Madam Speaker, it is with pleasure that I rise today to debate Bill C-21, an act to amend the Small Business Loans Act.
This bill would extend the Small Business Loans Act for another year, until March 31, 1999. It will also raise the ceiling of the total amount of loans that may be outstanding to $15 billion from $14 billion.
The legislation has always operated with a sunset clause to ensure periodic review for improvement and assessment of whether the bill is meeting the needs of the small business sector and not merely renewal.
However the government has yet to make up its mind on what it wants to do with the act. As a result of its indecision it has requested parliament to renew the act for another year while it continues the program.
We support the legislation only because without it the current lending period as of March 31, 1998 will cease and SMEs will not have access to capital under the Small Business Loans Act.
However the government should not expect the same support from my caucus colleagues or, for that matter, from the small business sector unless it begins to review, improve and update the act to ensure that appropriate access to capital is afforded to the real engines of job growth, the small and medium business sector.
It comes as no surprise the government has not decided what to do. It has done little more than pay lip service to the concerns of small business over the past four years. It has forgotten about the promises it made in the 1993 red book.
The government often claims to be an advocate and supporter of small business. If this were true, why has the government not addressed the deficiencies of the act and not even attempted to act on the series of observations and recommendations in the auditor general's report.
The primary objective of the Small Business Loans Act is to increase the availability of loans for establishing, modernizing and improving small business enterprises by offsetting a portion of the lender's net losses in the event of a default by a loan guarantee program.
I would hate to sound cynical, but I am really worried given the government's reluctance to establish specific debt reduction targets. As well, it is reluctant to reduce taxation for both consumers and small business. The government's plan is to create more small businesses and to continue to tax us to death so that large and medium companies wither into small companies.
The government has missed a real opportunity to show SMEs that it is serious about the concerns SMEs face today. I am not alone in my views. The auditor general pointed out in his recent report on this piece of legislation in section 29.87:
New lending under the program will end 31 March 1998 unless the government decides to renew it. This presents an opportunity to review the program's contribution to filling current financing gaps and stimulating economic growth and creating jobs.
He went on to say:
The review would also enable Industry Canada to assess whether the program meets the needs of small business in a rapidly changing economy.
There are others that believe we should not have wasted this opportunity to improve the act as well. The government was criticized for this broken red book promise by its own rank and file in the preamble to a priority resolution passed at its October 1996 convention as follows:
The banks and other financial institutions have not taken enough concrete steps to alleviate the hardships faced by small and medium size firms in obtaining investment capital.
In the time that I have been allowed I will attempt to address a number of the observations and recommendations within the report of the auditor general. In addition, it would be appropriate for us to remind the government of two other documents that must be considered once it gets around to improving the act. These two documents are committee reports, one from the department of finance entitled “Growing Small Businesses” and the other is an industry committee report entitled “Taking Care of Small Business”. I will refer to these documents often during my remarks.
Before we further discuss the necessary initiatives required to improve the bill, it would be useful for us to remind ourselves, and in particular those on the opposite side of the floor, of the impact of small business on the Canadian economy. More than 98% of businesses in Canada are small businesses with less than 50 employees. Half of Canada's workforce is employed in the small business sector. It is relatively recognized that the small business sector has had the greatest proportion of new job creation in the past four years.
As the auditor general pointed out, small businesses play a very significant role in the economy. They are the heart of economic activity and community development. In addition they sometimes develop into the large firms of the future. Small businesses contribute 43% of Canada's private sector economic output.
The overall theme of the auditor general's report and my principal concern is that Industry Canada does not have the performance indicators and benchmarks to properly assess whether the act is actually accomplishing its objectives. The objective must be to ensure that lenders make capital available to firms that they may not have without the government guarantee.
The program's raison d'etre is to help to fill existing program gaps for small business. Instead it seems the government guarantee is not used to increase availability of credit. Rather it allows lenders to reduce the risk on loans they would have made without the guarantee.
A small business person brought this quote to me the other day concerning the Small Business Loans Act, that there should be a loan guarantee for small business and not a loan guarantee for the banks.
The AG highlights this fact in referencing a 1994 study showing that between 30% and 40% of Small Business Loans Act loans were made to firms that would have received financing from lenders anyway. Without true financial support and adequate financing for growth of our small business sector, growth will be stunted and the future prosperity of Canada threatened. Those are the words of the auditor general, not mine.
The government's 1993 red book promised to exercise leadership and challenged the banks and other financial institutions to develop concrete ways to help small businesses find the capital they need. Given that nearly 40% of the loans that are guaranteed would have been guaranteed anyway, I would say that more work needs to be done before the government can claim any degree of success on this matter.
As I indicated earlier, the principal problem of the act is that it lacks clear objectives, performance indicators and benchmarks to measure the success and effectiveness of the legislation.
The government could benefit from the old adage that what gets measured gets done. The origin of this act dates back to 1961. In 1961, before I was born, the type of business that would likely get started was usually retail based or linked to light manufacturing. Things have changed since the retail shop and the light manufacturing era. The Canadian economy today has greatly evolved since that time. The legislation governing the act has remained essentially unchanged with respect to the types of assets eligible for financing.
