Assemblée législative de l'Ontario

The House resumed at 8 p.m.

SMALL BUSINESS DEVELOPMENT CORPORATIONS ACT

Hon. F. S. Miller moved second reading of Bill 49, An Act respecting Small Business Development Corporations.

Hon. F. S. Miller: This bill, I am sure, will invite some discussion. The bill is, by my own admission, not necessarily proven to work. I say that before the discussion begins. I believe it will. I am, also, not totally opposed to amendments to it that will make it work. I say that in all honesty too. I would only have to mention that any proposed amendments were useful and in keeping with the safeguards we may consider are within whatever political philosophy our party may have as opposed to others.

I can safely say the purpose of the bill is to stimulate investment by Canadians in equity rather than in savings and, in order to stimulate this investment, we felt some kind of tax advantage, not necessarily equal to that given in other savings plans like the registered retirement savings plans or some of the other variations, but some kind of tax incentive was necessary.

For us to parallel the federal government rules for income tax calculations, it was not particularly easy to find a simple credit system that would be put through the income tax system, so Ontario decided to grant a cash refund of 30 per cent of the value of the investment in the small business development corporations that are properly registered. We feel this kind of incentive is enough to attract investment.

We put a number of other limitations on it, in principle. One is that no less than $250,000 must be subscribed in any one corporation nor no more than $5 million in one corporation. We also said the corporations could not control any corporation in which they invested; therefore they couldn’t own more than 49 per cent of the total voting shares of all classes of a company in which they made an investment.

Also, we have limited in the bill the right to invest in corporations that are associated -- where the owners have control of them indirectly. These we believe are safeguards to prevent an abuse of our principle -- that is, that one should get a credit for taking a risk. We really didn’t want to give people a mechanism for loaning money to themselves and getting a provincial credit in the process of so doing -- or putting equity in their own companies and getting the credit.

I will have some minor amendments. I think copies of those --

Mr. Peterson: Could I ask about the taxation of the SBDC?

Hon. F. S. Miller: The taxation?

Mr. Peterson: How will the SBDC be treated?

Hon. F. S. Miller: On the federal scene?

Mr. Peterson: Federally and provincially.

Hon. F. S. Miller: The SBDC I would assume would be entitled to receive income from its investments as any ether corporation would. That would be in the form of dividends, I would think, whether they are on preferred shares or on common shares.

Mr. Peterson: Not necessarily.

Hon. F. S. Miller: I’d be glad to listen to the arguments on that. Certainly they aren’t lending the money in the sense that one would normally give a loan to another corporation.

Mr. Peterson: They earn interest on a trust fund.

Mr. Deputy Speaker: Order.

Hon. F. S. Miller: That could be so. They could have income from a number of sources because not all of their moneys have to be invested at one time.

But I would assume their taxation on income does not differ from any other corporation. I think where the taxation differences will apply is on the capital gains taxes that may apply on the sale of the shares by the first shareholders of an SBDC. When we started this out, we were assuming that if you purchased a share for $100 your net cost would be $70, after your $30 refund. We assumed that if you sold that share eventually to a second owner of the share for $150, you would have to pay a capital gains tax on $50. We had reason to believe the federal government would not collect tax on the $30 Ontario returned to the investor.

Since my latest comments on this publicly, federal government staff -- not politicians, but staff -- have made us wonder whether they are still willing to live by that. So we can’t conclusively agree they won’t tax the $30 at the federal level. They may say: “Look, that $30 is subject to tax when the shares are sold.” That’s something I think will have to be discussed at a political level once the election is over with the powers-that-be in Ottawa at the time. So I can only say federal staff currently are leaning towards taxing that $30 as a capital gain and we are arguing it should not be taxed as capital gain on disposal of shares. I think that’s our latest position on that.

Mr. Peterson: Does one pay income tax on the $30 grant?

Hon. F. S. Miller: No, my understanding is there’s no income tax on the $30 grant. My staff have just confirmed that by the proper nodding of heads over there.

Mr. Peterson: Where is the exemption?

Hon. F. S. Miller: In other words, how do they treat it as income? I suppose the answer there is that we don’t give any T-4, T-5, T-6 or whatever it would have to be, to show it was income. It was simply a grant from the province that was non-taxable on that basis. In any case, we recognize it is experimental legislation. We recognize with experience it may have to suffer amendments as time goes on, but I would like to point out we have received more than 500 inquiries to date about SBDCs. A lot of that interest is obviously coming from professionals who are advising investors rather than the investors themselves, but a good number of the inquiries, I am told, have come directly from people interested in receiving or purchasing an SBDC.

Let me try to put in plain English the way I could see it work. I have used examples from my own riding because I think I can see the kinds of opportunities in my town and I am sure you could see the kinds of opportunities in your town or city. In my town of Bracebridge, there are a number of very small manufacturing concerns. I will use an actual example. This one has not applied for assistance; I am just using it as a kind of example.

It’s a small steel fabricating plant which employs about 15 to 20 people, I would guess. It has recently received a very large order from the telephone company of Northern Telecom, which is really stretching its ability to produce. They really need to expand the plant a bit and like so many small companies, they’re looking around for the available money to do so. The banks will look at them and say; “We think you have all the money you could really borrow from us. You do not have enough equity in it.” Therefore, they would go around looking for equity rather than loans.

An SBDC would be able to move in, purchase preferred shares or common shares as long as they voted, put the money into that company, and allow that company to expand. Later on, if they were preferred shares and they were redeemable, of course they could be redeemed. If they were voting common, they would stay in existence until such time as either the corporation bought them back or they were sold to other shareholders. Either one could take place according to the charter of the corporation and the conditions of the charter.

You could do the same with a tourist resort operation. Again, tourist resort operations, from my experience, have great trouble getting mortgage money. One large operator in my riding, who’s as good an operator as we have, recently was saying that after 22 calls to mortgage companies he finally got one who would lend him two thirds of the current value of his lodge at 16 per cent. When he is faced with that kind of difficulty in getting money, you can understand he is looking for other routes. Again, the preferred share route might be one where the coupon rates would be lower. The advantage to the investor would give them a higher yield than the coupon rate. It would have the advantage of being redeemable if they wished to have that kind of condition attached to it. I think we have mechanisms by which we can find ways to assist a number of small companies in the province. Of course, there are limitations. A company has to have fewer than 100 employees at the time of the investment. Let’s hope some of them grow well beyond that with success, but the conditions would be determined when the investment is made in it.

I am fairly enthusiastic about this legislation. Maybe I am being unduly optimistic. I truly feel, and I hope the Liberal Party agrees and I think even the NDP may agree, we do need to stimulate Canadian ownership of Canadian companies by individuals. Let’s leave aside any other routes. Just looking at those routes which encourage people to invest in their country and to take some of the risks in their country, this is one mechanism by which I hope we can do just some of that.

Mr. Peterson: Mr. Speaker, I wish to say at the outset I have great sympathy for what the government is trying to do. There is no question about that. I am sure even my friends to the left have that particular point of view, although I can’t speak for them. We all want to assist small business, particularly manufacturing processing, and the tourist industries. We want to make it as easy as we can for them and we want to boost Canadian ownership. In all of those intentions, I am 100 per cent with the government.

As you will recall, Mr. Speaker, we have talked about this subject until we are blue in the face on this side of the House. We have suggested alternative proposals of our own to solve some of these kinds of situations, so philosophically, let me say at the outset we have no problem whatsoever with what the government is trying to do. Number two, let me say I recognize the frustrations of the Treasurer’s position. He is saying it would be so much easier to have the co-operation of the federal government in this matter.

[8:15]

Clearly, in my judgement, the proper solution to some kind of a venture capital program would necessarily involve the federal government. If that could ever be arranged, it could be done simply and probably workably, I would ask the minister to continue to press the federal government, whoever that happens to be after May 22, to try to come up with a better plan than the one I think he has got here.

That being said, I am kind of unhappy with this legislation, principally because I don’t think it is going to work. I hope desperately I am wrong; I hope my instincts are wrong; I hope the people I talk to are wrong; I hope the judgements they are collectively bringing to bear are wrong. However, the minister has said himself that he is not at all sure it is going to work.

In fact, he has been so pessimistic that he hasn’t even budgeted for this bill to work. If one looks at his budget recently tabled in this House, one will find out that he is not sure himself because he has not allocated any funds. When his ministry officials were asked, “Where are you going to get your budget allocation for this particular program?” they said, “We are just not too sure about that.”

I remember during the lockup we had six or seven of the officials in. We asked about this, and they weren’t exactly sure. We asked them about provisions of the act, and they weren’t too sure. They thought maybe the minister dreamed this up over the weekend up in Muskoka. That is a nice place to relax for a weekend. It clears the head and allows all the full powers of his magnificent mind to be focused on one particular issue. I guess this is what came out of it.

Mr. Laughren: That is not a compliment.

Mr. Peterson: We are going to have to assess maybe a year or six months from now whether this is working. But it seems to me -- and I say it very sincerely -- that not an awful lot of thought has gone into this.

I know that the Canadian Federation of Independent Business are terribly proud of themselves with this particular piece of legislation. They feel they created it. They are heralding it as a new wave of their influence in the legislative process in the province and across the country. I hope they are right too. If it works, I say to the Treasurer very sincerely that he deserves the credit, and I will give him all of that credit. He can share that with the Canadian Federation of Independent Business if he wants to. If he doesn’t want to, he need not feel obliged to.

However, we had a similar experience, as I recall, in the 1977 budget when Mr. McKeough announced the magnificent new venture investment corporations program. There were big headlines then and there are big headlines now. It is a magnificent new program to help small business, but when it all cuts down there isn’t much there. Perhaps the political object has been achieved, that being to indicate or register some kind of sensitivity or feeling for small business.

I want to say this very sincerely because it bothers me. We are collectively involved in a process right now of turning off the small businessman. I get calls daily from small businessmen saying, “What is all this stuff I read in the paper? Everybody is talking about small business. The federal government, provincial government and everybody have got this new concern and sensivity for us.”

Then they say, “Here is my particular problem.” I go through it with them and I say; “I hate to tell you this, but there is nothing for you.” Then I say to the next one and the next one and the next one, or “There is nothing for you,” and “There is nothing for you,” and “There is nothing for you.”

We are creating a great number of false hopes and expectations in this particular entrepreneurial small business class, which I regard as important and sacrosanct to this country. We are collectively turning them off. It’s not the Treasurer alone. I think all of us are probably involved in this because all of us have indicated our thoughts on this matter. We are collectively turning them off and we are turning them into a disgruntled, disillusioned bunch of people, because all of this talk and all of these legislative programs are so narrow and are so ill-conceived in some respects that we are not able to effect the purposes of helping them. That is a real problem that we collectively have. We have collectively made the error of getting their expectations to a point where they don’t realistically belong.

I think this piece of legislation is going to contribute to that. I know the Treasurer has had 500 inquiries. I am surprised he hasn’t had more. Personally, I have had a goodly number of inquiries. Many of my colleagues have come to me for information. My colleague the member for Renfrew North (Mr. Conway) came to me last week and described a particular program of one of his constituents. I had to say, “You have to phone him back and tell him there is no way he can qualify.” There is one more disillusioned person and my colleague can attest to that.

All of my colleagues have come to me about particular cases because it sounded so terribly exciting and we saw so many headlines. When it was all cut down there was really nothing there. I hope I am wrong; I pray I am wrong, but I am not sure I am. Therefore, I want to register a number of specific problems I have. Included therein are going to be a lot of questions and I would be most grateful if the Treasurer would clear them up, perhaps when he responds at the end of the dissertations from this side of the House.

Perhaps some of my questions and some of the reservations I have are ill-founded and I hope they are. I must say I have done a very careful reading of the act. I have consulted a number of experts, be they venture capitalists, big shooters, little shooters or individual businessmen. I can say, with the exception of the people I talked to from the Canadian Federation of Independent Business who figure they wrote this act anyway, and who did not have a complete comprehension of it, most people were very pessimistic. I guess the Treasurer has registered that problem himself.

