Hon. Tom Hockin (Minister for Science and Minister of State (Small Businesses and Tourism)):

Madam

Speaker, that is precisely why we are doing the NAFTA. It is in order to create jobs in Canada and give ourselves export opportunities in Mexico that we do not have today.

They have effective tariff rates of 20 per cent on telecommunications, for example. The other day I saw a figure that 8 per cent of Mexicans have telephones. In five years close to 40 per cent of Mexicans will own telephones. We would like to sell telephones to the Mexicans. We would like to make them in Canada as we do with all the switching apparatus.

What we are doing is removing Mexican quotas and tariffs so we can export into that country. Years ago we gave up our quotas and our tariffs against Mexico. Who would not negotiate a trade agreement with the country when its access to one country is just catching up with access that we have already given to them?

Hon. Tom Hockin (Minister for Science and Minister of State (Small Businesses and Tourism)):

Madam Speaker, my hon. friend poses a very real problem for all industrialized countries. The level of unemployment is very high. It is higher than we would like in Canada. This government has never said anything opposite.

Oral Questions

What we are trying to do is to put in place a level of confidence so jobs will be created and investment will be created. I have some good news for the member on that.

We have had real a GDP increase 3.5 per cent in the fourth quarter. A trend in unemployment is heading down. As I have said employment has increased in 10 of the last 12 months. Our exports are very strong. Consumer confidence is improving. The Conference Board of Canada's index of consumer attitudes increased 5 per cent in the first quarter. Business confidence is up. Construction spending is also up.

All these are signs that we can get our unemployment rate down and start to create the kinds of jobs that all members of the House would like to see us create.

Hon. Tom Hockin (Minister for Science and Minister of State (Small Businesses and Tourism)):

Mr. Speaker, as the Minister of State for Small Businesses and Tourism I am very pleased to be participating in the debate today.

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I was surprised to see the name of the member of Parliament who is sponsoring this motion because I expected to be able to work with the Liberal member on these matters and have been working with him most closely. I would like to commend him for the work he has done. The Liberal member for Broadview-Greenwood has worked with me on some very important changes to the Small Businesses Loans Act, and that is not really reflected in the motion that has been put here today.

Be that as it may, I would like to talk about the over-all context of small and medium sized business in Canada today and what the government is doing and to respond to the opposition motion. There are five or she suggestions in the motion and I would like to make some comments on them.

Let us begin with what most members of the House know, that 82 per cent of all the jobs created in Canada in the last 10 years were created by small and medium sized business. A vast majority of those businesses have 10 employees or less. People can say it is a bad sign that jobs are being created by small and medium sized enterprises rather than the great big behemoths of our economy, the great big companies.

I do not believe this is a weakness; I think it is a strength. I have always felt that our country was not sufficiently entrepreneurial. In the 1960s and 1970s we were too dependent on big this, big that, big government, big business, and big labour. Everybody waited for big government, big business or big labour to hire them or tell them what to do. We were becoming dependent on big daddy government, big daddy unions, big daddy business.

It is very good for the country that this entrepreneurial spirit is surging throughout the country. When I was elected in 1984 the first day I went to my constituency office 18 small business people were lined up outside my office-and this is London, Ontario, which is a pretty prosperous town-looking for a government grant or subsidy with which to make their investment. This was a sickness because even our entrepreneurs were not being entrepreneurial. They wanted government to help them out with handouts and subsidies of one sort or another. It

was a culture that had been developed during the 15 years before we took over.

Everybody knows this government's framework policy is to make the country more competitive and this includes small and medium sized enterprises. Of course framework trade agreements have given challenges to small and medium sized businesses but also some tremendous new opportunities. We also know deregulation has allowed entrepreneurs to move into things they ordinarily would not move into.

Let me give a good story about privatization from southern Ontario. A local hospital had to save $1 million on its cafeteria. The people who had been running the cafeteria went to the president of the hospital. They told him they could run that cafeteria, produce better food with better choice, save the hospital $1 million and make $250,000 for themselves if they privatized the cafeteria.

