

Bill C-67 contains a number of technical changes to the financial institutions statutes.

The proposed system is the result of extensive consultations. The idea of establishing a branch system came up during the consultations that preceded the 1997 review of the legislation governing financial institutions.

At the time, the House and Senate finance committees had published reports recommending that the government allow foreign banks to establish branch operations in Canada.

Later, the Minister of Finance released a consultation paper and consulted all stakeholders extensively. This consultation paper was examined by the House and Senate committees, as well as the MacKay task force. These three groups supported the bill.

In fact, throughout our consultations we found broad support among stakeholders, including SMBs, Canadian banks and especially foreign banks for the establishment of foreign bank branches.

We tabled this bill on February 11 in the House. Since then it has gone through second reading and before the House of Commons Standing Committee on Finance, which was a couple of weeks back, we introduced a few amendments. These amendments were the result of consultations we had had between the time the bill was actually tabled and when it went before committee.

I would like to go through some of these amendments briefly. They came about as a result of extensive consultations and working very closely with our banking community. There are five I want to talk about.

First, as I have mentioned, full service branches will not be able to take deposits of under $150,000. This was intended to ensure that only sophisticated depositors would be making these deals with the foreign banks. As the hon. member of the NDP opposite knows very well as he is an expert on these things, we have deposit insurance for retail bank deposits. These deposits of $150,000 and more are not insured. Therefore we want to ensure that only sophisticated people make these deposits at the banks.

We had a de-minimus provision of 1% in place. One per cent of a branch's total assets could be deposits of less than $150,000. This is to account for business flexibility, such as if one has foreign exchange accounts. The foreign bank community pointed out to us that in most cases this 1% de-minimus would not be enough. We expanded that amount in order to ensure that they could operate effectively and in conformity with their commercial requirements but without causing undue risk or risk to retail depositors.

The second amendment related to the funding options for lending branches. The bill allows lending branches to borrow from financial institutions but it prohibits the subsequent sale of any debt obligations, bankers acceptance or guarantee issued by that lending branch. Our amendment would permit these instruments to be subsequently traded but mainly to other financial institutions, again to sophisticated buyers.

The third amendment we introduced was to extend the time allowed for filing of auditor's reports from 60 days to five months. That is the period allowed for Canadian branches of foreign insurers.

The fourth amendment related to taxes. We agreed that if a deposit is made in the branch of a foreign bank here in Canada that for purposes of our pension funds or our RRSPs this would not be considered a foreign property and therefore subject to the 20% rule. This makes sense since it is a branch of a foreign bank that is here in Canada, but it is a deposit that is made here in Canada and is subject to Canadian rules.

The fifth change was also a tax change. This was to aid the transition from the current subsidiary status for the 45 banks that are here today to the branch format. We have offered a temporary limited rollover so that the taxes otherwise payable when a subsidiary corporation is wound up will be deferred until the funds are actually withdrawn from Canada or the Canadian operations of the branch are eventually wound up.

Why did we grant this? Because initially we did not give the option, as we do in every other area of the law almost, for the foreign banks to enter Canada in the branch form, which is the accepted mode throughout the world. We insisted that they come here under the 1980 laws as a subsidiary corporation. We have changed that. We want to seek a continuity in expansion of operations of these 45 banks that are here today, rather than create a disruption and a penalty, so that they can restart perhaps at a lower level of ongoing Canadian operations.

These changes respond to the informed comment, concerns and research brought to us. No doubt in the future there will be more changes that the foreign banks would like to see and that our Canadian banks would like to see. These will have to wait for our response to the MacKay task force. It would not be proper to bring forward benefits for foreign banks which were not available at the same time to our Canadian banks.

In conclusion, this bill follows through on the commitment to allow foreign banks to engage in more productive competition in Canada.

By eliminating pointless regulatory obstacles this bill will encourage competition in our banking industry. By encouraging the healthy presence of foreign banks we are ensuring that Canadians have access to more financing sources.

We will be getting more competition here. This legislation opens the door to more competition but without sacrificing the current level of safeguards for consumers.

The most important thing is that these banks will bring more activities to Canada. With that comes what is perhaps one of their biggest contributions to Canada, not just the lending activities that they carry out, but the expertise. Bankers trained throughout the world in other systems in other countries under other regimes know other techniques. When they come to Canada they bring that expertise with them, expertise which can benefit not only our consumers and our companies, but their fellow bankers here in Canada.

I urge the House to move quickly to pass this important legislation.

Before I sit down, may I beg the indulgence of you, Mr. Speaker and the House to say thank you to the House of Commons finance committee and to the Senate banking committee which have studied these proposals, given us the benefit of their doubt and have approved them. I thank the House of Commons finance committee which gave the bill all-party approval.

I also want to thank the Canadian banks. We would think they would not want to suffer increased competition and increased capacity of foreign banks coming in here to compete with them. But no, they said that this is the way of the world. Canada has to be up to scratch and has to have the most competitive financial services sector in the world so they will not stand in the way of competition.

That speaks a great deal about the confidence which our banks have. It reflects the great success our banks have had in doing business throughout the world and in providing first rate services to Canadians which can compare with those of any other banking sector in the world.

I would like to thank the members of the foreign bank section of the Canadian Bankers Association who worked with us long before 1997 to develop this foreign branch regime. This group was initially headed up by Mr. Fred Buhler of the Bank of America who has since retired and returned to the United States. He did a great deal of the groundwork in working with finance and in bringing the foreign banking sector together. For the past year or so following Mr. Buhler's retirement, although he has still been available for consultation, this task has been carried out by Gennaro Stammati of the Banca Commerciale Italiana.

Mr. Stammati has been a great support in bringing to us, particularly since February 11 of this year, some facts on which we could make some difficult decisions, the need for the tax rollovers and things such as that. We have appreciated very much the spirit of co-operation he has brought to this effort. Mr. Stammati will be leaving Canada in July to head up BCI's operations in Paris and we wish him well.

I am very grateful for the support of all members of this House for this bill. We look forward to its early passage.

[Gurmant Grewal, Reform, Surrey Central, BC]

Mr. Speaker, I rise on behalf of the people of Surrey Central to support Bill C-67, the government's proposal to allow foreign banks to branch directly in Canada. We can support this change because it is long overdue. The Liberals have dragged their feet on this issue which of course is not unusual for that party.

At the World Trade Organization in 1997 the Liberals agreed to the letting into Canada of subsidiaries of foreign banks by June 1999. Bill C-67 will permit foreign banks to accept deposits of over $150,000. This means that foreign banks will not be constructing branches all across Canada and their competition with domestic financial institutions will be limited.

Let us look into the current banking environment in Canada. The presence of foreign banks in Canada has been steadily declining. It has been declining from a 12% share of total banking sector assets in 1990 to just 10% today. There was a peak of 59 foreign banks in Canada in 1987 and it was down to 45 in 1998.

Foreign banks cannot currently operate branches directly in Canada. They must operate as subsidiaries largely unconnected to the parent bank in terms of capital, governance and accounting. Bill C-67 proposes a new regime for foreign banks in Canada as well as some miscellaneous changes to financial sector regulations.

This proposed legislation would allow foreign banks to operate as branches of their parent banks with the ability to draw on parent capital, to make loans and to conduct other banking business. New full service foreign bank branches will primarily serve the corporate market. Foreign banks that want to take retail deposits, that is deposits below $150,000, will still have the option of establishing a separate subsidiary in Canada. New lending branches will not be permitted to accept deposits or borrow except from other financial institutions.

It is hoped these foreign banks will serve as sources of funds for both small businesses and credit card users. Both full service and lending branches will be allowed access to Canada's clearing and settlement system with the approval of the Bank of Canada.

