Debates of May 14th, 2001

Bankruptcy And Insolvency Act

[Pat Martin, NDP, Winnipeg Centre, MB]

moved that Bill C-203, an act to amend the Bankruptcy and Insolvency Act (unpaid wages to rank first in priority in distribution) be read the second time and referred to a committee.

Mr. Speaker, I would like to say at the outset what a rare and wonderful thing it is for an opposition backbencher to be given the opportunity to bring forward one of his or her own private member's bills for debate in the House. I think most members would agree that one of the most satisfying aspects of our job is when we can actually shape the course of the debate for at least one hour.

Most private members' bills that are brought forward are very thoughtful and very well researched and seek to address a very important subject brought to the member's attention, usually by people in his riding or across the country.

However, I am very disappointed and I begin the debate with a certain element of sadness. My private member's bill seeks to right an historic wrong but was not deemed to be votable by the ad hoc committee that meets regularly to deal with private members' business. This is a criticism we in the House should observe and it is something that should be rectified. When a private member, no matter what party he or she belongs to, opposition or government, brings forward an important issue on behalf of their constituents we should be giving it a bit more consideration and allow the issue to get to committee stage.

In speaking to Bill C-203, a bill to amend the bankruptcy act, I want to dedicate the effort we made to bring this issue to debate to the workers at the Giant mine in Yellowknife. As members may know, the history of the Giant mine has been a tragic one. It has involved a great deal of labour unrest. Many workers have suffered at the hands of an absentee landlord, namely foreign ownership. Nine people died in an explosion at the mine.

As if the employees and the citizens of Yellowknife have not gone through enough inconvenience, Royal Oak-Giant mine has declared bankruptcy. The workers, after years of working in the mine, have been left with back wages owing to them as well as pension contributions and severance pay. The bill seeks to address those problems. In the event that any enterprise goes insolvent or bankrupt, the current law has workers' wages ranked down on the list of priorities as to who will divide up the assets of the enterprise.

Before I go into the details of the bill, let me say that the employers do not really resist this type of amendment to the act because by the time an enterprise declares bankruptcy the few assets that are left over are of little consequence to the owners of the company. They would not oppose this sort of activity. In the interest of basic fairness we would want to believe they would want the interests of their employees addressed and prioritized in terms of dividing the few assets that are left.

I also want to explain some of the rationale behind putting the interests of the employees ahead of the interests of the other creditors or bankers.

A very special relationship exists between an employer and an employee. It is a contract of sorts or a tacit agreement between the employer and the employee. It is not enshrined in a written document, such as a collective agreement, but it is recognized in law. The relationship is very simple. The employee provides a basic service or a service the employer wants and the employer pays a set wage or a remuneration for the service. That exists and is recognized in common law.

Both parties have certain obligations. The obligation of the employee is to do their duties in a diligent fashion and to be loyal to the employer. There are many cases in common law that the duty of loyalty of the employee to the employer goes beyond the workplace. The employee is not even allowed to trash the employer in his private life. Certainly that relationship is recognized.

The employer has an historic obligation to recognize the debt to the employee for services rendered. One of the reasons common law is usually sympathetic to the employee in situations like this is that there is an historic out of balance in the relationship. The employer holds all the cards while the employee holds very few. The employee is really at the mercy of the whims of the employer, which is where it becomes very much a trust relationship. It actually goes further than that. The trust of the employee for the employer to pay him or her is usually far more serious. If the employer reneges on the obligation to pay the wages, the impact on the employee is much more serious than if the employer had chosen not to pay back the debt to one of the banks or lending institutions.

I would argue that when the lending institutions loan money to a company they know full well the risks that might be involved in that enterprise. They even get compensated for that risk by charging interest on the loan. Usually by the time a company goes bankrupt the loan has been repaid, at least in part. The bank or lending institution will be compensated for at least some of the risk it puts into the venture, either through interest payments or payments to the principle.

The impact on the employee, however, is far more serious. We are talking about a person's day to day income. It may mean the loss of their home. It may mean a huge impact on their family or huge impact on an employee's spending power which influences small businesses in given areas.

In terms of the relative weight of a debt to an employee versus a debt not paid to one of the banks or secured creditors, the impact, I would argue, is far greater, which is why common law has been a little more sympathetic to the employee in that case. However, that sympathy has not been translated into legislation.

Since 1975 my research shows that this issue has been before the House of Commons to be remedied to varying degrees of success four times. There was always a basic recognition that the employees, because of the imbalance in the power relationship, needed the authority of legislation to look after their interests more than the banks needed the legislative authority of parliament to look after theirs.

What should be our primary concern in the House? Whose interests should we be here advocating? What should be primacy in terms of the relative priority of who is more at risk and who deserves our support more? I would argue that it is the people of Canada, the working people of Canada, who sent us here to advocate on their behalf. They are the ones who need representation. I would argue further that chartered banks or lending institutions are far more able to absorb the impact of a debt gone bad than working people. They do not frankly need our help. The people who voted for us need our help.

Bill C-203 results from extensive research on various mechanisms and the instruments we could put in place that would give some relief to employees in a situation like this one. We looked at various models from around the world because Canada is not alone in realizing that employees need more protection through legislation. We looked at a few options.

For instance, Australia put in place a wage guarantee scheme which is a little different from what I would put in place with my bill. It contemplates putting together a pool of funding through the government. Through either general revenue or some payroll tax the government would actually be responsible for the back wages owed to employees.

I am critical of this model, even though it is working quite well in Australia. It is better than nothing, in that at least there is some avenue of recourse and some satisfaction that employees can achieve. However it also raises problems.

During the debate in Australia to put in place its wage scheme the spectre of a moral hazard was raised. If employers knew that there was a fallback position for employees they might be more likely to leave the employees dangling or to fail to clean up whatever mess has been made in terms of back wages prior to the bankruptcy situation. I caution it is probably not the right route to go.

I will speak later to how various boards and task forces in Canada arrived at recommending a wage scheme rather than at what I am recommending in my bill.

Another alternative which comes up now and then is giving a special status to employees, the preferred creditor status. This as well has its shortcomings and shortfalls. I advise it is not the best way to go.

