For the purposes of formality and proper procedure, I'll call this meeting to order.
Welcome to meeting number 21 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference of Tuesday, March 24, the committee is meeting on the government's response to the COVID-19 pandemic.
Before we start, I want to inform members that pursuant to this order of reference, the committee is meeting for two reasons. One is for the purpose of receiving evidence concerning matters related to COVID-19 and the other is to consider the biweekly report by the , which we will get next week again.
Today's meeting is taking place by video conference and proceedings will be made available via the House of Commons website. Just so you are aware, the website will always show the person speaking rather than the entirety of the committee, and that goes for the witnesses as well.
We went through most of the procedures for participating, so mute your microphone when you're not speaking, if you can, and speak as slowly and as clearly as possible. That will make it easier for the interpreters to hear you and then translate into the second language.
I'll start with the witnesses now.
I would ask witnesses to try to keep their comments to about five minutes if they can. We will then be able to have a good series of questions.
Starting with Javaroma Gourmet Coffee and Tea, we have Rami Kassem, president.
Mr. Kassem, go ahead, please.
Thank you very much for allowing me to join you all today.
I would like to thank you for the opportunity to speak on behalf of the restaurant and hospitality industries here in Manitoba.
As a meeting place for enjoyable nights out with family and friends, our industry has been reduced to a meek and unpredictable takeout and delivery business, with 75% of our industry operating on only 20% of its revenue stream to sustain their businesses. Our average profit margin of only 4.5% is not sustainable for any length of time. We've seen about an 80% reduction in the workforce, and dedicated operators have been turned into cooks, delivery drivers and grocery store clerks to keep us sustainable during this destructive time. With no current federal or provincial programs for fixed costs or for rent assistance and loan application processes that are very convoluted and time-consuming, we're actually seeing a lot of operators unable to create enough hours in the day to remain operationally effective and also remain up to speed on delayed or unavailable programs.
For the approximately 25% of restaurants that are not operational, federal assistance programs available on the basis of wage subsidy are moot. Each day these operations come closer to joining the list of restaurants that will never open their doors again.
A recent conversation I had with an operator of five local fine dining restaurants resulted in a tear-filled plea for more industry-specific assistance, including a federal rebate program for the approximately $75,000 in third-party delivery commissions that he's been forced to pay due to the mandated closure of his dining rooms.
As an industry that struggles to attract high-quality and dedicated employees, each day our industry loses more and more of these existing employees to government programs like CERB. Every day we see another brick in that structure that supports our future removed. Uncertainty about the status of our industry and the future poses significant challenges on retaining post-COVID-19 profitable business. Reality shows that our industry will retain significant losses due to social distancing guidelines for months and possibly years to come.
The reliance on delivery will probably change the structure of a restaurant experience. Federal relief in maybe the form of a CRA adjustment to deductions for claimable business meals would assist in fostering beneficial growth in business revenue, in the form of both dine-in and takeout options.
As one of the first industries to self-close to ensure both patron and staff safety in Manitoba, our industry has been driven to devise operational protocols to ensure that our future patrons can enjoy a dining experience in a responsible and safe manner. We're looking to our federal government to institute a social distancing subsidy program to be available for operators who require changes to their restaurant operational schematic and to ensure that their future business is conducted within the guidelines of social distancing in the dining room, the lobby and in the kitchen.
As we continue to provide feedback at our provincial and federal levels, we continue to see a lack of a unified approach to a national strategy on recovery within our restaurant industry. We're looking to the federal government to initiate a national committee of underlying layers to bring leaders in contact with each other within the restaurant industry to compile a unified strategy on recovery processes, with an ultimate goal of returning our industry to pre-COVID-19 success.
With one week remaining before May 2020's remittance date for commercial rent, operators continue to search for unique ways to meet rent costs with no significant rent relief options in sight. Our industry cannot sustain these consistent drawbacks to the already deteriorated morale that accompanies the uncertainty of a viable future. We're looking to our federal government to initiate these collaborative rental assistance programs that will provide immediate and time-sensitive relief to our operators.
As operators create new and innovative operational processes like grocery delivery to remain viable, we're looking to our federal government to utilize these same principles to initialize programs that will ensure our industry will continue to grow and provide essential services to people and ensure that it's a safe environment in which to enjoy the fellowship of family and friends for years to come.
Thank you for allowing us to discuss the challenge with you today. We're confident that our federal government will do the right thing to preserve our industry for generations to come.
Good afternoon, everyone. I am Andrew Oliver, restaurant operator and president of Oliver and Bonacini Hospitality. Thank you for allowing me to address the committee today.
Oliver and Bonacini manages a number of restaurants and venues with operations in Quebec, Ontario, Saskatchewan and Alberta. Our portfolio ranges from quick service to fine dining.
Our industry urgently requires specifically tailored financial solutions for most of our industry to survive this crisis. We are high-labour job creators, the fourth-largest employer in Canada, and we account for 4% of GDP, representing 1.3 million jobs. The numbers are significant, right up there with oil and gas and airlines, but we get there bit by bit, as we are are normally made up mostly of small to medium-sized independent businesses.
A crisis of this magnitude in the hospitality sector is going to have a massive negative impact on the Canadian economy, and the damage is already well under way. Over one million of our workers are currently laid off. According to Restaurants Canada, as of the end of March, 10% of restaurants have already closed their doors permanently, with an additional 18% expected to close their doors by the end of this month. Survey results released today indicate that one in every two independent restaurants—that's 50%—do not expect to survive this crisis, and most multi-unit food service businesses will have to permanently shut down at least one of their locations.
More than 95% of restaurant revenue is redistributed right back into the Canadian economy, and an estimated 30% of our revenue is redirected right into government coffers through taxation. That was over $30 billion last year. Any amount of failure in our industry will have broad-ranging economic repercussions, with massive amounts of contagion.
For instance, restaurants represent one of the largest and highest-paying tenant groups in Canada, spending an estimated $9 billion annually in rent. This represents approximately $150 billion of real estate value. An additional 300,000 jobs in direct supply chains are supported by the hospitality industry. Canadian wineries, local breweries and distilleries, purveyors, farmers and artisans are all part of the Canadian small business network.
To give you just one example, the majority of Canadian farmed shellfish is consumed in restaurants. Closures have now caused the demand for oysters to collapse, and for shellfish like clams and mussels, it's down 70% to 80%, according to the Canadian Aquaculture Industry Alliance.
Bobby MacMillan is a mussels supplier at Atlantic Aqua Farms in the Malpeque region of P.E.I. He tells me that 50% of his sales go to restaurants and that the permanent closures are going to have a devastating impact, not only on his business but on his local community.
In fact, there are billions of dollars in unpaid invoices still owing to suppliers, invoices that are at risk of never being paid.