As I understand it, changes to the Income Tax Act to place these new foreign banks in a comparable tax position to Canadian resident banks will be introduced as future legislation.

I would like to briefly explain why we support Bill C-67. The Reform Party supports allowing foreign banks to set up branches in Canada to provide more choice in banking for consumers and businesses as well as to allow for the offsetting of reduced domestic competition created by any future Canadian bank mergers.

As the hon. member said, direct foreign bank branching is the norm in most other countries. The Liberals have been promising the same for Canada since February 1997. The Liberals' introduction of Bill C-67 is two years overdue. The government has been sitting on its hands for two years.

Foreign bank regulations have not been substantially upgraded since 1980, 20 years ago, when foreign banks were granted the authority to establish Canadian subsidiaries. We will take what we can get from the government and take the opportunity to urge the government to work harder to keep up with other economies in the world and reform our financial services sector.

The changes proposed in Bill C-67 represent the least that Canadians want in terms of updates to the regulations governing foreign banks operating in Canada.

The government is taking a piecemeal approach to financial services sector reform when broad reform is needed to increase competition. We regret that but it does not take away from our support for Bill C-67. Large foreign banks generally would rather compete electronically but the government has done nothing about that.

The MacKay task force in September 1998 recommended that foreign banks should be able to carry on any banking business in Canada other than, of course, the taking of retail deposits below $150,000 through branches of the foreign bank as well as through their subsidiaries.

After reading through Bill C-67, I am convinced that there are some safeguards for Canadians which I will briefly touch on. The bill proposes that foreign banks obtain the approval of the Minister of Finance and the Superintendent of Financial Institutions before setting up a shop in Canada. That is pretty good.

The minister must be satisfied that the foreign bank will be in a position to contribute to Canada's financial system and its entrance would be in the best interests of the Canadian financial system. The foreign bank must be a bank in its home country of sufficient size, experience and financial health and be satisfactorily regulated in that country.

Authorized foreign banks must establish a customer complaint procedure with staff located in Canada. The foreign bank must also disclose to its customers all service charges, fees, the cost of borrowing, the penalties if there are any, et cetera, to customers before agreements are entered into.

The Office of the Superintendent of Financial Institutions, OSFI, will be authorized to seize all assets of a liquidated foreign bank to satisfy claims of depositors and creditors of the foreign bank branch in Canada, including going to the parent bank for such seizures if there need be.

Let us look at the reasons that the Liberals should have brought this legislation to the House at least two years ago. The Canadian economy has not had access to as much credit as would otherwise have been made available by foreign banks, so that opportunity is lost.

Canadian companies have not had access to the range of products and services available from foreign banks that would have assisted them in better managing their business risks and facilitating growth internationally. Foreign bank competition will push domestic banks to be more innovative concerning the kinds and amounts of services they currently provide to Canadians.

The Canadian financial services industry has not benefited from learning from the technological developments that foreign banks provide the industry all over the world. The presence of foreign banks in our economy would increase the responsiveness and accountability of domestic banks, which is badly needed.

The domestic financial services industry bears a disproportionate share of the credit risk associated with the Canadian economy. Consequently, when major credit events occur, such as declines in the energy and real estate sectors, the stress to the domestic financial services industry is significant. The opportunity is also lost.

While the Canadian government is expending significant resources to boost the export of Canadian products, the ability of foreign banks to make the advantages of their global networks available to all Canadian companies is severely hampered.

In addition, foreign banks are keen to finance Canadian exporters who target emerging markets around the world, the sort of risky ventures that Canadian banks often avoid.

Canada has forgone tax revenues at both the federal and provincial levels due to marginal profitability and constraints on growth on foreign banks. Such tax revenue could be funding our beleaguered social programs such as health care and education.

The average retail banking consumer may not see a direct benefit from foreign bank branching. However, trickle down benefits are expected to come to them by way of increased financing to small and medium size businesses for starting up and/or expanding and thereby creating more competition in the consumer goods marketplace.

As foreign bank branches establish in Canada there will be increased investment in the Canadian economy by way of foreign banks purchasing goods to run their businesses in Canada, capital cost expenditures for infrastructure and real estate leasing and purchasing, among others. This increased investment will translate into more employment for Canadians.

In conclusion, while we on this side of the House are supporting Bill C-67 with no resistance at this time because we believe that the bill is offering advantages to Canadians, we should take the opportunity to scold the government for its foot dragging on implementing further changes to the financial services industry that need to occur.

This includes reforming the ombudsman system in the banking industry, reducing federal-provincial regulatory overlap and duplication, and reviewing the taxation regime encountered by banks with an aim to improving competitiveness in Canada.

As I said earlier, the Liberals agreed to allow foreign banks into Canada in 1997 as part of a commitment they made at the World Trade Organization. However, they dragged their feet and did not introduce legislation until this month, May 1999, which is the last possible moment that they could have done that.

They did the same with changes to the equalization program. As we know, the federal government updates the equalization program every five years.

The Liberals had five years to allow members of the House to debate the changes. Instead, the Liberals introduced that legislation into the House at the last possible moment, like this one, and had to invoke time allocation on that bill in order to get it passed before the deadline. This is a government that lacks vision. This is the way organizations proceed when they have no real long term vision or long term plan.

The Liberals are dragging their feet on changes to our youth criminal justice system. They have frozen the progress of the changes to the divorce laws that would give each parent an equal amount of responsibility for children. I can count a number of instances like this. They are also way behind in many other areas where Canadians want changes, including our immigration and refugee system. Today we heard the minister agreeing to allowing a criminal, who has been convicted of drug trafficking in this country, to become a refugee. This will allow him to continue his drug trade and continue to feed drugs to our children.

Help from the government for our law enforcement agencies, such as the RCMP in B.C., is very slow, and in returning integrity to the accounting practices of the Minister of Finance who has been cooking the books in the country.

The government is lagging behind in many areas of innovation in the way we govern ourselves. It will not do anything about leaked House of Commons committee reports. It just wants to study them. We still do not have televised House of Commons committees even though it was agreed to by all parties. It is still dragging its feet and not allowing Canadians to monitor and educate themselves on what we do in the House.

Bill C-67 should have been passed a few years ago, before our dollar dropped so severely and before our taxes got higher and they get higher during every session of parliament under this government. Those were the days, two years ago, before the Asian economic melt down, when if we had allowed foreign banks into Canada then perhaps we might not have suffered in that meltdown.

The government is using incremental policy when it comes to our financial sector. That means it is doing very little or nothing, or certainly only what it absolutely must do. This is a shame.

Along with the passage of legislation like Bill C-67 that would update the laws concerning our financial sector, we would see improvements in our economy. Our economy could grow. Jobs could have been created in the country. The Liberals leave the House with a thin soup legislative agenda and they do as little as possible.

The government goes as slow as possible and only does something when it absolutely has to. It has no intention of allowing a full debate on the legislation introduced in the House. We have seen 52 motions for closure or time allocation in the House. The government may also want to apply closure or time allocation on this bill to ensure it gets passed without exposing too many secrets that Liberal backbenchers know nothing about. They only need to know how to vote and the Liberal hierarchy tells them how to vote.

Yesterday we saw some Liberal backbenchers voting against the government on Bill C-78 and one member simply sitting on his hands. That bill will allow the government to take away the $30 billion surplus from the pension plans of our public servants, our RCMP and our Canadian forces personnel.

The list continues to grow and it goes on and on. This is the government that looks through the lens of political stripes and not through the lens of the issues. It should be ashamed.