Let me quote a letter I received from a particular person who gives me advice. He is in the money business. He is lining up Multiple Unit Residential Buildings and using various tax shelters to assist his clients -- a very sophisticated operator with a good view of the marketplace who understands what attracts money, what moves money and what gets good deals made. I guess when it comes down to it, we have not recognized the realities of the marketplace in this bill and that is principally why it will not work.

The letter reads: “Dear David:

“First of all, I should give you my general opinion on whether the act will achieve its purpose in raising funds for Ontario ventures. I do not believe that it will. There are too many roadblocks that have been put in the way of giving the money to the venturers. I think the legislation is politically high profile, but from an investment strategy viewpoint not many investment people will take advantage of it.” It goes on in four or five pages to document some of the specific things. I will certainly be sharing some of those opinions with the Treasurer as I deal a little more specifically.

The primary object of this bill clearly has to be jobs in Ontario -- new jobs being created by new ventures. That means we have to be particularly sensitive to the question of how money is to be attracted to a new venture. How do we get new creative capital to those people with ideas, those entrepreneurs, those people who can do something for that particular proposition.

At that point it is not a question of how we attract money from the investor to the Small Business Development Corporation; that is easy. It is how we get money from the SBDC to the small business. Members will have to follow my chain of logic here. I think that although we have made it attractive to get money into the SBDC, we have not made it particularly attractive to get money from the SBDC into the presumably high-risk kinds of propositions that we want to.

The way it has been framed, it probably is going to become a very conservative kind of mechanism that is only going to become an alternative source of financing to the kinds of financing available. Probably it is not going to bring any new money. Probably any small business that can get money from an SBDC could have got it anyway, because the money managers by definition are going to be fairly conservative. I will get into this in a little more detail later because there are various ways these particular SBDCs can function but I want to make that first point.

The other problem we have is that only private companies qualify. This is a bit of a risk. Only equity positions qualify, as I understand it, although there is a section I do not understand and I will get to that later, because one of the eligible investments is certain debt instruments. The Treasurer will be obliged to explain this to me at some point.

It is my view that certain kinds of debt should be allowable for an SBDC to hold. I think if we only make classes of preferred shares or common shares eligible investments, then we have necessarily put a restriction on the free flow of capital. Lots of money does not go into companies by way of equity only; lots of it goes in by way of mixed packages -- some debt, some equity, preferred, common, or various other forms. We should let the marketplace run in those areas and not try to put legislative restrictions on the kind of capital that should be going into these eligible kinds of small business.

But back to my point: Only private shares are eligible; so a company can only buy shares in a private company. Mr. Speaker, I can tell you that some people I have talked to -- and these are sophisticated investors; if I told you their names, you would know them -- have told me that under no circumstances would they ever take a minority position in a private company. There are far too many ways to be taken advantage of. A share in a private company is not a liquid one; there is no available market for it unless you have tied it up with contracts, buy-sells and various other kinds of things. It is a highly questionable kind of investment at best.

The majority shareholder at any point has no securities regulations to comply with. He can pay himself any kind of salary. He can bleed the company. He can do almost anything he wants to. So what kind of protection has an investor got? It is a question that has got to be asked. We are asking a person to take a percentage of a private company, the small business development corporation, which takes another percentage of another private company; so he is two removed from the investment.

What is the marketability of these particular shares? Who is going to buy from me the shares of an SBDC that I have bought for $100, less $30? Where do I sell these things? There is no market for them. Perhaps the intention is that some sort of secondary market will develop; that we are going to develop an over-the-counter exchange here in this province. I have no idea.

In addition, supposing an SBDC has made an investment, how do you get the money out? Who are they going to sell the shares to? It is so tight, with very little liquidity or no market, that sophisticated investors are going to say; “I don’t care if you give me $50 or even $70, back from my $100; it really is a dumb investment.” If there is not some degree of liquidity or security, it is not all that good.

The Treasurer has framed the thing so tightly that he is driving people away. At the end of my dissertation tonight, I will take him back to what our proposals were; we think we have covered these in the kinds of ideas that we have.

Those are some of the market realities that exist, and for those reasons it is not going to be as attractive as the Treasurer possibly thinks.

There are three possible scenarios when someone invests money in an SBDC. It can be a failure, in which event he loses his money. It can be a nonperformer, in which event he will probably hold tight and take his $30 to the bank. Or if it is successful, by definition he will be forced out; if it gets more than 100 employees, or if there is a material change in the nature of the eligible investment, notice of which is filed with the minister, at that point he has two years to divest himself of that particular kind of investment.

The restriction on 100 employees is wrong, I say very succinctly to the Treasurer. To go back to my original point, they were here to create jobs. There are certain kinds of companies, all different, in this province that are decidedly labour-intensive. Supposing it is an assembly operation -- we are not all that successful internationally with assembly operations, but supposing we did have one -- mostly they are labour-intensive, and presumably it would qualify. But we would just drive this capital -- assuming it came in the first place -- out of the company by virtue of the fact that it becomes successful.

That’s something the Treasurer should look at fairly seriously, because I am not sure it is a correct restriction.

Another general concern I have is about the very high degree of ministerial discretion in this bill. The Treasurer has almost put the ministry on the board of every SBDC as well as every small business in this country. Every time they move they have to file, as the Treasurer indicates, with the Ministry of Revenue; so it is going to be the obligation of the member for Parry Sound to administer this. Believe me, the minister is walking into a most difficult one.

[8:30]

I have no idea what kind of turnaround time the government expects to have in the bureaucracy with this thing; I have no idea how it plans to administer it. But the Treasurer has taken on a tremendous number of judgements that he will have to make. Almost every time there is a change in the corporation, whether it is an investment or a payout or a dividend or when it does something new, they have to get the government’s permission. That is another impediment to the free flow of capital naturally seeking places of higher reward.

I think the idea was a good one, but I think so many impediments have been put into it along the way I doubt that collectively we’re going to achieve the desired result. I don’t recall ever reading a piece of legislation in this House that has more ministerial discretion, or more places at more times that the eligible person has to check with the ministry. I think that is one of the other reasons why people who may look at this are going to say, “Gee, I’m not sure about this.”

I don’t think we’re going to be in the high-risk situations here. There is an incentive to go into the SBDC, which is locked up in a bunch of rules, but there’s not the incentive for the SBDC to invest in the high-risk propositions.

The Treasurer said earlier that all the relationships have to be at arm’s length. As I read the legislation -- perhaps he can correct me if I’m wrong -- there is a provision whereby someone could invest in their own company if they were not a majority shareholder in an SBDC -- that is, they had to have less than 10 per cent -- so with a consortium of 10 or 11 other shareholders they could possibly reroute some money back into their own company. So it’s to prevent abuses.

I am not sure, if we really want to develop high-risk propositions, that we shouldn’t let the entrepreneur have a tax advantage if he is creating jobs here. Why are we so anxious to exclude him? That’s another question I want to ask the Treasurer, because I’m not sure we’ve seen the realities of the marketplace in that case either.

I want to discuss for a minute the taxation aspect of this thing. I want the minister, perhaps when he comes back to his seat, to explain some of the taxation aspects of this situation to me, or maybe his officials can, because I see a number of problems.

First of all, when one is looking for a return, any small business is going to be taxable -- presumably at small business rates but not necessarily, if it’s on an expansion or something like that. So it’s going to be taxable. Then there will either be a dividend or some sort of payment out to the Small Business Development Corporation. I’ll get back to that in a minute but I understand that doesn’t necessarily have to be a dividend out. Those flow through to the Small Business Development Corporation; but then the SBDC is taxable under the Corporations Act. So they’ve already paid tax; dividends are after-tax money, they are not tax-deductible money. So investors come out after tax and they go into a small business development corporation which again pays tax. The Treasurer should think about this and respond to me because he’s shaking his head.

Hon. F. S. Miller: I’m listening to you.

Mr. Peterson: I would like to know the answer to this because I suspect it hasn’t been thought through. Maybe the Treasury officials can help me.

Hon. F. S. Miller: The dividends will flow through.

Mr. Peterson: But not all of the investments are dividends.

Hon. F. S. Miller: That’s right, but they’re not pre-taxed.

Mr. Peterson: They’re deductible in the hands of the small business but they’re taxable in the hands of the Small Business Development Corporation.

So the SBDC pays tax on at least some of its securities. It’s going to pay tax on its trust fund moneys -- the 30 per cent it’s holding on to waiting to give back to the government when it winds up. There is going to be some tax payable there. Then how does that money flow from the SBDC to the investor? Does that go by way of dividends. I have no idea. Presumably it does go by way of dividends.

The other problem is -- and it’s something the Treasurer hasn’t recognized and I address this to the staff sitting here to have them explain it to me -- when the small business pays a dividend to the Small Business Development Corporation, it cannot pay a preferential dividend, it has to pay all shareholders. There are a lot of little companies that don’t want to pay out a dividend. They might want to pay out only a certain percentage but they have to pay everyone equally.

I assume the minister’s response would be they can use preferential shares. They will have had to go to their lawyer for supplementary letters patent to create this new class of share which can omit a dividend. If they don’t do that, and if they sell common shares, he is forcing them to get rid of some of the capital they should presumably use to grow. I am saying I don’t think there is enough flexibility in the situation. I don’t think the SBDC should be a taxable corporation. I think it should be a wash vehicle the same way the Multiple Unit Residential Buildings syndicate is a wash vehicle. It should be just a way for washing through to the original investor. I think we should remove that impediment because of the different kinds of situations that can be created and allow more flexibility for money to earn money and money to find the right place to be in the marketplace.

The minister has said when the grant from the provincial government goes out it is not going to be taxable. I would be very interested in knowing his tax advice on that particular situation. When we send out a baby bonus, it is taxable. All other forms of social security are taxable. Everything including OHIP premium assistance by a company is taxable. In other words, what I am saying is all forms of government assistance now are taxable.

Why wouldn’t this be taxable? Does the minister have a special exemption from the federal government? Maybe he has. I have no idea, but it is a gift and I would like to know about that. I would like to make sure that in fact the guy is not going to be hit with some kind of new form.

Just because the minister doesn’t send out a T-4 or a T-5 does not mean he is right. It doesn’t mean the federal government couldn’t come along in two years and reassess all these people because it is a gift. It is no different from any other government transfer payment, lit is only to a privileged class of people. I would like to know the answer to that.

We have seen a change. As I recall when the budget talked about this act, it said it was for capital gains purposes. The minister was going to come under the agreement and he was not going to include that original $30 or the rebate back to the investor. Tonight he has told us that may not be the case and the federal government may be backing off under that thick legislation.

Does the minister see what I am telling him? I have told him six or seven or eight things already that are going to cause sophisticated investors to say, “Holy smoke: I’m not sure this is worth anything at all when I have to go through all of those things.” What is going to happen if that doesn’t work is it is going to attract only the unsophisticated investors and they are going to be taken advantage of. He has to gear this legislation for sophisticated investors. His intention is to deal in size. He has no limits on this. A person could put in $1 million or $2 million, The member for Nickel Belt could put his entire material wealth of $3 million or $4 million into a situation like this and get a big tax write-off.

So those people with that kind of money, like my friend from Nickel Belt who is a sophisticated and shrewd fellow, are going to say: “This isn’t for me. This just isn’t going to pity dividends down the road.” We have to look at that flow-through situation. The minister has to look at the taxation between the various companies and I would like to hear some reasonable explanation for it.

We suggested our own alternatives, and I don’t plan to go into great detail about those. One is a very conservative venture capital proposition. The investor we were aiming at was perhaps the person who puts his money into Canada Savings Bonds or guaranteed income certificates or that kind of conservative investment. We thought, let’s have an alternative for that, which is government-run. He or she can contribute to the capital stock of this country, and with government protection and government organization. It would try to generate some new venture propositions in this province.