When this crisis hit, our government's first and urgent priority was getting money into the hands of individuals who were out of work. We applaud and support that decision, but our next priority must be the preservation of jobs. We are concerned that the current emergency support programs will not solve the immediate cash crisis that many restaurants face. It will lead to permanent closures and permanent job losses.
Fixed costs and working capital are our top issues. The majority of all Canadian restaurants are currently drawing next to zero revenue, but the fixed costs of rent, loan payments, insurance, and WSIB and employee benefits for laid-off workers must all be paid.
The $40,000 interest-free loan program, recently expanded, was a step in the right direction; however, many restaurants with many employees are excluded from the program. Moreover, if you are included and you are at the higher end of payroll, the amount of capital provided is simply not enough. Our costs are way too high.
Another step in the right direction is CECRA, the rent relief program for small businesses. It's not yet approved, nor do we have enough details, but for restaurants that are drawing little or no income or revenue, it's unlikely that anything short of 100% rent coverage will do enough for many to survive, which will cause a second wave of closures and permanent job losses. Rents are 10% to 12% of sales. The math is extremely straightforward. A 75% wage subsidy is not, by and large, a viable solution for restaurants that are closed and have zero revenue. If subsidies were made available to us at the time of restart, it would be quite helpful; however, most owners will not have enough working capital to bankroll full payroll for the weeks and months until government reimbursements arrive.
Mindful of these unique challenges, I've been working with a coalition of my peers through savehospitality.ca and representing over 75,000 laid-off workers from coast to coast. We've been very active in working with municipal, provincial and federal governments. We are actively lobbying for rent relief and have been credited with helping get it on the agenda, and we are also providing some solution-driven recommendations.
As an example, on the wage subsidy, we are recommending low-interest to no-interest government-backed loans to bridge the period before government reimbursement begins to flow.
To address the fixed costs and working capital issues, we are recommending a forgivable loan program, which would provide a percentage of an operator's prior year net revenue as a means of support through the mandated closure and give operators enough capital for a restart.
Having recently renovated and reopened a restaurant, only to be forced to shut down some two weeks later due to COVID, we know what it costs, and it's very expensive.
In conclusion, there are solutions that can help us get back on our feet. They just need to make sense for our industry and our unique set of circumstances. For this to be affordable for the government, we need industry-specific solutions tailored to resolve our hospitality issues.
We are here as an industry, and I am here with our government, to find solutions that will work to stop the next wave of closures and ensure a strong industry once this is over, but we need your help. At Oliver and Bonacini, we closed our restaurants across the country before it was mandated, as did so many of our peers. We did the right thing, and we likely slowed the spread and saved lives. Now we need you to save us. We're not lobbying to reopen before it is safe, but we need support to bridge us through, to ensure that there is a business left to reopen when it is safe to do so.
I am here because I love my industry. I love my business, and I'm fighting with every fibre of my being to keep my 3,000 employees, employees who have families to feed and rent to pay. Those with the heavy burden of finding solutions must take the same approach in supporting the members of my team, whose talent, work ethic and passionate dedication make them just as deserving.
I am tremendously grateful to you for everything you are doing and your time today.
Mr. Chair, distinguished members of the committee, thank you for inviting me.
My name is David Lefebvre. I am vice-president of federal affairs and Quebec at Restaurants Canada. We are the national restaurant association, representing over 30,000 members, including full-service restaurants, quick-service restaurants, catering services, bars or drinking places.
In normal times, our industry employs 1.2 million people, generates $93 billion in economic activity and serves 22 million Canadians every single day.
As you all know, these are not normal times. Since mid-March, the COVID-19 outbreak in this country has wreaked havoc on restaurant operators, with 800,000 jobs lost and close to a quarter of restaurants either permanently closed or thinking about shutting down forever over the next few weeks. More than half of our industry does not have any sales. Dreams are broken. Retirement hopes are broken. Careers are broken. Lives are in shambles.
Our people are ingenious in Canada through many circumstances, but right now some have both knees on the ground, and they need a friend. It is not a situation they like, and they did not choose to be in it. Our association fully accepts public health measures and our continued role, but we also request proper support. This is a time for action.
The federal government has implemented some terrific programs in the past month, ranging from the Canada emergency response benefit for workers and the wage subsidy to a series of loans for businesses and even support for young workers and students.
As we transition slowly from a time of emergency measures to a period of greater sustainability, Restaurants Canada would like to share its recommendations.
Without your help, the carnage in our sector will continue. According to a survey made public yesterday, 75% of our members describe their debt situation as serious or critical.
Canadian restaurateurs need sector-specific support.
Rent payment is by far the highest fixed cost in our industry. As the next step to ensure business continuity, it is essential that this be addressed by the federal government and its provincial counterparts. Without action, you will not be able to drive two blocks in a few months without witnessing tons of closed stores and massive desolation. It's going to be true in the 338 ridings across the country. Nobody wished that to happen.
Restaurants are different from other stores. Closing down seven weeks ago meant a massive loss in inventory. Fresh food was donated or lost. There's no inventory anymore. I mean no disrespect, but we're not a candle store or a clothing store that will not have lost most of their inventory. Even when reopening, it's going to be like rebuilding from scratch. It's just not possible to simply flip on the light switch.
Our members face a triple whammy of closure—often total—lost inventories and mounting bills. On top of that, operators have lost excellent employees who might not come back to the business after the crisis.
Today, we are sounding the alarm: help restaurants, the establishments that play a central role in our lives.
First, we recommend an immediate moratorium on evictions for commercial tenants, which would relieve pressure while stakeholders continue to develop solutions for the long term.
Second, we recommend rent assistance at a percentage in line with decreased revenue. Deferrals and loans are very helpful in the short term but, if not combined with relief mechanisms for the longer term, will contribute to more permanent closures.
Last, we recommend ongoing measures while the economy is still in recovery. That means maintaining rent relief measures until consumer confidence rebounds, the time it takes for business revenues to return to 70% of what they were before the crisis.
We also ask for tax relief, not only deferrals, which often just punt the problem to a later date. Granting waiver on GST and HST for a quarter would be a sound economic measure. Providing some form of subsidy based on a percentage of 2019 revenues is also a path that might be chosen to help restaurants. An extension of the wage subsidy qualifying periods would also truly make a difference.
Restaurants Canada is grateful for the steps taken by the government so far to help, but more is needed as we move into this transition period. Our sole purpose is for as many restaurants as possible to survive, so that our industry can fully contribute to this great country of ours.
We appreciate being able to share with you the experience from the front line of our industry. We would be more than happy to answer whatever questions the committee has, and we remain available to answer your questions for the benefit of all Canadians.
Thank you, ladies and gentlemen.
Thank you, Mr. Chairman, for the opportunity to appear before you.
My name is Marc Staniloff. I live in Calgary and I own Superior Lodging Corp.
My company owns the franchise rights in Canada for the following brands: Super 8 hotels, Travelodge Hotels, and Microtel Inns and Suites.