[Serge Cardin, Bloc, Sherbrooke, QC]

Mr. Speaker, I am particularly pleased to speak today. I gladly accepted to do so.

Before getting into specifics, I wish to remind the House that on May 11 the Secretary of State for International Financial Institutions acknowledged before the committee that, because of tax complications in the bill, this initiative had become practically useless for foreign banks operating in Canada.

In relating what the Secretary of State for International Financial Institutions said, I wanted to emphasize the fact that, improvisation aside, if the government had had a bit more vision, we might not be here today debating Bill C-67 because the government would have sent it back to the committee to make it even better.

Nonetheless, it is with enthusiasm that I speak to this bill, which deals with the establishment of foreign bank branches in Canada.

Before explaining the position of the Bloc Quebecois on this bill, I must say that the attitude of the finance minister shows he is true to himself. This minister is unable to look at the big picture with respect to national finances. He has lost all credibility as our national treasurer, because of both his budgetary forecasts and his financial achievements. The Minister of Finance always tries to deal with complex and general situations using a careless approach and in a piecemeal fashion.

We will recall how he dealt with the MacKay report on the future of financial services. The minister decided to ignore the true issues raised in this massive report and dealt with only one aspect of the document, bank mergers.

Acting unilaterally, and without waiting to see what would come out of the proceedings of the Standing Committee on Finance, the minister took a position on the bank merger issue and, based on incomplete preliminary data, decided to oppose the merger “for the time being”, adding that he would see later what could be done.

The Minister of Finance, who improvises on a daily basis and is an amateur financier with no strict timeline for his political agenda, continues along the same line with Bill C-67, an act to amend the Bank Act. This bill will allow the establishment of foreign banks.

To have legislation allowing foreign banks to open branches in Canada without affording any protection to financial institutions in Quebec and Canada is to open our market without protecting ourselves. How reassuring it is to be represented by such a government on the eve of negotiations with the World Trade Organization.

Like his colleague the minister of agriculture, who weakened Canada with his recent positions, the Minister of Finance is about to act incoherently by opening our market against the interests of our institutions. Did the finance minister take the time to read the MacKay report? Is he really aware of the impact of this review? I doubt it.

Since we are talking about banking systems, I will take a moment to look at the state of the Canadian banking system.

Out of the 51 Canadian banks that existed in 1874, there were only 22 left in 1914 and a dozen in 1946. In 1955 the Bank of Toronto and the Dominion Bank merged to form the TD Bank. In 1956 there was a merger between the Barclay Bank and the Imperial Bank and in 1961 the merger between the latter and the Canadian Bank of Commerce gave birth to the CIBC.

In the late 1960s Canada went through a period of intense economic nationalism and became increasingly concerned about foreign capital taking control of its economy. In that spirit, in 1967 a major reform of our banking legislation established the 10-25 rule, which provides that no individual shareholder can hold more than 10% of shares in a Canadian bank and non- Canadians cannot collectively hold more than 25% of shares in our banks.

Since 1967 the picture of the Canadian banking industry has basically remained the same, and we still have all the same key players, the so-called big five. However, there have been a number of changes in smaller institutions.

Six new banks have been set up in the west, two of which went bankrupt in 1985. In Quebec, the Provincial Bank took over the Banques populaires, formely the Banque d'économie du Québec, in 1970, Banque l'Unité in 1976, and the Financière Laurentienne in 1979 before it merged with the Bank Canadian National to become the National Bank of Canada, in 1980.

Later on this bank bought the Mercantile Bank in 1985 and in 1987 the Savings Bank became the Laurentian Bank.

In 1988, with the free trade agreement, the limit of 25% foreign ownership of shares of Canadian banks was abolished for American residents, and NAFTA granted the same privilege to Mexican residents.

In 1995 the negotiations of the World Trade Organization, or WTO, on financial services led to an interim agreement eliminating in all countries party to the agreement restrictions on foreign ownership of national businesses. The 25% rule will be eliminated for good when the agreement is signed, by January 1999. I take this from section 6.2 of the document of the World Trade Organization.

In March of 1998, there were eight banks in Canada, namely the Royal Bank—the “big five” as I said earlier—CIBC, the Bank of Montreal, the Bank of Nova Scotia, the TD Bank, as well as the National Bank, the Laurentian Bank and the Canadian Western Bank.

Nowadays we also have in Canada some 50 foreign banks, about 50 trusts, 2,500 credit unions, with nearly 1,700 of these in Quebec alone, 150 insurance companies and 80 mutual funds.

One has to wonder what the future will hold. Although there may be as many visions for the future of the Canadian financial industry as there are experts in the field, there seems to be a general consensus that new technologies will stir up the competition through the arrival of both new stakeholders and new services.

What with globalization, the growth of financial markets from which Canada and Quebec cannot hide, the ever changing business world, the rapidly changing needs and lifestyles of the consumers, today's financial system is facing huge if not unprecedented challenges.

Given the demand for increased efficiency and competitiveness at the international level we must react. The future world banking industry is not yet fully set up, but is starting to take shape. The future of the Canadian financial sector is up to us. The decisions we will be making will greatly influence events for decades to come.

Let us examine the banking system used elsewhere in the world. There are, of course, no universal formula or general models for a banking system. In the United States, there are almost 9,150 different banks. The five biggest of these manage less than 10% of the total assets of the financial services industry. Then come 400 banks. The five biggest of these manage close to 80% of the total assets of the financial services industry.

Some countries like the Netherlands have opted for universal banks that can provide every financial service one can imagine: banking services, securities, insurance, mortgages, et cetera.

Other countries, such as Sweden, appear to favour specialized niches and companies. Sweden has savings banks, commercial banks, investment banks, development banks, independent mortgage societies and brokerage houses, as well as more than 500 different insurance companies which cannot provide both life insurance and damage insurance. In short, they have a relatively regulated system with a number of players.

Although each country has developed a banking system peculiar to it, we note that generally the smaller countries have a more concentrated banking industry than the larger ones.

In nearly all countries, as well, there is a trend toward liberalization of the industry, which takes the form of an unprecedented wave of mergers and acquisitions on the one hand and a greater decompartmentalization between the various financial sectors on the other.

Negotiations within the WTO framework accelerated this trend, which is liable to be accelerated still more by the MAI. Judging by the extent of the Asian crisis, which most observers attribute to an opaque and corrupt financial system, there appears to be a consensus that the solidarity of a banking system lies primarily in the quality of its regulation. Without proper and sufficient regulation to supervise and monitor institutions, and to force transparency, at one point any country could fall prey to a crisis of confidence which would be catastrophic to its economy.

The finance minister, like his Liberal colleagues, hastens to say he consulted various socio-economic stakeholders involved in this issue. I submit that is pure bunk.

I would like to know if the finance minister consulted the deputy premier of Quebec before introducing Bill C-67. Was the president of the Mouvement Desjardins, Claude Béland, consulted? If so, how?

The analysis of Bill C-67 leads us to the conclusion that this piece of legislation introduced by the Minister of Finance is an attack on the know-how and expertise of Quebec.

I draw your attention to clause 128, which amends the Office of the Superintendent of Financial Institutions Act. Let us have a closer look at clause 7.1, which reads:

7.1 (1) The Minister may, with the approval of the Governor in Council, enter into agreements with the appropriate authority of a province

(a) with respect to the administration, application and enforcement of provincial legislation in respect of trust, loan or insurance companies incorporated or regulated by or under an Act of the legislature of the province;

(b) in order to authorize the Superintendent to exercise or perform the powers, duties and functions on behalf of the appropriate authority of the province, that the Minister may determine, in respect of trust, loan or insurance companies incorporated or regulated by or under an Act of the legislature of the province; and

(c) in order to(i) make applicable the Trust and Loan Companies Act, the Insurance Companies Act or this Act, or any provisions of these Acts, and the regulations made under any of these Acts, with the modifications that the Minister considers necessary, in respect of trust, loan or insurance companies that are incorporated or regulated by or under an Act of the legislature of the province, and(ii) limit the application of provincial legislation in respect of trust, loan or insurance companies that are incorporated or regulated by an Act of the legislature of the province.