Hon. Mr. Snow: That’s not a conservative approach.

Mr. Peterson: Well, conservative with a small “c.” There would be tax advantages in so doing. It would assist that particular person, but it would provide a fairly conservative fund for so doing.

The other one, which is more attractive to me particularly, I must say, and which is one that would be more worthwhile, would be to remove as many government impediments as possible. One of the things we would have done is have a ceiling of $5,000. There would have been a tax credit for the Ontario portion of the taxes. We would have not allowed an unlimited contribution because that opens itself to the sharpies and the tax evaders. It would be $5,000 a person with only individuals qualified. It would be a deduction of 200 per cent on the Ontario portion. The minister talked at budget time of creating a nursery for capitalists. This is no more closer to creating a nursery for capitalists than any of the other propositions he has. It creates as much capitalism as handing out $200 million worth of grants.

First of all, the Treasurer has framed this legislation in such a way that the principal beneficiaries, if it works at all, will be the large companies. I suspect even they won’t take advantage of it very much. The benefit is framed for the banks or the large investors. But even if he wants large investors to be involved, which seems to be his purpose, the Treasurer has put a $5 million limit on it. It is probably too small to syndicate and probably too small to get sophisticated investment dealers working it. He’s left it to sort of a middle range. It’s too big on one hand and too small on the other hand. I’ll get to that in a minute. Those are a number of reservations and questions that I have which I hope the minister can explain at some point.

I want to deal with two or three of the sections if I can. Section 7 refers to a minimum capitalization of $250,000 and $5 million maximum. I have no idea nor do I understand -- and I would be grateful if the minister could explain to me -- where he found those numbers. If we’re going to really have a populist capitalist system, which I happen to think is the most attractive, where we get the butcher investing in the baker or the chap who wants to invest down his street, where we get rid of the government impediments to the best that we can, why does the minister have a minimum of $250,000 on it? I see no advantage to that.

I think the system that should he built is one that liberates $1,000 here and $2,000 there and has a more direct relationship between the investor and the small business. He has so obfuscated it with ministers and with vehicles in the middle that he isn’t ever going to achieve that desired result. All that person with $1,000 can do is become part of a SBDC of minuscule percentage of a $250,000 minimum capitalized company.

I think it’s wrong and I would like the Treasurer to look at that very seriously. On the other hand, $5 million probably is too small, as I said earlier, for big investment dealers to handle. He will have a mid-range of investment dealers finding these things out. But then he has all these restrictions on them. By the first year, they have to have 40 per cent of their money out; by the second year they have to have 70 per cent of their money out.

I foresee ads in the local paper: “Are you looking to get a tax write-off? Invest your money with us.” Then these people are going to put another ad in another column saying: “Are you looking for money? We will give it to you. We will buy shares in your company up to 49 per cent. We have all this money available.”

Those arbitrary distinctions of 40 and 70 per cent in the first year and the second year don’t necessarily conform to the realities of the marketplace. They don’t necessarily conform to when the good deals are coming along. Who knows if one is an entrepreneur in this business? I think there should be room for entrepreneurs, money finders and money brokers to get involved in this. That’s fine. Sometimes they are the most efficient allocators of capital. But why do we put these restrictions on them, maybe forcing them into deals that aren’t particularly good, when we could be a little more lenient and probably make the system work a little bit better?

Then we have a deal where we have to keep 30 per cent in trust. As I read the legislation, it’s 30 per cent until 70 per cent is invested. After the 70 per cent is invested, then they can invest the other 30 per cent. I must say I’m having some difficulty with that section.

Presumably then, as the minister understands it, after the 70 per cent has been spent in eligible investments, then they can get ministerial permission to invest the 30 per cent they held in trust up to that time in another eligible investment. That’s fair enough, and I approve of that. Some people were reading the section as if that money had to be kept in perpetuity and, in effect, would be got back from the SBDC on its winding up or if it was deregistered.

[8:45]

Hon. F. S. Miller: Do you understand why that clause is there?

Mr. Peterson: Sure, I understand why the clause is there but it should be removed. I was under the impression as I read the act and here is what it says, Mr. Speaker. Section 7(3): “After the end of its second year of registration under this act, a small business development corporation shall at all times maintain an average of at least 70 per cent, calculated in the prescribed manner.” I guess that doesn’t preclude the final 30 per cent being invested, which, of course, is as it should be.

Let me talk about eligible investments. I think the minister has solved my problem in that, which I appreciate. Eligible investments are in companies with 100 employees. I think that’s fairly arbitrary. I think you should probably change that as we discussed earlier. A successful company will necessarily he precluded from being in the investee category. Then, 75 per cent have to be in the province or two years to divest. I certainly understand that at the beginning but it necessarily puts some squeeze on a company if, in fact, they get the money at a later time and it limits their investment options.

With regard to the 49 per cent share limit; a number of people, outside investors, have spoken to me and said they think that is not a particularly intelligent section. I realize you want to keep control in the hands of the entrepreneur and I think that’s a valid criterion in many ways. On the other hand, it again encumbers the natures of the financing and there are certain deals that may come along which necessarily need either a new management, new kinds of people to be involved or new help or the percentage that the new investors are putting in is totally disproportionate to a 49 per cent interest. So, that is something you may want to allow some degree of flexibility on.

Section 9(1)(g) does not make any sense to me. It says: “An investment shall be an eligible investment if the small business is not of a type prescribed by the regulations.” I assume that’s a typographical error or perhaps the minister can explain that to me at a later point. Maybe we will discuss that if we go into committee of the whole House tonight.

There is one question I have with respect to section 10(1): “A small business development corporation shall maintain its assets in, (a) eligible investments; (b) liquid reserves; (c) equity shares that were eligible investments at the time they were acquired by such small business development corporation; (d) debt obligations of any small business that is an eligible investment. Does that mean that the SBDC can take a debenture in a company or can lend money and take back a promissory note?

Hon. Mr. Snow: How about a mortgage?

Mr. Peterson: Or a mortgage. What does it mean?

An hon. member: A mortgage can only be on land.

Mr. Peterson: I have no idea what it means because certainly the premise that a number of people are acting on is, “No, it can only be shares, be they common or preferred.” If the Minister of Transportation and Communications knows, I would he delighted if he would tell me. What does it mean?

Hon. F. S. Miller: I will give you my interpretation when I stand up.

Mr. Peterson: I think it’s fairly critical. There are certainly --

Hon. F. S. Miller: Mr. Speaker, do you want me to give that answer now?

Mr. Peterson: I have searched through this thing in section 9(1). Perhaps I am being unfair because it’s not really the kind of discussion we should be having on second reading and I would appreciate your indulgence in this matter, Mr. Speaker, but it’s a very difficult bill. We are all involved in exercising a judgement about what’s happening and we all want to make it work, although a lot of us have specific reservations. I don’t know how to read that clause. There are other sections that deal with the same issue but let me tell you my opinion. The Treasurer should give them the flexibility to invest in debt instruments, or a package thereof. He should not be too restrictive; he should not force the entrepreneur to give up his shares.

Hon. F. S. Miller: They can make such an investment.

Mr. Peterson: The Treasurer is telling me they can.

Hon. F. S. Miller: That’s my reading of it, but I will get that verified.

Mr. Peterson: Well, the Canadian Federation of Independent Business does not exactly know what it means, and several other people do not know what it means. I hope the Treasurer is right; I have been pleading for it. Let him check with his staff; I hope that is the answer. But let me put in my own three cents’ worth: I desperately hope it means they can invest in debt instruments; that they can take promissory notes or whatever.

There is a good reason for saying that. A number of entrepreneurs who put their blood, their sweat and their life into their own business would gladly pay more money for debt than for equity. Sometimes, in certain circumstances, if you ask a man to give up equity, you are asking him to give up part of his soul. It is like giving up one of his members, his left leg or his right arm. People work all their lives for their own businesses. I know that the Minister of Transportation and Communications would agree with me. I know that in his soul, as a young man when he was developing his own business, he would much rather have paid much more to borrow the money than to give away part of what he is.

Hon. Mr. Snow: I never sold a share.

Mr. Peterson: That is why he is a successful guy.

Hon. F. S. Miller: I always sell shares.

Mr. Peterson: Well, there are different approaches to this kind of situation. I know of very successful entrepreneurs who have sold shares that tuned out to be highly expensive after the fact because they were successful. I also know of others who would never sell a share to anybody; they would rather borrow the money because it was theirs. There are both ways. I say to the Treasurer, allow for some flexibility there, but please do not force him to give away shares in his company if he does not want to. Be flexible. Do not force him to give away preferred shares -- nothing. Do not force him to go and take supplementary letters patent.

Hon. F. S. Miller: No one forces him.

Mr. Peterson: Of course they do, under this kind of legislation. But the Treasurer has become so restrictive and so dictatorial with this kind of legislation that he is defeating its primary purposes. That is why I had to ask the Treasurer about section 1(d). He has changed his mind about its interpretation, I assume from his interjection of two minutes ago. Can you or can you not invest in debt instruments? The Treasurer indicates you can. So that means an SBDC can lend money on a promissory note to an eligible --

Hon. F. S. Miller: Provided 70 per cent is in eligible equity investments; the other 30 per cent can be in debt.

Mr. Peterson: Why do we have this silly 70-30 rule? I do not understand any reasons for it as long as we are achieving our fundamental object of lending money to high-risk propositions that would not ordinarily get the money and we are helping create employment here in this country.

I am very serious about these things, I say to the Treasurer. Frankly, I hope we do not go into committee of the whole on this bill tonight; I hope the Treasurer can go back and discuss this with his staff and with some other advisers I know he has had on this issue, because I think there is more to this bill than has met the collective eye so far.

I know I am taking a disproportionate share of the time here, Mr. Speaker, but we have another situation in this bill. Section 12 talks about arm’s-length relationship, and I am not sure that is a good situation either. There are provisions here whereby a person could take about nine per cent in an SBDC and funnel it back into his own company, but by that point his share would be so watered down in his company that presumably that is the protection of being at arm’s length. I am not sure that is worthwhile. Why should we not give a person an opportunity to invest in his own company with some kind of a tax benefit?

Again, we have been so restrictive about whom we can lend to and whom we cannot lend to; I refer the Treasurer to section 12. One of the people, a strong advocate of this bill, came to me today and said: It is a wonderful bill. We have had so many inquiries about this bill; we have already had people coming to us saying they are going to finance their suppliers.” But section 12(2) says you cannot finance a supplier, because it is a non-arm’s-length relationship; it says you cannot finance the purchase or sale of goods or services provided to the small business. This necessarily precludes one company which has had a supplier relationship with another one from getting involved with each other.

I think this is unnecessarily restrictive. If we are going to create a nursery for capitalists, let us create a nursery for capitalists. Let’s not be half pregnant, let’s help them. We have created a nursery for bureaucrats with this particular bill.

I would commend to the Treasurer all of the reasons I have discussed so far --

Ms. Lawlor: You are advancing collusive practices.

Mr. Peterson: -- I could go on for another hour on some of the things that disturb me about this bill -- about the new letters patent, the taxation aspects of it, the ministerial discretion, the arm’s-length stuff, the real rate of return, how we are interfering with the business functioning.

The Treasurer has this dream that everybody is going to run out and create these new preferred shares in order to make the taxing aspects work so he won’t lose control, but I think he is dreaming. I don’t think he is conforming to the realities of the marketplace. I don’t think he can view the whole world the way he can view the creation of Santa’s Village in Bracebridge.

Hon. Mr. Snow: Remember the national dream?

Mr. Peterson: I would say if the Treasurer is going to do it -- and I would support it and our party would support it -- then take the lid off. Simplify it. Let’s see capital really moving. If the Treasurer believes in the free marketplace, in the allocation of capital at least -- which I do -- then let it work. Take out these restrictions. We might have the odd little scheme there. Let it really compete with the other tax shelters, the MURBs --

Mr. Lawlor: He makes the Treasurer look left wing, doesn’t he? Adam Smith is speaking. “Take off the lid. Open the drawer.”

