Mr. Hockin:

The member for Kenora-Rainy River raises a very important issue on which we have been working for the last 38 or 39 months on an almost regular basis. I talked with the Canadian Bankers' Association and heads of the major banks about their policies concerning loans. I think he is very right to mention it. It can almost be more important than anything else.

Since I talked to them in the past year the banks have guaranteed to me that they will no longer maintain outright prohibitions against regions, sectors, and all these things they were doing.

If they are doing this privately and the member has picked up that people in his region cannot get loans, I would like to know about it because they assured me they would no longer do that.

Mr. Dennis Mills (Broadview-Greenwood):

Mr. Speaker, I am happy to participate in the debate. I am especially happy to hear directly from the minister that he believes I have been attempting to co-operate with him over the last two and a half years in this very important sector of our economy, the small business sector, and especially in the relationship with banks. I

May 14, 1993

Supply

feel I have been trying to be constructive in this particular area.

Just to put it in context, last December the Minister of Finance came out with his economic statement and announced the amendments to the Small Businesses Loans Act. At that time I stood and supported the Minister of Finance. We have increased the ceiling on sales for small business eligibility from $2 million to $5 million. We have increased the size of the loan from $100,000 to $250,000. The amendment has been made that a bank cannot ask for any more than 25 per cent of the value of the loan in terms of personal security, and there is a cap on the loan of not more than 1.75 over prime.

When all these amendments came to committee in February after the adjournment in January they were accepted. We as Liberals put forward a couple of these amendments. The government agreed and the bill went through the House in one day after it was reported back from committee. That is the reality of it.

During the committee the Canadian Bankers' Association representatives appeared as witnesses. They reminded the minister that for five years they tried to put forward these amendments to make the Small Businesses Loans Act more relevant and meaningful to small business.

Even though I want to give the government members some credit, I certainly do not want them to think they have really moved in this area in an expeditious manner. This severe recession has been going on now for a long time.

At any rate the bill has been passed through the House. It received royal assent in early April. Every time I stood up in the House on debate I told the government this particular piece of legislation was not going to work unless the banks were on side; unless the banks and the Government of Canada let the small business community know about it.

I had repeated assurance from the Minister of Finance and the Minister of State for Small Businesses that they were going to promote this particular piece of legislation. In fact we heard from several banks.

I have a Bank of Montreal press release dated March 31. The comments on the fax cover read: "As you can

see, we plan to aggressively promote this program". On the first $100,000 of a small business loan with the Bank of Montreal it advertises one point below prime. I think the Bank of Montreal has come up with an interesting formula.

I have another media press release dated March 22 from Scotiabank. In fact I see a handwritten note on this one right from the minister which reads: "Dennis, as you can see the Small Businesses Loans Act is starting to become a cornerstone for competition for the small business clients of the banks". Scotiabank is giving the small business loan at prime.

I have anther press release from Blair McRobbie, the vice-president of the Royal Bank and and on and on. As a matter of fact, last night I received a fax from the Bank of Montreal claiming it is also actively promoting this particular piece of legislation.

On the face of it as we stand up here in the House of Commons and are televised from coast to coast to coast you would think everything was okay. The reality hits when we go home to our constituencies. I sit in my office on the Danforth or walk down the street to Hampton Variety on Hampton and talk to Terry who runs the comer store about the relationship with the financial institutions in this country and his local banker. Day after day, case after case it is not working.

There is absolutely no connection between these press releases and the act and what is happening in the street. That is the reason for today's motion which my colleague from York West has put forward.

I think he was much more generous in his motion toward the government. I urged him to be much tougher on the government because I think it has failed miserably in its ability to manage its relationship in terms of motivating the financial institutions in this country.

I am not just talking about the banks. I am also talking about the credit unions. The government had the credit unions appear before this committee. The hon. member mentioned the insurance companies as well.

The bottom line is that there are 1.3 million small businesses operating out there. They complain about two things: red tape and shortage of capital. The banks know they cannot fire up that entrepreneurial spirit unless they give them money.

May 14, 1993

We came in as the Government of Canada and every party supported the Small Businesses Loans Act to take the banks off the hook because 90 per cent of the loan is guaranteed by the Crown when a bank lends to a small business. Therefore what is holding them back?

Mr. Speaker, I want to suggest something to you in a very constructive way because I think the minister has done his best to try to move the Small Businesses Loans Act forward. I do not think he wants to see the Small Businesses Loans Act fail, but the fact is that it is failing.

As we were preparing for this debate, I reflected back on some of the experiences I have had and some of the bank people I have talked to. I have come to the conclusion that the basic problem here is one of attitude. I sincerely believe the financial institutions in this country have a real attitude problem. I have given the example before that if one goes into a restaurant for dinner or into a clothing store to buy a sweater or something one is greeted and waited on or served. The notion of service in a retail outlet is always there.

