June 5, 2003

PC

Gerald Keddy

Progressive Conservative

Mr. Gerald Keddy (South Shore, PC)

Mr. Speaker, it is an honour to speak to the private member's motion put forth by the member for Churchill. This is another example of this member's considerate and compassionate attitude toward her fellow workers and fellow Canadians. It is a good way to bring this particular issue before the House.

I am not expecting that we will be very successful in getting it passed. It raises the issue, highlights it, and enables all Canadians to look at it perhaps in a different way and make up their own minds as to whether they would like to see this type of legislation in place or not.

The Progressive Conservative Party certainly agrees with the main thrust of the motion. We understand that thrust to be mainly looking after and paying certain unsecured creditors. The motion reads:

That, in the opinion of this House, the government should amend bankruptcy legislation to ensure that wages and pensions owed to employees are the first debts repaid when a bankruptcy occurs.

I do not think that we should look at workers and the moneys owed to workers by their employers and the moneys owed to their pension funds which most of the time are the workers' own money any differently than we would look at unsecured creditors. That is the basis of this motion.

As bankruptcy legislation works now, we look to pay the unsecured creditors first. I see no reason why we should not look to pay the back wages owing and the moneys sitting in pension plans to the employees who rightfully deserve to be paid. That is not saying that we should pay the unsecured creditors as well.

Quite often these employees find themselves holding out their hand in the direction of their bankrupt employer and yet they go away empty handed, not unlike Dickens' Oliver who also held out his hand and said, “Please, sir, more gruel”. In this case there is no more gruel to come.

Sometimes employees and other unsecured creditors in Canada do not even get anything to begin with. Therefore they certainly could not go to the table and ask for more. It is a difficult and dismal situation. Sometimes they do not get compensation or payment for wages and hours worked. Often they end up with nothing in the face of a bankrupt employer, while at the same time unsecured creditors, sometimes suppliers or distributors, will be entitled per legislation to recover at least some of the money owed to them. This leaves the employees with no legal or legislative avenue open to them that might enable them to recover some of their money for wages that are rightfully theirs.

However admirable the motion might be I am not suggesting that the motion is perfect. It may deserve some slight tinkering to make it correspond even more closely to the hon. member's implicit objective.

Members must not forget why bankruptcy legislation exists and how it came about. I recently made a brief reference to Charles Dickens, the great 19th century author who died in 1870. I did so because of his famous character Oliver Twist who asked for more but was denied. Some reading members in the House of Commons might know who Oliver Twist was. Just after Dickens' death, the Canadian government started to deal legislatively with bankruptcy and insolvency matters. That is why most of the reading members of the House enjoy history and biographies, and understand a bit about who we are because we know where we came from. This is an issue that has been around for quite some time.

In the 19th century Canadian bankruptcy legislation was never widely accepted as a means to distribute assets to creditors or as a way to provide a debtor with a fresh start. In 1880 Parliament repealed the Insolvent Act of 1875 and abandoned its constitutional jurisdiction over bankruptcy and insolvency until 1919.

The absence of a national market in the 1870s made a federal bankruptcy law premature. The bankruptcy discharge challenged the very nature of local credit relationships that depended upon trust and emphasized the moral obligation to repay debts. Looking at that statement alone, there is a moral obligation in a bankruptcy case to repay a debt, and part of those debts are employees' wages and certainly pension plans.

Arguments in favour of a national law focused on the advantage to creditors trading over distances. However, uniform legislation was not a widely accepted goal. A repeal in 1880 was emblematic of the weakness of the national economy. The passage of the Bankruptcy Act of 1919 can be linked to major changes to the Canadian economy.

By 1919 uniform bankruptcy legislation could no longer be delayed in an expanding national market. A new national interest group, the Canadian Credit Men's Trust Association, emerged just prior to the war and played a significant role in leading the call for reform. Credit relationships became less dependent upon matters of character and the bankruptcy discharge became more acceptable as a central feature of the legislation.

In the 1870s, the absence of a strong government department and bureaucracy inhibited the implementation of stable and lasting legislation. In 1919 bankruptcy reform coincided with an unprecedented growth of federal regulations during the war. Federalism also affected the timing of the legislation.

It has taken nearly 130 years to get to the point we are at today which is having some type of bankruptcy legislation in place that recognizes changes. We have changed the Bankruptcy Act and the bankruptcy law several times. It has evolved with the history of the country as it naturally should. It is time that we looked at it again.