Mr. Laughren: The invisible hand will look after it.

Mr. Peterson: My little friend here has something he wants to say and he is quite welcome to.

Mr. Lawlor: He wants to set up every collusive practice that has undermined the market. They can have price rigging, they can make deals and then they get a tax rebate. Isn’t it terrific?

Mr. Peterson: Mr. Speaker, the realities are -- and I don’t expect any particularly worthwhile contribution from my socialist friends --

Mr. Lawlor: Jim wouldn’t say that.

Mr. Peterson: Sure he would.

Let me say, the Treasurer is competing for this money with the MURBs, with the RRSPs, with the film corporations and all of that kind of thing. I think when one looks in detail that is the kind of money we are competing for. I think when one looks at this deal compared to those it is disturbingly less attractive and as a result it is not going to work.

I hope this plan works. I really do hope it attracts some capital and solves the stated social purpose, I have very serious reservations that it is going to work. I have no alternative but to vote for it because I hope it does work. Frankly, I don’t think it can be cleaned up by amendment -- a little one here and a little one there could be changed. I think structurally it is created by some people who really don’t have a good feel for the marketplace.

Mr. O’Neil: They don’t understand.

Mr. Peterson: I really feel the Treasurer has taken a shot at it; he has probably accomplished the stated political purpose, i.e., everybody thinks he is sensitive to small business. In the process he has disillusioned a lot of businesses. When they come to apply -- these 500 inquiries -- and they find out that probably 495 of them don’t qualify anyway, they will run away disgruntled and the Treasurer will have alienated another sector in society.

If the Treasurer is going to do it, then let him do it right. If he is not going to do it then he shouldn’t touch it at all.

I hope I am wrong. I hope I can stand up a year from now and say, “I was wrong.” But I can tell the Treasurer I wasn’t wrong on the venture investment corporations proposal in 1977. I stood in this House and said it would never work and it hasn’t worked. There has not been one registration from it.

Mr. Haggerty: That’s why he made the amendment to it.

Mr. Peterson: Unfortunately, in politics there are very few points for saying, “I told you so.” I guess that is my biggest single frustration in politics, because I love to stand up and say, “I told you so.” But nobody really gives a damn and it is very sad, let me tell you, Mr. Speaker.

I think we are right on this. We have given this a great deal of thought -- probably, I say with respect, more than the minister has. I would ask the Treasurer to go back and talk to his ministry. We will even give him the benefit of our good advice on this thing to clean it up and bring a better bill back to the House. If it is forced through the House, we will vote for it. Why wouldn’t we? It is like voting for motherhood. But it is really not going to solve the essential problems.

That is my general message, Mr. Speaker. I have given you a number of specifics as to why I think what I am saying is correct.

[9:00]

Mr. Speaker: Before I recognize the next speaker, the Minister of Education has some offshore guests in the gallery.

Hon. Miss Stephenson: Mr. Speaker, tonight in the west gallery we have the honour of having with us a number of representatives, Canadian and Swedish, who are attending the Ontario universities program for instructional development. I think it would be appropriate if the members of the House were to welcome specifically our Swedish guests with the usual warm welcome which the legislators of Ontario provide.

Mr. Makarchuk: Mr. Speaker, I would like to enter a few comments on the bill. I must admit one of the reasons I am speaking on the bill is, as the member for London Centre said, that when the budget came out, there were a lot of people out in the world, that’s the world that is outside the Legislature, who thought there really was something available for them to try to help finance their business or to help in their expansions, and so on. They came to the office and we looked at the legislation. We explained what was available and what the circumstances are expected to be, and they generally went away feeling rather disappointed about the whole thing.

Earlier today the minister mentioned his friend who is in the resort business, and the fact he had difficulty raising capital and that it eventually cost him 16 per cent after 23 calls or whatever it was, in order to get the mortgages. Similar situations are still going to persist. That is not going to change because of this legislation or because of the small business development corporations.

I think we have to recognize that although the thing sounds good you are going to get $13 for $10, or something of this nature. You also have to recognize that for the people who invest large sums of money, when you are talking about tens of thousands of dollars or hundreds of thousands of dollars it is not a Wintario proposition. With Wintario or the Provincial you are quite prepared to invest your $1, $2 or $5, but when you get into large sums of money, you make darn sure you get your money back plus a return on that money.

Although that 30 per cent in this legislation is going to provide some kind of a cushion, the facts are when an SBDC invests, or provides money for a small businessman, it will want an arm and a leg. Although they are limited by the legislation in the book by the amount in terms of shares, et cetera, it seems to me, and the minister will be able to correct me, the options are still open to them in terms of management agreements. They will be prepared to provide the management agreements, and I think that is a laudable part of this legislation. As well, they will be able to provide management services to the firm. They will still insist very much on how that business operates and on all aspects of its internal management.

One of the things a small businessman these days wants is to be independent. He doesn’t want to have to go through various boardrooms making his phone calls, having his interviews, having accountants and various other sods and bods and sundry going through his books and business. He will sit there, after he has gone through this procedure for about six, seven or eight weeks, until he gets notified: “Well, I don’t think we can advance you the money.” The hopes go up, the hopes go down. He goes like a yo-yo in the operation.

I have a feeling the people who will put the funds into the development corporation will want a great deal of control which will be resented by the small businessman. The argument boils down to whether the small businessman is prepared to go this way or not. As I understand it, a similar operation in Quebec known as SODEC, I think, has been subscribed to and does seem to work to a point. Perhaps that is an indication the government is moving in the right direction. Also, where Quebec provides only 25 or 20 per cent credit, this bill provides a 30 per cent grant. It may inspire the people at the top to take some larger chances.

I think if the government was really interested in supporting the small businesses there are so many other areas into which it could move -- research and development, new technology, funding for the Ontario Research Foundation, for example, particularly in the fields of productivity. We are anxious in Canada to increase the productivity of small businesses. It’s a very necessary thing.

At one of the public accounts committee meetings we had the Ontario Research Foundation and they gave us an example of the assistance provided for research by the various governments in Canada.

Mr. Speaker: I’m sure the honourable member would like to be reminded that he should stick to the principle of the bill.

Mr. Makarchuk: In my opinion, Mr. Speaker, it’s right on the principle of the bill -- the type of provisions made for small businesses. It would show how the government should have moved to provide meaningful funding.

But anyway, in comparison, of a figure of 200 Ontario provides six; Quebec, 21; New Brunswick, 36; Nova Scotia, 42; Alberta, 162; and Saskatchewan provides 194. Let me point out, the socialists provide 194 to Ontario’s six on a per capita basis, which does say something about the commitment to small business that the various provincial governments have.

If the government was interested in assisting small business, it would have tried to provide some protection to small businesses right now that are being manipulated or put out of business by larger corporations. Some of the more serious situations developing right now are in the oil business. Major corporations like Texaco -- in an example that was brought to my attention just recently -- Sun Oil and Gulf are putting some of the small businesses out of operation because they are denying them supplies, they’re charging them exorbitant prices, they’re not extending them credit and everything else. This is after a period of years when these small businesses have been working.

Most small businessmen would like to be able to go to some agency of government or a private lender. Of course, as was pointed out by the member for London South, you don’t allow debt in this thing. I would agree; it is wrong. The idea of taking some type of promissory note on the business is a laudable idea.

But at this time it’s difficult for the small businessman to raise capital for his operations. He would be extremely happy if he -- on the basis of his good name, on the basis of his reputation, and not on the basis of the amount of stock or the amount of property he has that can be tied by a bank -- would be able to raise some funding so he can operate his business as he would like to.

The bill does not provide any kind of control in terms of whether it is a foreign-owned corporation or not. Section 9(1)(a) says an investment is made in small business and 75 per cent or more of the wages and salaries of the small business are paid in repect of operations in Ontario. This then becomes an eligible corporation to operate under the SBDC. This is of concern. I think the minister should look at it. It is 9(1)(a).

Hon F. S. Miller: There is another section to deal with that.

Mr. Makarchuk: There is another section, but what concerns me is that a firm can be set up by a foreign corporation acting as a front, really. Those who own the business are Canadian nationals; the operation of the business ostensibly or in appearance is Canadian; but the point is the firm can be so tied up in franchise fees, licensing fees, royalties, management fees and everything else, that in effect they would be allowing a fair amount of money to move across the border to the detriment of Canadian corporations.

If the minister feels somewhere in this legislation this can be prevented, I would like to hear about it. If not, I would suggest perhaps --

Hon. F. S. Miller: Section 9(1) (f).

Mr. Makarchuk: It still doesn’t cover the fact that besides taking the money out of the firm in dividends, one can take the money out of the firm in royalties, patent rights, licensing fees and that sort of thing.

I think the intent is to provide legislation that would encourage small Ontario businesses. At the same time it does leave open that loophole where a group from Ontario can be set up more or less as a front for a foreign corporation. They will no doubt receive certain benefits from the operation of that corporation, but at the same time a great deal of money can be milked from that corporation by these other methods I mentioned. Some protection should be provided in the legislation to ensure that this doesn’t happen.

Most businessmen these days are really tired of spending their lives working and at the end of the fiscal year particularly when they get the accountant’s report they find out they have been working for IAC, UAC, GMAC and everybody else. All those major lending institutions have made an unreasonable amount of money out of their operations and the businessman himself finds he has the crumbs at the end of the year.

Although this legislation may help and we will certainly support it, it doesn’t provide that kind of freedom and that kind of accessibility to funding that businessmen want. That basically is the situation right now.

In the past I have argued that this government should, besides expanding Ontario Development Corporation, beside, as we have said on this side of the House, being involved in public and private ventures -- and again I admit there may be a reluctance on small businesses to get involved in those kind of situations; however, it has been done in Manitoba with a great deal of success under the NDP government -- at the same time the government should really seriously try to expand the Province of Ontario Savings Office, to make it a fully fledged banking institution. This has been discussed before and the Minister of Revenue said perhaps it was a good idea.

The minister earlier mentioned the gentleman who had to phone 23 places in order to get a mortgage on his property. The reason for that is that there really is no competition in the banking institutions or in the lending institutions. When one has a fair amount of equity, when they are sure they are not going to lose money, then they will be most anxious, in fact happy, to lend one the money and collect the interest. But the small businessman is looking for some other avenues where somebody is prepared to take some chances on his good name and his past reputation.

[9:15]

There is another matter which is of some concern. That is whether the 30 per cent is taxable when the individual files his income tax. However, Mr. Speaker, when you look at it, it is not a bad deal for the first year. If he goes ahead and borrows the money, he can charge the cost of borrowing the money against his investment. If he borrows at 11 or 12 per cent, assuming he borrows $100,000, that costs him about $12,000. But the minister will be very happy to give him $30,000, so that’s a net of about $18,000. The problem is what is he going to do the second year or the third year? If he kept this up every year, he would have quite an influx of capital. I’m not sure what’s going to happen to it, I think there would be quite a few people who would be very happy to invest into those kinds of situations.

In general, there are problems with regard to ministerial discretion. There are certain such areas in sections 9(b), 9(g) and 10(e) referring to “such other form that may be prescribed”, “the small business is not of a type prescribed by regulations”, “any other prescribed business activity.” All these things, as was pointed out, are matters that are left in the air. They are up to the discretion of the minister. They again bring in the heavy hand of bureaucracy. If there ever is a heavy bureaucracy, it’s the Tory bureaucracy.

The businessman who tries to sort it out finds that he runs around in circles. He really doesn’t know where to go or whom to contact. Generally, when he starts contacting the man, he finds he has been moved or has been fired or something of that nature. This is what happens right now. Why carry this on? I would like to see something a little bit more loose in this situation where this kind of leeway isn’t left all over the place and where a decision will be made eventually while the businessman sits and hopes to God that they will decide in his favour. He really wants to know where he is, that all the cards are on the table and that he can go ahead and do what he wants to do. He wants to know what he’s dealing with.