We can see once again an undisguised attempt by the Minister of Finance, through this legislation, to get involved in areas that come under Quebec's jurisdiction.

Every day the Bloc Quebecois condemns the numerous federal intrusions in areas of provincial jurisdiction, including those of Quebec. This is why we are opposed to the principle of the bill and will vote against it.

We could have voted differently, of course, had satisfactory amendments been made to section 7.1, which allows the federal government to squarely intrude into Quebec's areas of jurisdiction.

This one-way provision would allow the government to appropriate and control Quebec's know-how. This is why the Bloc Quebecois is asking for the following amendments, which are essential in the current context.

First, any agreement mentioned in section 7.1 should be the result of government-to-government negotiations. Second, section 7.1 should be amended to provide for reciprocity. Under such reciprocity the appropriate authority of a province, and a provincial government, would enjoy the same privileges as those enjoyed by the superintendent and the federal government under section 7.1. In other words, the Inspector General of Financial Institutions and the Government of Quebec could subject federally chartered financial institutions to Quebec laws.

Let us now take a look at the main amendments found in Bill C-67. The amendments set the general requirements that must be met by a foreign bank to establish a branch in Canada, the type of business that such a branch can conduct, and the standing regulatory requirements that will have to be met. The bill also includes a number of changes concerning access by foreign banks to the financial services sector.

Under the proposed system, on top of being allowed to establish a Canadian subsidiary, foreign banks will be able to set up either a full service branch or a loan branch.

We bemoan the lack of overall vision on the part of the government regarding the future of the Canadian banking system and financial markets.

Since 1993, the finance minister, who does not know where he is going on this issue, has been improvising. He is putting at risk one of the pillars of our economy, the financial services sector. He should listen to what the Bloc Quebecois has been telling him for years now, namely, first strengthen our national industry, then open the market, and finally liberalize.

The Bloc Quebecois has always been of the opinion that the merger debate should be seen as part of a broader debate on the future of financial institutions. The same is true of the bill before us today.

The government is acting irresponsibly. By refusing to proceed cautiously according to the logical order suggested by the Bloc Quebecois, it is leaving Quebec and Canada open to inconsistencies and discrepancies in the quality of services between poor and rich regions.

Let us not forget that under the federal Insurance Companies Act a federally chartered insurance company or a foreign company cannot sell policies in Canada to an insurance company set up under provincial legislation. Only a federally chartered insurance company, with the approval of the Minister of Finance, can buy these blocks of business. This situation is unfair to Quebec insurers.

This situation shows clearly that, while our financial markets are about to become more and more open to financial institutions, there are still barriers between our own institutions and we do not have full competitiveness within our own borders.

I remind the House that the Bloc Quebecois has proposed a three-step approach that provides for a methodical opening up of financial markets.

As a first step, the Bloc Quebecois asked the federal government to change the ownership rules for banks and some of the accounting rules in order to allow and foster the grouping of medium and small size financial institutions into financial holdings. For instance, a bank could join with a life insurance company, an investment funds company and a brokerage.

This first step would allow the establishment in Quebec and in Canada of giant financial institutions which would be able to truly compete with megabanks.

The government should allow a period of two to three years for the establishment of these holdings, which would be subject to the 10% rule and whose operations would remain compartmentalized, as is already the case for banks. We should begin by taking the necessary means to encourage competition with the help of new major national players.

Second, the federal government could then allow bank mergers. For instance, we would have on the Canadian market eight to ten players of similar size and strength and we would therefore have sound competition in our domestic financial sector.

Sound competition is vital if we want consumers and small and medium size businesses throughout the country to have easy access to services at competitive prices. In the interest of fairness, the bank mergers should occur at the same time that the multisector holdings become operational. All players should be able to start at the same time.

At the same time, the Bloc Quebecois would call for a greater democratization of banks and financial holdings along the same lines as the proposals of the Quebec association for the protection of savers and investors. We would also ask for a mechanism to encourage and measure the investments of banks and financial holdings in communities.

In view of the human aspect and of the socio-economic effects of this reform, the Bloc Quebecois will support measures aimed at protecting access to financial services for the whole population throughout the territory.

We will also be calling for a mechanism for parliamentary follow-up in order to measure the impact of the changes made on competition, service charges, employment, access to credit, transparency, and services to outlying and disadvantaged communities so as to be able to make the appropriate corrections and adjustments as we go along, if need be.

Third, the federal government could open up the Canadian financial services market completely to international competition. Having made it possible for the small players in Quebec and Canada to join forces, there are less grounds for concern that they will disappear or pass into the hands of foreign companies as soon as the market is opened up to international competition.

I remind hon. members that our concern has always been, and will always be, to increase the competitiveness of all sectors of financial services in Quebec and in Canada, and to increase competition in all of Quebec and Canada.

More competition means better and better-priced services for consumers and small and medium size businesses throughout the country. Enhancing competition is one of the concerns of the Bloc Quebecois.

Our third concern is that these changes be made equitably. All those involved in the financial sector must have an equal opportunity to make changes so as to enhance their domestic and international position, for example, by allowing financial holdings which bring together institutions from various sectors.

Hon. members will agree with me that today's debate is liable to have a great impact on our society. We must always remember that public interest comes first and that there are people behind the figures.

In this sense, the Bloc Quebecois has always advocated the establishment of a parliamentary committee to oversee banks and financial institutions, which would periodically check whether consumers and SMBs are well served at competitive prices throughout Quebec and Canada, regardless of their personal wealth. We have advocated the entry of new players into the market to increase competition and thus improve service to consumers.

I should mention that Quebec is at the forefront in protecting consumer interests. In October 1998 Quebec announced the establishment of the Bureau des services financiers to protect the public.

It receives public complaints, ensures the law respecting the distribution of financial products and services is applied, sets up an insurance information and reference centre to give consumers access to clear and complete information, establishes a fund to provide compensation in the event of fraud, keeps a record of offices, independent companies and independent representatives and issues certificates to representatives.

To avoid duplication, the federal government should give Quebec the role of protecting consumers in the area of financial services.

The Bloc Quebecois also advocated greater democratization of the banks. We share the concerns of Yves Michaud in this regard.

Moreover, I want to remind the House that the Bloc Quebecois is the only party to have tabled a bill on community reinvestment. We want the banks and other financial institutions to not only fulfil their social role, but also to be transparent about the means and objectives involved.

To conclude, I repeat that, barring appropriate amendments to permit government to government negotiations and reciprocity, we will vote against Bill C-67.

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

Mr. Speaker, I think the House needs a little livening up of the debate on Bill C-67. I do not know if I am more nervous for the millions of Canadians who will feel the effects of the bill down the road, or for my daughter who has a piano recital tomorrow and my other daughter who has a gymnastics competition on Saturday.

I commend my hon. colleague from Kamloops and my hon. colleague from Regina—Qu'Appelle who have done outstanding work in the finance committee to bring the issue to a forefront, allowing Canadians to know what is going on behind the bill.

The Secretary of State for International Financial Institutions said he was looking for our support for this bill. Unfortunately I have to disappoint him one more time because parts of the legislation came out of the south end of a northbound cow. We certainly find it unacceptable that this is the way the government is doing it.