All of these brands are part of the Wyndham Hotel Group. There are a total of about 525 Wyndham hotels in Canada, of which 255 are under my franchise.
I want to point out that all the Super 8, Travelodge and Microtel hotels are all individually owned by local operators and are all Canadian owned. My company owns interest in about 30 of these different hotels.
Currently there are 100 Wyndham hotels closed in Canada, of which 20 are Super 8, 21 are Travelodge and two are Microtel. About 20% of the hotels under my brand are closed right now. The other brands—Marriott, Hilton, and all the other brands—have similar numbers.
About 20%-25% of hotels in Canada are currently closed.
Currently occupancy in the hotels that are open is running at about 9%. That gives you the context of the current state of the industry in Canada.
In addition to the COVID crisis, we are also getting slammed by the oil and gas markets in the resource-rich communities where we have hotels.
We have several big issues today.
The first is that we need to get businesses open as soon as possible. I know this cannot happen all at once, and I think it needs to be on a measured basis, both in regions and in sectors, depending on the different companies and businesses.
As well, we need to get people travelling again, both by car and by plane.
Then the next big issue is what this recovery will look like. This is going to be a very long haul, and many of our businesses might not make it through.
We think we need to ensure that our sectors can fully benefit from the wage subsidy program and we need to recognize that the recovery of our sector will likely be slow. Thus, we need to extend the duration of the wage subsidy for businesses that will take longer to recover. For example, until revenue losses are below 30%, the subsidies should stay in effect. This will ensure that we rehire our staff and keep them.
We also need to make adjustments to the loan criteria so that banks actually approve us. Right now it's way too risky and the process is way too cumbersome.
First, we need to find a way to have the loans based on the property rather than at the level of a corporate entity. A number of corporate entities own a number of hotels, and as a result of the way the loan process is set up, if they own 10 hotels, they are only entitled to one loan.
Second, the loan process is such that the borrowers have to qualify for the loan. Hotels today are not going to be able to qualify, and as this goes along, they will be less and less likely to be able to do so. We need these loans to be simple and based on a simple checklist and verification of solvency as of March 15.
We need relief, and by that I mean interest forgiveness. I know a couple of the other witnesses have mentioned the same thing. We cannot just pile on more debt and kick the can down the road. This is a recipe for disaster, so for the loans I just mentioned, there has to be a forgivable portion and there has to be a formula for that.
For us to have a solid recovery package, we feel we need the government to provide marketing funds for Destination Canada to fully advertise Canada. We want people who live in Canada to travel in Canada.
In addition, we need a subsidy to support low room rates to incentivize travel. The GST could be eliminated for an interim period, and the deductibility of entertainment expenses could be considered.
Thank you, everybody, for this opportunity to represent Prince Edward Island and the Tourism Industry Association of Prince Edward Island. I am also the executive director of Explore Summerside, which is the second-largest city within Prince Edward Island.
As all of you may be aware, tourism is a vital industry in Prince Edward Island. It provides over 8,600 full-time jobs for islanders. It accounts for over $500 million in economic activity each year and 6.3% of GDP, which is the highest percentage for any Canadian province.
One of our greatest concerns is seasonal operators and their need for support. We are pleased to see that many federal and provincial business support programs have been rolled out in the last few days and weeks, but it is important that we not lose sight of the seasonal operators at this time.
Our island’s seasonal operators are currently weighing decisions related to whether they will open for the 2020 tourism season. In our latest COVID-19 impact survey from April 6, 2020, operators were asked a series of questions about how COVID-19 is impacting their businesses. In terms of the impacts, there were two really dominant statements within the survey. When we asked them about looking ahead to the next three months and what risks their businesses were facing, 75% said that closing their businesses temporarily was an option, 55% are facing employee layoffs and over 50% are unable to pay staff wages.
When we followed up with a question about what kind of financial assistance or stimulus their business operations require, over 60% favoured having government taxes, dues, and financial demands waived for the next 12 months, starting immediately. Over 54% asked for wage subsidies for employees with reduced hours and 43% talked about credit and incentives to continue or start capital expenditures.
With these concerns of operators top of mind, the following are the main areas of concern for these seasonal businesses. Currently, the wage subsidy is only offered retroactive from March 15 and available until June 6, 2020. The limited timeline of the subsidy will not be of great assistance to our seasonal operators in their planning and hiring. We would like the subsidy extended to September of 2020 to help operators plan for opening their operations and for proper staffing. If it is not extended, we feel that operators may not open, or ultimately may open but will only hire skeleton crews, resulting in a reduced experience being offered because of understaffing.
When we also consider seasonal staffing, we are aware that there are now concerns around what happens to people on EI who may not be able to get their insurable weeks this summer. We would like to see EI extended or a program offered to support them in either getting their weeks or covering what would have been their EI in the fall and winter. Having the wage subsidy would also assist in giving them a better opportunity to work their full 12 weeks.
Top of mind are loan options and availability. While loan options will benefit some tourism operators, and we welcome loan options, many operators do not want to add to their current debt load. Operators would like to see government working with lending agencies and financial institutions to encourage multi-month deferrals of 12 to 18 months. While some financial institutions are currently promoting three-month deferrals, these are of little benefit. Operators need time to achieve revenue in the 2020 and early 2021 season to be used to pay back existing loans.
In addition to hoping for longer deferrals for loans, several have expressed concern about the interest that will be accruing on top of the original principal and interest during the deferral period. Having no additional interest would be of greater assistance to the operators.
Additionally, government, working with suppliers of electricity, telephone, Internet and other services, could encourage deferred payments and rollbacks on rates for these services.
We feel the window is closing on our tourism operators' ability to make decisions about operating within the 2020 tourism season landscape. We call on the government to take these issues very seriously and to offer support that will provide seasonal tourism operators with some level of confidence moving into the ever-important summer operating season. This will provide continuity to our tourism industry’s ability to contribute significantly to the economy of Prince Edward Island if we see the government support them with these resources.
Thank you so much for this opportunity to provide some testimony on behalf of the industry. We look forward to helping Canada's hospitality industry recoup and recover post COVID-19.
I wanted to begin by thanking all the witnesses who presented so passionately and eloquently the challenges that the hospitality and restaurant industry is facing right now.
I grew up as a daughter of a restaurateur. In fact, my father ran his business for many years in the riding of Vimy in Laval, which I am now fortunate enough to represent, and I know first-hand the challenges for a small business owner in the restaurant industry in years that are really great, so I can't even begin to imagine what it must be like to be in this situation today.
Having said that, I have two questions, and they're for anyone on the panel who would like to answer. I'm asking about what we're going through in the short term and then focusing on the future.
I would like to begin by discussing access to supports that are included in the COVID-19 economic response plan. Can you give us a sense of how your members and your employees are or will be benefiting from the various programs, including the CEWS, the CEBA, the CERB and the CECRA that is soon to be rolled out?