The service sector and the knowledge and information sector form a much greater part of the economy today, with the latter sector having a high net employment growth potential. It is imperative that when the act is indeed reviewed the government ensure there are innovative solutions and commitments from lenders to address these needs.
No program can be effective unless there are clearly stated objectives to clarify expectations and to develop performance indicators concerning establishing, expanding, modernizing and improving small business.
To date, for the most part Industry Canada merely tracks the activity of the program, tying it to job creation. However, this approach does not provide us with other critical indicators such as the effect a loan has on the level of sales, profitability, productivity, competitiveness, levels of exports, product development, net employment impact and overall business success. These are critical indicators that most SMEs employ within their own operations.
We suggest the program adopt methods to track these criteria in their own programs and their own departments in order to properly assess the impact of this program.
As the auditor general pointed out, the net job effect, as stated in the 1995-96 annual report, indicated that 37 jobs were created per $1 million worth of loan guarantees. However, the auditor general goes on to point out in a follow-up report that given the recently completed Industry Canada study of economic effects, the program shows that the government's numbers were merely seven jobs created per $1 million guaranteed.
When this bill is reviewed all parties would expect more rigour in evaluating the job creation impact of the program for the purposes of parliamentary and public review and scrutiny.
Perhaps the greatest concern we have today is that the original intent of the program was to provide access to capital to start up ventures or small firms that would not otherwise have been granted a loan from a lender. The relative size of the loans was intended to be small so that the borrowers could have handled a higher rate or fee in exchange for a loan that did not leverage their personal guarantee.
The result today is that given the expansion of the program, the program is now beginning to displace traditional lending rather than enhancing marginal loan volumes and filling gaps where small venture loans are required. Given that 90% of the loan was to be guaranteed, the lending institution would then consider engaging the loan.
I would like to ask the government what is the average size loan it guarantees. The fact that the program has now been expanded to include loan amounts of over a quarter of a million dollars should concern us. I speculate that 30% to 40% of loans guaranteed under the program, which the auditor general pointed out would have been approved anyway, relate to the higher sums and not amounts that reflect the original need for the program.
The SBLA is a good program. In its conception it was supposed to be small and responsive to the needs of small business. It has grown excessively so that today it displaces traditional lending.
The Progressive Conservative Party believes this program needs to be tightened up and the focus must return to smaller lending with less focus on personal guarantees rather than sums of nearing a quarter of a million dollars that would be approved by traditional lending institutions anyway.
A bigger program does not always make for a better program. Bigger programs often make for worse programs. A bigger program would not be as responsive. The fact that the government has allowed the size of the program to mushroom in sectors where it does belong is one of the reasons the government has been unable to monitor and forecast future claims.
The government has a duty to the taxpayer to be able to provide this function. The auditor general correctly pointed out that Industry Canada must carry out regular analysis of its guaranteed portfolio including loans by industry, region, age of business, lender and type of asset. Overall economic trends need to be factored into such analysis.
The government also has a responsibility to taxpayers to ensure the banks and the lenders are fully challenged when participating in the program. The government must be rigorous in assuring the lenders comply with all regulations and exercise due care when making the loans. Industry Canada needs to strengthen its claim audit procedures to obtain assurance of such compliance. The government cannot be a loan guarantee program for bankers who have not made the right choices in the first place. The government must take steps to minimize the interest it is paying on claims submitted by lending institutions due to unnecessary delays in filing their claims.
I will make some more comments relevant to small business given that we are about to enter into the budget debate. The average Canadian consumer and small businesses are overtaxed, in particular with respect to payroll taxes. Canada pension plan premiums have been increased substantially. We know today's discussion is in the context of a perceived fiscal dividend given that the government has stated it will have a surplus. However, given that the EI fund takes in over $6 billion more annually than it actually consumes, that is the reason for the surplus.
We also know that if any type of tax kills jobs it is payroll tax. We advocate categorically that this government must kill job killing payroll taxes by reducing the EI fund. The chief actuary pointed out that the employment insurance program is sustainable at $2 per $100 of insurable earnings instead of the $2.70 per $100 it is currently set at. Given the hike we have had in the CPP premiums we must reduce payroll deductions.
There are other initiatives that must come forth as well. Canadians are poorer than they have been in 15 years. Disposable income has gone down drastically over the past two decades. Canadians need disposable income.
To put more money back in consumers' pockets so they can spend money to help SMEs, we advocate that the government raise the personal income tax exemption from $6,500 to $10,000. That would take two million Canadians off the tax rolls overnight. Those two million Canadians should not have been there in the first place.
Canadians need more disposable income. They need lower payroll taxes. EI, CPP and payroll taxes kill jobs.
Before we even consider spending a fiscal surplus we need to look at something that affects my generation as a younger Canadian, the $600 billion national debt. What this government has to do is provide Canadians with debt reduction targets to ensure that we never get caught in this spiral of deficit upon deficit again.
We do support Bill C-21. We have made some recommendations which we would like the government to carry forth. We challenge the government to actually do what is right and kill job killing payroll taxes, to bring forth to Canadians an agenda for growth that has less debt, less tax and more jobs. If we had that kind of foresight from an economic perspective Canada would be heading in the right direction into the next century.