Canadians would tell us that when a company goes bankrupt not only should the unsecured creditors be paid, but also its employees. Not only should they be paid their back wages, but they should also be paid any moneys they put into their pension plans.

Perhaps it is time to take a look at the same relationship with some of the unsecured creditors. Many of these are small unsecured businessmen who owe a lot of debt to a major corporation that has gone bankrupt. These businessmen find themselves in a similar situation to employees. I would not want to ignore the unsecured creditors.

Is it time to take another look at this and open it up to the employees to protect their pensions and the moneys that they have put into the company? Absolutely. Should they be paid for the hours worked? Sure they should.

Topic:   Private Members' Business
Subtopic:   Bankruptcy Legislation
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NDP

Pat Martin

New Democratic Party

Mr. Pat Martin (Winnipeg Centre, NDP)

Mr. Speaker, I am glad that time allowed me to take part in this debate. I am very grateful to my hon. colleague from Churchill for bringing this issue to the House of Commons for us to revisit.

We have had this debate once before. In fact, I introduced a private member's bill along these lines about a year and a half ago and we had some interesting debate associated with that too. I for one learned a great deal during the process of developing my private member's bill and I have learned even more during this debate about the imbalance that exists, the basic issue of fairness that is lacking in the current Bankruptcy and Insolvency Act in this country.

I should start by pointing out our gratitude to the member for South Shore for his enlightening comments and history lesson as it pertains to bankruptcy. People would be interested to know that there are over 10,000 bankruptcies a year in Canada. I do not have the exact dollar figure with me at this moment, although I do have it somewhere in my office. I believe it is $1.8 billion in lost wages that are left on the table due to those 10,000 bankruptcies per year. I believe that is the figure. I could be wrong, give or take a little. It is a huge issue and it affects a great number of workers, so we are not dealing with an abstract esoteric issue here.

Most Canadians would be shocked to learn that back wages, pension contributions, holiday pay and other forms of compensation, such as a salesman's commissions, are often not recovered by the employees in the event of their employer going bankrupt. The reason this is so fundamentally wrong, and offends me and others, is that there is a trust relationship that is developed between an employer and an employee. Whether it is in a written contract or collective agreement or even if pen to paper never happens at all, that relationship and obligation exists.

The deal is that the employee performs a service for someone and that person pays the employee for that service, but all the power still resides with the employer. It is an imbalance in that trust relationship, which is all the more reason why, in the event of the employer finding itself in an insolvent position, that employer has an obligation in that trust relationship to live up to the contract, either written or implied.

The argument has been made that banks and other investors should have the status that they enjoy currently of being preferred creditors. I argue that the banks and other investors know full well the risk of investing in a company and they factor in that risk by charging interest. In fact, the banks and other investors are being paid for that risk throughout the life of the company and have been paid back at least in part for some of the money loaned. Often what remains is the interest on the loan, so whoever the financial backers of the bankrupt or insolvent company are have already recouped some of their investment. They knew full well the risk going in and may have enjoyed dividends throughout the life of that company prior to its going bankrupt.

It is a much different situation for the employee who, my hon. colleague from Churchill pointed out, is often living in a much more hand to mouth marginal existence. Two weeks of lost wages can make a significant difference in the life of a low income worker. The risk is quite different and the relationship is quite different. The relationship between the employer and the employee is unique in all the relationships being contemplated in bankruptcy. Certainly we argue it is the employee who should have first dibs on whatever assets remain.

The employer often does not care, frankly. In fact, if one were to ask most owners of bankrupt companies, they would rather that whatever assets they may have left after the bankruptcy went to their employees, I would like to believe that anyway, because they have already walked away from the company. They are not their assets that are being distributed any more. They are the remaining flotsam and jetsam left over after the employer, the owner, has walked away from the bankrupt and insolvent company.

Another point I would like to make is on the amount. In the current legislation the amount of $2,000 is the maximum amount that an employee can recoup, if there is anything left after all the other creditors have had their go at whatever assets are left of the company.

That $2,000 maximum is totally out of touch with the reality of today's wages and the possible amounts owing to employees. It was in 1992 that the figure was quadrupled from $500 to $2,000. It is now a decade later. Surely that figure should be revisited and I would argue increased dramatically.