The second part of my question deals with looking into the future, because as you eloquently explained, Mr. Jeffrey, after the recovery, the business is not going to look the same, and different choices and set-ups will be needed. With that in mind, what is your industry doing to adapt in the short and medium term to the new reality we are in and create a safe environment to bring back employees and clients as we restart the economy in phases? Also, how are you innovating to bring out new and different products and services to meet the new demand?
Yes, I have no problem with that.
Ms. Koutrakis, I think you nailed it. You really understand very well the fact that we're moving from a phase of emergency measures into something that is more medium or long term.
Right now, unfortunately, you have a lot of laid-off employees. They have access now to the CERB and they're able to take that. Some people will also be able to have the wage subsidy. Some companies and even some people will be able to work a few hours and still have the subsidy and make sure they remain on the payroll.
This is a way whereby industry benefits from the programs put in place by the federal government. There are some problems here and there in eligibility, of course, and we've mentioned a few during our presentation, but they are definitely steps in the right direction.
Moving forward, this is why the rent program is so important as a tailored solution for the food service and restaurant establishments, because, to the point Andrew made, you have 80% of the independent operators operating on only 20% of revenues. I think we understand that there's a new phase, that the COVID and the self-confinement situation is moving into a multiple-month process, and definitely help is going to be needed.
To the point of my colleague in Prince Edward Island, definitely June 3, in terms of the wage subsidy, is probably a little too short a time for it to be fully effective, but everything done so far has been positive and are steps in the right direction. We just need to tweak things here and there, and of course create a 100% program for rent subsidies.
That would be my outreach to the federal government. It would be to make sure that the work on rent relief is also done with the provinces, because after all, a lot of those contracts are under provincial jurisdiction. However, federal leadership would definitely be appreciated here.
I think you guys did a great job with respect to getting money to our employees who had been laid off, and I think that we heard overwhelmingly that it went well. On reopening, we might have issues if tipped employees are going to be better off staying on that program than coming back to work, and we're hearing that. We'll address that in the coming weeks and months as reopening happens.
With respect to the CEBA program, the $40,000 program, fundamentally, math doesn't lie. To think that a program that represents.... As an example, you now qualify with a $20,000 payroll, all the way up to $1.5 million. To think that a one-size-fits-all option can work is nonsensical to me. On the one side, the $20,000 minimum threshold if you're on the lowest end is two years' worth of payroll. On the flip side, at the high end of $1.5 million, you get less than two weeks' worth of payroll, which is a 7,500% delta and catch-all net. It is absolutely mind-boggling to me to think that a company of a larger size that is 75 times higher in payroll would only qualify for the same loan program as someone with a $20,000 payroll, and then, on the back end, there are all the companies that don't qualify.
With respect to the rent relief, as Restaurants Canada mentioned, it is the number one problem facing our industry. Our industry pays super-high rent. It's 10% to 12% of our sales, and given that there are huge numbers of people who have zero sales or 75% less in sales and because we have all these other fixed costs, anything short of a plan like the one in Denmark, where they covered 100% of rent and fixed costs for the following three months....
As much as I think again it's a step in the right direction for the government, you might actually have an unintended consequence. If you don't have a catastrophic category for those whose sales are down 90%-plus, whereby they don't pay any rent but are asked to pay, let's say, 25% rent, you might actually have a wave of restaurants saying, “I'm out. The government doesn't understand my business, and I cannot hold on any longer, considering we're only only a week away from May 1."
If you look at the numbers that Restaurants Canada put forward, you see that by the end of April, we're looking at potentially close to 30% destruction and permanent job losses. I'm highly hopeful that the governments are working and really thinking two or three steps ahead at this point to ensure that we don't try to change this plan in two or three weeks, because once these businesses close, they are closed for good. Those payables that they owe—the oyster farmers and the mussel and clam farmers—are never getting paid. Instead of putting out a fire by just dousing the fire and having it limited, you're allowing that fire to continue to spread and the contagion to spread.
My hope here is that we can come and work together, as Shaun has suggested. My hope is that industry and government can sit there and frame something that is the most economical solution for the government. We realize that there are limited resources, but how do we spend that money appropriately? There are those who are actually winning because of COVID financially, so how do we ensure that those who need the money can survive and create those jobs?
Welcome to all the witnesses. I'd like to thank them for their presentations.
To start, I'd like to comment quickly on what the witness just said. I believe it was the second witness who answered Ms. Koutrakis's question.
Indeed, a $40,000 loan isn't much for a larger business, but loans of up to $6.25 million are also available through the Business Development Bank of Canada and Export Development Canada. The loans aren't interest-free, but the rates are low. Although the loans are repayable, businesses who need more help have access to additional liquidity.
Mr. Lefebvre, thank you for your remarks. One of the measures you recommended was rent assistance commensurate with decreased revenue. You said the loans wouldn't be enough.
This is my first question, then. Percentage-wise, how much do you think would be enough for the restaurants you represent?
I'll throw out my second question, while I'm at it.
The government announced that it would be introducing a rent assistance program soon. If that assistance came in the form of a loan that was only partially repayable—similar to the $40,000 emergency loan, which allows for $10,000 in loan forgiveness—would it be enough to help your members, or would they need more than that?
Mr. Ste-Marie, thank you for your questions.
Under the model we are envisioning, businesses could pay a portion of their rent in line with a percentage of revenue. A program like that would address some of the needs Mr. Oliver talked about. Those in more trouble who need more help would be eligible for more assistance. For example, a 50% decrease in revenue would give rise to a 50% rent subsidy. Various models would need to be considered.
Also important is the point at which the business's situation is considered to be normal again. We think the return to normal point should be when the business reaches 70% of its revenues. That would be consistent with the basic rate for the wage subsidy, in other words a 30% loss in revenues.
A loan guarantee program, where a portion is forgivable once the loan is repaid, is better than nothing. When it comes to rent, though, we are looking for subsidy-type assistance, something that would not be repayable. We want to make sure as many restaurants and food service operators as possible remain viable. Obviously, that means businesses that were viable before the COVID-19 crisis, because there has to be some fairness across the various restaurants and service providers. It's important to understand something: if federal support is limited to payment deferrals and loans, watch out.
When it comes to rent, reaching agreements with the provinces is essential. Many of these private contracts are under provincial jurisdiction. Saskatchewan and Quebec are two provinces that are already working on the issue, and we encourage everyone to do so.
Thank you very much, Mr. Chair, and thanks to our witnesses for being here today. We hope your families are safe and healthy.
These are very important issues that you're raising. We cannot have a catastrophic impact on the hospitality industry, on restaurants and hotels, that will mean we will go deeper into the economic difficulties caused by COVID-19.