When people go to a bank, first of all they have to muster their courage-and they are the customers. I do not want to say that every credit officer is like this, but I must tell you that I hear day in and day out that the attitude, the approach in terms of bankers' service to the client is just unbelievable. When I say unbelievable, I mean unbelievably negative. There is no appreciation or very little appreciation for the contribution small business people in our communities make toward the total make-up of the economy of a community.

If a small business has just gone through this recession -and this has been a deep, deep recession-if anything it should be given a pat on the back for the resilience it has shown. Instead we have a situation out there right now where the attitude has not shifted.

Imagine a situation, Mr. Speaker, where you are a bank manager. You are going to loan money and know that 90 per cent of the loan is guaranteed by the Crown. I want to be constructive. I think the financial institutions of this country should re-examine their approach to service. I think bankers should do what we as politicians

Supply

have to do. This is the boardroom of the nation, but when we leave this boardroom we have to go home. We go to our communities, we go to stores and we go door to door and listen. The reason we have two ears and one mouth is because we are supposed to listen twice as much as we talk. We must listen to the people in our communities.

The presidents and vice-presidents of the banks should try to do the kind of work we do for a few days. They should get out of those Bay Street towers or those big corporate commercial centres, get in their cars and do some cold calls. Just find a street where there is a small business.

Just imagine if Mr. Allan Taylor, the chairman of the Royal Bank of Canada was to jump in his limousine, go into a small business area, get out of his car, knock on the door of a small business and ask the receptionist: "Is your president or is your accountant here for this company? I would like to let your accountant know that I am here to see what I can do for him. I would like to see if he is satisfied with his banker. I would like to see if there is anything we, the Royal Bank"-or we the CIBC, or whoever the banker is-"could do to help this person grow his business and make more money so we can address the deficit and the debt".

The banks of Canada talk about addressing the deficit and debt of this nation until they are blue in the face. If they are really interested, then they should come to the party. Leave those ivory towers and make some cold calls. Find out what is happening in the streets the same way politicians a lot of businesses have to find out.

We talk about competition. The only ones not having to compete today are the banks. It is almost like a cartel. I say this with respect but I want to say it forcefully.

Last week I was reading the book The New Paradigm in Business. There is the Meredith Corporation, a Fortune 500 company. It is a very large company with $400 million in sales. That is the kind of thing a bank president or vice-president can relate to. The president of Meredith Corporation talks about the corporation's responsibility to those most disadvantaged in the community. It has a formula for working with those people.

May 14, 1993

Supply

The interviewer asked Mr. Meredith whether he felt the corporation had a duty or an opportunity to do these things. Mr. Meredith answered:

An opportunity more than a duty. I am against those who say a corporation's only social responsibility is to its stockholders. I have heard a good answer to that which says that business is simply one part of a large and complicated ecosystem, which includes government, education, health care, really the entire social order.

For corporations to say our only responsibility is to stockholders is to deny our place in the ecosystem. We have a responsibility to support schools, social programs and the arts.

What I am saying to the banks is that they have to try to change their attitude. In any other corporation, an attitude change has to start at the top. Just like my leader is doing. He has been out on the bus for the last three weeks, on the highways and byways, the side streets and main streets, on the subways, in the plazas and high schools, in the hair salons and other small businesses. If the next Prime Minister of Canada can do that, then the bankers can do it too.

Bankers have to think of the new paradigm. They have to reconnect. It may not even be a good thing. Going in wearing a pin-striped three-piece suit might not be the way to go. They should try to get into a situation where they can connect with the pain and the real frustration. Try and figure out why there is a real lack of confidence.

This is where I think the government has failed. We have to get this country's financial institutions to reconnect with that sector of the economy which is going to lift us out of this recession. It is not going to be the GMs and the IBMs which are downsizing. It is going to be those home-based businesses, those Hampton Varieties, those hardware stores and small farms. That is where we are going to get the rekindled spirit. That is where we are going to get the job creation.

However right now they are on tender hooks because the financial institutions have them scared out of their minds. The only way we are going to change this is if the banks change their attitudes and style. For me, a style change in the banks means that they get out of the ivory towers and into the streets. Knock on the doors of stores. Go into the factories. Show some interest in clients.

I am sure it would shock many small business people if a big bank vice-president knocked on their doors saying: "Can I help you? Can I be of service to you? Can I help your business grow so that you can make more jobs, so that my deposits are more secure, so that I will spend less on taxes for UI and welfare?" For no other reason, the banks should do it for the sake of their shareholders.

I say to the leaders of the financial institutions: Something else will happen to you. Your spirit will change. You will feel good when you go home at night. You will feel good about the fact that you helped a small business that maybe only employs five people. This may not be as exciting as doing a billion dollar deal for some mega-corporation but I will tell you the feeling of satisfaction is much different when you give confidence to a small business person. It is 10 times the kick.