The hospital did that. The food is better. The prices are lower. These people have made a good return on their operations and they are now privatizing two other hospital cafeterias. This is entrepreneurship. This is privatization. It is the kind of ethic, philosophy and rejuvenation the government has tried to bring into the Canadian psyche and economy in the last nine years.

The growth of small and medium sized enterprise is a major part of the success stoiy of what we have been able to do in transforming our economy.

This Liberal motion mentions the banks and I just want to say a word about them. Except for the hon. member for Broadview-Greenwood we have heard almost nothing from the Liberal Party about helping small business until just on the eve of an election it suddenly wants to attack the banks.

I could join them in attacking the banks because they are an easy target, but there is a kind of intellectual bankruptcy to it. If this motion just depends on attacking the banks for helping small business then it has not done much thinking about how to help small business.

The hon. member for Broadview-Greenwood has ideas but the party generally has sort of saved itself from thinking by targeting primarily the banks in this motion. We want to deal with the banks and make sure there is more access to credit for small and medium sized

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enterprise, but we want to do far more than that. This afternoon in my remarks I want to tell what we have done and what we plan to do.

First, businesses with less than 100 employees now represent 99 per cent of all Canadian businesses. For those who think it is the big businesses on the front page that comprise most of Canadian business that is not true. They represent less than 1 per cent. As a group small business represents about 29 per cent of our whole GDP and, as I have said, they have created the bulk of the new jobs in the economy.

Let us turn to the big problem small business has. I went across the country last summer to do some last minute consultations before we changed the Small Businesses Loans Act. I talked to Chambers of Commerce and real people who were paying payrolls in small businesses. The biggest complaint they had was not about the things that are often raised in the House of Commons. They were not complaining very much about the usual subjects that come up here.

What they were talking about was access to credit. They were saying the financial institutions were making it difficult to renew loans. They were decreasing their lines of credit and making it virtually impossible in some sectors of the economy to get credit at all. As minister for tourism, tourism and the hospitality industry has been particularly hurt because of these restrictions to credit.

This Liberal motion is about 12 months late. They asked for a summit meeting with the banks. We have done this two or three times. I have met with the major banks and I got these statistics from them. I asked them what they were doing and if they were cutting back on their access to credit. The banks gave me their report and frankly I was not very impressed.

One bank said it had increased its loans to small businesses by 2 per cent. Another bank said it had decreased its loans by 2 per cent. In the middle of this recession the banks were not doing very much. They more or less implicitly admitted it to me. They had their reasons because they felt there were not that many good small business files they could give loans to. That is to be expected from bankers.

After I listened to that I was convinced we had to change the Small Businesses Loans Act in a major way. I have had help, quite frankly, from all members of the House of Commons in making these changes.

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The first major complaint was that the banks were not interested in the old Small Businesses Loans Act which had an 85 per cent government guarantee of losses. They felt maybe the guarantee should be higher because the banks were exposed to 15 per cent of the loan loss. They also said their fees were not enough, there was too much red tape and the documents were too complicated.

We just attacked every one of these issues. We simplified the administration and simplified the forms. As a matter of fact the banks can use their own forms now; the forms they are used to. We have increased the guarantee to 90 per cent. Instead of just securing a loan on a part of the asset, it can be secured on 100 per cent of the asset.

We have made another big change. People used to complain that the limit under the Small Businesses Loans Act for the federal government guaranteed program was only $100,000. They wanted that lifted so we raised it to $250,000.

We were also given another suggestion by small businesses to change our definition of small businesses from those with sales of $2 million or less. Small businesses have grown since 1980 so we changed that to $5 million in sales or less.