We are recommending giving a super priority to the back wages owed to employees. In the event of a bankruptcy employees would be first in line for any back wages, back contributions to pensions and severance pay. In the event of self-employed people, travelling salesmen for instance, they would be in line for any costs they might have incurred. In other words, any wages or compensation owed to employees should be cleared up first out of the assets remaining in bankrupt companies and the others can get in line to divide whatever is left over.

It is an issue of basic fairness. It is an issue that recognizes the historic imbalance between employers and employees and the imbalance between the ability of employees to recoup any back wages versus the authority of the banks or any other lenders or creditors.

Looking at the history of what the House of Commons has tried to do to deal with this issue over the years, I note the Canada Business Corporations Act looks at the issue of unpaid wages and the liability on corporate directors. At least it was contemplated in that act.

Liability for wages can be assigned to the directors in certain situations. Directors can be sued personally. If an individual employee wants to go after the board of directors, the directors can be liable. There is a section in the act which covers the liability of directors and makes it very rare for employees to be able to sue directors.

Subsection 123(4) exonerates directors from any liability if they were acting in good faith on the information given to them through the financial information of the company. In other words the onus would be on employees to prove that directors were acting in bad faith and were not dealing properly with the information given to them. It is a huge burden to put on employees. If average employees went after a few thousand dollars worth of back wages they would never be successful in this challenge.

We could trace the efforts to amend the bankruptcy law back to Bill C-60 in 1975 when an effort was made to introduce the idea of a super priority status for employees. The Landry committee in 1981 gave it an effort. The Colter advisory committee in 1985 made a series of recommendations to change the Bankruptcy Act for just this reason, to give employees a super status.

The committee recommended that a fund should be established, which is not exactly what I recommend, and believed that it should be paid for by contributions from employers and employees. My argument would be why should employees have to pay some sort of a premium to buy insurance to guarantee that their wages would be paid. That is patently unfair and goes in the wrong direction.

I believe this is an act whose time has come. I am very disappointed that it was not given the votability it deserves. I point to the incidence of bankruptcy in Canada. If I had more time I would go through the details. Last year alone there were 10,500 bankruptcies, leaving a total liability of $2.5 billion. In 1999 there were 10,800 bankruptcies, leaving a liability of $2 billion. The same was true in 1998.

Every year approximately 10,000 companies go out of business and every year employees are left dangling on the hook for back wages, back pension contributions, severance pay and other compensation to which they were entitled. I appeal to members of the House of Commons today to recognize that the wages of workers should stand first in line in terms of priority whenever a company goes bankrupt.

[John Cannis, Liberal, Parliamentary Secretary to Minister of Industry]

Mr. Speaker, as I begin my remarks let me acknowledge the concern of the member for Winnipeg Centre for employees in bankruptcy company situations. When he speaks to this issue he is very sincere about it, but the issue of unpaid wages and pension contributions when a firm goes bankrupt is one considered by the House several times in the past. The member also alluded to that. I am confident members on all sides would like to see the most equitable solution possible.

Over the years different governments, as was stated earlier, considered many different options for wage earner protection that would be good for the economy and for workers. This is not a partisan issue. It is not an easy issue at all. Each option has its trade-offs and several times parliament has been unable to agree on the fairest course of action.

Industry Canada, which is responsible for the Bankruptcy and Insolvency Act, is aware of the need to protect wage earners whose employers face bankruptcy. As recently as 1992 parliament amended the act to extend the protection of unpaid wages. In particular, parliament found it appropriate to increase the protection for wages earned up to six months prior to bankruptcy. This represents a doubling of the previous length of time.

In 1992 parliament also quadrupled the maximum amount that could be claimed from $500 to $2,000. Further review of this important issue is currently under way. I am pleased to bring members up to date on the plans of Industry Canada to strengthen the Bankruptcy and Insolvency Act.

First, the department expects to release in the next couple of months a discussion paper which addresses wage earner protection. Second, Industry Canada officials will be undertaking cross-Canada consultations with stakeholders to help identify a fair solution. Third, the act will be referred to the parliamentary committee for review in the next year. The results of the consultations and the whole question of wage earner protection will likely be examined during the parliamentary review.

Notwithstanding, I certainly realize that wage earners sometimes face special difficulties when their employers go bankrupt, leaving their wages and pension contributions unpaid. They are vulnerable creditors that often cannot afford such losses and usually lack the information to assess the risk that their employers may not pay them.

To protect employees the current act gives preferred status of up to $2,000 in wage claims for services provided in the six months immediately before the employer's bankruptcy. It also protects up to $1,000 in disbursements for sales people, as mentioned earlier.

In the preferred ranking, wage claims are given priority over claims of ordinary creditors but wage claims rank behind those of secured creditors. Protection for pension contributions is provided in federal and provincial pension legislation, much of which gives secured creditors status to claim unpaid pension contributions.

Very few people would argue against the principle of protecting the claims of wage earners. Fairness weighs in favour of protecting them. In practical terms wage earners are more likely to have their unpaid wages claims satisfied than ordinary creditors because of their preferred status. In some circumstances as well, secured creditors may allow trustees to pay accrued wages to which the employees are not entitled, strictly speaking.

The issue raised by the member for Winnipeg Centre in Bill C-203 is apparently straightforward. The bill provides for a kind of super priority for wage claims and payments in respect of pensions. As we know from extensive past discussions on bankruptcy law, super priority, as with other options, raises various issues.

A difficult issue and one in which earlier proposals have foundered is that super priority could affect the availability of credit to companies. It could become an important factor in the risk assessment of commercial lenders, leading to a reduced amount of credit being available. The consequences could adversely affect the employment and interest of workers generally. Commercial bankruptcy law has an important role in the allocation of these credit market risks.

I ask hon. members not to misunderstand what I am saying. I am not saying that super priority should be rejected as a way of handling wage and pension contribution claims in bankruptcies, but I am stressing it is a complex issue that has a long history and involves certain trade-offs.