Imagine that the leaders of the banks did that and it spread through 7,000 branches? Imagine those 7,000 branch managers going out there with their files and business cards knocking on doors. There are 295 members of Parliament who do this every weekend and on our breaks from the House of Commons. We have to go out and knock on doors, go to the stores and listen.

Therefore when my colleague from York West today said to the government that we really think it failed miserably in motivating the banks, that is what he is trying to say. If the Minister of Finance and the Prime Minister called the bank presidents and said: "Look, let us do this in the 90 days", I think the spirit of this country could be changed by summer.

Mr. Jim Karygiannis (Scarborough-Agincourt):

Mr. Speaker, I want to share a scenario with my colleague from Broadview-Greenwood.

A small businessman had just registered a company and was going to work out of his house. He said to me: "Come with me. I want to open a bank account. I went to four or five different banks and each gave me a different scenario of what I can and cannot do".

The first bank we went to was the National Bank of Canada. We sat near the counter and the bank manager did not even want to come out and see him. He sat there with the loans officer and wanted to open an account. The loan officer said that in order to open an account the

May 14, 1993

bank needed this, that and the other thing and the poor chap was providing them. The loan officer said $25 was also needed to cover administration fees for opening the account.

The small businessman said: "Hold on. I want to put money in your bank. You are going to turn around and invest that money and you are going to charge me for services and for every cheque I write. Why do I have to pay you $25?" The answer was that a credit rating was going to be done. The man said: "But I do not want to borrow money. I want to put money in".

So he went to another bank. "Here we run things differently", he was told. "We have to check your background. We have to check where you work. We have to check this". He said: "It does not matter where I work. I have a small company. I want to put money in".

Another incident with the same individual occurred just yesterday. The individual is in Canada and is working under a nine number. He has a social insurance number. He is not a claimant. He is approved in principle and waiting to be landed. His son sponsored him from inside Canada.

He approached the Royal Bank and was told that he could not get Visa through his business because he had a nine number. He said: "I am not going to borrow any money from you", but the reply was that he could not get it. So I picked up the phone and called the Royal Bank and it gave me a long song and dance.

When my colleague from Broadview-Greenwood says to go out to the public and meet the small businesses, I do not think the banks understand. I do not think the banks know what it is like to be in small business with the everyday troubles that are faced, the January-February blues when only $800 or $900 a month is made and $1,400 has to be paid out.

The chap in question is Mohamed Begg, one of my constituents. He opened a brand new business and paid cash for the merchandise. He wants to get a Visa from the Royal Bank. Royal Bank gave him a song and dance and finally said it could not do it but it would think about it. If you are nice to your banker, the bank will do it.

Supply

Therefore, I stand up in this House and concur with what my colleague from Broadview-Greenwood has said. We members of Parliament go out and do those things so why can the bank managers not go out and do what we do?

Mr. Mills:

Mr. Speaker, my comment will be very short. I know there are other questions.

My colleague once again has tried to bring to this House of Commons what is really happening at the street level. It reinforces the need for an attitude change.

Mr. Alex Kindy (Calgary Northeast):

Mr. Speaker, it was mentioned in the debate that the banks lend about 30 per cent of moneys to small and medium-sized companies and about 70 per cent to huge corporations like Olympia and York and other corporations that have gone under.

Now the government tells us it is happy that at least the banks will lend 30 per cent. How can we persuade the banks that instead of lending to foreign-owned companies and huge corporations that do not create jobs they should be lending to the small businesses in everybody's riding?

Mr. Mills:

Mr. Speaker, I thank the member for his question. Right now I am imagining that I am looking right into the eyes of the chairman of the Bank of Montreal. It could be some other bank. We are not trying to put any specific financial institution on the spot here nor are we trying to single anybody out. We are not saying that people should not have a business plan. We are not asking them to take depositors' money and do something irresponsible.

What I am saying is that the banks should come into the new paradigm, the new approach to business and connect with the community. I believe when that connection is not happening that part of being government is that it is up to the Prime Minister to do something.

I had the privilege of working for the greatest Prime Minister of all time, Pierre Trudeau. I remember we had a desperate situation in 1981 and 1982. Week after week, sector by sector Prime Minister Trudeau brought people into the cabinet room and would listen to them. There would be an exchange and he would say: "I can do this, but you must do that. We must do it together". My colleague from York West is trying to make the point that that has not happened with this government.

May 14, 1993

Supply

Mr. Fred J. Mifflin (Bonavista-Trinity-Conception):

Mr. Speaker, I want to make three very brief points and then I want to ask the opinion of the hon. member who made a very eloquent and substantial speech on a very pertinent subject in our country today.

I was not here for the beginning of his presentation but it is certainly relevant to me that from the period 1979 to 1989 small businesses, businesses with less than 100 people, made up 80 per cent of the jobs in Canada. Since 19891 believe they have made up 98 per cent of the jobs. Yet in that period loans to small businesses have gone down 11 per cent and have gone up 11 per cent to big business.