These changes are supported by all members of the House. They are veiy constructive changes. The one I am most proud of-and I had help from all members of the House on this one-was something else the banks did that used to annoy me and we have attacked. This motion today does not reflect this very important change. We have limited the personal guarantee the banks can take when they have a government guaranteed loan. Can we imagine this? When they used the SBLA before the banks would sometimes say: "Okay, we have a government guarantee of 90 per cent, but we also want your house, your car and your cottage as a guarantee". This was not right.

The banks would then get a double guarantee: the government's guarantee plus the customer's assets and then he or she could not use his or her assets as collateral to fund working capital for the business. This change limits the collateral the bank or credit union can take to 25 per cent of the value of the loan.

As a result of all this I want to report something to the House, and this is news. I see that the press gallery is filled today. I want to report that March had the biggest volume of activity under the SBLA program ever in Canadian history. I would like to tell my friend from

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Broadview-Greenwood this because he helped me promote it and needle the banks. It is working. They are getting the word out and doing lots of business.

As a matter of fact if anyone wants to know how finance and government provisions work for these things, the government provisions say 5 per cent against the loan for expected losses. The banks are right. We do $1 billion worth of new business through the SBLA. We only have to provide $50 million to lever $1 billion. This is smart federal government spending. Instead of directly spending $1 billion to create jobs, why not just put $50 million up and have the banks put up the other 95 per cent? By doing this we lever $1 billion with $50 million. This is leverage and smart spending. This change in the Small Businesses Loans Act is making an enormous difference.

This is not the only thing the government is doing. Members should know that the Federal Business Development Bank is an important part of its strategy as well. I have to tell the House that people like to criticize the FBDB because sometimes our constituents do not get a loan from it and they are upset. This government formed a bank which by the way has to make a profit. It does not receive annual appropriations from Parliament. This Federal Business Development Bank increased its volume last year by 9 per cent and its number of loans by 10 per cent when the banks were not. It negotiated 4,000 loans the banks would not do.

The year before, it had increases in the middle of a very tough recession year in both volume and number of loans. The FBDB is an instrument we have some influence over and has been doing its job very well. I want to commend the bank for the work it has done.

We should know that the government's December 2 statement extended many very important new changes for small business which are not reflected in this opposition day motion. Under the SBLA fixed assets can be refinanced retroactively six months. The beginnings of that were looked at in the December 2 initiative. There were other changes brought in especially on the equity side. I want to say a few words about it. When I went across the country last summer, a lot of small businesses said that they needed access to credit. They also needed some access to equity. If we ask people where they would

get the equity, they tell us that the Toronto Stock Exchange is not going to invest in their little company but the next door neighbour who has an RRSP would like to invest, as would the employees.

Therefore we have changed this in the economic statement to allow this to happen, to improve the ability of people to use their RRSPs to invest in an arm's length way in small business and also for employees to buy into their employer's company.

I think the House should be reminded that under tax reform we put in place a tax rate for small business which is the most generous of any jurisdiction in the industrialized world. It is a 12.8 per cent effective rate on small business. That is for the first $200,000 profit.

We allow small businesses to build their equity base through retained earnings. The tax system exempts small business owners, including minority shareholders from the first $500,000 of capital gains realized from the sale of their business interests. That is a very important change. I would like to see more liquidity in the buying and selling of small business. Maybe this will help.

Furthermore the tax system cushions the down side for investors in small businesses through the 75 per cent write-off for allowable business investment losses. In addition, to encourage investors such as pension funds to provide financing to small businesses, institutional investors are allowed to increase their foreign investment portfolio by three times the investment they made in small businesses. These are things we are trying to do to get more money flowing on the equity side into small business.

The federal government has also provided substantial start-up funding and ongoing tax credits to support the operation of the solidarity and working ventures investment funds. These things are very important for building equity.

I would also like to see at some point the great potential that exists for local communities that know their businesses are allowed to buy into those local businesses. It would be good to see if we could develop a community ventures fund in some way with government help, not too much government help because then it will

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become government dependent. However we have made it clear that we are studying that.