The basic principle of wage earner protection was established 50 years ago in the Bankruptcy Act, 1949. Since that time five committees have reported the possible changes: the Tassé study committee in 1970, the Landry committee in 1981, the Colter advisory committee in 1986, the advisory committee on adjustments in 1989, and the bankruptcy and insolvency advisory committee in 1994. None of their recommendations for wage earner protection were implemented.

Over the past quarter century no fewer than eight bills have been introduced in the House and in the other place to amend the act. Only one of these bills subsequently altered the provisions for wage earner protection, the bill involving the 1992 amendments to the act.

These committees and bills proposed or analyzed a wide range of approaches including wage earner protection funds financed by contributions from employers, from employers and employees, or by the government through general revenues. Some bills proposed super priority protection for wage claims. Some bills proposed raising the ranking of wage and pension contribution claims among preferred creditors.

There is a great deal of divergence on who should pay for the cost of wage and pension contribution claims. It was nearly impossible to obtain a consensus on better ways to proceed than what is currently in the Bankruptcy and Insolvency Act. That is why the protection of wage earners requires further examination and consultation.

I have sketched out these details to suggest various available points to my colleagues on all sides, and specifically the hon. member for Winnipeg Centre. There is great interest in the whole question of wage earner protection following bankruptcies, but finding a fairer solution than what is now available would require a good deal of hard and thoughtful work during the forthcoming parliamentary review.

As I said in my opening remarks, this is not a partisan issue. Several different governments have already grappled with the question. Each option for wage earner protection has its advantages and disadvantages. Industry Canada currently is working to identify a fair solution.

[John Williams, Canadian Alliance, St. Albert, AB]

Mr. Speaker, I am pleased to speak on the bill of the hon. member from the New Democratic Party regarding the Bankruptcy and Insolvency Act. Unfortunately we cannot support it.

When we in our party look at the idea that it would double the compensation from $2,000 to $5,000 for wages to employees and for increasing commissions and so on, we see that the cost in a bankruptcy to pay these commitments would far outweigh the benefits that accrue from leaving it as it is.

We have to think of situations where businesses are ill equipped or finding it difficult to pay their bills, and their creditors are hounding them. A business in that situation may ask the bank to lend it some money. If the company has 100 employees, the amount to be given for wages and commissions would multiplied by that. If the company goes bankrupt the bank would be unable to collect the loan given to help that company though its difficult times even if the bank took security. Therefore it is going to cause more businesses to go bankrupt rather than get close to bankruptcy and survive.

I would have thought that the NDP would be far more interested in protecting and preserving jobs rather than forcing businesses into bankruptcy because they cannot raise the money.

We have to recognize today that banks lend money in the anticipation of getting it back. If they do not feel they will get it back, they will not lend the money. Even if they take security, that security would then be in jeopardy in regard to accounts receivable and so on because according to this bill the money would have to be paid out.

Not only that, but banks charge interest based on what they perceive to be the risk involved. If they think it is possible to lend the money but the risk is higher they will charge more interest. Interest rates would therefore rise, which again would make the business more vulnerable.

There is nothing in the bill that suggests amending the bankruptcy act would be beneficial to the economy or in protecting jobs or providing ongoing value to Canadians.

I was involved in the debate about 10 years ago when the bankruptcy act was last rewritten. I argued for various changes to ensure that as far as possible matters involving creditors, employees and others owed money by businesses experiencing financial difficulties were wound up quickly and efficiently to ensure that the maximum amount of money was available to be distributed to creditors, which of course includes the employees.

We want to try to ensure a viable economy in these difficult times so that businesses in difficulty can, if possible, borrow money. I cannot understand why the NDP wants to put into the bankruptcy act that the first claim on the assets of the organization should be payments for arrears in wages and commissions. Can it not see that would jeopardize the potential to keep the business afloat? I cannot understand it.

I would have thought that jobs were of ultimate importance to the NDP, to us and to Canada's economy.

[An hon. member]

Jobs with no wages?

[John Williams, Canadian Alliance, St. Albert, AB]

Mr. Speaker, they seem a little upset down there. I would just like them to think about it.

[Pat Martin, NDP, Winnipeg Centre, MB]

Any business can stay open if they do not pay their wages. It is not that tough.

[John Williams, Canadian Alliance, St. Albert, AB]

Mr. Speaker, I hear the comment that any business can stay open if it does not pay wages. We have laws that require businesses to pay wages. We have laws that require them to pay their source deductions to the government. There are times, for reasons that are out of the control of the organization, that the money is not there. They may have accounts receivable that they cannot collect.

I think of a well run small business that I knew of a number of years ago in my constituency. It had one of their major accounts receivable companies disappear overnight. It went bust, bankrupt. The small business was left with no cash coming in and no wages to pay out.

Through that difficult time the bank carried the small business. The bank saw that the management was good and had faith in the owner and carried him through. The bank was able to lend money to pay for the wages because the bank thought there was some capacity of maintaining the business.

In the situation being proposed by this member, the bank would never have lent money under these circumstances. Therefore the business would have failed. I cannot understand why the NDP finds it more important to stand on this principle of every last penny of wages having to be paid while other creditors, even if they are secured creditors, are without recourse to their security. Putting this up as number one on the list of order of creditors being paid when a company goes bankrupt means that secured creditors may lose the value of their security.

The banks take a mortgage on a piece of property. That mortgage may not be as valuable as it was because the cash has to be used to pay the wages. Surely the fundamental thing is to protect the jobs of Canadians. The fundamental thing is to build a viable economy. There are times, unfortunately, when businesses go bankrupt through no fault of their own. I would expect that surely the NDP would be willing to put forth creative ideas to help these kinds of business protect the jobs of their employees.

This is not it. This is a preconceived concept that the business has run off with the cash and left the employees high and dry. I was an accountant before I got into the political game and I saw businesses fail where that failure had nothing to do with bad management. I gave one example where the large accounts receivable company went broke and the small business was left high and dry. The owner was left high and dry. The owner stood to lose every penny he had invested in the business and through no fault of his own.

Why do we always think that the businessman has taken advantage of the employee? The businessman has provided opportunities for employment for the employees for as long as he has been in business. It would not likely be his desire, assuming no criminal intent, to see his own assets disappear and his own business disappear. What would he do? He does not get unemployment insurance or anything like that.