I will provide a little background on Bill C-67. In December 1997 the federal government signed a financial services agreement, the FSA, under the auspices of the WTO, the World Trade Organization. The FSA aims at relaxing the rules governing the entry of foreign banks into domestic economies of participating countries. More than 100 countries signed the FSA and Canada faces a June 1999 deadline to pass the enabling legislation.

We have heard that the government has consulted the stakeholders on this bill, but we wonder if the government actually consulted Canadians on the bill, the average Canadian from Sointula, B.C., to Alert, Nunavut, to my riding of Sheet Harbour, Nova Scotia. I wonder if people in small rural towns and coastal communities were consulted. I suspect not. I suspect it was the friends of the government and of the official opposition, the Reform Party, who were consulted. We cannot help notice that they are financial contributors to the government and the opposition.

The government has succumbed in its international negotiations again without benefiting Canadians. Bill C-67 will benefit very few, a small percentage of very rich and capital wary investors to the tune of anyone with $150,000 or more. It certainly does not appeal or even go to the average Canadian who does not have $150,000 to invest.

It will also put more pressure on Canadian domestic banks, credit unions and caisses populaires in Canada because it will bring back merger argument. The banks have already been told by the finance minister that merger is not in the cards. That is now. He never said it was permanently off the table.

The international financial institutions will come into Canada. Most of them will be virtual reality. They will not even have any bricks or mortar here. It will be through the Internet or through a 1-800 Wells Fargo number or whatever it is they wish to call it. They will take the cream of the deposits out of this country, the 2%, 5%, or 10%.

As the House should know, every bit of capital that leaves the country puts more pressure on the credit unions, the caisses populaires and the chartered banks in Canada today, which puts more pressure on the government to allow domestic banks to reach their ultimate goal of merger. Eventually they will say that in order for them to compete with international financial institutions they will need to merge.

That is one of the elements of Bill C-67. It will allow Canadian banks to have a back door entry to a merger, which is really what they have always wanted.

This bill will put more pressure on our auto leasing and insurance companies because the banks have been putting a lot of pressure on the government to get access to these markets in order to increase their profits for their shareholders.

What will happen is, as their profits erode because of the competition from financial institutions, they will in turn go back to the government requesting access to the insurance and auto leasing markets. That will create a lot of hardship in small rural communities and even larger communities because there will be bank closures, branch closures and insurance companies will be put under a tremendous amount of pressure. In the end that pressure will filter down to Canadians.

Foreign banks operating branches in Canada will be subject to the capital adequacy requirements imposed by the bank's home country. These banks will not be required to comply with the Canadian capital requirements applicable to Canadian banks. That means that the tax measures of Bill C-67 are very complex. The intent is for the FBBs to remain in the same position as the schedule II banks. However, Canadians will not have a full knowledge or understanding of whether foreign banks or institutions are being taxed at the same levels as Canadian banks.

Bill C-67 does not deal with the virtual banks, which I mentioned earlier, such as the U.S. equivalent of the ING Bank from Holland. The Liberal government does not know what to do with these banks, which only have an Internet presence in Canada. So far these banks have been kept out of Interac and the Canadian payment system. However, it is just a matter of time before they gain access to that as well and that will put even more pressure on Canadians.

Bill C-67 may erode the market share of charter banks in lucrative, high end private banking niches. Access of highly sophisticated American and European banks will compel Canadian banks to rely more heavily on their regular Canadian consumer base to extract their profits. Charter banks will likely offset these losses by jacking up the price of bank services on Canadians who have no access to the foreign banks.

One of the biggest complaints of Canadians from coast to coast to coast is the poor service provided by the banks as well as the high service charges. There are service charges on literally everything they do.

A while ago I was at one of the chartered banks because I wanted to open up an account for one of my daughters. I deposited $100. Then, realizing that my wife had already deposited money at another bank, I wanted to close the account, take the money and transfer it to the other bank. I was told by the bank that in order to close the account I would be required to pay $15. I only had $100 in the account and the bank wanted to take $15 for having the money for a day. I found that to be absolutely unacceptable. We can imagine how the banks are ripping off millions of Canadians right across this country.

What we should be doing is concentrating on improving our banks and allowing our credit unions more access to the capital that is available. Do we really need foreign banks to ensure a greater level of domestic competition? The real issue is not whether we should allow more foreign competition; the issue is what needs to be done to increase the accountability of our banking system and to increase the competition between our domestic financial institutions. The key is to provide better services for Canadians; all Canadians, not just a select few.

To increase accountability and ensure better banking services for Canadians the government should force banks to disclose more information on lending activities. This would reveal any unequal lending patterns to lower income neighbourhoods and small businesses. This would be similar to the Community Reinvestment Act in the U.S., where over $650 billion U.S. has been reinvested as a result of these laws. The laws are supported by 200 major cities and over 600 economic development groups in the United States alone.

My colleague for Regina—Qu'Appelle has been asking for community reinvestment legislation for a long time. Basically what that means to the average lay person is that if a bank, for example in the community of Upper Musquodoboit, is making a profit from deposits, investments and loans, then it should be forced to reinvest some of the profit into the community in which it is located. That would create economic growth in the rural communities across the country from coast to coast to coast. It would allow businesses to develop and grow in these small communities.

One of the scourges of Atlantic Canada is that communities such as Halifax are the bread basket of education for the country and yet most of our young people have to leave Atlantic Canada to find work elsewhere within the country or abroad. That is unacceptable. One of the ways the government could stop the exodus of our young people, our greatest asset and resource, would be to institute community reinvestment legislation.

What they have in the United States, which we do not have here, is the ability to write off mortgage insurance on taxes. What a novel idea, allowing young people, or anybody for that matter, to own their own home. It is a wonderful dream for millions of Canadians who cannot buy homes to be able to have pride in being able to say “We own this house”.

One of the ways we could do that is to follow the example of the United States and allow them to write off the interest, or part of the interest, on their mortgages. That would promote economic growth in the country that we would not believe. It is a great idea. I do not see why the government cannot concentrate on sound policies of that nature which would benefit the average Canadian.

I know the government has difficulty when we use the term average Canadians, but what average Canadians would like to see is leadership from their government and opposition parties in putting forth policies that actually are of benefit to Canadians, their children, neighbourhoods, communities and small business enterprises. They would then be able to stay in their communities and have a good quality of life.

It would also enhance competition by broadening access to the Canadian payment system and it would allow insurance companies, large mutual fund companies and investment dealers to offer banking services.

It is worth noting that in England the post office has banking services. I understand that there have been conversations between the Canada Post Corporation and the Government of Canada about financial transactions. Although I do not have a firm opinion on that myself, it is one of the aspects the hon. member for Regina—Qu'Appelle is seriously looking into.

This is something that should really be done to benefit small communities and Canadians throughout the country: the power of credit unions should be enhanced. God love those credit unions. Credit unions are a democratic alternative to the big banks. Unlike the banks they have a mandate to plow profits right back into the communities they serve, helping everyone who is a member of those credit unions.

I notice that my colleague from Selkirk, Manitoba is a member of a credit union, as well as myself and another member on the Liberal backbench. Even members of parliament believe in the credit union system and what a credit union does for a town.

We should be promoting financial institutions like the credit unions or the caisse populaires in Quebec. For instance, we could change the Credit Union Central Act to give credit union provincial centrals, the CUPCs, more flexibility and powers. I note that the finance minister had very positive meetings with members and stakeholders of the credit unions a couple of weeks ago. We are very hopeful that the finance minister will take their recommendations to heart and implement some of the programs they have initiated to help average Canadians.