Second, last year I believe the banks made a profit of $1.8 billion. They made that profit despite a loss of $600 million to 900,000 of our 1.3 million small businesses, that is 70 per cent, but $2 billion to one company, Olympia and York. It shows where the priorities are.

Third, I deal a lot with the Federal Business Development Bank. Quite frankly I find it very good to deal with, but I am concerned about some of the policies. Let us look at the statistics. When this government came to power the average loan was $175,000 to 4,100 businesses and last year the average was down to $153,000 to 3,816 businesses, a reduction of about 10 per cent either side.

I want to ask the hon. member, in view of these statistics and some of the other things he mentioned what directions would he want the government to give the Federal Business Development Bank to cope with, for example, these three cases in Brooklyn in my riding, Grates Cove and Old Perlican. We are looking for around $50,000. We cannot get it. What direction can we give to the Federal Business Development Bank to assist in this area?

Mr. Mills:

Mr. Speaker, I obviously cannot deal with the specifics of those cases but I want to try to amplify the point I was trying to make.

There is nothing tougher on a politician or a business person than a cold call. It is kind of nice in the boardroom, the constituency office or the House of

Commons office, but then we have to leave and go out and make some cold calls. We walk down the street and ask people how they are doing. We ask them whether they are satisfied with our work as their MP, or with our product or service. It is tough to make cold calls.

I believe that commercial credit managers, and there are 7,000 to 10,000 of them across this country, must get back into the business of making cold calls and reconnecting, and then we can get competitiveness going. That is when we are going to solve the problems my colleague mentioned in terms of his specific client cases.

Mr. Nault:

Mr. Speaker, on a point of order. Based on the fact that we have a very relevant debate going on here with my colleague and that my colleague has been very much involved in this area for some time I have a few questions I would like to pose to him. I was wondering if we could get unanimous consent to extend the discussion.

The Acting Speaker (Mr. Paproski):

Is there unanimous consent?

No.

The Acting Speaker (Mr. Paproski):

I regret there is not unanimous consent. The hon. member for Quebec-Est.

Mr. Marcel R. TVemblay (Parliamentary Secretary to Deputy Prime Minister and Minister of Finance):

Mr. Speaker, I welcome this opportunity to provide an overview, for the benefit of opposition members and for Canadians across the country, of what our government has done to assist the small business sector. In fact, the record reflects our government's unparalleled and sustained commitment in this respect.

Judging by the wording of this motion, the hon. member opposite is attacking not only what we have done but small business itself, although that should come as no surprise, considering the opposition's failure to grasp the most elementary principles of the new world economy.

Small businesses are a major source of employment in the new economy. Between 1978 and 1990, businesses

May 14, 1993

with 50 or fewer employees created 2.5 million new, full-time jobs, or about 80 per cent of all new permanent jobs.

That is why our government has taken a number of steps to create a climate conducive to small business development. For instance, federal tax rates for small businesses are lower in Canada than in the United States. Canadian small business corporations enjoy a special deduction that reduces the federal income tax rate from 28.8 per cent to 12.8 per cent, including the 3 per cent surtax on the first $200,000 of active business income.

For the sake of comparison, special income tax rates enjoyed by small businesses in the United States apply only to the first $75,000 of business income. Any income exceeding that amount is taxable at the full rate of 34 per cent, while a 5 per cent surtax is applied to income between $100,000 and $335,000.

The lifetime capital gains exemption provides an incentive for individuals to invest in small business corporations. Capital gains realized on the disposition of qualified small business shares are eligible for an exemption of $500,000. This measure offers some very definite advantages to a couple, since both spouses can file separate tax returns for business income. In this way, capital gains of up to one million dollars are eligible for an exemption. In addition, only 75 per cent of capital gains exceeding the exempted amount are subject to income tax.

In the United States, the current tax system offers no capital gains exemption or special tax rates comparable to those in Canada. In the United States, the full amount of capital gains is taxable.

The Canadian tax system also provides some of the most generous tax incentives for R and D. To help small businesses access new technologies, the government offers a 35 per cent refundable tax credit that may be applied to most R and D activities.

By comparison, the general R and D tax credit rate for larger companies is 20 per cent. Elowever, I should point out that this still means that Canada provides the most generous tax support for R and D among all the G-7 major economies.

Supply

This is another aspect of our federal tax system that provides specific benefits to small businesses. In the United States business income distributed as dividends is effectively taxed twice. Companies are taxed on this income at the corporate rate and the shareholders are taxed at their personal rate when they receive dividends.

The Canadian tax system alleviates this double taxation by providing shareholders with the dividend tax credit. This credit means that dividend income is taxed at a much lower rate, including provincial and state taxes. The combined personal and corporate tax rate in Canada on incomes qualifying for the small business deduction is just over 45 per cent compared to about 60 per cent in the U.S.