Let us be practical. Let us look at opportunities to ensure that if businesses find themselves in difficult times we do not guarantee that they are going to fail. Let us provide the opportunity for them to get through the difficult times by ensuring that the banks do not say businesses are too high a risk so the bank is not going to deal with them. We must ensure that the banks do not say that the risk is so high they are going to charge an exorbitant rate of interest.

Let us work for the benefit of all Canadians. Let us not split this issue into employees who are at the mercy of an employer and employers who the NDP thinks are ripping off the employees. Let us work together. Bankruptcies are tough times for employers. I have seen it. I have counselled them. I know how difficult it is and this would not help the situation one bit.

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, first, I must say that I feel the previous speaker from the Canadian Alliance has really skewed the question.

The question is not whether we are for or against job protection and creation; we are all in favour of job creation prior to bankruptcy. Once bankruptcy has been declared, however, there is no more discussion of job creation. The question instead is how the liquidated assets are going to be divided between the banks and the workers, between those who are making record profits that are even an embarrassment, even to shareholders, and those in need of money quite simply to support their families.

The question has been skewed, and the response the hon. member for Winnipeg Centre was seeking has not been obtained. I congratulate him for introducing this bill and share his regret that it is not a votable item.

Will pay owing to workers have precedence over the financial institutions, or will it not? The Bloc Quebecois' answer to this is yes. We agree with Bill C-203 that the order of creditor priority must be changed when a business goes bankrupt, so that pay to salaried and other employees takes top priority when assets are being divided.

In my eight years as secretary general of the Confédération des syndicats nationaux I heard of many sad cases. I will name three only: the bankruptcy of the Coopérants, the bankruptcy of Crowne Plaza, on the west side of Sherbrooke Street; there are two Crowne Plazas in Montreal, the other one is on the east side of Sherbrooke; and the bankruptcy of Papiers Saint-Raymond.

In each case, workers who had devoted much of their life to developing the business ended up penalized because, with the liquidation of its assets, the company was unable to meet its salary and pension obligations, in particular. These were unionized workers. The CSN spent time and energy pursuing the company directors under Quebec and federal laws in order to recover some money. It took time. At times we were unable to obtain everything due them.

Unfortunately, these unionized workers are still a minority in the labour force. In the case of Quebec, only 40% of the labour force is unionized and in Canada, the figure is a little less than 35%. Legislation is needed to re-establish a balance, if I can put it that way, so that workers, the employees of the company, are the first to be paid when assets are liquidated.

Why should they be paid first? Because they are often the victims of the errors made by employer and directors. Unfortunately in Canada and Quebec we are still not entitled to economic information that will help employees. They are, in the end, at the mercy of a decision that may have been made in all good faith. I do not doubt that. I do not think many employers, I have known some who did it for anti-union motives, but they are the exception, made a conscious decision to lead their business to bankruptcy, but it can happen.

Workers are adversely affected by these errors in judgment in that they lose their jobs. If they also lose the salaries owed to them, it is a double whammy.

There is also the ability to shoulder the loss of income. As I said earlier and I will say it again, banks make profits which, in my opinion, are obscene. These profits are made at the expense of both businesses and consumers. The Canadian Federation of Independent Business complains about the treatment that its members are getting from major Canadian banks and others.

Given their record profits and the instruments they have at their disposal, banks are able to put up with losses that workers cannot shoulder, because it is the future of their families and their own retirement which are at stake.

In theory, I underline in theory, when financial institutions lend money, they take a risk. Their payoff for that risk is the rate of interest they charge. Interest rates are very real and they are still too high. Banks have the means to assess the risk. These financial institutions take risks and it would only be normal that they come after the workers.

Under Bill C-203, it is not guaranteed, as the hon. member rightly pointed out, that all the debts owed to workers would be paid back.

In this respect, Canada should follow up on convention 173 of the International Labour Organization and sign this convention adopted in 1992, precisely to protect, just as Bill C-203 seeks to do, the debts owed to workers, to ensure that they are compensated for their salaries, pensions and other types of benefits, following a bankruptcy.

Convention 173 also proposes the creation of an independent fund to which all employers would contribute so as to ensure that not only would workers head the list of creditors, but should an insolvent employer be unable to pay their wages and pensions by liquidating its assets, the fund could be used to ensure that workers were not penalized.

All Quebec's labour unions, the CSN, the FTQ, the CSD and the CSQ, are in agreement with the principle of Bill C-203. As a representative of the Quebec people and of their interests, I have an obligation to support this bill.

It is very hard for me to understand why the government members keep telling us about the extremely generous values to which Canada subscribes when the country is refusing to sign ILO convention 173.

It always seems to be the same old story with the present federal government, the Liberal government. It always has its left turn signal on, but it always turns right. At least with the Alliance, things are clear: always a right turn signal and always headed to the right.

I have had enough of this hypocrisy, and I want to assure this parliament that, in the interest of the Quebec people, in the interest of the workers of Quebec and Canada, we are always going to support measures of the sort found in Bill C-203. Once again, I congratulate the member for Winnipeg Centre on his initiative.

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

Mr. Speaker, it is with pleasure that I rise to speak to Bill C-203. I commend the hon. member from the New Democratic Party who presented it today.

Like so many private members' motions and bills, the bill should be votable. We should have an opportunity as private members to raise issues of importance and then to have the level of importance and focus put on them that are deserved as initiatives led by individual members of parliament. Many pieces of thoughtful legislation are not provided with that opportunity because the Liberals are not interested in significant parliamentary reform. Reform could begin by enabling private members to present legislation which is votable.

At first glance, when one looks at amending the Bankruptcy Act to protect employees, it seems very positive to ensure that in cases of bankruptcy employees end up ultimately receiving the pay owed to them. I have some concerns relative to the unintended consequences that may follow.

Banks are not always the only creditors. It is very easy to point to large financial institutions and say that they do not necessarily need the money. If it is a question between the interests of large chartered banks and that of employees, the onus should be on paying employees in such circumstances.