My first questions for Mr. Jeffrey and Mr. Oliver are around the issue of rent abatement. Other countries—France, Denmark and Australia—have provided really effective rent abatement policies. All of you have pointed out in your testimony that the system of loans just does not work. The idea that businesses should go deeper into debt isn't one that is going to mean long-term viability for the hospitality industry.
What I and , who is the NDP small business critic, have proposed to the government is a rent abatement program based on what is done in some of the other countries, whereby the federal government would underwrite 66% of the rent abatement. In other words, the property owner provides a rent moratorium for the small businesses in the hospitality industry, and as a result of that, the federal government underwrites two-thirds of it. There's a shared sacrifice that allows for the longer-term viability of the industry.
It means, of course, that the property owner continues to have a tenant after the crisis, and it means that the hospitality industry, the restaurant, can actually continue on. What do you think of that idea of rent abatement, with the federal government underwriting two-thirds of the cost in order to get us over this crisis and to allow restaurants to continue building their market and their businesses?
That is for Mr. Jeffrey and Mr. Oliver.
Then that's probably the best idea I've heard so far, quite frankly, because it does allow.... To Shaun's point, the math doesn't lie. If your revenues are zero or 20% and you have other fixed costs, there is absolutely no money to pay rent, but at the same time, rent has to be paid. If we think about what rent does, we not only pay our landlords, individuals such as Shaun, but we also support millions of pensioners and large government service pension plans, which are our largest landowners. They need to get paid. We need the ecosystem to survive.
You also have another massive problem, and we've seen it in Vancouver. Some are asking for emergency loans from the province. We pay outsized amounts of property tax in those rents, and without those being paid, you're going to create fires in every single municipality because of shortfalls in revenues.
You as government, with leadership, can impose a plan like that so that you're protecting landlords for themselves, because alternatively you'll have an utter collapse of the commercial real estate market and rents will plummet. Mortgages will not get paid and pensioners will not get their incomes, just as investors like Shaun will not. At the end of the day, that plan would work.
Paying 100% of the rent for people who have had a catastrophic loss in sales of 60%, 70%, 80% or 100% is absolutely necessary if you want to protect jobs in our industry. If you leave a portion of the rent payable by people who have no funds.... To Gabriel's point, the $6.2-million loan is not an option. I don't believe any of those loans have actually been approved or gone out, compared to those in the CEBA program. It's going to take far too long, and many people in our industry will be bankrupt before that happens. Without direct government intervention, the stats are there: More than 50% of us will not survive.
At www.savehospitality.ca, my partners Eric and John and I originally came up with a plan, before some of these other announcements like the rent relief program, in which we were asking for 10% of last year's sales. We did it specifically, Mr. Cooper, because it would be very easy for the banks to underwrite those forgivable loans that we asked for.
At this point, not knowing what the rental program is, and depending on how much it is and what it is, I don't know what the forgivable loan amount should be anymore until we have those details.
All of that being said, 100%, what we do need is liquidity. Our solution is a little different from yours, in that, instead of it being tied directly to what you pay in HST, which can be a little challenging given the differences among all the provinces and territories, we went out and did intensive modelling, from businesses that do under a million dollars in sales up to restaurants that do $10 million-plus in sales, and said, “Look, we're a fixed cost. The industry is the industry, and the numbers are quite similar.”
We 100% support having a forgivable loan program tied to your sales to allow you to have confidence that the government will be there to allow you to bring back every single one of your employees and give you the capital and the support you need to ensure that those jobs continue, that those people come off of government assistance, and that they continue to then become one of the largest tax bases in the country.
First of all, as you know, I have three locations in Yellowknife, two at the airport and one in downtown Yellowknife. Because the airport shut down, we were obligated to shut down our stores at the airport locations.
At the downtown location, we depend on traffic for sales. With everybody working from home, our sales went down 90%. We were looking to actually shut down even the downtown location, but when we started hearing about the funds coming from the government and the Ontario government loans, the loan from the federal government and the wage subsidy, we started looking to manage ourselves in a way where we could keep fewer employees, lay off the others and implement different ways to generate sales, through ordering online and delivery. We never, ever thought of delivering coffee to homes, a cup of coffee to your home, or anywhere. Now we're doing online orders with delivery or pickup in the stores. People seem scared to come to the store, even though we have social distancing signs and lines and a sneeze guard installed, which cost us $1,000. That $1,000 is one day of sales at that location, so it's very difficult.
I am working more than usual, way more than before. My wife works from home. I have three kids, and as you know, they are studying from home. My wife can't take care of them and review their studies, go log onto the computer and iPads and everything, and I'm spending my time at work, so we are way behind even with our kids' studies just to keep afloat.
I keep hearing from the government about funding, the loans and everything, and everything for June and July. We keep feeling that there's something coming up after June or July, but for the short term, I really appreciate what the government is doing. I know the 75% is not enough. Maybe the government could make it 100% for the subsidy.
The rent is our major problem. I sent an email and I've talked to the landlord. They promised they would get back to me and I haven't heard anything. I just see the withdrawal from my account for the whole rent. They're looking for support and we're looking support. It's stressful for everyone.
In terms of what keeps peace of mind for us here in the north, I applied for the grant from CanNor. Hopefully it's going to be approved. That would keep me afloat. I applied for a BDIC loan to keep me going because the wage subsidy didn't go through yet, because as you know, we need funds. I applied also for the federal government loan, but I haven't received the money yet.
We are afloat right now, but we have a lot of stress about the future, because since the pandemic, customers' habits have changed. They've started cooking at home. They're scared to go outside, even to go shopping. You see the stores are different. There are fewer people there. Once a week they make a big shopping trip. It's way different. Even after the pandemic we're going to get hit big time, because with six feet or two metres of distance between customers, we'll have four customers in a place for which we pay more than $10,000 in rent, just for one place. It's going to be a hassle even with the regulations and the safety procedures for the pandemic.
I'm also looking the other way. I come from Lebanon, where my brothers are not working, everything is expensive and there are no funds from the government, no support or help from the government. I feel fortunate that I live in this country. I'm working very hard with my family to make it through. I wish everybody success.
I am very appreciative that I've been invited to this meeting to share my feedback. I also greatly appreciate Restaurants Canada and CFIB for keeping in touch with us and keeping on top of things. Thank you so much.
I guess it's twofold. As soon as this started to happen, as soon we got into this, we went very aggressively to every one of our banks—we have mortgages on all of our properties—and they did give us a deferral. They gave us somewhere between a three-month to a six-month deferral. The problem with this part of it is that for the deferral you're going to have to pay for it. As for what they didn't do, they haven't set up the terms of what we have to pay and when we have to pay.
I talked to one of my franchisees yesterday and he said it's great. His mortgage payments are $150,000 a month on a very big property in Montreal. After three months, that's $450,000. He got the deferral. What he hasn't got from the bank is when they are going to start asking for it back. He says that if they start in October, giving him the six months, his mortgage payments are going to be $150,000. The deferral part, which they only wanted to say is for a year, adds $40,000 a month. He says, “I'm going to be so under water at that point that it doesn't matter.”