CUPCs could provide services not just for credit unions, they could directly serve individual members. This would allow provincial centrals to enhance the viability of smaller credit unions which cannot afford to provide directly certain services like wealth management and mutual funds because they cannot take advantage of economies of scale. That is the big problem. A lot of small credit unions would like to offer the same services as the bigger ones or other financial institutions, but unfortunately they cannot because they just do not have the size or the capital to do it. What we should be doing is encouraging and enhancing the ability of credit unions in the country to do that.

The banks should also be forced to facilitate to honour their commitment to ensure that the poor have access to banking services. This is something that I am sure all of us have noticed when we go into a bank. When an elderly person goes into a bank with their little bank book in their shaking hand, if they are fortunate and do not have to wait long in line for a teller, they may get one who is quite compassionate who will assist them in filling out forms and so on.

I cannot count the number of times I have gone into a bank to hear a teller say that because of the pressure put on the customer service representatives by management to get the people in and out, to reduce services and the hours that the branches are open, people have to fill out their own deposit forms because the tellers are too busy. These people are generally elderly people. In the year of the older person I would think they could have a little more compassion and sympathy. There should be more services for these individuals.

Bill C-67 will allow international financial institutions to provide services of that nature. They will turn around, take the cream off the top and put more pressure on our individual banks, which in turn will put more pressure on the consumer, the average Canadian.

The government should create an independent financial service ombudsman with teeth. We love the term with teeth. That individual should answer to parliament and not to the government of the day. The independent ombudsman would provide stronger protection to consumers and small businesses than the current banking ombudsman who is paid and controlled by the banks.

The finance minister has said that he is preparing to revamp the financial services sector in response to the MacKay task force. A white paper is expected later this year. These are the kinds of policy measures that the NDP would like to see forthcoming.

I wish to thank my hon. colleagues from Regina—Qu'Appelle and Kamloops, Thompson and Highland Valleys for their intervention on this bill. We would like to say that we could support the bill, but we cannot. Unfortunately it does not go nearly far enough. It does not protect our institutions. It does nothing for the credit unions and it does not do anything to protect average Canadians from coast to coast to coast who use the banking services.

If the government really wanted to spend some time on amending the Bank Act it would have committee hearings from coast to coast to coast in the small towns to ask Canadians what they would like to see in their financial institutions, instead of going to Bay Street to ask what the government could do to appease the people on Bay Street in order to make life easier for the international institutions.

In the end, all of us believe in competition. It is healthy. However, we do not believe in competition which sucks the capital out of our country and invests in other countries.

[The Deputy Speaker]

It is my duty, pursuant to Standing Order 38, to inform the House that the question to be raised tonight at the time of adjournment is as follows: the hon. member for Halifax West, Canadian forces.

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

Mr. Speaker, it is a pleasure today to speak to Bill C-67.

Bill C-67 is designed to increase and improve access to the Canadian banking industry through foreign participants and foreign banks.

The financial sector, both within Canada and globally, is in a period of immense change and has been for some time. This change is fuelled by a number of factors. Within Canada we have seen the decline of the four pillars of the financial industry and their dissolution is imminent. Technological advancements are having an immense effect, particularly on the banking sector.

For instance, let us look at one element, bank machines. Through the Interac network, through the telecommunications, the computerization and the automation of this sector, these machines are effectively everywhere. They are in many grocery stores. Every teller has the capacity to give people money through the debit system. Consumers have the ability to withdraw money or to purchase goods and services. That technological shift and advancement has improved banking services immeasurably for Canadians. That is just one of the areas where that has occurred.

Globalization has played a very important role. That is what we are talking about today. The government is responding to the WTO agreement on financial services that it signed. In fact the government has to respond prior to June 1 and that is what Bill C-67 is all about.

Foreign bank participation in Canada has grown somewhat since the early 1980s but it has continued to be stymied by regulations and tax policies that have limited the growth of foreign banks in Canada. Ultimately this has limited the services provided to Canadians and the access to capital for instance that small businesses need.

Despite the government's policies that have been discouraging to foreign banks, we have seen the growth of companies like MBNA banks including Capital One and Bank One. In the brokerage industry we have seen Merrill Lynch purchase Midland Walwyn. We have seen Charles Schwab, a discount brokerage, grow in Canada. These companies are real and these banks and this competition is real.

During the merger discussion the minister and some other members on the government side were saying that foreign competition is not playing that key a role. In fact, the role of foreign competition in the Canadian banking sector has grown somewhat.

One example is Wells Fargo which about two years ago had 10,000 customers in Canada. In a 12 month period its 10,000 customer base grew to about 120,000 customers in Canada, yet Wells Fargo employs less than 100 Canadians. It is able to expand so significantly with so few people in Canada because of telecommunications and the nature of technology and its impact on banking and the nature of globalization and its impact on banking.

In the banking sector on a global basis there have been a huge number of mergers in recent years. In countries such as Italy, Switzerland and the U.S. significant levels of merger activity have occurred. Banks are getting larger to develop economies of scale in order to afford the types of technologies to compete in a global environment which is increasingly competitive.

The intent of this legislation is logical. It is designed to ensure that we are complying with the 1997 WTO agreement on financial services. As I have said, the presence of foreign banking in Canada has grown even before this agreement if we look at companies like Wells Fargo and their success in lending particularly to small business but also to medium size business. This agreement will provide further access for foreign banks to the Canadian market.

This legislation, despite some of its flaws to which I will be speaking, should improve the competitiveness of the Canadian financial services sector and ultimately the services and products available in the banking sector to Canadians.

Ultimately one of the biggest challenges facing Canadian small business for some time has been access to capital. As a small business person I know that one of the difficulties faced by small business is access to capital. Part of the problem has been the concentration of banking in Canada over a period of time.

I spent some time in the U.S. I was amazed with the number of U.S. banks and as a small business person the fact that if someone with a business proposal was turned down at the Bank of Bath in Maine, he could go to the Bank of Bangor with the proposal and maybe get the loan. In Georgia if someone was turned down by the Bank of Snellville, he would be able to go to the Bank of Loganville. Both are actual banks. The Bank of Loganville has been there for 150 years.

In Canada in recent years, certainly after the banks stopped doing what they used to refer to as character lending, banks started using something called ratio lending. If ratios did not work for one bank, they probably would not work for any bank. It was very difficult for a small business person to get the money. It seemed for a lot of small business people the only way they would be able to get the money was if they did not need it which is counterproductive.

This legislation is designed to provide greater access to capital for small business people. It may reach those goals. However some issues need to be addressed.

Bill C-67 in its original form did not allow foreign banks to carry losses forward to be applied against future profits to reduce their taxes. Wisely the government changed this. There would have been a competitiveness issue relative to the foreign banks that currently exist in Canada as compared to those that enter Canada after Bill C-67. On May 11 the Secretary of State for International Financial Institutions acknowledged before the House of Commons Standing Committee on Finance that Bill C-67 would be virtually useless to foreign banks in Canada without some changes in this regard.

Wisely the secretary of state has announced some changes to several sections of the Income Tax Act. There will be alterations for a limited time so that foreign banks operating in Canada can take advantage of this legislation.

The tax rule will allow the foreign banks' subsidiaries to transfer assets such as property to their new branches without being taxed for the next three years to allow for the transitional period. Furthermore the retained earnings of the subsidiary will be transferred to the new bank branches. The government will also give the foreign banks a three year transition period to enact all these transfers.