The other matter of concern in the bill is the two sevenths of the 30 per cent that is supposed to be held in a trust fund. The banks have a reserve of eight per cent or it might be 11 per cent. It varies from year to year. For the small business developing the SBDC, it could be a problem. Considering the fact that if they are going to have 30 per cent of their funding in a trust fund, they can get 10 per cent at the Province of Ontario Savings Office or some other bank or on short-term notes for probably less, it still is not a good investment if one relates that to present-day inflation rates or to what is possibly available in mortgages at 16 per cent or second mortgages that can go to higher amounts.

That is one argument. They have this large sum that they have to let sit. I understand that the minister is concerned that he has to protect himself so that after the first year they don’t all pull out and he’s lost his money but they’ve collected their money and are having holidays down in the Bahamas or in Switzerland with his money. Therefore, he put that into effect, but it creates some difficulties or imposes some restraints on the operation of those corporations.

Then there is the two sevenths that the minister is going to allow them to take up in shares or lend or have as equity in the business. That brings it back to that kind of a bureaucratic hassle where the government says it will look at it and then eventually make a decision. All the investor has to do is sit there and wait and somewhere the minister will decide.

The other factor that is a concern is the 40 per cent that has to be invested that has to go out in the first year of the corporation’s operation. Assuming one is starting to set up the corporation, he has got 12 months, it will take a period of time to set it up. The legal work alone will probably take two or three months.

Then to get the various people, if you are going to have some people to tie it together and everything else, is going to take you a few more months. Then you have got possibly six months or less left to go ahead and invest 40 per cent of that portion in a sensible way, and in the second year you should go up to 70 per cent. In that area, there should be some leeway or some discretion available, but not necessarily ministerial discretion. I think those figures should be changed, and perhaps lessened. In the first year perhaps it should be 25 per cent, in the second year 50 per cent and in the third year 70 per cent, at which point the development corporation has the option to look at the operations. They can make wise decisions and reasonable choices based on a fair amount of research that they are going to do before they do invest. As I said earlier, the people who have the money and who are dealing in large sums of money are not going to take chances, despite the fact that we are going to give them a 30 per cent cushion.

I have to mention the fact that in general the bill is a vague step in the right direction. It has its problems. We will certainly discuss specific paragraphs or items in the bill on the basis of whether some changes are needed, or perhaps the minister can explain many of the points we raised earlier. But I wish to tell the minister that this is not the answer to what the businessmen want out there in the world. There is a reluctance, particularly on the part of the small operators, for them to get involved with the various boardrooms; to get involved with the so-called money men. They look at that as a different world; it’s a world that’s outside of the circle. It may be closer to people in Toronto, but in Brantford or Cambridge -- or even London, for that matter -- outside of the world of Toronto, these people do not have the opportunity to travel within these circles or to know the influential people or the people who are in charge; nor do they have the connections as to where they should go.

If the minister were really serious, if he had a real commitment to small business, he would provide expansion of the Ontario Development Corporation, and he would make sure that the Province of Ontario Savings Office became a full-fledged banking institution with some aggressiveness to provide real competition in the banking field. In that way I think he would provide much more assistance, and the small businessmen in Ontario would be a lot happier. Basically, what they want is to be able to walk into a branch of the savings office and have somebody who is prepared to listen to them, who has an understanding and who is prepared to take a chance. They do not want to go through this great big rigmarole that the Treasurer is setting up here. Although it may help some of the larger operations -- and by larger I mean manufacturing or other operations employing 50, 60 or 100 people -- it is not going to help the little guy at the bottom. That is one of the areas of concern to myself and, I think, to my party; it is an area that I think the minister does not address himself to by this type of legislation or, for that matter, by anything else that the government has brought in up to this time.

Mr. Acting Speaker: The member for Quinte.

Mr. O’Neil: Thank you, Mr. Speaker.

Mr. Bradley: Where is the Minister of Agriculture and Food (Mr. W. Newman) now?

Mr. O’Neil: I noticed that the minister was going to stand, and maybe I could add my comments to the discussion when he is summing up afterwards.

This morning at caucus I mentioned to the member for London Centre (Mr. Peterson) that I would like to say a few words during the discussion of this bill this evening, and he said to me, “What do you know about it?” I had to say to him, after looking at the bill, “I know very little about it.” But I must say to the Treasurer (Mr. F. S. Miller) I may know very little about it, but when I see him turning around to his staff and I hear some of the questions that have been asked by the member for London Centre, I understand a lot of the members in this Legislature must know very little about what the bill means, too.

This means that when this bill goes out the Treasurer is going to get a lot of calls -- he mentioned he has had about 500, but those are going to be either from lawyers or from accountants, and he is going to be giving them all kinds of work.

I have to agree with the statement made by the member from London, that unless they have legal minds they are not going to understand it. I don’t think the people who drew this bill up for the Treasurer have an understanding of the business world either.

This afternoon in the Legislature I asked the Treasurer a question concerning the Eastern Ontario Development Corporation. At that time one of his comments was, “We ran out of money and that is one of the reasons that we had to turn off the tap. We weren’t able to deal with a lot of these applications. We couldn’t help out these people in small manufacturing or in small business.”

I say to the Treasurer that I would rather have seen a simplified bill of one or two pages that said, “If you put your money with us” -- in other words, hand it over to the Ontario government which in turn hands it over to EODC or the Ontario Development Corporation -- “we will give you a higher interest rate for investing with us. We will give you a return on it, and EODC or the Ontario Development Corporation will put it out to the small business people or the small industries throughout this province.”

I see the Treasurer shaking his head, but to me that is a heck of a lot simpler.

Hon. F. S. Miller: What about the banks?

Mr. O’Neil: Okay, but the banks aren’t going to give them the incentive the Treasurer could give them; they aren’t going to give them the lower interest rate.

Hon. F. S. Miller: You want the state to take over.

Mr. O’Neil: Well, let’s put it this way. I have more trust in some of the staff who work for EODC or the Ontario Development Corporation than maybe the Treasurer or the officials in his ministry or government have. They are very qualified people, and I am sure that if the Treasurer were to say to the people of this province, “You invest your money with us. Give us this money, and we will give you a higher interest rate in return,” it would give him the money he says he ran out of earlier this year. It is because of this these small businesses and these small manufacturing people throughout the whole province are suffering. We need money.

I know the honourable member for Brantford mentioned that we have business people calling us every day. They are looking for money. They can’t really get it from the federal people, and they can’t get it from the provincial people either because, as I say, the government doesn’t have the money to lend, or it has lent it out to the larger corporations.

Why couldn’t the ministry staff, at the time the Treasurer was drawing up his budget, have drawn up in one or two pages, something along that line to bring these funds in, to use, to lend out to these people? The Treasurer has the facilities to check out a lot of the credit ratings and to see whether these businesses would be successful if he was to give them some incentive. As I say, this hasn’t been done.

Now I don’t understand the bill; it is too complicated for me and likely a lot of other people in this province and mainly because, as the member for London Centre mentioned, the Treasurer just won’t get applications. It will be like the bill we had last year.

An hon. member: You should have brought in my private member’s bill.

Mr. O’Neil: We in eastern Ontario, as well as people from throughout this province, are looking for assistance to our people in small business, whether they be in the business or the manufacturing sector. This bill is not going to give it to them and I worry about that.

Next year, when the Treasurer brings down his budget, nothing really will have been done. We won’t have the money in eastern Ontario to help these people, and because of that many jobs will be lost, many new businesses that could have been started or expanded won’t be. Many businesses will go out of business because this help is lacking.

And as a small businessman, when something was presented like this from his staff, from his people, the Treasurer should have seen that it was just too complicated, too involved, for the ordinary person to take part. I do feel he is interested, and sincerely interested, in seeing that something is done for this type of people. I do not believe that this is it.

Mr. Eakins: You cut down the tourist industry to seven and a half per cent.

[9:30]

Interjections.

Mr. Laughren: The Treasurer is anxious to respond. I don’t understand that; it is not like him.

Mr. Conway: After a long career in the business community, the member for Nickel Belt is about to tell us.

Mr. Laughren: As a matter of fact, I did have a six-year career in the private sector.

Mr. Conway: Tell us all about it.

Mr. Laughren: A very successful career.

Mr. Conway: Six years where, Floyd?

Mr. Laughren: Toronto, Moose Jaw, Vancouver, Thunder Bay, and Winnipeg; I did have to keep on the move.

Mr. Conway: Selling snake oil?

Mr. Van Horne: A used car salesman.

Mr. Sterling: The member never should have gotten up.

Mr. Conway: Who said he got up?

Mr. Laughren: May I say at the beginning, Mr. Speaker, I understand this bill. The reason I understand it is because of the excellent briefing I received from the minister’s staff. They were very helpful to us when we went over to find out some of the finer points we did not understand in the bill. I had a meeting on the weekend with some businessmen in the riding of Nickel Belt who were interested in this bill. It was 300 miles north of Sudbury. As a matter of fact, it was the community where the Minister of Education (Miss Stephenson) keeps wanting to go with me, the fine community of Chapleau. There were some businessmen there who were very interested in forming a small business development corporation and I felt I should have had more expertise on it than I had before I went up there.

The needs of the small business sector are primarily twofold: First, the need for equity capital; and second, the need for management expertise. This bill provides the potential for one of those only, namely the equity capital. I suppose there will be management people, such as consultants, who will assist in formation of these SBDCs and who will, in effect, play two rules: One, to establish the pool of equity capital that can then go out to the small businesses; and two, to provide the expertise or advice to the businesses to which they lend the money. I could see that tying in quite neatly with the pool of equity capital. There is no requirement that this happen, of course, but I could see it would be possible it would do just that.

The member for London Centre (Mr. Peterson) mentioned the need for loans tying in with perhaps a package of assistance to small business and I agree with him.

Mr. Peterson: Excuse me, I must be wrong.

Mr. Laughren: I do understand there is a possibility for loans above the 70 per cent that must be invested in equity in the small business enterprises. I would say, though, that I am concerned that the small businessman who has built up his business will be a little reluctant to divest himself of control, even if it is only 10, 20, or up to 49 per cent. Small businessmen are very reluctant to give up control of even a portion of their business. I can imagine that might be a problem, except for those people who have to give up control. If they cannot get any loans and they cannot get financing from the traditional financial institutions they are going to have to give up some equity participation in their company in order to get financing. I can see where businesses which really do want to expand will do that.

It is strange, is it not, that the greatest free enterprisers in the Tory party are the ones who most undermine that pure free enterprise philosophy of the business community standing on its own and competing out there, knowing full well that the invisible hand of the marketplace will look after things and the fittest will survive? That is what the Treasurer would have us believe, yet at the same time he brings in a bill which provides a return of 30 per cent right off the top to people who will take a risk. I always thought, in my limited study of economics, that the reason one justified profit was because of the clement of risk. I didn’t know there was any other justification for profit; the element of risk is what makes profit legitimate. Yet here, the minister is taking away that element. If he keeps it up, he is going to have trouble justifying the profit factor. Then you fellows will be upset, won’t you, when he can no longer justify the taking of profits because there is no element of risk left.

I warn the minister that he is going to be undermining his own argument, that the rhetoric in his budget speeches is going to be rather hollow when he has done that to himself. I would just warn the minister of the direction in which he is heading.

The other thing that bothers me is that the Treasurer is always on to us about being free- spending socialists. I don’t know what this bill is going to cost, although I’d like to know. What is this bill going to cost? What will that 30 per cent write-off to everyone who puts money into a small business development corporation cost the province of Ontario? Surely, the minister isn’t going to stand in his place later and tell us that he has gone into this with his eyes closed, that he has no concept of what it is going to cost?