In most bankruptcies the banks are prominent creditors, as are a lot of other businesses. Many are small businesses in an accounts receivable or trade credit situation. I know this as someone who started my first business when I was 19 and continued to participate in small and medium size business during that period until I actually ran for parliament at the age of 29.

During that period I saw many companies with which I was doing business end up in circumstances where they were not able to pay their bills. I saw and experienced firsthand what that did to other companies. It can create a chain reaction which can result in not just one company going bankrupt. It is important to realize that it can potentially lead to threatening the existence of several companies.

There is a different dynamic between larger and smaller corporate entities. I believe the hon. member also recognizes the difference. In many cases, for instance, the owners are people who have not taken pay for extended periods of time. They have made significant sacrifices. In terms of establishing a sense of unity between goals and objectives, there is probably a greater amount of commonality of interest between employer and employees in the small business environment than in most other businesses.

I also have some concerns about how it might impact in a perverse way. I am certain the hon. member would not intend this to be the case, but it could unintentionally result in a reduction in lending money to small businesses. If this were implemented we could expect it not just in terms of banks but also in terms of trade.

If I were a small business person and I had an opportunity to sell products to another small business and part of the consideration in terms of extending credit was associated risks, it would reduce the likelihood of repayment. In a bigger corporate setting that is not as likely the case.

Perversely smaller companies would be judged in some cases more negatively from a credit risk perspective if the legislation were introduced than larger companies for which the wages would not form as large a percentage of their actual accounts payable.

For example, if we look at a restaurant, a store or a small business, the degree to which wages form the lion's share of expenses on a week to week basis is less capital intensive and more labour intensive. It might have a very negative impact on the service industry, small retailers or small restaurants.

Under the provisions of the legislation any business with a higher focus in terms of cost structure on pay or labour costs as opposed to capital expenditures would be disproportionately discriminated against in the eyes of lending institutions or other businesses extending trade credit.

Most of us in the House would agree with what the hon. member is trying to achieve: greater protection for workers in the event of bankruptcy. Clearly people employed with a firm, a store or whatever do not have the upside potential of great profits if the business succeeds and in some cases have a significant loss when a company goes broke. It would be unfair if workers did not receive pay that was owed to them for the labour they provided. It is the contract between an employer and an employee which indicates that an employee is to be paid by the hour or by project.

One model I am sure the hon. member is familiar with is the Australian model whereby various levels of government work together in a sort of employment insurance type guaranteed scheme which costs Australian taxpayers $100 million per year. Given the multibillion dollar size of the government EI surplus, that might be a rational approach to take a look at.

We would be far better off if we achieved what the hon. member is trying to achieve, better protection for employees in the case of bankruptcy. If we can avoid the negatives of potentially increasing the risks associated with lending to small business and business in general, which is certainly not something we want to see, we would be far better off. An appropriate way to proceed is by investigating some of these other alternatives.

I would argue that we are not seeing enough lending to small businesses. We have seen some improvement but not enough. Lending to small businesses is a real challenge in Atlantic Canada. It is much easier to get the money if it is not needed. It is a real catch-22 for small businesses. I would not want to do anything that would further reduce the chances of small businesses getting that money. That being the case, we can achieve the same result through different means which would spread out the risk a little further and provide greater protection for employees.

There is another point to realize. I am sure the hon. member would agree that incidents where employers have tried to create or manipulate circumstances in such a way as not to meet payments to employees are not widespread. However when it does occur it is unacceptable. If employers go out of their way to create circumstances in which employees do not get paid, it is egregious, offensive and immoral to all involved. However I believe it is a fairly rare circumstance when it occurs.

When we are developing public policy that can be very broad and sweeping in its impact we have to consider how pervasive the actual situation is that we are addressing. We have to be very cautious in this regard. I would be interested in further debating the Australian model and other best practices in other countries.

[The Deputy Speaker]

There are approximately six minutes remaining before I give the floor to the member for Winnipeg Centre to close the debate. I am in the hands of the House.

I have indication the hon. member for Acadie—Bathurst and the hon. member for Kelowna want to speak. If it would be agreeable to the House, I would be prepared to take a three minute intervention from both members and then go to the member for Winnipeg Centre to close the debate. Is that agreed?

[Some hon. members]

Agreed.

[Yvon Godin, NDP, Acadie—Bathurst, NB]

Mr. Speaker, I am pleased to have three minutes to speak to the bill of my colleague from Winnipeg Centre. The bill in question is Bill C-203, an act to amend the Bankruptcy and Insolvency Act, unpaid wages to rank first in priority in distribution.

The NDP members seem to be the only ones prepared to fight for the workers. They work for an employer. We are telling that employer that if he goes bankrupt, he must look out for the employees, at least.

We are not opposed to the employers, if that is the impression the other members seem to have. We are not against them. However, employers who go bankrupt have to remember who it was that generated the company's profits: the workers with the sweat of their brows. Then, one fine day, the employer announces “It's over. I can't keep the company going any longer. I am filing for bankruptcy”. The ones punished are the workers.

The Canadian Alliance members say that the banks will not make loans to these companies. If they are not prepared to make loans, the banks should close up shop. Is the sole purpose of a bank to make huge profits and then tell workers “tough luck”? The Conservative member said the same thing for small and medium size business, that the banks did not want to lend them money.

Does our country operate only through bankruptcy? Does the decision to lend money hang on whether the employees will be paid last?

Where is the human element? An employee who gets up in the morning and goes to work deserves to be paid. I know of instances in which employers have gone bankrupt, while some people were at sea, for example, for months without being paid. When they returned to land, they got a fine cheque for $1, because the company had gone bankrupt, yet its employees had worked for months without pay.

So who goes bankrupt at that point? It is the employees who are unable to pay for their homes, their cars and food to feed their children.

I think this is a very logical question. In Ontario, the premier at the time, Bob Rae, introduced legislation on bankruptcy. This did not prevent companies from having money in the bank. There is no record to this effect. I am therefore prepared to say it is not true. The banks will have to get used to that.