In the case of compensation of commissions owing to a salesperson for instance, these are only sometimes paid out. It is unfair that employees should rank so low in the pecking order of who gets paid from the assets remaining in a bankrupt company. The maximum in the current legislation is completely unfair and should be increased in a very dramatic way.

The member for South Shore referred to a moral obligation to repay debt. I think he is mixed up. Even in the Bible there is no reference to the duty to pay back money. The only reference in the Bible is it is immoral to charge interest on a loan.

I would say the moral obligation is not an issue in this sense. The debt owed to investors is already dealt with in part by the interest and by the profits enjoyed.

Topic:   Private Members' Business
Subtopic:   Bankruptcy Legislation
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?

The Deputy Speaker

The time provided for the consideration of private members' business has now expired and the order is dropped to the bottom of the order of precedence on the Order Paper.

Topic:   Private Members' Business
Subtopic:   Bankruptcy Legislation
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?

The Deputy Speaker

Order, please. I have the honour to inform the House that a message has been received from the Senate informing this House that the Senate has passed a bill, to which the concurrence of this House is desired.

A motion to adjourn the House under Standing Order 38 deemed to have been moved.

Topic:   Private Members' Business
Subtopic:   Message from the Senate
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CA

Jim Pankiw

Canadian Alliance

Mr. Jim Pankiw (Saskatoon—Humboldt, Ind.)

Mr. Speaker, the matter I would like to address before the House of Commons today is that of the federal government's hidden property tax. This works in several ways. I bring this issue up to follow up on a question I asked the Minister of Finance earlier this year. The item I addressed in that question was the employment insurance premium overpayment.

Employers and employees are required to pay into the employment insurance fund but the premiums that they pay exceed what the fund requires. That excess money nationwide is to the tune of $5 billion a year. That excess money is dropped into the consolidated revenue fund of the federal government.

In the case of municipalities, they are required as employers to pay out that EI overpayment. But municipalities get the money to pay their employment insurance premiums from property taxes. The property taxes are supposed to be used to provide services to the property. That excess money that is being siphoned off to the consolidated revenue fund of the federal government is in effect a federal property tax. That is not appropriate.

The Minister of Finance in answering the question when I asked it earlier this year said he did not understand what I was talking about. I think he just dodged the question. One of the things I would like in the reply is an acknowledgement of whether or not this is understood.

Clearly the former finance minister understands it because he has been making some comments publicly, as has the Minister of Transport, about the GST that municipalities have to pay. That too is a matter in which municipal property taxes are being diverted to the consolidated revenue fund of the federal government. That is not right because taxation between governments should be revenue neutral. Otherwise we get this unfair situation and the inappropriate use of property taxes.

The excise tax on fuel is another example. Municipalities of course spend a lot of money on fuel and the federal excise tax on fuel has to come from the property tax base. There are all these examples: the excessive employment insurance premiums municipalities are required to pay; the excise tax on fuel; GST on services and goods that they procure to provide services to the properties.

I am saying that municipalities should be refunded their excess EI overpayments. They should be GST exempt. They should be exempt or receive a refund for the excise fuel tax. In that way municipal property taxes will not be diverted into the consolidated revenue fund of the federal government.

I am asking the government to acknowledge that it understands what I am saying and what steps it is prepared to take to reverse this unfair situation. As I say, the former finance minister and the Minister of Transport in recent days have publicly talked about the need to leave more resources in municipalities where it is required because of the emerging importance of infrastructure renewal.

Topic:   Adjournment Proceedings
Subtopic:   Message from the Senate
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LIB

Bryon Wilfert

Liberal

Mr. Bryon Wilfert (Parliamentary Secretary to the Minister of Finance, Lib.)

Mr. Speaker, first, I would like to make it clear to the member that I understand the question very well. I come to the House with 12 years of municipal experience and, as a former president of the Federation of Canadian Municipalities, I think I can say with some certainty that I understand the question.

However I would point out to the hon. member that if he wants to talk about the Constitution and about empowering municipal governments, those are different issues.

What the member is suggesting tonight, however, is something which I want to point out very clearly: the municipal governments are treated no differently than any other employer. All workers and employers are required to pay employment insurance premiums. As members know, for the last 10 years the rates have continually gone down since the government came into office.

The member raises the issue that this is unfair to municipalities because they raise money through the property taxes. However their workers benefit, obviously, if they are unemployed, similar to workers in any province or in the federal government.

