Madam Speaker, I would like to take this opportunity to congratulate my colleague, John Chant, for having been named the director of research for the task force on financial services which was appointed in response to Bill C-82 and some of the difficulties that were raised in that context.
Professor Chan is a trained economist who was for a long time the chairman of the department of economics at Simon Fraser University. I have spent many hours with him in seminars, tenure committees and various other official functions. I am very pleased that the government has appointed him to this position.
As a result of my acquaintance with him, I am sure that the report which will come out will be superb. All the research papers will be of the highest quality. What the government does with it is another question.
The white paper on financial services was tabled in June 1996. The first draft of Bill C-82 was discussed in the finance committee. We heard from many witnesses. My special interest was on the restraints to be put on foreign banks because I had written and done research in that field. It was of great interest to me to see what innovation would take place.
There is a lot of scepticism about what committee hearings do, whether or not they are a waste of time, and in the end the government does what it wants to do anyway.
After this experience I must say I am very encouraged. At the same time I am also somewhat concerned about how it was possible the white paper of June 1996 could do what it did. What did this paper do? What did we find out was wrong in Bill C-82 with respect to foreign banks?
It turns out that foreign banks in Canada are now required to operate at all times as subsidiaries of their foreign parents. That imposes a huge cost on the operation of foreign banks in Canada. It has prevented the establishment of a lot of banks. In recent years it has driven out a large number of them. The owner is required to have capital of at least $10 million, to have a board of directors, and to issue every six months very large and onerous reports.
We were told in the finance committee hearings that this was a serious detriment to the expansion of further foreign competition in the country, which almost everybody agrees would be to the benefit of consumers.
That is not all. I was even more disturbed when I heard witnesses telling us that they had been providing services of extreme importance to Canadians. For example, a company told us that it was about to introduce a new credit card system under which it would be possible to charge an interest rate of about half the current normal charge under bank cards issued at the moment.
The company has developed a computer program which allows it to investigate the credit worthiness of large blocks of people. As a result of that and the experience of operating in the United States, it is able to break even and make a normal profit on a much lower interest rate. It would be a great innovation if such a system were introduced in Canada. It would put downward pressures on all interest charges on credit cards. At any rate if Canadians do not want it they do not have to go to that company.
Bill C-82 suggested in its first draft that the company wanting to introduce the new credit card would have to incorporate itself, spend $10 million on a capital base, have a board of directors and have all kinds of onerous reporting requirements.
Similarly there has been a company in Canada for many years specifically aimed at making loans to people who have been turned down by conventional banks, people who cannot get credit anywhere. This is often the last recourse for certain borrowers.
The company happens to be owned by an American company. The first draft of Bill C-82 suggested that this organization would have to incorporate with a minimum of $10 million. We were told that if the company had been forced into doing that it would simply have left Canada, to the detriment of the Canadian public.
I find very disturbing how these ideas got into the first draft of Bill C-82. I asked very pointed questions of the witnesses, especially people, namely the representatives of the big banks who argued that those rules were in the interest of Canada.
The answers received from the representatives of the big banks were not very good. They did not look very good when they tried to answer my questions in a rhetorical fashion without going into details on why it was taking place.
While there is this disturbing aspect about how this could have been put into the bill in the first place, it raises questions about the power of banks and their influence.
The people of Canada should feel confident that the second reading of the bill has eliminated this onerous requirement for foreign bank subsidiaries. Now they can operate as branches. Those companies that provide a limited range of financial services even if they are owned by a foreign banks will not have to incorporate.
This is a great victory for the parliamentary system and the functioning of the finance committee. To anybody wishing to read the blues or the reports of the finance committee on what went on I will take a little credit for complaining about how bad this part of the bill was. It was removed in 18 months.
The task force will report. I hope and trust, knowing John Chant and knowing the quality of the people on the task force, we will get more competition from foreign banks or from other financial intermediaries. That is the only way to make sure there is no concentration of power in the banks or in the financial system.