The people who should have priority are the workers, who bring in company profits. This is why it is unfortunate that the bill is not votable. Hopefully, the House will later decide unanimously that it is. It is important for the workers of this country.

[Werner Schmidt, Canadian Alliance, Kelowna, BC]

Mr. Speaker, I would like to thank the hon. member from the New Democratic Party for bringing this private member's bill to our attention. He ought to be congratulated for taking the side of the workers. His bill seeks to increase the amount of money payable to employees as a result of a bankruptcy.

I would like to register two additional important points. First, whenever a bankruptcy occurs everybody loses. I am sure the hon. member recognizes that only too well. A bankruptcy situation is not something anybody looks forward to or wishes to pursue, but it is something that happens. Nobody likes it and everybody gets hurt. It is a question of distributing the hurt that takes place among the people involved.

The order that exists in the Bankruptcy Act puts the employee at the bottom of the list. The assumption on the part of the hon. member who presented the bill seems to be that by having employees last on the list this somehow puts them in a position of suffering more than all the others. I do not think that is necessarily the case. When an honest trustee brings a situation like this to a head, the hurt experienced by various creditors, suppliers and other people is distributed among them.

I was directly involved in some cases where the trustee decided to make a settlement of 50% of the debt that was owed. The assets were divided and the employees were paid. Roughly everybody suffered at the same rate. That is a reasonable point to make.

The second point I would like to register is that we want to encourage entrepreneurship. When we encourage entrepreneurship, we also encourage risk taking. People employed by new innovative industries know they are in a risk situation. People lending money to these industries also know that. The person putting the capital forward is also in a risk situation. My hon. colleague opposite says the employees build up the business. Of course they do. However it is also true that a risk is borne by everyone from the employees to the person who provided the capital.

Let us keep this issue in perspective and balance it out. I am sure the hon. member from Winnipeg knows very well that is really what he had in mind.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I am glad to have a chance to summarize some of what I have heard.

I would remind all those who spoke on this bill that 10,055 companies went bankrupt last year. That figure does not include another 10,000 companies that made application for some form of protection under the Bankruptcy Act. Therefore it is an urgent problem. Many workers are involved. There is a great difference between the liabilities of the company and the assets of the company, and usually a very great shortfall.

What we heard from the Liberals is that they wanted more examination and to revisit the issue. I would argue we have visited the issue a total of seven times in the last twenty years and we have been unable to come to any kind of resolve to give satisfaction to the working people of the country.

My colleague from Acadie—Bathurst pointed out that the province of Ontario in 1991 did not want to wait any longer. It put in place a wage protection scheme. Unfortunately it lasted only until Mike Harris and the Tories came in and took it out. At least somebody did not let the obstacles and the barriers get in the way of doing what was right for working people.

The Alliance Party, the great grassroots party, seems to be demonstrating some kind of a wilful blindness to what the real issues are. It seems to have grasped the idea to be able to make the debate that we should somehow privatize the profits in a business and then socialize the losses in a business. In other words, when a bankruptcy comes along we should all share in the pain and all of us should bear the burden of the failure of the company.

As I pointed out in my earlier speech, there is an imbalance in the relationship between the employer and the employee. The employer who assumed a loss also assumed all the profits when the company was going well. The employee is the one who stands to lose. I do not think it is an equal weigh scale as the Alliance tries to portray.

I thank the members from the Bloc Quebecois for at least having the courtesy to read the bill and to understand the arguments we were making, and of course their ultimate position that they believe that workers should stand first in line in terms of creditors in the event of a bankruptcy.

The Tories seemed to miss the boat all together too, although it is always a pleasure to see a creative wordsmith speak on both sides of the issue and right down the middle all at the same time. It is a real gift. What they fail to see is the type of compensation package they contemplated, like the Australian model, creates a moral hazard. That is the way it is put in our research papers. The moral hazard is that companies knowing full well there is a fall back position for the employees may be less likely to do the honourable thing and make sure the employees are paid up to date. In other words, it is building in an exit ramp, or an excuse or an avenue for the employer to try to take advantage.

I will summarize my arguments in a few words. The employees usually do not have the same opportunity to protect themselves when the employer is in a precarious financial situation. They do not have nearly the opportunities that the employer does. Unlike the secured creditors, like the financial institutions, the employees do not have the same ability or the opportunity to either read the risks of being involved with the employer or to absorb the loss that an employer or financial institution has. Nor do they have the ability to pass on that loss to future customers. In other words, there is an imbalance there as well. Employees need the protection of legislation. The banks, the financial institutions and the other creditors know the risk when they were going in and they have a better ability to deal with any losses that might come out of it. Therefore they do not need the protection of the House.

We should be advocating for the employees not the financial institutions in the House of Commons. I wish we could have convinced the other members on this issue. I look forward to debating it again some day in the House.

[The Deputy Speaker]

The hour provided for the consideration of private members' business has now expired. As the motion was not selected as a votable item, the item is now dropped from the order paper.

The House resumed from May 11 consideration of the motion that Bill C-22, an act to amend the Income Tax Act, the Income Tax Application Rules, certain acts related to the Income Tax Act, the Canada Pension Plan, the Customs Act, the Excise Tax Act, the Modernization of Benefits and Obligations Act and another act related to the Excise Tax Act, be read the third time and passed.

Income Tax Amendments Act, 2000

[John Williams, Canadian Alliance, St. Albert, AB]

Mr. Speaker, as we know, the Minister of Finance has reduced income taxes by a few hundred pages and a few hundred million dollars. Perhaps it will help the hon. member with his private member's bill. By reducing the tax and burden on businesses, hopefully they will not go bankrupt so fast. That is the spinoff. All things considered there are benefits here and there are benefits there. However not everything is good in Bill C-22.

The Minister of Finance stood up last fall, a couple of days before the election, and brought down a budget to tell us the good news about all the tax breaks. We could not understand why he wanted to do that in October. When he first came to power he said he would send the finance committee right across the country for prebudget consultations.

It costs the House of Commons and taxpayers of Canada approximately $400,000 to send the finance committee across the country to hear from about 500 different people and institutions and so on to find out what they want in the budget. It is a great big process the Minister of Finance put in place so that every year in February he can stand in this place and say he has listened to Canadians and this is what the government will do.