The Canadian Bar Association is still critical of the bill. It has numerous concerns. For example, foreign banks will still need ministerial approval for some transactions that Canadian banks do not face, for instance in the area of takeovers. Foreign banks will also be at a competitive disadvantage because they will be subject to provincial laws as opposed to federal laws. Domestic banks in Canada are subject to federal regulations. That is a complication we would like to see addressed.

The Canadian Bar Association has also warned that Bill C-67 does not meet the goal it was intended to, and that was to open up the Canadian banking market to foreign competition to be in compliance with the WTO.

Ultimately I believe that while this legislation is heading in the right direction it does not go quite far enough. The legislation will help domestic competition in the Canadian banking sector as I said earlier, particularly in the area of small business lending.

I would like to see greater competition in the Canadian banking sector, for instance changes to the co-operatives act as recommended by the MacKay task force, which would allow credit unions to compete directly with banks. That would be extremely positive, as would a loosening of the ownership rules to make it easier for Canadian individuals and companies to start up banks to increase competition in the Canadian financial sector, again in compliance or agreement with the recommendations of the MacKay task force.

We are waiting to see the government's response to the MacKay task force in the spring with the white paper. I would certainly hope that the government moves to change the co-operatives act, to loosen the ownership rules and also to improve and broaden access to the payment system to create greater competition domestically.

These changes in addition to the changes brought about by Bill C-67 will improve foreign access to the Canadian domestic market. They should achieve certain goals as articulated by MacKay in terms of improving the quality of banking services to Canadians and the competitiveness of the Canadian banking sector.

The bill is positive but as I said there are some design issues and some flaws in specific areas.

The MacKay report made 131 recommendations. One of those recommendations was that a process be set out whereby if Canadian banks wished to merge they should have to face a process within which they would be given the opportunity and the challenge to address the legitimate concerns of Canadians. Some of these concerns included lending to small business, services in rural communities, bank service charges and commitments on jobs and hiring. Criteria like these would have to be met in the processes articulated and represented in the MacKay task force report.

With bank mergers Canadians feel that this type of process would have been a good idea. A Maclean's poll in December indicated that while 53% of Canadians were opposed to the bank mergers, 57% of Canadians would be in favour if the banks were to make commitments and meet the conditions and criteria that were important to Canadians.

When the MacKay task force report first came out, the Minister of Finance actually spoke positively of the process that MacKay had put forward in terms of approving bank mergers but having to meet the conditions and making commitments to Canadians first. MacKay went as far as to actually recommend that these commitments be legally binding for the banks and for the directors of the banks.

In response to some of the demands by Canadians to improve services and to improve lending to small businesses and to commit to better services for rural communities, some of the merger proponents including the Royal Bank and the Bank of Montreal made some very serious commitments during that merger discussion. They said that they would reduce service charges. They made a commitment to reduce service charges to Canadians by 10%. Furthermore they said they would actually be increasing their customer service staff as well as continuing the services to rural communities. They were willing to make commitments in that regard and increase their number of outlets.

One of the greatest commitments they made was to double the amount of money that they were lending individually as a merged entity. They would double the amount they were lending to small business from $25 billion to $50 billion. It was a 100% increase in the amount of money they would commit to lend to small business. They were willing to set up a new separate bank focused solely on the small business community. These were very positive commitments the banks were willing to make.

The Minister of Finance however, even though earlier he had stated that he felt favourably toward the MacKay task force recommendation on a process for merger approval, in my opinion and in the opinion of our party simply said no to the mergers for political purposes. This was done before a proper negotiation, before an opportunity for the merger proponents to make the commitments on the types of services that were important to Canadians and the types of commitments that could have benefited Canadians.

We had an opportunity to negotiate with the banks. We had some leverage. We gave all that up because of the Minister of Finance's political ambitions for the next Liberal leadership campaign and for the next federal election. It is unfortunate that the focus of the members opposite is solely on the next election. Canadians really need a government that is focused on the challenges of the next century.

What has been the impact? We have had a few months to see the short term impact. The Dominion Bond Rating Service has downgraded the credit rating of the Canadian banks citing directly the minister's decision on the bank mergers. When the Dominion Bond Rating Service or any bond rating service reduces the credit rating of a bank, a company, an individual, or even a province, that means that entity, in this case the banks, pays more money for its capital. Its capital is more expensive. Ultimately that will lead to a higher price for consumers and/or downward pressure on bank earnings.

There are many people who whenever the banks come out with their earnings speak critically of the banks. The fact is over 50% of Canadians directly or indirectly through their pension funds, through their mutual funds, through their union pension funds are bank shareholders. It is very difficult to invest in the Canadian equities markets without buying bank stocks. They dominate the Canadian equities markets.

Canada has an 80-20 rule where 80% of pension investments and RRSPs have to be in Canada and not external. At the same time we have to recognize that only 1.5% of the global equities markets are Canadian. Those equities markets are dominated by banks. It is almost impossible to have a diversified portfolio in Canada in terms of the equities markets without owning a bank stock.

The government's policy of the 20% limit on foreign investment for Canadians in their RRSPs and also for pension funds, combined with its backward policies in preventing without proper negotiation Canadian banks the opportunity to develop the economies of scale to compete globally will result significantly in reduced retirement incomes for Canadians in the future.

There has been a significant downward impact on Canadian bank shares in recent months as a direct result of this decision.

In terms of the general equities markets in Canada, we have seen a 60% growth in the TSE since 1993, but during the same period we have seen 180% growth in the Dow Jones Industrial Average in New York. This is a very important issue because as Canadians are getting poorer while our neighbours to the south are getting richer.

In formulating public policy, we have to be very careful that it is not only focused on leadership campaigns and the next federal election, but focused on the opportunities and challenges faced by Canadians in a global environment as we enter the next century.

The best analogy of public policy is that it is more like making a cake than it is eating from a buffet. The difficulty is that the minister is treating public policy and the MacKay task force, those 131 recommendations, a little bit like a buffet in that he is choosing from that buffet what he considers to be politically palatable and he is leaving the rest.

Public policy, and particularly a piece of public policy like the MacKay task force, is more like a cake recipe. If we put some of the ingredients in the cake but not others we could end up with a flat cake.

I am concerned that this mishmash, haphazard, knee-jerk reaction, crisis management approach to public policy that the government is utilizing will result in the types of public policy in Canada that would be analogous to the pastry chef's flat cake. That is effectively what we are seeing with this government. It is actually not focused on a holistic approach to these complex issues and is only focused on short term politics.

The minister said that the upcoming white paper will respond more fully to the MacKay recommendations. In the government's response, we would like to see more flexible ownership rules on banks, a broadening of the access to the payment system and a change to the co-operative act to allow credit unions to compete directly with banks. We want to see improved competition for Canadians and improved services for Canadians. At the same time, we do not want to sacrifice our banks' competitiveness globally. The Canadian financial services sector is one of the growth areas of the Canadian economy and we do not want to lose that.

We also do not want to see the types of policies that the government implements in terms of denying mergers without proper consultation and negotiation and at the same time exposing Canadian banks to foreign competition while they are handcuffed by a government that will not allow them to achieve the economies of scale they need. It is very important that the government become much more careful in developing public policy.

We will be supporting Bill C-67, but we hope the government does not continue to hinder and handcuff the Canadian financial services sector that will continue to lead to job creation in Canada.

The government has a role to lead and to develop public policy. The economic policies in Canada that have led to growth in the late 1990s have been as a result of a forward-thinking government in the late 1980s and early 1990s with free trade and the GST, et cetera. We want to see the same type of leadership from this government that will prepare Canadians to not only compete globally but to succeed into the 21st century.

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

Madam Speaker, it is always a privilege to hear my colleague from the other part of Nova Scotia, Kings—Hants, speak up.