Banks aren't talking about any kind of abatement. They're only talking about deferral, which is really causing stress for my franchisees. If they had sat down and said.... I have some retail tenants, and some tenants as well, that I'm giving deferrals to, where I say, “Here's the deferral and, starting January 1, 2021, if the balance of the term of your lease is five years, I'll take that deferral and amortize it over the balance of the five years.” It doesn't hit them as hard. I'm trying to see if the banks are going to do the same thing. I haven't seen that yet. They really haven't come up with a program on that side of it.
With respect to the government assistance, it's threefold. The $40,000 assistance, which is great, I have to tell you.... You get $40,000 and it helps you pay for rent and some staffing and whatnot, and you only pay back $30,000. That seems to be coming very quickly. I'm talking to different guys. They do the application and it's a very quick turnaround, which is great.
The problem is that for the two other loans, one being the COVID working capital loan, which EDC has capped at $2 million, as I said before, it's a very tough process to qualify. It is based on need, but they're looking to tack it on to the existing mortgage you have. It just makes it too tough. We're kicking the can down the road, which I've said. On the $6.25-million loan, I'm hoping—and I know that Susie Grynol from HAC was very passionate about this—to get it set up so that it's on a per property basis versus a corporate need basis. I have franchisees who own 10 hotels. With $6.25 million as a cap, it doesn't go a long way. Again, the problem is qualifying for that. We feel that has to be 100% guaranteed.
That's my issue with the banks, James.
How could you forget me?
Anyway, I want to say a huge thanks to everyone. This has been an absolutely excellent presentation, and I really appreciate hearing from each one of you.
I think all of you have alluded to this: We're going through an unprecedented time here in Canadian history. You've all also alluded to the fact that the federal government has acted fairly quickly. We've introduced a whole bunch of support programs. We've tried to get money into the hands of as many people as possible as quickly as possible, and we took the motto of “perfect can't be the enemy of the good”. Obviously, we have a lot more to do, and I think we're starting to get a much better sense of how things may unfold.
I call it three phases. First is that we're still trying to get past the surge phase, so we're still in the immediacy of the whole situation. The next phase is what I call the interim phase. It's the phase right before we get to the vaccine. We can't go back to the new normal until we get some sort of vaccine, so how are we going to operate in this interim period, which most see as around a year to a year and a half?
A number of you have mentioned a number of really great ideas: the 100% rent abatement; the easier to access loans, more of them forgivable; imposing more unanimous rules, particularly around rents and getting money to grow as fast as possible; and a number of changes that we need to make with our banks. I think that's been heard loud and clear, so I wanted to mention that to you.
I wonder if I can get some advice or some input into how we start looking at this interim phase. As a number of people have mentioned, restaurants might be able to go back 40% to 60%, but it's going to have to be under strict public health rules. Even once we get into the vaccine, it's going to be a new normal. The world will change there as well. Food prices will be different. How we staff will be different. Behaviour in society will change, and I think one of the panellists mentioned something about travelling far more in Canada and how we can promote that.
We're trying to get to the immediacies. You've made some great recommendations, now I'm trying to ask how we get through the next phase. What's the group of people? Do we need to form a panel, a committee? Do we need to have the developers come or the bankers come together? Do we need to bring all the restaurants together, or federal and provincial governments? What's the right grouping of people to help set a plan for what happens over the interim period? How can we craft some new plan moving forward, once we have a vaccine in place?
I'm not sure who wants to take that. I'd love to hear from someone from the restaurants, someone from the hotel industry and maybe someone from tourism, if someone wants to take that.
Thank you very much for your question, Mr. Ste-Marie. I appreciate the opportunity to highlight the survey results.
I would say three key findings emerged.
First, 10% of restaurant and food service operators have turned off the lights for good. It's over.
Second, 50% of respondents—so 40% more—indicated that, without significant help to address fixed costs or transition to recovery, they'll have a very tough time staying in business over the next three months.
The last finding provides important information about the health of the industry overall. Of course, some of our members offer delivery. Some are in a stronger financial position and are able to stay open. However, 96% of restaurants experienced a drop in sales from April 15 to 21, 2020 over the same period last year. That doesn't hold a candle to prior worst-case situations, whether in 2000, 2002 or 2008-09. That means 96% of all establishments, including bars and restaurants, have had a decrease in revenue. Across the industry, that amounts to carnage.
The reason we are before you today is to appeal to you for help.
First of all, thank you for giving me this great opportunity to speak in the committee today. My name is Salah Elsaadi. I own three businesses in the city of Ottawa, two of them on Sparks Street downtown, a hair salon and a crêperie, and another one, a construction business in the south end. I live in Nepean—Carleton. I support all these communities through taxes and businesses.
On the point I've been discussing with my friends and a lot of businesses, I know that the government is helping them with their costs, with loans of $40,000, for businesses of $20,000 up to $1.5 million. It's still a loan, you know, whether people get it or not. I talked to the bank. It's more like you're applying for credit in terms of whether you're able to get it or not, but I talked to the bank, and I said that it's sponsored by the government and they should get it.
But there's a big issue here. A lot of small businesses get their money as dividends at the end of the year. A husband and wife or two partners pull a cheque every month from their corporation, and this money goes every month toward their salaries. At the end of the year, their accountant writes it for them as a dividend to save taxes, because they've already paid high property taxes, higher end.... Those people are not able to get the help of this $40,000 loan. Again, as I said, it's a loan. It's not giving away money. They have to give it. I see that the government is talking about giving a few months for the commercial property to help the landlords for their tenants. It's great, but it's always in the short term.
As I said, I have two businesses in the city of Ottawa, and I live in the city. One of my businesses on Sparks Street is the crêperie that we opened last May. I will give some history for what businesses I think will survive. Visitors come from Mexico, United States and China and all over the world. I believe that all the Canadian cities from coast to coast will be suffering because there will be no visitors. The long term for this business will be suffering. I believe the government has to work toward the long term. All of this is for short-term businesses all the time. It is not talking about how to help businesses over the long term.
This is one of my points. It is to help those people who get dividends and to think about how we are going to survive. In Ottawa and Montreal, businesses run due to visitors. All the hotels are shutting down. I'll give you some history. I was the chairman of the Sparks Street BIA, if you are familiar with it. I ran the festival from 2005 to almost 2015. I created all these festivals and brought a lot of visitors to the city. With 2020, this business is not able to survive. I'm not talking just about Ottawa. I would also say that about Quebec City and Montreal.
On the Canadian economy, I know the government is doing a good job, but we still have to think about how to push toward help. Hotels and the streets downtown are empty. Businesses are empty. The government now, as you all know, is working from home. What happens after we go back to business? Social distancing...? Also, maybe 50% or more are going to stay home, and there will be no visitors and nothing coming out to push the economy. This is one of the main issues that I think businesses are facing now and will face in the long term.