Also the April 26 budget continued the investment theme for small business. It offered a mix of investment measures and regulatory changes. The first one was the higher rate refundable R and D tax credits for Canadian controlled private corporations which will no longer be cut off abruptly. It will be gradually phased out as taxable income increases from $200,000 to $400,000.

The annual limit of 75 per cent of taxable income on claims for R and D investment tax credits will be eliminated. A full write-off will be given for rapidly depreciating equipment such as computers and office equipment upon replacement.

Capital cost allowances for acquiring patents and rights to patents will be enriched to better support the use of new technologies. There will be no withholding tax on patents or their rights when purchased at arm's length.

We have also done other things in past budgets to help the small and medium sized business environment. I take a look across the front row here on a Wednesday when we are all here and just about every minister is involved in some way. We have the Minister of Supply and Services sitting here this afternoon. What he has done to make sure that we can get access for bidding on government contracts is revolutionary. He has made that possible.

We take a look at the ministers of regional programs. These programs have billions of dollars available in the west and in Atlantic Canada. I have the program FED-NOR in northern Ontario. This has created thousands of small and medium sized enterprises.

As I said in the House earlier, I am particularly proud-I always mention this when I can because all members of the House support it-of our Canadian aboriginal economic development strategy which helps to fund small businesses on and off reserves for aboriginal Canadians. It has created, from the last figures I saw, 1,600 small businesses on and off reserves. We are starting to develop an entrepreneurial culture and that is particularly important.

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We have that together with the government's over-all commitment in the last two budgets not to increase taxes but to decrease them.

A lot of people talk about the Clinton administration in the United States and what it is doing to try to rejuvenate the American economy. For every dollar of spending it proposes to cut there is $3 of tax increases. Is this not amazing, three dollars of tax increases? In our budgets every time we cut a dollar of spending we increased taxes zero. We have not increased taxes at all in the last two years. If anything we have been decreasing taxes. All this can help small and medium sized enterprise.

Finally I would like to make a comment about this opposition motion. We should not mislead small businesses and tell them they deserve bank loans whether they have done their homework or not. What should really be done in the framework of this motion is to join together in helping to communicate to small business the strength of the new Small Businesses Loans Act, what it stands for, what it is. We must do it through the credit unions and through the banks. Join us in helping small businesses to increase and improve their management skills. We have a whole range of programs to help with that but if we can have help further, that is what is needed.

We have now a Canada which is much more entrepreneurial than it was 10 years ago. We have a Canada with a participation rate of women in operating small businesses at an historic high. As a matter of fact I do not know whether my friend here, the page, knows this but in some provinces of Canada in the last six years over half of the new small and medium sized businesses started are owned and operated by women. This is new. A third of the new business start-ups in Toronto are by new Canadians. This is a new dynamic the country needs and anything we can do to enhance it should be done. The whole range of government programs has greatly facilitated this.

I will go with all members of the House at any time to our financial institutions and tell them to do their part as well. This we have been doing and this we will continue to do. But over all I want them to support, including the socialists, an entrepreneurial Canada, a small business

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enterprise Canada. This is what we believe in, and this we will continue to fight for.

Hon. Tom Hockin (Minister for Science and Minister of State (Small Businesses and Tourism)):

Madam Speaker, it is quite appropriate for people to come to Parliament Hill to talk about the unemployment rate in their regions. I quite understand that.

However, those who believe in the government's policies should put props on the lawn as well. These would be cradles of the new businesses bom and created in the last nine years under this government.

As a matter of fact we had a net business creation in the small business sector of over 150,000 a year from 1986 to 1990. Even during the recession we have had net job creation and small business creation. Those cradles should be out there too because small business is creating 82 per cent of all new jobs in this country.

Also with the cradles, as I have said, should be those barriers against Canadian exports, against Canadian jobs that we have removed. Those barriers existed in the United States and we hope to remove them in Mexico.

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.