However with the election in the offing, he decided not to worry about consulting Canadians and came out with a bunch of goodies to buy the votes of Canadians to win the election.

Members may recall that he introduced in that budget a payment of $125 to everyone who qualified for the GST tax rebate to reduce the cost of their heating fuel. There was no analysis. This was strictly an election goodie. Tens of thousands of payments at $125, the bulk of the money for a total cost of $1.3 billion, went to people who did not have a heating fuel bill to pay. A large percentage of the lower income people lived in rented accommodation. They lived in apartments. Did they pay heating fuel? No, the landlord did. Did he get a cheque for $125? No, but all his tenants did. There was no real benefit other than it was a great election goodie.

The Liberal Party went around the countryside. It gave all low income people a chance to reduce the cost of their heating fuel but it never said how. Money went to people in prison, in graveyards and to people who did not qualify for a variety of reasons. Many had never seen a heating fuel bill in their lives. Kids living with their parents got the heating fuel rebate but the parents who paid the bills did not get a penny. Then to top it all off, there was some questionable legality to it.

The $125 payment was a grant and fell under the definition of a grant. Grants had to be published. The name and address of everybody who received a grant from the Government of Canada was public knowledge and therefore should have been published. The information was derived from the Income Tax Act. Everybody who filled out a tax return and qualified for the GST tax rebate was on the list, and as we know tax returns are confidential. So the government was in a quandary. It came to the public accounts committee and asked for an exemption from publishing the names of people because the Income Tax Act said it should be private and rules covering grants said it should be public.

In my opinion, section 241 of the Income Tax Act, which guarantees and protects the privacy of income tax returns by Canadians, did not give the Minister of Finance the authority to get these names in order to pay the $125 to these people who qualified by virtue of being a recipient of the GST rebate. I did not think they qualified.

The issue came up at the public accounts committee. One Liberal member suggested a legal opinion was needed prior to giving them the authority. Another Liberal member did not think a legal opinion was needed, that they could hold their noses and pass it.

I have serious questions about the legality of paying $125 to those people just so the Liberal government could run around the countryside last October and say that it was giving people money to reduce their heating bills regardless of whether it was money wasted, which it was. It was perhaps illegal but no one seems to care. The Liberals won the election, so who cares?

We play by certain rules in Canada, and one is that the rule of law is sacrosanct. I am not a lawyer and we never got a legal opinion, but I have serious questions about the legality of that payment. By its own admission, the government was in a quandary. The Income Tax Act says that we must keep everything confidential but grants and contributions rules say that we must make things public. The fact that the government was in a quandary should tell us there was a serious problem.

There are other issues. We in the Canadian Alliance have long pointed out the disparity between two income families and one income families. One income families pay more tax than two income families that earn the same amount of money. The family that decides a spouse will stay home to raise the kids rather than pass them along to a babysitter does not get a tax deduction. Who better in the world to raise children than mothers?

We celebrated Mother's Day yesterday. Unfortunately, far too many parents must put their kids in daycare rather than stay at home because the tax act discriminates. It discriminates against families that want to keep a parent at home to raise kids. How can that be? Our most precious resource is children. We discriminate against parents who love their kids and want to raise them.

I am splitting my time with the member for Kelowna. I forgot to mention that.

The point is that we discriminate against families. Why do we tolerate that? I hope Canadians recognize this in the next election and are not dazzled by payments, tax breaks and so on, some of which are of questionable legality. Canadians should vote for a party which says that it will stop discriminating against parents who want to raise their own children. That must be a fundamental right.

It was a big day yesterday for millions of Canadians across the country who took time to recognize their mothers and the great contribution they have made to their well-being, their nurturing and their growing up. They took time to recognize the wiping of tears, the hugs and the commitment that mothers and parents have for their children. However, the government discriminates against families. We collectively in this place are being asked to vote on a tax bill that would continue the discrimination. Surely that must be addressed and redressed.

[Roy Cullen, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, I appreciate the opportunity to comment on the remarks by the member for St. Albert.

The member opposite talked about families. In listening to him I wondered if he had actually read the budget and economic statement that the Minister of Finance delivered last October. If I may, let me summarize it and the member could perhaps check his notes again.

For example, the member talked about a one earner family of four earning, say, $40,000. This year that family will pay about $1,100 less in taxes, a saving of 32%. That will increase to 59% of federal taxes saved by the year 2004. This is a one earner family of four earning $40,000, so I am not sure where the member gets his information.

If I may indulge the House for a moment, a two earner family of four earning $60,000 paid about $5,700 in federal income taxes. This year it will pay $1,000 less or 18% less. By the year 2004 it will pay 34% less.

The member should consult his notes again. I am sure he will retract his statements about the budget and economic statement being biased against the family because the evidence is absolutely to the contrary.

[John Williams, Canadian Alliance, St. Albert, AB]

Mr. Speaker, this is typical bafflegab by the government. I was talking about discrimination and the fact that single families pay more than two income families.

The member talks about tax reduction. I did not dispute that there was a reduction in tax. I said that discrimination continues to exist. That surely was the point I raised. I could not be more explicit and definitive than that, but the member tried to avoid the subject by talking about tax reduction.

The government finally balanced the budget because of pressure put on it by the Canadian Alliance Party not to continue running deficits. The government finally, by virtue of economic growth and not by virtue of economic policy, balanced the budget and is now returning only some of the money to the taxpayer.

The Prime Minister said that the government would be balanced. He said that it would keep half the extra cash to spend as it wanted and give half back to the taxpayer. I would like to see it all go back to the taxpayer. It was and still is the taxpayers' money. The government does not have a right to that money except to provide programs for the benefit of the country and not for the whim of the Prime Minister. Therein lies a significant difference.

[Paul Szabo, Liberal, Parliamentary Secretary to Minister of Public Works and Government Services]

Mr. Speaker, I thank the member for raising the issue of taxation of the family. As the member will know, the finance committee appointed a subcommittee on the issue during the 6th parliament. I would refer him to its report which points out very clearly that it is inappropriate to compare a two income family with an aggregate income of $60,000 to a one income family making $60,000.