I've run my businesses since 1994. I've worked with different businesses, especially one of them I would call a tourism and event business. Two of my businesses were in that area. My third business, which is in construction, caters to locals, and I think it will keep going.
People now are fearful. I've talked to customers outside who don't want to talk to us. They don't know what will happen next. I know it's something that we are all suffering with, so what I think I would like from the government is to see it consider the businesses that get their salaries as a dividend, not as a T4. Not everybody gets a T4.
The second point is on the cities, the big cities like Montreal, Ottawa, Toronto, Vancouver and Halifax. Every city in Canada depends on visitors, and now we're not going to be able to have them. That's what we have to focus on for the next year, I would say.
I sent a letter to our landlord. I said we have to focus on business, not for the next four months or six months but from now until next May, to see how we can survive.
We'd like to thank you for allowing us to appear before this committee.
My name is Bob Lowe, and I'm a rancher and feedlot operator in southern Alberta. I am also the current president of the Canadian Cattlemen's Association, the national voice of Canada's 60,000 beef operations. With me is Dennis Laycraft, the executive vice-president of the CCA.
To start I would like to stress that we strongly believe that if current challenges are strategically addressed, the Canadian beef industry will emerge as a key recovery sector post-COVID-19. However, we cannot take the current challenges lightly, and they must be addressed urgently, as the beef industry is the foundation of jobs for 228,000 Canadians and it contributes $17 billion to the Canadian economy.
As you've likely seen in the news, challenges brought forward by COVID-19 have resulted in a number of Canadian and American meat processing facilities significantly reducing their processing capacity. The scale of the impact is daunting. The Cargill plant in High River alone slaughters just under 40% of the total Canadian production. Every day they are not operating about 4,500 head of cattle are being backed up in the beef supply system. Prices are falling and costs of keeping cattle for longer than intended are mounting. To further compound the problem, other facilities have also had to reduce their processing capacity to adapt to COVID-19, and these challenges are in addition to the shortages we were already facing in eastern Canada. For beef producers, this has resulted in limited options on when and where cattle can be marketed, increasing costs of keeping cattle on farm for longer periods of time and severe market volatility.
We have already seen the value of a single market ready beef animal drop 30%, or over $500, for the week of April 12, 2020. Without some intervention, we estimate that losses will grow by an additional $500 million by the end of June. With such stark losses, one cannot help but relate this to the hard times of BSE in the early 2000s, which resulted in fundamental changes to Canada's beef industry, including the loss of 27,000 beef operations and the related loss of five million acres of Canada's endangered northern great plains.
It's not only processing capacity that has become a challenge, but the main risk management tool that we use in the beef industry, price insurance, has seen the premiums jump from what used to be $10 to $15 per animal to over $70 per animal. This is especially difficult for our young producers, who carry higher debt loads and need this insurance to be able to access loans from banks.
We have put forward to the federal government a set of policy solutions that support market stability and enable sound business decisions to continue to be made across our sector. The time to implement these policies is now, before it's too late.
Our first recommendation is to establish a set-aside program that will address the severe processing shortage by putting a set number of cattle on a maintenance diet rather than the growth diet they would normally be on. This will help better match the number of cattle ready to market with the amount of processing capacity available. This flexible policy tool was used successfully during the BSE years. It brings market stability and avoids a potential market crash.
We also recommend addressing the sky-high premiums that have made our main risk management tool, price insurance, unusable, as well as making the tool available in the Atlantic provinces. As I mentioned previously, this is very important to our young and new producers.
We also recommend adapting the advance payments program, similar to what was done for canola producers last year, to provide added liquidity and flexibility. This will enable cattle producers to market their commodity at the best time and actually make reinvestments in their herd. This three-legged stool approach of set-aside, livestock price insurance and adaptations to the advance payments program is a proactive set of tools that together will address the challenges being faced by different parts of our industry.
I would like to stress that our recommended approach will help avoid costly payouts from the AgriStability program, which is helpful for addressing losses but is more reactive in nature. Our recommendations will save government money and get the beef industry back to growth faster.
I would also emphasize that the current funding programs announced in CERB, wage subsidies, loan programs or otherwise are almost entirely unusable by our industry. Furthermore, the existing suite of business risk management programs come nowhere near being able to address the current challenges we are facing. We need smart policies implemented that are proactive and address the unique nature of agriculture and the pandemic.
We would emphasize that the beef industry can be a growth industry for the Canadian economy as we emerge from the COVID-19 pandemic. We have robust international access and our Canadian product is in high demand. However, if beef producers aren't able to make sound business decisions due to market volatility, the beef industry will emerge from COVID-19 in difficult shape, just as many other Canadian businesses.
Let me speak a little slower and louder. It seems to be a bit better. I see some nodding heads. That's good news.
The situation for small companies across Canada continues to be incredibly challenging. We are now up to about 800 to 1,000 calls per day from our members across the country. Many of them are business owners who just don't know where to turn. Some of them, fortunately, are in a position of being helped by some of the programs that government has announced and I'm bringing some recommendations on how those programs can be improved.
I sent a deck that you should all have in front of you of some new data from CFIB. We have done a survey of our members every weekend, and we're going to do it again this weekend. On each survey we have between 10,000 and 12,000 respondents who outline the impact that COVID-19 and the economic emergency is having on them and [Technical difficulty—Editor] recommendations on the various support programs that are out there.
Right now, only 21% of businesses across Canada are open, and 80% of small and medium-sized firms across Canada are closed either completely or partially closed. Of course, in some provinces, it's even well below 20% today, which is very worrisome news, as restrictions from [Technical difficulty—Editor] continue.
When we talk to our members about what's happening from a sales perspective, over half of our members, 55%, have seen their sales drop by 50% or more. That's incredibly alarming, in our view, because many of them are just not able to keep their doors open even if they are technically allowed to open.
One of the most worrisome statistics that we should all be thinking of is that half of small businesses have said to us that if current—
Good afternoon. My name is Rick Bergmann. I'd like to thank you for the opportunity to appear before the standing committee and provide the perspectives of the Canadian Pork Council and producers on the government's response to the COVID-19 pandemic.
As I mentioned, my name is Rick Bergmann. I'm a pork producer in Manitoba and the chair of the Canadian Pork Council. I'm joined here by René Roy, first vice-chair and pork producer from Quebec.
The Canadian Pork Council represents the views of Canada's 7,000 hog farmers, hog producers. Before I get too far into this, I want to let you know that there's a significant amount of hurt happening right now in our sector, and COVID-19 has made a bad situation worse for all of the producers here.