I have to ask the member a question about one thing he said at the very end. Does he honestly believe that his government, the Conservative government of 1984 to 1993, was really forward-thinking when it brought in the GST and its dreaded cousin the HST, and when it ran up the debt and deficit of the country to astronomical limits which put tremendous pressure on a lot of public programs for the average Canadian? I am just wondering if the hon. member really believes that is forward-thinking.

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

Madam Speaker, I appreciate the question from my colleague from Sackville—Eastern Shore. In answer to his question, absolutely yes.

The policies of that government, including free trade, the elimination of the manufacturers' sales tax, which is a euphemistic way of saying the implementation of the GST, the deregulation of the financial services sector, the transportation sector and energy sector were all pivotal in the economic growth that we have seen in the late 1990s. This is not just my opinion. The 1998 global preview of the Economist magazine stated that the structural changes made in the Canadian economy in the late 1980s and the early 1990s had resulted in the Liberal government's ability to reduce and ultimately eliminate the deficit. It then went on to list those initiatives.

Deficit reduction began back in 1984. The leader of Her Majesty's Official Opposition, the Reform Party, said in the House that the deficit reduction effort in Canada began in 1984 under the government of Brian Mulroney. The deficit as a percentage of GDP was around 9% in 1984 and was reduced to about 5% by the time that government was politely asked to leave office in 1993.

Tax reform has considerable political risk and the GST was an example of that. It is very difficult to market a new tax, the GST in this case, even though it was replacing the manufacturers' sales tax, when only 17% of Canadians were aware that the manufacturers' sales tax existed in the first place. Instead of the government of the day replying on pollsters and focus groups to develop economic policy, it realized that the manufacturers' sales tax was killing jobs in a global environment that engages and embraces the opportunities of free trade.

Instead of accepting the status quo because of politics, that government had the courage to face the opportunities of the future and implement what was and may still continue to be an unpopular tax. However, it was the right public policy then and has helped to lead to the economic growth that has benefited all Canadians and in particular the gentlemen and ladies opposite in the Liberal government.

[Howard Hilstrom, Reform, Selkirk—Interlake, MB]

Madam Speaker, I am certainly old enough to remember the 1984 to 1993 timeframe. I also remember the change from the manufacturers' sales tax to the GST. When I compare the two, I see that in fact the take from the GST is probably 50 to 100 times larger than the take from the old manufacturers' sales tax.

I would like to ask the member from the Conservative Party if the changes that were instituted by Mr. Mulroney and company were not the start of the gigantic tax increases that we are living with today? I would like to have an answer to that.

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

Madam Speaker, the tax burden in Canada during the period 1988 to 1993 actually decreased in terms of income tax due to the replacement of the manufacturers' sales tax. That was developed as a revenue neutral tax reform designed at that time to eliminate a counterproductive, productivity killing tax policy that would have inhibited economic growth.

A witness to the soundness of that policy is the economic growth we have seen, in particular in our export sector since 1993. Forty per cent of our GDP now comes from exports. If the Reform Party member had an opportunity to respond, I would ask him if he would prefer that we tax the manufacturers that are exporting? Would he prefer to see a counterproductive tax that would reduce our economic growth in the export market? I do not believe he would.

I know that most of the recommendations made by the Canadian Tax Foundation and other tax think-tanks would like to see a further shift to a consumption based tax and potentially some changes and adaptations to ensure progressivity in a consumption based tax which would be very important.

If given the opportunity we would like to see significant tax reform now as we saw in the late 1980s and early 1990s under the previous and courageous government of the Progressive Conservatives. Unfortunately, the Liberals are not providing us with the meaningful, broad based tax reform that Canadians need in a competitive environment.

Far from apologizing for the proactive and innovative leadership of that government, I think Canadians, including members of the Reform Party whose leader stated in the House that deficit reduction started back in 1984, should be commending and recognizing the innovation and leadership of that government in providing the foundation for Canadian economic growth in the late 1990s and into the 21st century.

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

Madam Speaker, I rise again as a result of the member's statement about the GST being good for Canada.

The auditor general just recently announced that $7 billion of underground economy is resulting in losses to the federal government and $5 billion to the provincial government. That is $12 billion of underground activity.

If the member for Kings—Hants asked me as a contractor to repair his roof and I said I could do it for $2,500 cash or $3,300 with a receipt, what amount do members think the average Canadian would agree to? They would agree to cash under the table because of the dreaded GST.

Where the member and I live we are compounded with the HST. I know the member is very proud of being a Conservative member and I respect him for that, but he cannot honestly say that the GST-HST is a good thing for the average Canadian. Average Canadians get hurt in their pockets every time they purchase something, especially reading materials and electricity. It is a burden on Canadians and results in an underground economy. I would like the member to respond to this.

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

Madam Speaker, the one thing I can say about the NDP members is that they are consistent. They opposed the GST when it was introduced and they continue to oppose it. At one point they opposed free trade and they continue to oppose it. We at least know what the NDP members are thinking and they have been consistent over a period of time.

The Liberals on the other hand do not suffer under the yoke of policy consistency or integrity on public policy and can thus move back and forth wherever they want on these issues.

I think most people would agree that a large part of the underground economy is due to the fact that taxes are too high in Canada. Income taxes are too high, capital gains taxes are too high and payroll taxes are too high. We have to evaluate which types of taxes have the most dilatory effect on the Canadian economy.

I would argue that it is not the consumption taxes in a global environment. In a traditional sense, consumption taxes would reduce the consumption of Canadian produced goods which would reduce growth in the economy. In the new economy, it is income taxes that reduce the ability of Canadians to save and invest. Productivity levels are very closely related to investment. It is capital gains taxes that prevent Canadians from unleashing their capital and selling assets to invest in new and innovative opportunities. Those are the taxes that are punishing Canadians and reducing Canadian growth in the new economy. It is not the GST.

I would argue that the underground economy has more to do with the general rates of taxation, in particular income taxes, which are reducing the personal disposable income of Canadians. The hon. member said that if he were a contractor and approached me and asked me if I would pay him under the table, I would not do that. I pay my GST.

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

Madam Speaker, while the member for Kings—Hants was speaking, I was thinking that there are probably 500 or 600 comedians out of work in this country and he is trying to break into the business. That was hard to take.

Just for the record, the Tory legacy left behind by Mulroney will always be remembered for the dreaded GST that was rammed down the throats of not only his backbenchers but all Canadians. He also tried unsuccessfully to ram the Charlottetown accord down the throats of Canadian people. It is also important to note that a $45 billion deficit was left to this Liberal government, as well as a $500 billion debt. That is the record no matter what the member says. Apparently that allowed the Liberals to eliminate the deficit. That is interesting because what allowed them to eliminate the deficit was extracting an extra $40 billion in taxes from the Canadian people since 1993. Let us be clear about that.

We are here to talk about Bill C-67. My party supports Bill C-67. We think it is a good bill. It will certainly add to the financial landscape of the country. The only thing I can ask the Liberal government is what took so long. It took six years for the finance minister and the government to make some positive steps in the financial services industry. That is a long time for a government that says it is on top of things.

We support the quick passage of the bill and the implementation of the changes to the regulations. We also anticipate sooner than later the changes to the regulations governing credit unions which will allow them to do some things such as pooling their resources to take advantage of opportunities and perhaps becoming more bank-like in some respects.

We would also encourage the government to do a very thorough review of the tax regime, taxation as it applies to our players in the financial services sector including bankers.

We want to close this debate and get the bill passed. I say once again that we support the bill. It is a good bill for Canada, particularly business in Canada, and the Reform Party will be supporting it.