This ends my discussion of Bill C-82. I welcome the changes. However I would now like to turn to an issue raised by John Geddes in The Financial Post last weekend. The story has the potential of hurting the credibility of the government on an issue on which it invested a great deal of credibility going into the next election.
When the 1997 budget document came out there were tables, summaries of transactions, what money was coming into the government over the next two years, what was going out and where it was being spent.
In 1995-96 in that same document there were tables outlining the size of departmental spending. It was broken down separately. These numbers are almost impossible to obtain except if one goes through the onerous job of looking at the estimates.
In the past departmental spending in 1993, 1994 and 1995 was always there. There was a lot of bragging in the document of two years ago about how the program review undertaken by the head of the Treasury Board would reduce departmental spending from $51 billion to $42 billion or by 19 per cent. I wondered why that was not there this year.
In previous documents the yearly target for each department was clearly outlined. The yearly obligated spending cuts in the departments of defence, transport, native affairs, natural resources, heritage and culture were outlined, but for this year they were not there. I did not think through why the information was not there. I asked someone who said it just was not done this year.
This week the Senate finance committee is holding a hearing in which it will ask the government precisely what happened and why. The government is supposed to be cutting 19 per cent of departmental spending and is not on target. It is way off target at only 9 per cent. Less than half the proposed cuts have been undertaken.
The article goes on to discuss how the people in the Treasury Board are trying to spin this scandal. The scandal is not just that they did not meet the target. In the eyes of the Liberals there was a certain fairness in the way in which they distributed the burden of fiscal restraint. They claimed they would download a certain percentage on the provinces because everybody has to share 24 per cent. They said that was okay because they cut their program spending by 19 per cent. They did not and they will not. Let us see how they will fix it up over the next two years. If they do not fix it in this year's budget, when will they do it?
I remind the people of Canada that the government came in with a deficit of $42 billion. By 1998-99 there will still be a $6 billion deficit, which means that the Liberals have projected to eliminate $36 billion from the deficit. I ask viewers to test themselves as they listen to this debate. What percentage of the $36 billion total came from cuts to government spending? I have what is alleged to be $9 billion from departmental spending. Now we find out that is not true. Instead of $9 billion it will only be $4 billion.
How did government members break the back of the fiscal crisis? It was by increased revenue. They say that it was the gross dividend but nevertheless it is higher taxes. Some $28 billion worth of higher taxes is the main instrument used by the government to eliminate the deficit. It was supposed to have cut $9 billion in departmental spending. Now it turns out the government is way off target by $4 billion.
Let us look at that in the context of what the government asked the provinces to absorb. It has reduced transfers to the provinces by $7.5 billion. The government was supposed to have cut its departmental spending by now and it is not even delivering on this. I believe this is really a major scandal. This raises major questions about the ability, the seriousness and the integrity of the government on its highly touted fiscal plans.
It is true that the Minister of Finance has set hurdles about one inch high, jumped over them, cleared them by a large margin and then bragged that he is hitting his targets, that he is doing better than his targets. I must congratulate him on the ability of his spin doctors to so fool the people of Canada into thinking that he is doing the right thing, that all of the attention in the aftermath of the
budget release was focused on hitting the targets, exceeding the targets.
That to a very large extent was due to circumstances over which the minister had no control. One of them was lower interest rates. We know there were lower interest rates, not just in Canada but throughout the world. It was the world interest rates which came down.
I am prepared to admit that there were also some reductions in the gap between the U.S. and Canadian interest rates which should be attributed to the deficit reduction progress made. I do not deny this. Nevertheless, the attention on this low barrier that the minister set for himself, and was exceeded and was very easily exceeded, was due, first, to the lower interest rates created outside of Canada. Second, it was created by economic growth which resulted in bracket creep and higher tax take. That is how the government came to the position of being able to brag as it did.
Because of this excellent, superb spin doctoring by the minister and his department, nobody noticed until the Senate finally got around to it that the government is away off target on the spending for which it is directly responsible, namely what is known as departmental spending. It is supposed to be $9 billion when it is only $4 billion. I say shame.