The fact is that there is a responsibility for employees and employers to pay employment insurance premiums. The employer in this case happens to be city X, and that is what it is doing. Cities are not treated any differently or unfairly.

The GST issue is a whole different issue on which I will talk with the member some other time.

However I would point out to the member that the government reduced the EI premium rate for 2003 to $2.10 from $2.20, and proposed in budget 2003 to set the premium at $1.98. This will mean a savings of $1.1 billion in 2004, compared to 2003. Therefore we are continually reducing EI.

The minister has gone further. We know there is now a review, a whole EI setting mechanism and consultation, which will be completed at the end of this month. That is very important. We will get the stakeholders. Yes, it does go into consolidated revenue but that is because the Auditor General said, in 1986, that we could not have a separate EI account. That has been, and continues to be, something suggested in the House, which in fact is a fiction of some people's imagination. The reality is, yes, it goes in there.

The minister has said that we will have consultations, which is what he has been doing. We want to make sure we take into account and design a permanent premium setting rate, one that will realistically deal with those whose needs are there. We do not want it to be underfunded, and that is important.

However the municipal issue is a red herring because very clearly the municipalities are treated no differently than anyone else.

I sympathize with the member. I know the member is now showing an interest in municipal politics and I would be more than happy to talk to him about municipal politics any time. However the reality is that there is no difference.

I would say to him that had we written the Constitution today, instead of in 1867, and had certain amendments been accepted in 1981-82, the municipalities would have had many of the things that the member would like to see.

Topic:   Adjournment Proceedings
Subtopic:   Message from the Senate
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CA

Jim Pankiw

Canadian Alliance

Mr. Jim Pankiw

Mr. Speaker, I thank the hon. member for his response and, clearly, he does understand the issue. If the Constitution was written today, I am sure he is quite right. However what we are going to see is a new relationship emerge between the federal government and the municipalities. The former finance minister, and mostly likely the next Prime Minister of Canada, has said as much himself.

It is true that municipalities will have to be given more power but there is nothing in the Constitution that would prevent making taxation between governments revenue neutral.

The hon. member said that the federal government has been continually reducing employment insurance premiums. While that is true, there is still an overpayment. He said that the federal government treats the municipalities the same as any other employer, and that is the whole point of it. He also said that the workers benefit from the EI plan. They would still benefit from the plan if the municipalities could get that overpayment back from the federal government. In that way, our property taxes would not be diverted to Ottawa.

This taxation by stealth to municipalities results in millions of dollars being siphoned away to Ottawa where it is wasted on questionable schemes like the firearms registry. That money belongs in the municipal tax base.

Topic:   Adjournment Proceedings
Subtopic:   Message from the Senate
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LIB

Bryon Wilfert

Liberal

Mr. Bryon Wilfert

Mr. Speaker, as I indicated to the hon. member, in fact, rates have been coming down. There is consultation going on and I would invite the member to contribute his thoughts with regard to the consultation issue on EI rate setting.

Essentially though, the power of municipal governments to get out of property taxes is in the hands of the provinces. It is not in the hands of the Government of Canada. If the provinces want to allow a municipality to have a hotel tax, part of a gas tax, or any kind of tax, they have that power and responsibility under section 92 of the Constitution.

In 1994 the Government of Canada became the first government to deal directly with municipalities when it came to the national infrastructure program, something the municipalities had been asking for 10 years. It was this government that said it would deal directly with municipal governments in areas dealing with the environment. It set up a 20% club to reduce C0

2

emissions by 20% over 10 years.

It was this government that said, on the payments in lieu of taxes, which I know the hon. member is concerned about, that the federal government will now be treated like every other taxpayer. If we do not pay on time, we get a penalty. We must go through the same process of appeal, et cetera. It was this government that brought in that legislation. The Canadian Alliance, of which the hon. member was unfortunately a member at the time, voted against it.

I am glad to see at least that the member is on the road, and is now understanding the importance of municipal government and the work we are doing together.

Topic:   Adjournment Proceedings
Subtopic:   Message from the Senate
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?

The Deputy Speaker

The motion to adjourn the House is now deemed to have been adopted. Accordingly, the House stands adjourned until tomorrow at 10 a.m., pursuant to Standing Order 24.

(The House adjourned at 7:18 p.m.)

Topic:   Adjournment Proceedings
Subtopic:   Message from the Senate
Permalink

June 5, 2003