I have just described some of the mechanisms in Canada's tax system that provide much needed support for small businesses. However, we have also been aware of the serious financial and competitive pressures that surfaced in the last recession and the slow recovery that started in 1992. Considering these harsh realities, the Minister of Finance introduced new initiatives.

In his economic statement last December he launched a small business employment investment package to help small businesses across this country modernize, attract financing, grow, and create jobs.

Let me remind the opposition of the highlights of this package.

To encourage small businesses to expand and to hire new employees, the government will pay any increase in unemployment insurance employer premiums in 1993 over 1992, up to a maximum of $30,000 per enterprise. Any business whose employer share of UI premiums in 1992 was less than $60,000 will be eligible for this assistance.

This means that for most small businesses, UI premium costs will be capped at their 1992 levels. In fact, most start-up businesses will have a UI premium holiday for 1993. This will reduce the cost of hiring additional employees by up to $1,600 per employee.

A 10 per cent investment tax credit, for one year, will be provided for machinery and equipment purchases. It will apply to small businesses in the following sectors:

May 14, 1993

Supply

farming, fishing, mining, oil and gas, manufacturing, construction and long-distance transportation.

The rules for RRSP investments and labour-sponsored venture capital corporation funds will be simplified and financing options expanded.

The loan limit allowed under the Small Businesses Loans Act will be raised to $250,000.

The Small Businesses Financing Program announced last February will be extended to the end of 1994.

Let me point out that our 1992 action was not just limited to small business itself. We also took targeted steps to boost consumer confidence and encourage home construction, actions which have meant new customers and activities for many small businesses.

We found that people could not become homeowners, not because they could not afford to buy a home but because they did not have the downpayment. So we took steps to help them overcome that obstacle.

Just before the February 1992 budget was brought down, the Canada Mortgage and Housing Corporation reduced the downpayment required to be eligible for its mortgage insurance from 10 per cent to 5 per cent. In the February budget, the minister announced that Canadians could withdraw funds from their RRSPs, without penalty, to finance the downpayment on the purchase of a home. In last December's economic statement, the minister provided a one-year extension for the Home-buyers Plan.

This action helped boost housing starts last year by 6.3 per cent, and housing starts reached an annual level of 170,000 units this April. This is an increase of 17 per cent over the first quarter level.

I am focusing my remarks on targeted actions to make Canadian small and medium businesses more competitive and secure, but I also want to talk about another key part of the growth equation.

First, the theorem: Laws, subsidies and tax relief cannot create prosperity. Prosperity is the result of

market forces, and the private sector is in the best position to create prosperity. This was the philosophy behind the government's agenda for economic renewal, which has guided us since we came to power in 1984.

Since then, we have consistently worked on implementing the fundamental changes that were necessary to build a more competitive, market-oriented economy, an economy with less state intervention, a more effective and efficient economy that would stimulate investment and job creation. Results have included a number of invaluable benefits for small business.

For instance, we deregulated the financial services sector to encourage competition and the availability of new products and services. This reform has helped financial institutions increase their effectiveness, both on the domestic market and internationally.

There is an even more important change we have worked to implement, one that relates directly to the financial health of the small business sector and its access to capital, which the hon. member is so concerned about. This is our commitment to bring down inflation.

Our measures have reflected a basic economic truth that sustained economic growth and price stability go hand in hand.

Inflation must be low, if people are to benefit from lower interest rates. Keeping capital costs down attracts investment and high-growth competitive businesses that create the jobs Canada needs.

We have taken vigorous action by setting and releasing clearcut objectives and following a policy of wage discipline in the federal government in order to reduce inflation.

And we succeeded. For instance, the average inflation rate for 1992 was 1.5 per cent, the lowest in 30 years. As a result, there was a spectacular drop in the bank rate, which fell 8.5 points from its peak in May 1990. Rates are now at their lowest level in 20 years.

For a business with a $100,000 loan repayable over 10 years, lower interest rates will mean a savings of approximately $475 per month.

May 14, 1993

Consumers are also benefiting as a result of this situation. Some mortgage rates are now down to 5.75 per cent, something we have not seen in 35 years.

I may add that the spread between prime rates in Canada and the U.S. has dropped to 25 percentage points, from 475 percentage points in May 1990. The Bank of Canada rate is down as well, to 5.56 per cent, more than 300 percentage points below its latest peak reached last November.

I would like to mention one more area where we have been able to provide support for small business.

I am referring to manpower training, which is vitally important if we are to maximize our R and D efforts. Our manpower training resources are particularly important for small businesses which often lack the in-house resources of large corporations.

To meet this challenge, we are increasing assistance for worker adjustment and training. During the coming year alone, we will spend $3.8 billion in this area, 65 per cent more than in 1990-91.

Let me conclude by stating the obvious. There is no merit in a motion that condemns this government for its treatment of small business.

If the hon. member wants to truly speak for the interests of this sector he should be congratulating the government for the special initiatives we have put in place to help small businesses and small firms go out and create new jobs.