I understand that the minister has had an enormous number -- I think he used the figure 500 -- of phone calls asking for information about this; and he is not the only one, I have had calls myself.

Mr. Lawlor: He’s got a cut-off figure, hasn’t he?

Mr. Laughren: He’s got a cut-off figure, but he doesn’t know what the total cost to Ontario is going to be.

Mr. Lawlor: When he reaches a certain figure he is going to cut it all off.

Mr. Laughren: It’s like employment incentive; if it’s successful he will cut it off. That’s what he did with the job creation -- at least that’s what his predecessor did a couple of years ago.

Another thing that is bothering me about what the Treasurer is doing is the whole question of dividing up the allocation of assistance in Ontario. He now has the small business development corporation approach, and whether he wants to admit it or not the hand of government is going to have to be there. Despite the wishes of the member for London Centre, there must be close supervision over this bill, there simply must be. Otherwise I could imagine the kinds of games that are potentially there for investors to play.

My mind isn’t capable of knowing what they are, or of knowing the loopholes that would be closed already by his staff, but I can imagine someone investing $1 million in an SBDC, getting his $300,000 cheque back and that investment going to a rather successful company which then invests it in another SBDC or in another business enterprise and has a 30 per cent write-down on its profits for that year. I can see this thing building over a number of companies, with basically the same number of people benefiting from it. The Treasurer is going to have to keep a close eye on it; that’s why the bill has to be as complex as it is.

Another thing that bothers me is that we now have the Ontario Development Corporation, the Employment Development Fund and the small business development corporations, all with government input. I wonder how they are going to keep them all straight over there. Already there is confusion between the Employment Development Fund and the development corporations. The minister is doing a cut-off and saying above $250,000 is the Employment Development Fund, below that are the development corporations. He has the staffs of the Ontario Development Corporation running around not knowing who has what responsibility; there is going to be trouble there. In fact, there already is trouble. Perhaps three bureaucracies are being created where before there was one. That is something that the minister would be very quick to condemn us for if we did it; yet he does it himself all in the name of free enterprise. It is a strange contradiction in this minister.

Mr. Peterson: They are very cunning that way.

Mr. Laughren: They are very cunning that way; but they are very contradictory that way too.

The Treasurer, I hope, will respond to some of the questions that have been raised. Perhaps some of the more specific ones can be raised when the bill goes to committee. The Canadian Federation of Independent Businessmen is concerned about some of the things in it; namely, the maximum limit of $5 million, which is the limit on the size of an SBDC.

There is another thing that bothers them, and I think they have a point. Since the government is proceeding with this bill and the whole concept of SBDCs anyway, it might want to think about the requirement that at the end of the first year 40 per cent of the investment in SBDCs must be out there in equity in businesses. At the end of the second year, 70 per cent must be invested in small businesses. The ministry might think about changing that so that it’s escalated over a four-year period rather than two years. Let it grow from 25 per cent, 50, 75, 100 or whatever, in specific numbers. There may be a problem by the end of the second year getting 70 per cent of the money in the SBDC out there into the small business sector. The minister might want to think about changing that after he has seen it in operation awhile.

My own suspicion is that a year from now there will be a batch of amendments before this chamber because of some of the problems that are difficult to anticipate. I don’t think that necessarily means it’s wrong, but I do think amendments will be before us within the year, and that will be one of them.

Mr. Haggerty: Mr. Speaker, I want to rise and speak on Bill 49 in support of my colleague from London Centre in his comments and reservations. I notice section 36 of the bill, which is my concern, repeals the Venture Investment Corporations Registration Act. If I recall correctly, that piece of legislation was brought in in 1977 -- 1978 was when it was supposed to come into effect, I believe. The purpose of that act was to put new life into and to assist small business corporations. The same, I suppose, is the intent of this bill.

But looking at that bill its intent then was to spur the economy. An investment corporation investing in a venture would be able to deduct an amount equal to 250 per cent of its investment in a VIC at 12 per cent. In computing the income tax, the deduction is worth 30 per cent in terms of the tax rate to corporations; instead of 12 per cent which is the normal corporate rate of any kind of deduction in computing income they could actually claim a 30 per cent tax rate for their investment in the VIC. The bill before us -- the Small Business Development Corporations Act -- is similar legislation, but it has been changed around a little bit to make it look better to investors who want to invest in this enterprising proposal.

Along with my colleague from London Centre, I am concerned about the matter of the limits applied in the bill -- the minimum of $250,000 and the maximum of $5 million; that bothers me to some extent too.

In speaking on this matter as critic of revenue back in 1977 I was quoting from the brief of the Association of Canadian Venture Capital Companies, which was presented on June 6, 1976. It said: “They should be encouraging a greater flow of capital to small- and medium-sized businesses, which requires changes in the present income tax structure. Corporations should be permitted to deduct from taxable income a certain percentage of their annual gross payroll -- it is suggested between 10 to 15 per cent. If such funds are given to an employees’ stock ownership trust used for the purchase of the corporation’s common stock, this would improve the liquidity in private company share transactions and provide an alternative way of investment in small companies. It would enhance investment for such companies and provide the opportunity for the average person in industry to be a free enterpriser and key management to realize on their ownership interest.” I think that was a good sound proposal and the government should perhaps move in this area.

[9:45]

When we look at the economy of Ontario ado the rest of Canada and compare it to the European economy, particularly Germany, we find a similar proposal in their manufacturing process. Employees do have some input in financing a joint partnership with industry, government and the employees themselves.

I look at the capital invested in banks and personal savings. I can recall reading, I think it was from the Canadian Imperial Bank of Commerce’s yearly statement which provided an outlook on the Canadian economy for 1980 or 1979. I believe one of their quotes was there is $47 billion in savings in banks across Canada. Fifty per cent of that is generated in the province of Ontario. I suggest to the minister that here is an area we should be looking at to give a break to the small person who wants to invest in Ontario or invest in Canada. This is an area that should be tapped.

We look to our neighbours to the south, the United States. They have such a program for investment purposes to keep their economy on an even keel and to encourage new investment. They encourage the small investor to invest in the government for funding certain projects, and in fact even in small businesses. They are given a certain tax concession for their investment at a fair interest rate. For a period of maybe 10 years, there are no taxes on it. I suggest this is an area at which this government should be looking.

I look at the grant given to the automobile industry, the Ford Motor Company of Canada Limited. It was a substantial grant. It will create jobs; but in the long run what investment is there in it for the province of Ontario, besides perhaps corporation taxes? I suggest if the government were to invest in any more private sector industry we should become a shareholder in a sense, we should have some dividend return on taxpayers’ money in this area.

Mr. Swart: You sound like a socialist.

Mr. Haggerty: No, that is just good, sound financial planning, I think. I have often thought if Mrs. Haggerty were in the Legislature she could run the government a lot better than any of us could.

I think it is good, sound planning. That is one of the credits I can give the Social Credit philosophy in government management. That is one of the reasons they have some good, sound planning in their philosophy.

The minister is giving away tax money. That is what it is. It is a tax deferment for large investors. As the member for London Centre (Mr. Peterson) said, it is the big investor who is going to reap the benefits in this particular program I suggest there are areas we should be looking at to encourage the average person in the province of Ontario to become a responsible citizen and to say: “I do have some obligation to create further employment in the province of Ontario.”

With those few comments, I think I can support the bill in principle and hope you have much better success with this proposal than you had with the Venture Investment Corporations Registration Act. We on this side do support it in principle.

Hon. F. S. Miller: Mr. Speaker, the preamble I used in introducing the bill started with the statement that I would be glad to accept any reasonable amendments and that I would be pleased to see this bill adjusted as time went on or as experience proved it necessary. I thought I should say that in advance, because I’ve not tried to say this is right and I’m not trying to say this won’t be amended or experience won’t require some change.

Of all the things said and the comments made, the member for London Centre was perhaps kindest to me when he didn’t think he was being kind. He said: “I think you’re dreaming.” Yes, I guess I am.

Mr. Peterson: Smoking Muskoka grass. That’s what I said.

Hon. F. S. Miller: Yes, maybe a little bit of grass or something caught up in my nostrils accidentally, but I have dreams. If I was as pessimistic as the honourable member is about the bill, I’d never invest a nickel in anything but a Canada Savings Bond. I’m saying to him that there are a lot of people who dream. There are a lot of people who are looking for some opportunity and I’m simply trying to find one route to assist them.

A number of comments were made in general by other speakers who said: “Do more for the ODCs. Do more for this or do more for that.” None of those things is excluded by this bill.

Mr. O’Neil: You don’t have any money there.

Hon. F. S. Miller: I’ll get on to that later on. We’re talking about this bill tonight. The honourable member started out by saying federal government co-operation is necessary after May 22 with this kind of bill. It would be nice to have federal parallelling of measures; I agree completely. It’s something one can try for. If they parallelled our measures we’d probably be able to streamline a number of conditions and simplify things.

Mr. Peterson: That is why I was so critical.

Hon. F. S. Miller: Yes. I can only say that whether we’re the government, whether his party over there are the government, or God forbid whether members of the other party are the government, one way or another, if this turns out to be --

Mr. Makarchuk: The Lord works strange ways, don’t forget that.

Hon. F. S. Miller: Yes, I realize that.

Mr. Lawlor: You seem to think that is improvidential.

Hon. F. S. Miller: Improvidential? It would be disastrous.

Mr. Lawlor: Don’t be such a pessimist.

Hon. F. S. Miller: In any case, there will be need for us to try to convince them, perhaps through the very success of the thing, that there should be parallel federal tax legislation to assist it to be more profitable. That was one of the basic reasons VICs never got off the ground I think the honourable member would agree. Apart from other structural problems, there wasn’t a federal parallelling of the tax credit.

Mr. Peterson: You knew that at the beginning. I am saying there is more you could have done with what you had.

Hon. F. S. Miller: No argument, please. I’m not trying to say the member is wrong. What I’m trying to put across purely through this discussion is that there are some bills a minister brings into the House of which he says: “We’ve done all our homework. There’s absolutely nothing more to be changed. Our pride and our reputation rests with this. If you put in an amendment, we have to withdraw the bill.” This is not of that nature.

Mr. Peterson: You are getting smart slowly but surely.

Hon. F. S. Miller: The question is what kind of funds will be available. As Mr. Parizeau said in his budget when he introduced his credit for purchase of shares in companies with their head offices in the province of Quebec: “I hope this costs me a lot because if it costs me a lot it’s a success. I don’t know how much to put in my budget because I don’t know if it will be a success.” I’m now quoting Mr. Parizeau.

Mr. Peterson: It was a $15,000 limit but it turned out to be --

Mr. Deputy Speaker: Order.

Hon. F. S. Miller: In any case, he was talking about the aggregate. I’m only saying in our minds we were using figures between $10 million and $20 million as a possible cost of this this year, and if necessary the Employment Development Fund could be used as a source of that money.

The Canadian Federation of Independent Business deserves a lot of credit. They came into my prebudget hearings and made a number of comments to me. I’m sure they supported a number of the thoughts in it.

The honourable member tells me it will be hard to get suitable investments for SBDCs to find. I hope that is not true. I would look around my area and I would say that many potential investments lie there. He talked about minority shareholding. He said he wouldn’t put his money into a company in which he doesn’t have a control. When one buys Bell Telephone shares one is trusting somebody.

Mr. Peterson: Excuse me. Can I raise a point of privilege?

Mr. Deputy Speaker: What’s your point of privilege?

Mr. Peterson: I didn’t say either one of those things. If the minister is going to quote me, I would appreciate it if he would quote me exactly. If I could clear them up, I did not say it would be hard to find people to invest in; I said it would be hard to find investors.

Hon. F. S. Miller: The member said it would be hard to flow the money through.

Mr. Peterson: I said it would be hard to find people who wanted to run the money through that vehicle. That’s what I said.

