Mr. Speaker, I am extremely pleased to have this opportunity and to congratulate the industry committee for the work it has done on the issue of financing small business. I intend to keep my topic to that item.
Our government clearly recognizes that small business is a vital sector of Canada's economy. The report of the industry committee makes a valuable contribution to public debate and understanding of the needs of that sector.
It is worth emphasizing and it is worth emphasizing again and again just how important small business is by beginning with a few facts.
Small business accounts for nearly 40 per cent of our national economy, a third of corporate profits. More than half of all Canadians working in the private sector are either self-employed or work in businesses with fewer than 100 employees. Even more important, in just a decade this same sector of companies with fewer than 100 employees created more than eight out of ten of the new jobs in Canada.
This is not a passing trend. Small business is clearly the engine of growth in the new economy and the policies of this government recognize that fact. As you know, Mr. Speaker, we campaigned on this issue. For example, the Prime Minister and I held a small business forum in my riding in Scarborough East during the election campaign. As the Prime Minister pointed out, if only a third of small businesses in Canada each hired one additional employee fully 300,000 new jobs would be created.
To realize their full potential as creators of new jobs small businesses need the right environment, one that allows them to prosper and expand. Canadians are tired of governments that pursue quick fixes or jump on the latest fad but have no fundamental vision of what government should and should not do in the economic arena. That is why our government set out a new comprehensive vision in its recent paper "A new framework for economic policy".
That paper sets out five key areas on which we must focus. The first is helping Canadians acquire skills; the skills to get jobs, the skills to keep jobs, and the skills to find better jobs.
The second part of our economic framework is encouraging Canadians to adjust to change. That will require changes in the government's approach to subsidies as well as to unemployment insurance and high payroll taxes, which are a detriment to small business.
The third element in our framework is getting government right. That means targeting scarce resources on the highest priority programs and reducing or eliminating lower priority activities. It also means draining the swamp of federal regulations.
Providing leadership in the economy is our fourth objective. The private sector creates jobs, especially the small business sector. The government has a role in fostering economic growth. It can do this for example by gathering and sharing information about technology and information about new markets.
It can help bring businesses together with other businesses and together with the new technology. It can facilitate trade by ensuring access to markets and to adequate export financing.
The fifth and final objective is absolutely essential to fulfilling the other objectives. We must create a healthy fiscal and monetary climate in Canada. Canadians are paying a painful price for decades of deficit and debt. It is measured in high taxes, high interest rates, too few jobs and too little growth. Higher interest rates have imposed a heavy burden on all Canadians and few understand that burden better than the men and women who operate small businesses.
The matter of interest rates brings me back to the central issue here today, access to financing. While know-how and entrepreneurship are the engines of small business success they are not always enough. Access to financing can be a critical issue for small businesses, particularly during their early years. The importance of bank financing to this sector would be difficult to overstate. Indeed, bank financing accounts for about 90 per cent of the external financing of small businesses.
Recognizing this our government met with the CEOs of Canada's major banks shortly after taking office. We urged them to re-examine their approaches to small business lending and challenged them to be more innovative and responsive. The Minister of Finance and I have been very clear in our discussions. The government expects improvement in banking practices. In no small measure Canada's economic prospects hinge upon the banking community, recognizing that small business has specific needs. To meet these needs banking practices must change.
I believe that the banking community is listening and that we are seeing some results. The banks have been taking initiatives to help their small business clients. These include such things as increases in funds set aside for conventional loans to small businesses. One bank introduced a program to provide financial
assistance to viable small businesses that are experiencing temporary cash flow problems. Another created a $125 million venture capital fund to invest in small and medium size companies.
Several banks have introduced programs to enhance the accessibility of knowledge based firms to financing and other banking services. Others have introduced new procedures to handle complaints. One bank has appointed an internal ombudsman reporting directly to the chairman to ensure that a proper level of service has been provided to small business clients. Another bank has established a panel to review complaints, a panel that includes a representative from small business.