Yes, there are companies that are still struggling just as the world economy is still struggling, but their chances are better and the future of their employees is brighter because of the action we have taken.

Canadians realize that providing for economic growth and building a house are much the same, in that both require a strong foundation before going on to the framing and finishing.

I am satisfied that we have built the foundations for economic growth: we have put in place a structure that will help Canadians, and especially small business, to

Supply

succeed. This year and in the years to come, there will be real benefits, and Canada will continue to provide, for its people, a home that is the envy of the rest of the world.

Mr. Speaker, I will now answer questions if there are any points hon. members would like to raise.

Mr. Alex Kindy (Calgary Northeast):

Mr. Speaker, I listened with interest to the speech by the hon. member for Quebec-Est, in which he provided a description of the so-called financial policy of the Canadian government since 1988.

What the hon. member failed to mention is the impact of the GST on small business. As we all know, small business was hard hit when the GST was introduced in this country. We have seen businesses go bankrupt across the country, due to the fact that the GST added a second tax to one that already exists in some provinces, and I am referring to the provincial tax.

The GST has been very damaging for businesses in the tourism sector. Tourism has practically disappeared as a result of the introduction of this tax. I wish the hon. member would explain why the government did not, for instance, exempt the tourism sector from the GST. People no longer go shopping in Canada, and they are starting to shop in the United States to avoid the GST. We are not competitive in terms of productivity, because of the GST.

All these factors have been very damaging for small business. Small and medium-sized entrepreneurs have been greatly penalized by the fact that they had to collect the GST. Recently, statistics showed an increase of 1,400 employees at the Department of National Revenue, compared with 1982. These people were hired exclusively to collect the GST from small businesses. Large corporations did not suffer, because they had the resources to collect the tax.

I wish the hon. member would explain why his government is doing nothing specific for small business.

Mr. Tremblay (Quebec-Est):

Mr. Speaker, Hansard for last Monday, May 10, right here in this Elouse contains a very detailed explanation showing how Bill C-112 makes some adjustments to help the tourism industry. I would not want to repeat everything I said, because it is quite well explained, I believe, in Hansard for May 10.

Supply

Nevertheless, I would like to remind the hon. member of what we did to eliminate an outdated hidden tax that had been implemented about 50 years before and was completely inadequate. In today's environment, with the globalization of markets and products, we needed a much more up-to-date tax so that our exporting manufacturers could compete with other manufacturers around the world to maintain the Canadian jobs that depend on our exports.

If you allow me, Mr. Speaker, I will recall some reasons that led us to change this tax. We eliminated this inequitable manufacturers' sales tax and replaced it with the goods and services tax which reduced operating costs because businesses are now allowed a refund on sales tax, which was not the case before.

We simplified the management of the GST as much as possible, and I repeat that Bill C-112 made this transition even easier. I said in my presentation that we are always listening for new methods and new ways of applying the tax and we will always be very pleased if the tourism industry, with the help of our officials here in the Department of Finance, finds ways to make it easier to apply so that the industry can be even more dynamic. We will be very receptive to their suggestions.

Mr. Kindy:

Mr. Speaker, I thank the hon. member for his explanation, but I would still like to add that the manufacturers' tax he is talking about, which some thought outdated, applied to very few exports; it was hidden, but there were all sorts of agreements between the Department of Finance and business people. For example, as we well know, the tax could range from 2 to 13 per cent, so it was variable. Most exporters paid very little, perhaps 1 or 2 per cent.

I remember veiy well when the present Minister of Finance was in Calgary and spoke to people in the oil industry about the manufacturers' tax and he told them, "You will be glad, because the manufacturers' tax will be abolished and you will be able to buy much more cheaply." At that time, the manufacturers' tax was 13 per cent.

The president of the petrochemical association answered the minister: "Mr. Minister, this tax does not apply to our products". The minister was so surprised, because it was believed that the tax applied directly to all products. What happened with the GST is that last year,

as I just said, 1,400 new inspectors had to be hired to control the GST.

I would really like the hon. member to give the government the message to abolish the GST, especially in the tourism industry which is suffering in Alberta as well as in Quebec.

Mr. Tremblay (Quebec-Est):

Mr. Speaker, very briefly, the speech I referred to a little earlier is on page 19158 of Hansard for May 10.

We have said many times that the new tax is fairer and more equitable. The old tax had many exemptions-as many as 22,000. So you can image how complex it was for those who had to administer it. Experts on the subject always indicated that the average tax rate most frequently encountered on products was 13.5 per cent, much more often than 2.5 per cent. It is based on these assessments and these data from experts that we say today that this hidden tax was of the order of 13.5 per cent; it was replaced by a simpler, fairer, more equitable tax of 7 per cent on goods and services.

Mr. Robert D. Nault (Kenora-Rainy River):

Mr. Speaker, I want to take this opportunity to thank my colleagues from York West and Broadview-Greenwood for bringing a veiy important topic to the floor of the House of Commons.