Hon. F. S. Miller: Correct me if I am wrong. I thought the member said it would not be too difficult to find people who would put money in SBDCs, but he is reasonably sure it would be difficult for the SBDCs in turn to find something to put their money in. That’s the way I heard him talking. The record will show which one of us is right and I interpret that as meaning that there wouldn’t be places for people to invest that money. That’s all I was saying. Okay?

Mr. Peterson: I said no incentive to go that way into a high risk proposition.

Hon. F. S. Miller: Am I correct that he said that he would have some reluctance to put his money into a business he didn’t control?

Mr. Peterson: Private business, not public business.

Hon. F. S. Miller: Private business, sure. I am only saying I have tried to point out -- and maybe if I make my point; I am not trying to criticize, I am trying to make a point.

Mr. Peterson: Feel free.

Mr. F. S. Miller: I don’t do that. The member knows that. That’s his job.

Because someone has a minority, it doesn’t mean someone else has a majority. The assumption that because an SBDC can only own 49 per cent means someone has 51 per cent isn’t correct. No one person need control any company, but it can mean that a person can retain control of their company if they see fit. I think both of those parts are true. There can be two SBDCs owning up to 49 per cent and only two per cent in somebody else’s shares. This can be in shares that can be redeemed under certain conditions, and these things can all be done to protect the person. Frankly, when we thought about all the constraints, or all the things one could do to put conditions on the shares -- the kind of shares, the agreement, the management agreements and so on that were talked about -- we came to the conclusion we were best not to interfere in the marketplace with those things but rather leave those kinds of agreements to be made between the investor and the company receiving the benefit, until we had some chance at least to see it working.

If the 100 employee limit is too low, as I think the member implied it might be, again I am not bound to it. It is something we could easily adjust as experience shows.

I have some notes on taxes. My understanding is that these corporations are taxed, as any other corporation, for investments.

Mr. Peterson: That was my point; that is what I said.

Hon. F. S. Miller: I am sorry. If I misunderstood, I was reading it the wrong way.

Mr. Peterson: Double taxation.

Hon. F. S. Miller: My notes here, and I have copious notes, say this: that if an SBDC is a private corporation and holds 10 per cent or more of the shares of the company, then they are considered to be a connected corporation and aren’t taxed when the money flows in. Is that correct? So that you would have that advantage, and in most cases I would think the SBDC would own at least 10 per cent of the shares.

Mr. Peterson: Dividends flow tax free.

Hon. F. S. Miller: I don’t pretend to be an expert. My staff said that was covered; I am quite willing to look at it but I believe that --

Mr. Peterson: Dividends flow tax free, but my point is there are different forms of income.

Hon. F. S. Miller: Oh yes, but frankly, the very reason dividends flow tax free is because tax is paid on them but interest isn’t; therefore if interest comes in it should be taxed. I think we both agree on that. Correct?

Mr. Peterson: Not twice.

Hon. F. S. Miller: I don’t understand where it is taxed twice.

Mr. Peterson: In the SBDC’s hands and the investor’s hands.

Hon. F. S. Miller: No, no; that’s not true because --

Mr. Deputy Speaker: Order. I would like to remind the honourable members that we are completing second reading of this bill; if it’s the wish of the House for it to go to committee they will have ample time to ask further questions. Would the honourable minister continue?

Mr. T. P. Reid: Maybe it’s the last time to get the answers.

Hon. F. S. Miller: I was intrigued that at least two Liberal members talked about their alternative. I am not saying the alternative may not work, but I was intrigued that it was a variation of the Canadian Development Corporation or some such thing, where they were suggesting that investors put their money in the government and allow the government to make investments. I am not being facetious when I say I found that surprising from a party that I have learned to respect as being as free enterprise as the Liberals are. I really don’t have that kind of confidence in government-run companies to make investments for me and I don’t think many other investors would either.

Mr. T. P. Reid: Why are you taxing us at the rate you are? What do you call that?

Hon. F. S. Miller: Listen, I was quiet all night long.

Mr. Sterling: The ODC is a loan corporation.

[10: 00]

Hon. F. S. Miller: You are telling me that the figure of $250,000 is too high and the $5 million too low. Again, I put these in after a great deal of thought and discussion. I believe they are reasonable. I am not unwilling to change them even now, or better still after some experience has shown that they should be changed.

The other thing that two or three speakers talked about was the 40 per cent and 70 per cent requirements in the first and second years. There is a clause in the bill that does allow for exemption if those levels are not met; if we find consistently they are not being met, we can take steps. I find no trouble in extending those things that experience shows us should be changed.

If there is one thing I learned as an engineer, it is this: When you design your pilot, you start it out according to the design and then make adjustments as the experience shows those adjustments are needed. We could sit here all night and argue about the merits of whether $125,000, $5,000 or, as my staff would have believed, $750,000 is the required minimum amount of money in these companies before they will be viable, but none of us will be sure until we get out in the marketplace.

I think I will wait until we get to clause-by-clause consideration rather than answer the member’s other points now; I will talk about the specific sections when we get to them. He mentioned two or three specific ones.

The member for Brantford (Mr. Makarchuk) talked about the possibility that management agreements could be made, as well as equity being purchased. Of course they can be made, but in all kinds of agreements where one is borrowing money you may be required to enter into agreements or covenants. Strangely enough, we would see the right of a lender or a purchaser of equity to offer management expertise as one of the pluses not one of the minuses -- of bringing the SBDC into contact with many of the small companies. It is to be hoped that they will do it. But if you have ever got into the hands of a bank when you are in trouble, you very often have a management partner. If you have ever been dealing with a big corporation like General Motors, you have a partner, whether you want it or not -- and they may not even have lent you any money in the process.

I repeat, for the member for Brant, the fact that we are creating SBDCs does not rule out many of the other forms of governmental involvement that he was talking about -- the Ontario Development Corporation, et cetera.

Somewhere along the line the member for Brant mentioned the trust account, the 30 per cent, and said it was something like a bank reserve. Well, the money a bank puts on reserve with the Bank of Canada is in effect to guarantee that the deposits are protected by some liquid assets. Also, they are a very useful tool in managing the money supply, as I understand it.

In this case, the 30 per cent clause -- which is diminished, as the member said, once the 70 per cent investment is made -- is there strictly to make sure we do not run into some con artists who take the 30 per cent and disappear without making any eligible investments. I think he would agree we need that kind of protection until we have seen that --

Mr. Makarchuk: I can understand the protection, but is it not a large sum to have lying about?

Hon. F. S. Miller: Yes. But it is only until such time as that 70 per cent is purchased. If a company has the ability to invest the whole 100 per cent of its money right off the bat, it does not have to be lying around. So that, I think, overcomes the member’s basic problem.

I must say the member for Quinte -- that is you, isn’t it?

Mr. O’Neil: It sure is.

Mr. Roy: And a great member at that. You should look at him closely. He will be around here a long time -- even after you are gone.

Hon. F. S. Miller: Well, that is not too hard. There are days when I think I should go home and form an SBDC and invest in Muskoka.

Mr. Sterling: I’ll go into partnership with you.

Hon. F. S. Miller: That is one of my backbenchers ready to take my place. That is what keeps us ministers on our toes in the front ranks of this government.

Mr. T. P. Reid: That is the only reason you are there: he is no better than you are.

Hon. F. S. Miller: We have so many competent young men like him -- not only a lawyer, but an engineer -- ready to take the place of the poor old engineer who is fighting with his antlers to retain his position here in the front row.

Mr. Conway: The member for Ottawa South will look after his ambition.

Mr. Deputy Speaker: Now back to Bill 49.

Hon. F. S. Miller: I listened to a lot of guff tonight too. I have to have a chance once in a while.

Interjections.

Hon. F. S. Miller: Until the member for Quinte opened his mouth tonight I always thought of him as probably a little misdirected in that party over there, but essentially a Conservative, essentially a person of sound business judgement. Then tonight I heard him tell me he would rather have government act as the intermediary than banks -- rather have government act as the intermediary than small business corporations dealing directly with the potential investors.

Interjections.

Hon. F. S. Miller: When they see that in Quinte and realize he has sold out to the NDP -- that he is following the socialist dogma -- man, that is going to be a tough day in Quinte. Belleville, of all places, realizing they have elected a socialist acting as a capitalist. Isn’t that right?

Mr. O’Neil: They elected a man of the people, a man who will fight for the small businessman and the small manufacturers.

Mr. Roy: They elected a flexible Liberal.

Hon. F. S. Miller: A flexible Liberal. You guys are so flexible one could make pretzels out of you.

Mr. O’Neil: You are way above the ordinary person.

Interjections.

Hon. F. S. Miller: Until you are half baked you are not stiff. No, no. Let me see -- that’s a pretzel.

Interjections.

Mr. Roy: Only the Treasurer caught that joke.

Hon. F. S. Miller: I have a mind that understands my own humour.

Interjections.

Hon. F. S. Miller: I think I am really finished, Mr. Speaker. I could say much more but I think all the important points have been touched. I will be moving into committee. The House leader may direct me to go there now.

I take pleasure in moving second reading of the bill.

Mr. Nixon: That is not the direction he has in mind.

Motion agreed to.

Ordered for committee of the whole House.

ONTARIO MUNICIPAL EMPLOYEES RETIREMENT SYSTEM AMENDMENT ACT

Hon. F. S. Miller moved second reading of Bill 31, An Act to amend the Ontario Municipal Employees Retirement System Act.

Mr. Deputy Speaker: Does the honourable minister have an opening statement?

Hon. F. S. Miller: Mr. Speaker, all three bills are housekeeping bills. I am quite prepared to discuss any parts of them the members wish, but they are minor in nature. I will only talk to this bill for a second. I have one bill that is historic, if we get to it tonight. Bill 33 is historic. We will keep the members in suspense until we get to it.

Mr. Peterson: Does the Treasurer have a statement on Bill 31?

Hon. F. S. Miller: No, I don’t have a statement. I can read my notes to you.

Mr. Peterson: I will read the notes myself. I want to say that I just think this is a terrific bill. I want to congratulate the minister because I have never been more fully in support of him on any previous occasion. He’s a wonderful fellow and --

Mr. T. P. Reid: He is going to read the bill now!

Mr. Peterson: He probably has made a mistake. I am not sure he understands it, Mr. Speaker, but it is a very progressive piece of legislation.

What this bill does is allow the government to put more public pension funds -- funds from the Ontario Municipal Employees Retirement System, i.e. OMERS -- into the private marketplace. That is essentially what it is about.

Members will recall the experience of when the government originally liberated some of those pension funds and put $100 million out into the marketplace and generated a very high rate of return. As I recall in the first year the rate of return was 10¼ per cent. For three years in a row they generated over a 10 per cent return on that fund. A very excellent performance for a public fund.

What this allows us to do in some respects at least, is to take this money away from government borrowings and put it back into the private marketplace where it belongs. Not only is it generating a higher rate of return, i.e. lessening the unfunded liabilities, but also it is building up capital stock in this country. People who are looking ahead in this country realize we are going to have to put up a much higher percentage of our gross national product into savings, be they forced or unforced, in order to build the capital stock for this country; to build the energy projects, transportation and things like that. This allows some latitude to the government to increase the amount of money they can put in the private marketplace.

I have said before on many occasions, and I think I’ll say it again, Mr. Speaker, that probably the greatest single corruption of government finances -- in the Davis-McKeough-Miller and White regime -- is through availability of all those internally-generated pension funds from which to spend. They have spent almost every available penny, every available year, to increase the deficit on an annual basis.

It has been a tragedy and a corruption of the financing practices of this province. Had that money not been available in the late 1960s when a number of these plans were created, I suggest respectfully we would not be in the deficit position we are in in this province today. At least here we have shown a progressive move. I would like to see the same thing done with the teachers’ superannuation fund, from which the government borrowed, as I recall off the top of my head, about $554 million this year. I may be wrong; I may be out $100 million. They are borrowing another $980 million from the Canada Pension Plan, another source of easy money. They have no appreciation of what is going to happen with it in the future.