The real comparison is this: What is the tax burden on a two income family in which one person decides to withdraw from the workforce? This would result in a real drop in net take home pay. The issue is about comparing a family to itself with two options.

The member may be familiar with the fact that the United States has joint filing. Would the member support a move toward recognizing the family unit by taxing the family but with a separate rate?

[John Williams, Canadian Alliance, St. Albert, AB]

Mr. Speaker, I am glad the member brought up the issue of joint filing in the United States. Unfortunately, given the way the government defines family, I am a bit apprehensive about going down that road.

The point again is that families get a tax break for sending children down the street to daycare but get no tax break for looking after the children themselves. I cannot understand why we still have that rule.

[Werner Schmidt, Canadian Alliance, Kelowna, BC]

Mr. Speaker, we need to make a couple of points on the legislation to amend the Income Tax Act.

Before I get into the more detailed parts of the bill, I need to register some things, particularly for the benefit of the listeners. In looking at the situation I asked myself what exactly was happening here in terms of physical terms. A copy of the Income Tax Act was delivered to my office this morning. The Income Tax Act has about 1,000 pages. It is a very significant act. The paper is very fine; it is almost rice paper. It is a substantial volume. It illustrates how complicated the Income Tax Act—

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Speaker, I rise on a point of order. I note that the member is not reading from the document but rather using it as a prop. He has been somewhat less than forthright with the House since it includes corporate tax—

[The Deputy Speaker]

The Chair is not involved in the debate and will not get involved in the debate. However, if we are talking about income tax and the member has an income tax document I am hard pressed to call that a prop.

[Werner Schmidt, Canadian Alliance, Kelowna, BC]

Mr. Speaker, you are not only a fairminded person but you have demonstrated a tremendous sense of humour. I respect and appreciate both qualities very much.

For the hon. member's benefit, I have marked the section in the act dealing with capital gains. It begins on page 263 and ends approximately at page 372. The section deals specifically with capital gains. Later on, when the act refers to taxes on inheritance, capital gains come up again. The capital gains section of the act is over 100 pages long and there is additional reference to capital gains later in the act. That is the Income Tax Act as we know it currently. Another 514 pages of amendments to the act have now been brought to our attention.

I refer to the parliamentary secretary's statement that there have been tremendous tax reductions over the last while. The Minister of Finance has indicated several times how significant and large the cuts have been. He says that they amount to around $100 billion.

However, when he makes that statement he does not tell us how many increases there were. We need to look at that, particularly in terms of payroll taxes. There has been a tremendous increase in the amount paid to CPP. That must be considered an increase in taxes. The $100 billion the minister refers to is not really the total amount. The net cut is considerably less than that.

The child benefit program is administered through tax benefits but it is really a spending program so it cannot be considered a tax cut. It is important that we recognize exactly what is going on.

I will make another point regarding the proposed statement the Minister of Finance will deliver on Thursday of this week, if the reports we have heard are correct. It will be very significant. The mini budget last fall indicated some of the things we have talked about here this morning. It looks like the new projection will tell us what to expect in terms of expenditures, revenues and the general state of the economy in Canada. The projection, at least at the moment, is that it will be for two years.

I refer the House to a statement made last week by the chief economist of the Toronto Dominion Bank, supported by a number of other economists, which suggested that two years is a misleading time period. Why? It is pretty clear to everyone that within the next two years we will still have a surplus and revenues will exceed expenditures. However, in the third year, because of programs that have been promised and programs that have begun, demands on the budget will create a deficit.

I would encourage the Minister of Finance not to fall into the trap of dealing only with the next two years, but rather that he give us a balanced position and say to Canadians that for the next two years we will have a surplus but in the third year, because of the things he plans to do, there will be a deficit. That would be an honest statement to make and I would encourage him to do that.

I will now come back to some of the specific provisions within the amendments of Bill C-22. I want to refer primarily to one section regarding capital gains tax, which I have referred to already. I will read one paragraph for the benefit of listeners. It is an amendment to the existing provisions for capital gains. I would like people to listen very carefully and see if they understand the paragraph. It reads:

(o) where an amount is designated under subsection 104(21) of the Act in respect of a beneficiary by a trust in respect of the net taxable capital gains of the trust for a taxation year of the trust and the trust does not elect under paragraph 104(21.4)(d) of the Act, as enacted by subsection 78(23), for the year, the deemed gains of the beneficiary referred to in subsection 104(21.4) of the Act, as enacted by subsection 78(23), are deemed to have been realized in each period in the year in a proportion that is equal to the same proportion that the net capital gains of the trust realized by the trust in that period is of all the net capital gains realized by the trust in the year,

(p) where in the course of administering the estate of a deceased taxpayer, a capital loss from a disposition of property by the legal representative of a deceased taxpayer is deemed under paragraph 164(6)(c) of the Act to be a capital loss of the deceased taxpayer from the disposition of property by the taxpayer in the taxpayer's last taxation year and not to be a capital loss of the estate, the capital loss is deemed to be from the disposition of a property by the taxpayer immediately before the taxpayer's death—

I would challenge all of our listeners to understand exactly what has happened here. It is very significant that we understand it.

Regarding the whole issue of capital gains, I would like to refer again to the Income Tax Act that exists at present. There is complex set of formulae in the act, not only the formula I have just read but a whole host of other ones.

Much of the amendment I just referred to in Bill C-22 has to do with the reduction of the capital gains tax from two-thirds to 50%. I do not think that is great. I think we should reduce capital gains tax considerably. I would like to see it reduced considerably below the present one, and the ideal, from my point of view, would be to eliminate capital gains tax entirely.

Why do I think that? First, it is critical that we have risk capital involved when providing capital for the establishment of enterprises to develop innovations, to apply new technology, new science and new understandings. People who risk their capital ought to be able to benefit from the profits that arise. In many instances these highly innovative projects, while they have the potential for tremendous gain, also have the potential for loss of a major part or all of the capital. We need to reward people who are prepared to risk their assets, their talents and their abilities so that they can be rewarded when they apply them.