Not too long ago in this place we talked about Bill C-99, the Small Businesses Loans Act. During that whole process some of us had an opportunity to stand and suggest to the government that there were problems for small business as it relates to the relationship with financial institutions, in particular the large banks.

The minister at the time suggested to us that this particular piece of legislation was going to help small businesses, that it was going to send the message to the banking community that it should start participating with small businesses to help them get involved in getting the economy rolling again, supplying jobs, and of course the revenues and the spin-offs that come from that.

I want to quote a local northwestern Ontario bank manager. This is dated April 8, 1993. That was after the legislation was passed, put in place and up and running.

May 14, 1993

It says: "With respect to MP Bob Nault's comments in the Daily Miner & News of March 29, we fully recognize that small businesses are the engine of recovery and the principal creator of new jobs in Canada. Nine out of ten companies in Canada are small businesses and since 1984 this sector has been responsible for creating 80 per cent of all new jobs". This is nothing that we did not already know.

"We are committed to the small business sector. Small businesses is a core business for us now and in the future. Small businesses make up 90 per cent of our business clients and account for $7 billion in outstanding loans. The average loan is $62,000. Northern Ontario is not treated as a depressed area at Royal Bank. In fact the economy in northwestern Ontario has withstood the recent recession much better than many parts of Ontario. By far the largest percentage of small business loans are approved locally and loans to the business sector in the northwestern area and are on the increase".

I read this verbatim because I want to start the debate by reading a couple of letters I have received and a couple of articles and the headlines of those articles. These titles read: "Bankrupt-Canada's chartered banks are choking the life out of the country's small businesses and the economy; Canadian banks' loan pricing draws criticism; U.S. study finds higher risks undercharged, lower, overcharged; Small business turns tables, leans on banks; Small business is sceptical as Ottawa bets new loan program will end credit crunch".

As can be seen, the concerns are still out there. The reality in the small business community is that not much has changed since the Small Businesses Loans Act went into place. The banks, as my colleague from Broadview-Greenwood has said, have not changed their attitude toward the most important engine of our economy, the most important sector in order to create employment and create the wealth that Canadians expect.

Of course I did as all MPs should do and sent out a massive mailing to the business community in Kenora- Rainy River telling them that the Small Businesses Loans Act was now in force and to take advantage of it. I told them to go down and see their banks, talk to them about it because there is a 90 per cent guarantee by the

Supply

federal government, that there should not be a big problem as long as they have a fairly viable business. They may be struggling but if the business has a good track record in the long run, they can use this Small Businesses Loans Act to get over the hump and in some circumstances help to expand their operation.

Well I did that, as I think all MPs in this House must have, and I was really quite shocked by the reaction that I got from that particular mail-out. I started getting phone calls in my office almost immediately after I sent that out and here are some of the things that people said.

This is from a tourist outfitter whose name is Pat. She called to tell me her horror story with the CIBC in Emo. Her business is worth $600,000 and she has had an operating line of credit of $25,000 for the past seven years. The bank, fortunately or unfortunately depending on how you look at it, got a new bank manager. She has been advised that effective June 15 of this year her line of credit would not be renewed. The interest rate was increased by 1 per cent and the administration fees went up from $25 per month to $65 per month. That is a 260 per cent increase. The manager will not discuss options with her nor is he prepared to do anything about that particular policy or regulation of the CIBC locally.

Just to put this in context, Pat tells me she has two mortgages which will be paid off in two years and this will give her approximately $48,000 a year in extra cash flow. In essence we have a $600,000 business and a bank cutting off her line of credit of $25,000.

I must explain to members here or any people at home listening that a tourist business has to supply food to individuals who come to their camps. They need a line of credit on a regular basis in order to operate. Without it you cannot be in business. That is one example.

Let me give another example. This lady owns a small business which is a beauty salon. She owns her own business and her own building. She estimates that she owes anywhere between $4,000 and $5,000.

She went to the CIBC looking for a small operating line of credit and was turned down by the bank. This particular businesswoman owns her business outright, owns the building, owes a small amount of about $4,000 or $5,000 and could not get a line of credit. Can you

May 14, 1993

Supply

imagine how we are going to operate in this country if that is the reality we are facing?

I want to give an example that is really interesting. I have many here, and I know I only have a short time, but I want to throw this one at you. This is a brand new business. It is peat moss company and I do not mind telling you it is a real big issue in my riding right now.

The reeve of Barwick called to tell us about the problems this new company was having in securing a line of credit. The company is looking for a $50,000 line of credit and the banks are asking for $51,000 in cash collateral in order to give it the line of credit. This is the interesting part. Foreign investors are prepared to back the peat moss company to the tune of $1 million. What I am saying to everyone out there is that this company has all of the collateral it possibly could want but still is refused the line of credit for reasons which we do not understand.