Here is a glimmering of hope for this government. They are, presumably, going to put this in the hands of private fund managers. They are going to generate a higher rate of return. As a result, we have probably the best administered retirement fund in this government in the Ontario Municipal Employees Retirement System. I congratulate the administrators of that particular fund.

It doesn’t have the big unfunded liability of the teachers’ superannuation fund. The unfunded liability there is close to $1.6 billion, on the latest actuarial notes taken in 1977. The latest actuarial review was really in 1975 when they had an unfunded liability of $1.4 billion. Had the teachers’ superannuation fund been liberated and been loaned out in the private marketplace at competitive rates of interest, I respectfully submit the unfunded liability would have been far less. There would have been far more money in that fund, the teachers’ pensions would have been more secure from that point of view; and more interestingly, we would not have to dip into the taxpayers’ pockets in order to make up that unfunded liability over a period of years.

We are going to find that all of our children, the children of those people in this House and of ‘all the people in this province, are going to have to pay for the legal commitments created by this government. It is a tragic situation.

I have talked about this question so many times I am blue in the face from it. If they had gone to the marketplace they would have been more responsible. I am glad to see it with OMERS; it is a progressive move. The fund is well managed; they have good managers from outside as well as inside government. Interestingly enough, this is not an indexed fund. The OMERS people have not indexed that fund, although historically there have been periodic adjustments. They have kept that fund, for a combination of reasons, in good control. It is well managed, competitive, and they are serving not only the taxpayers but they are serving the retirees fairly well in the circumstances.

By comparison, we see the dismal shape of the teachers’ superannuation fund, which the government has raped continually over a period of years, paying below market rates. Twenty-eight per cent of that fund, and at the end of this year it will be about $3.5 billion, is returning six per cent. Can you believe that, Mr. Speaker? The return is six per cent. You can generate almost double that in the marketplace today. This is what is happening.

The former Minister of Education (Mr. Wells), who now has the Intergovernmental Affairs portfolio, had major responsibility for the disaster of that fund. He has left the government carrying the can and has now gone on to wreak havoc with other levels of government, hopefully not ours anymore.

Hon. Mr. Wells: That is not true.

[10:15]

Mr. Peterson: I like this act. I compliment the minister on it. I assume it was his idea. If it isn’t, then let him take credit anyway because it’s probably the only thing he’s done so far that’s particularly outstanding. We support it with enthusiasm and urge him, as part of the whole pension reform process and cleaning up the borrowing habits of this province, to adopt the same posture and stature with the other funds under his control.

Mr. Lawlor: After that speech the minister can withdraw the bill.

Mr. Peterson: Thank you, Mr. Speaker.

Mr. Laughren: Mr. Speaker, I never thought I would see the day the Treasurer would stand up and say he was bringing in a housekeeping bill and the member for London Centre would say it was a historic bill and provoke me to lead a revolt and divide on a housekeeping bill. That’s exactly what I feel like doing after that incredible speech by the member for London Centre.

Mr. Mackenzie: But we are going to support it.

Mr. Laughren: Surely there is nothing wrong with public sector pension funds being used for the good of the public. The money was going to have to come from some place. The member for London Centre would take it from taxes, I presume. I never heard such a silly speech in my life.

Mr. Conway: Did you hear Cassidy Saturday night? On chickens and wieners?

Mr. Laughren: The use of public pension funds is not something that should be determined entirely by the private sector. That’s not exactly what we would regard as responsible pension fund management.

I regard this, as the Treasurer did, as a housekeeping bill and I was astounded to hear the accolades from the member for London Centre.

Mr. Roy: He’s an objective member.

Mr. Laughren: We know the contributors to this fund wish, of course, that they would have total say over what use was made of the fund.

The other point I wanted to make was that in section 2 of the bill, since we’re not going to committee I presume, it does indicate that an attachment can be made to recipients of the fund for support payments. That’s something not only we think is right but the people who pay into it are in general agreement with as well. So we have no hesitation in supporting the bill.

Motion agreed to.

Third reading also agreed to on motion.

AUDIT AMENDMENT ACT

Hon. F. S. Miller moved second reading of Bill 32, An Act to amend the Audit Act, 1977.

Mr. T. P. Reid: Mr. Speaker, before I make my small and humble contribution, I wonder if, unlike the last bill, the Treasurer could explain why we’re amending the Audit Act which we passed in 1977, just to see if he knows what he is talking about.

Hon F. S. Miller: Mr. Speaker, of course I know what I’m talking about. This was really to catch certain crown agencies or corporations which had not been properly defined for the audit functions, and therefore the auditors did not feel they had the statutory right to go in and snake certain requirements of those organizations. We are now including them.

Mr. T. P. Reid: Which ones were those?

Hon. F. S. Miller: They are the Clarke Institute of Psychiatry, the Ontario Cancer Institute, the Ontario Medical Health Foundation, the Ontario Parkway Commission and the Teachers’ Superannuation Commission.

Mr. T. P. Reid: Mr. Speaker, the reason this bill is before us is somewhat as the minister outlined. I was impressed that he knew what this bill was about, unlike the last one.

The fact remains this bill was before us for the simple reason the auditor went in to have a look at some of the books of these crown agencies and the agencies said to the provincial auditor of Ontario, “Get lost; you don’t have the legislative authority to look into the financial accounts of this crown agency.”

When I heard that in the first instance, I found it almost dumbfounding that an agency of this government, receiving a subsidy, grant or whatever the government of the day wants to call it -- and, because of its particular bent, it prefers to call it something else -- should say to the provincial auditor, after we had a thorough debate in 1977 which made the Audit Act, based on the federal act, one of the most progressive and comprehensive acts in Ontario, “Look, you have no legislative authority here.” That is bewildering but quite in line with the fact that this government, along with the federal government and almost every government in Canada, has lost control of the public purse. Control of the moneys being given to these crown agencies, boards and commissions has been lost, in this case, by the provincial government, without any responsibility or accountability.

Hon. Mr. Welch: Control is in the Legislature. Don’t be blaming the government; the Legislature has control.

Mr. T. P. Reid: Control is not in the Legislature, I say with due respect to the government House leader. A former minister of the crown, the member for Carleton (Mr. Handleman), was quoted in the Globe and Mail as saying he was disappointed that the public accounts committee did not deal at length and in detail with the estimates or the spending of the Liquor Control Board of Ontario and that there was no accountability for the funds that were being spent and administered by that crown agency.

Mr. Conway: And the hosing they were giving the rest of us.

Mr. T. P. Reid: He did not really say that. In view of the fact that the profit the province realized from the LCBO in the past year was $334 million and that the Treasurer has decreed in the next year it will be more than $400 million, it was very startling that the former Minister of Consumer and Commercial Relations would get up and say, “I was the minister and I didn’t know what the hell was going on there.” They are dealing with that kind of money, and yet one of those agencies had the temerity to say to the auditor: “You have no business in here. You can’t ask us what we are doing. Why should we report to you what’s going on?”

I would like to refer to the former minister for a moment. I will not go over the former minister’s remarks about how he felt when he was the minister. As the minister of the crown -- never mind as a member of the opposition or as a member of the public -- as the minister he could not find out what was the relationship or the responsibility or the accountability between that particular board and the government of Ontario, even though we are dealing in a profit of $334 million, never mind the expenditures and everything else.

The Liquor Control Board is the most successful business corporation in Ontario, given its assets and everything else. Yet the then minister knew nothing about it.

Mr. Speaker, I recall to your mind the report of the Lambert commission, the thick book dealing with responsibility and accountability of taxpayers’ money and asking who is responsible and where is the accountability?

Mr. Sterling: The public accounts committee.

Mr. T. P. Reid: It is not their responsibility. The public accounts committee has only undertaken in the last few weeks to deal with agencies, boards and commissions because the government of the day has lost control, has lost any idea of what’s going on with those vast sums of money.

Applause.

Mr. T. P. Reid: Never mind the money that’s given to them for operating grants or subsidies, but in the money they are dealing with and the money they are bringing in. They have no idea and they are condemned by the words out of the mouth of an ex-minister of theirs.

I was shocked and I’ve seen a lot of hypocrisy in this Legislature --

Mr. Peterson: I’ve done a little myself.

Mr. T. P. Reid: The member for London Centre is speaking for himself, of course. But when the present Chairman of Management Board (Mr. McCague) got up with that pious statement about the Lambert commission in Ottawa, and he said, “There are 164 recommendations how we can give back responsibility and accountability to the House of Commons,” the minister here got up and said --

Interjection.

Mr. T. P. Reid: Robert, you would know better than I. It’s not the Pharisee. I’ll find this out on June 9, I suppose, in these --

Hon. F. S. Miller: Is it June 9, I thought it was June 6.

Mr. T. P. Reid: Well you see, Frank, you’re not right. The Treasurer has no head for figures at all except the wrong kind, so we won’t we go into that.

Mr. Conway: June 6 is D-Day.

Mr. T. P. Reid: But the piousness and the platitudes of the Chairman of Management Board who got up and said, “Those 164 recommendations -- “ Well, he said, in his statement -- and I won’t repeat it because that’s against the rules -- “We already have brought in most of those controls in the province of Ontario and isn’t it a shame that our federal brethren, with all the large civil service they have, don’t have the kind of controls we have in the province of Ontario?”

Interjections.

Mr. T. P. Reid: I mean, really, I was so astounded and dumbfounded that I was dumb in the sense that I was speechless, that the Chairman of Management Board, who should know better than anyone else that this government as well as the one in Ottawa has lost control over the public purse --

Mr. Ashe: That’s the federal government.

Mr. T. P. Reid: -- that the control of estimates in the province of Ontario is a sham; and that this government has no control over that myriad of agencies, boards and commissions that this government has set up, should say to this House. “We have much better control and we’re in control and we know who is responsible, and we know who is accountable.”

I’ll tell the minister -- well, I won’t tell him what we’d say in the Rainy River district about that, but we have a large farming area and when I go on a farmer’s farm, he says, “Pat, don’t step over there. Don’t step in the hazunga.” Well I’ll tell the Treasurer that statement was hazunga because he and his colleagues over there have lost control. They don’t know who is responsible and they don’t know who is accountable.

I’ve spent a couple of years on public accounts attempting to upgrade that committee with one view in mind -- that we can find somewhere where we can say to the taxpayers of Ontario, because that’s what it comes down to, “Look, we know who is responsible for the waste of money. We can pinpoint the persons who messed that up. We know who is accountable for what’s gone on.”

But I’ll tell you, Mr. Speaker, we cannot do that because we have the people come before us week after week and they say, “We’re not responsible. I’m not accountable.” The minister should hear all these chairman of royal commissions, from Judy LaMarsh, who got up there and said, “God, I don’t know anything about government spending. Do you mean there’s limits? Do you mean you have to account for this sort of thing?”

We had Chief Justice Hartt who said, “They appointed me to the royal commission on the northern environment. I didn’t know anything about Indians.” I said to him, “That was a very expensive education on the part of the province of Ontario.” But the point remains, you cannot pinpoint the fault to this government. I don’t blame the cabinet for everything; these are very highly paid civil servants. But really, who makes the mistakes and who pays for them? We don’t know who is responsible for the mistakes, we don’t know who is accountable.

I have made speeches on ministerial accountability. Even I don’t expect the Treasurer, who didn’t know what was in the bill before this one, to know what’s going on in his ministry. Given his particular talents and competence we expect even less than that from him; but the point remains we have very highly paid civil servants at the senior and middle management level who are not willing to accept accountability and responsibility for the funds they are administering.

Mr. Speaker: Does the honourable member find this a convenient point to adjourn the debate?

Mr. T. P. Reid: Actually I wouldn’t, Mr. Speaker, but I will accept your admonition and I will now adjourn the debate.

On motion by Mr. T. P. Reid, the debate was adjourned.

The House adjourned at 10:30 p.m.