The list goes on. Two banks have established regional business centres to provide specialized services to small business clients. Another has introduced a program to provide overdraft protection to SBLA customers that do not have operating credit.
I recently issued a letter to all hon. members outlining these and other bank actions to help meet the needs of small businesses. I sought members' assistance in monitoring the results of these initiatives. Specifically, I asked members to let me know if the banks were fulfilling those commitments and if their initiatives were helping to reduce the credit difficulties of small businesses in their constituencies.
In addition, the government has been working with the banks on a number of important areas related to bank financing. These include several major areas in which the committee reports make some substantial recommendations.
For example, senior representatives of the Department of Finance and Industry have been encouraging the banks to move ahead on a number of issues, including a code of conduct for small business lending.
This code should help place the relationship between banks and small business on a sounder footing by making the borrowing process more transparent and providing a simple, timely and effective mechanism to resolve disputes.
The government has also been reviewing a number of other areas with the banks; export financing, the improvement of banking statistics and the question of personal guarantees for loans under the Small Businesses Loans Act. All these are areas that are being examined.
Against that backdrop I would welcome the industry committee's report with enthusiasm. Many of the committee's recommendations touch on areas where, as I indicated earlier, work is already under way.
I understand that the code of conduct for small business lending will be released shortly. It will establish minimum industry wide guidelines. Individual banks will also be able to develop their own codes which will be released soon after.
The best method of dispute resolution remains to be determined. There are a number of options that will need to be reviewed and the committee's proposals are a useful addition to this discussion.
The committee has also recommended that government departments and agencies work with the banks to improve statistics on lending to small business. Work to improve data in this area is already under way. It involves officials from the Bank of Canada as well as those from the Department of Finance.
In addition to proposals related directly to the bank, the committee has made a number of recommendations pertaining to government programs and agencies. It has, for example, recommended that the Small Businesses Loans Act be revised. We must ensure that this program is run on a cost efficient basis with minimal risk shifting to the government and without preference to bank financing.
The committee is correct to point out that there are concerns about future program costs as well as the extent to which the program adds to the total supply of financing. A successful SBLA program will remain a critical element of the government's small business agenda.
We are reviewing the program with an eye to improving its incremental nature. We are also reviewing it with addressing the fiscal concerns through increased cost for coverage. We will also continue to ensure that qualified private sector lenders other than the banks remain eligible to participate in that program.
Among the committee's other major recommendations was the establishment of a limited working capital guarantee program for small and medium sized exporters. This too is an area in which work is already under way. The Export Development Corporation is currently working with financial institutions on a new insurance product. This product will facilitate the use of foreign accounts receivable by small and medium sized exporters to secure working capital lines of credit. As recommended by the committee, this program will be self-financing and the premiums will be commensurate with the risk.
I focused on the committee's proposals in areas where work has already started. The committee has, of course, made other
recommendations that touch on areas where further study is needed.
For example, the committee has made several proposals, particularly in the area of venture capital which have a significant tax dimension. Clearly these proposals must be examined further to ensure that their full fiscal ramifications and possible side effects are taken into account. Alternative approaches must also be duly considered.
One recommendation in this area is a reduction in the capital gains tax rate on so-called patient capital, that is capital investments with a five-year term or longer. As many hon. members are aware, a task force has been consulting with business and farm groups on the $500,000 lifetime capital gains exemption.
In the course of this review, a number of proposals for reforming capital gains treatment of small businesses have been received including proposals for reducing the capital gains rate on longer term investment. These proposals will of course be examined closely.
I should also point out that a few of the committee's recommendations appear to suggest an easing of prudential standards for financial institutions. These, like all the recommendations, will be carefully considered. Let me emphasize that the government will not pursue any measure that could weaken the financial system in any way. A strong and reliable financial system is central to Canada's economic health. We will certainly not jeopardize it.
In closing, I once again would like to express my appreciation for the opportunity to participate in today's discussion and to congratulate the committee on its report. It is also my intention to state my conviction that Canada's small business sector will become even stronger and more competitive.