We all have business contacts and close friends. I asked some very prominent business people in my riding to give me an explanation of what is going on with the banks, and what we can do, why are they doing what they are doing?

Let me tell the House what I was told. It was told to an acquaintance by someone in the higher echelons in the Royal Bank at the regional level. The Royal Bank has placed the small business community in three specific categories. Just so we can let the House know what this is all about, the person who told my friend about this also said that if this information was ever repeated he would deny it, because they would not admit this in a public forum.

The three categories are as follows: Class A is a business which will earn the bank in excess of $500,000 in service charges, interest carrying charges, fees, et cetera; Class B is a business which will earn the bank between $300,000 and $500,000 service charges, interest carrying charges, fees, et cetera; and Class C, all other businesses which will earn the bank under $300,000 in service charges, interest carrying charges, fees, et cetera. Ninety per cent of the small businesses in this country are in Class C.

Everyone can understand why the banks would not want us to know this publicly, because of course this situation suggests that they treat their small business

clients and their clients in general differently based on what they can do for them. This is a situation that the minister for small business can look at to try and help us to explain to the banking institutions, the financial institutions the importance of changing their attitude.

It seems to me that we continually get up to suggest that there is something wrong out there and the government has to do something about it. If the government and we as a community continue to bury our heads in the sand we will not see the recovery that we expect.

In the short time I have had to speak I hope the government has listened when I say there is still a problem out there and it needs to talk to the financial institutions in order for them to do something about it.

Mr. Sergio Marchi (York West):

Mr. Speaker, I was listening to the remarks of my colleague from Kenora- Rainy River who talked about some real experiences that unfortunately mirrored some of the experiences that I talked about in the House of Commons today.

He talked about businesses that had made a super effort in recessionary times in paying down their loans substantially, only to have a notice at the end of the month telling that business to pay the loan in its entirety when, in fact, that free capital could be used to sustain the business during some very difficult times.

We have had very similar experiences in my riding. That is why I proposed that the banks at least consider the start-up of a joint venture of an organization outside the banking network and the branches to try to create a new business culture that may be more in sync with the needs of small business.

For instance, in my riding a restaurateur is now adjacent to a new recreation facility. In order to tiy to penetrate that new market and perhaps the yuppie generation he wants to reface his restaurant so that he can also play into the fast food, vegetarian, salad bar type of situation. He has been in business for 15 years and has done very well. For 15 years he has been with the same bank, and to try to reface to meet a new market niche he needed about $125,000. He was refused.

This tells me that the banks do not take the time locally to understand the 15-year commitment this person has had, the 15 years of success, the new niche that is now presented to this individual that he wants to penetrate, and therefore he wants that bridge financing from his bank. It seems to me that the bank in that situation, and many others, is too far removed from

May 14, 1993

Supply

being connected, as the member for Broadview-Green- $400,000 for a house, something is desperately wrong out

wood said, to the real life experience. there.

I am just wondering if perhaps a new business culture is in fact needed in addition to a new business attitude.

Mr. Nault:

Mr. Speaker, I appreciate my colleague's question.

I have been thinking a lot about that. We of course recognize that there is a very large problem as it relates to banks. As a member of Parliament and as someone who is in charge of doing the business of the people we ask ourselves how do we rectify that problem. Do we change the Bank Act? Do we basically put the hammer to the banking institutions and tell them: "This is what you're going to do?" Or do we stand up in the House like my colleague from Broadview-Greenwood has today and suggest that the banks get their act together, that the banks change their attitude, that the banks get into the real world. Those are really the options.

I will tell the House why I believe that the banks are so removed from reality. The minister of small business likes to stand up in the House and talk about FEDNOR which is a regional development program. I know for a fact that FEDNOR, our regional development program is giving loans to businesses which should be able to get a loan from a regular banking institution. They cannot so they go the FEDNOR, our regional development program, and get the dollars from them.

We also have other programs created because of the banks' lack of understanding of what is going on around them. We have Community Futures, we have the community development corporations that are all built around our communities. That to me says that something is wrong.

If I have a perfectly legitimate business, like my colleague has suggested, which has a great track record, which has proven to be able to supply jobs, which has proven to be a member of the community and wants to see his or her business prosper and cannot get a small $125,000 loan, but I can turn around and get $300,000 or

I suggest to the government that we have two choices. We can be nice to the financial institutions and bring them in, as Mr. Trudeau did, and give them a little lecture about the realities of this country and the importance of what these corporate citizens should think of us as a sovereign nation. Or we will have no choice but to legislate these people into doing what we believe is their mandate and that is to be a player in making sure that the economy goes and be a driver of the engine and not sort of a passenger waiting to see what happens on the side of the road once there is an accident.

I want to say in conclusion that I have really enjoyed this debate. It is a great motion. I think we should get on this topic as often as we can, simply because people out there expect us as parliamentarians to do something about this problem.