I'd like to remind the group this afternoon that the direct farm gate sales of Canadian pork in 2016 totalled over $4.1 billion and created over 100,000 jobs. COVID-19 has put the pork sector in a free fall by disrupting supply chains and driving down the prices of hogs. The risk of major market failure increases as the pandemic drags on, and that's a huge, dark cloud over our heads.
COVID-19 has quickly pushed many farms into a cash crisis from which they won't be able to cover the costs of operating their businesses. It's important to remember what our business really is. We're feeding people, plain and simple. We raise pigs to create a safe, high-quality protein Canadians can rely on to feed their families. That's what we are all about.
As a result of this price decline, hog farmers are now losing money on every animal they market. On average, producers stand to lose $30 to $50 per pig they sell in 2020. That doesn't maybe sound like a lot, but once you add the numbers up, it's overwhelming. The impact of this scenario on the farmers' financial and mental health really cannot be understated.
I certainly appreciate the magnitude of this crisis and the number of issues the government has to deal with. It's enormous; it's daunting. On numerous occasions our government has talked about support to farmers and the food sector, but really, little has been done to help us weather the storm, and that's why we're here this afternoon. Our producers need government to take immediate action so that they can continue to pay their bills, feed their animals, keep their family businesses alive and continue producing food. We now need our government to help us in this very significant crisis. We cannot let the industry fall by the wayside because of federal and provincial governments' inaction. We all deserve better.
On some farms right now, they're very distraught with the things going on. In the Maritimes we had a farm that needed to euthanize animals that were ready for slaughter, so animals that were 270 pounds were euthanized, and they would be found to be put in a landfill. It's a tragic, horrific event that producers are going through.
In other parts of the region, they're struggling to find homes for them, as you know what has happened with some processing plants because of the COVID virus. In the province where I'm from, we have producers aborting sows. We have producers euthanizing little piglets, and that's of grave concern. At this very point in time, it's a significant crisis. Again, without our government's help, the future of the pork family farm is looking very bleak. I'll stop there.
I'd like to thank the committee for the invitation to appear before you today and for your attention, and I look forward to answering any questions that René and I could answer.
Good afternoon. Thank you for inviting me.
I've always been an entrepreneur. I started my first business before I turned 18, and I'm now on my seventh. I've had my share of success, selling two companies that continue to operate. They created dozens of jobs. One of the companies did pandemic planning and provided relevant training. It even prepared a plan for the health department after the SARS outbreak. I've also experienced failure, losing millions of dollars.
Throughout my career, I've had the privilege of participating in a number of venture accelerators, including a program delivered by FounderFuel and the TECH program at the École d'Entrepreneurship de Beauce. I've also been part of a number of entrepreneurial groups. I consulted those stakeholders in preparing for my appearance here today in order to share with you the reality on the ground.
Last year, I started a new tech company. We are growing fast. After being in business for a few months, we've put nine people to work and placed orders with around 10 other companies. In 2019, we had $375,000 in revenues, just to give you an idea. This year, after just three months, we will hit $1.2 million if we're able to deliver on the contracts already signed and complete those sales.
We have two divisions. One is focused on professional services. Since we saw the crisis coming, we worked very hard to diversify our services and increase sales on that end. Consequently, our revenues have gone up every month. Our other division is product-based. We developed a technology for smart multi-dwelling buildings to minimize their environmental impact. In terms of research and development, the division is working on a solution to help seniors remain independent so that they can stay at home longer. The crisis has brought the division to a complete halt.
It was working on its first sale, the most significant for the entire company. We can't manufacture or install our equipment for clients. We have tens of thousands of dollars in inventory that we can't use up. We have to double our working capital because we were supposed to carry out the first phase, receive payment and, then, place orders in order to carry out the second phase. We have to do it all at the same time.
What's worse is that we can't make any sales. The seasonal nature of our meetings with industry clients has delayed product deployment by months. The technology was tailor-made for the export market. New York alone accounts for more than 10% of our North American market. The technology could make emerging from the crisis easier by making it possible for maintenance staff to work remotely.
An average sale of this technology represents hundreds of thousands of dollars. Our supply chain is wholly based in Quebec. We anticipate creating a dozen or so direct jobs within the next 18 months, not to mention indirect manufacturing jobs, if we are allowed to move forward with our activities. However, the wage subsidy program isn't accessible to us because our professional services division, which employs just three people, increased its billing. We aren't the only ones. A number of my colleagues are in the same boat: they have two divisions and aren't eligible for the subsidy.
In the technology sector, employees need such specialized skills that they can't usually move from one division to another, given how different the skills are. What's more, many of us start-ups don't qualify for the other programs, including the work-sharing measure or the Business Development Bank of Canada loans, because we haven't been around for two years.
According to the start-up barometer, more than 37% of start-ups don't qualify for the programs that were introduced. That amounts to thousands of businesses. We also have an experimental development tax credit of $150,000, but we haven't heard anything about it for months. The only measure we are eligible for is the $40,000 loan.
Our product division employs six people, and of those, we had to lay off two full-time employees and cut the hours of our part-time employees. We know that, after any recession, the introduction of computer systems and automation will carry on as the economy recovers. Our fear is that we will lose these employees and miss our window of opportunity.
In my humble opinion, the wage subsidy program announced but not yet in effect is corporate welfare, since it pays people to change nothing and penalizes them if they pivot their businesses with success. Any business that makes more than 70% will lose all the subsidy. It is counterproductive to economic recovery.
Programs don't work. They're not deploying capital effectively or efficiently. They are lengthy. In the last month, instead of working on pivoting their businesses, entrepreneurs have been working non-stop trying to understand, fit into and apply to all the different programs, with a lot of paperwork and much time wasted that could have been invested in growth, not to mention the mental health issues and incredible stress because we feel responsible for our employees' incomes.
What we need is a simple solution. It is beyond me why we haven't used the existing mechanisms, like our payroll remittances, GST reports and the direct deposit system with the CRA, and let everyone apply a 75% credit on their next payroll by themselves, a credit that would go down predictively every month to give us time and an incentive to pivot our businesses. Those who do not really need it would simply be taxed retroactively at the end of the year.
As a country, we must accept change. We have entered a new, low-touch economy for up to two years, and two years means that habits are going to stick. As a country, we must collectively accept this worst-case scenario and pivot toward it now.
Right now, the businesses that can help us the most toward a quick recovery and future growth, information technology and clean tech, are suffering the most because of their start-up or quick growth status. I often hear politicians talking about how they created jobs. This is not the reality. Small and medium businesses make the backbone of our economy, 90%. Entrepreneurs create the jobs.
The role of the government is to reduce uncertainty in the market. Right now, it's doing a terrible job. The plethora of programs, their inadequacies and loopholes are just creating more uncertainty over COVID-19.
The second simple measure for recovery that you should put in place immediately is a universal basic income. Right now, the $2,000-a-month program is also welfare. If you work, you're penalized. The solution is to reduce the risk for every Canadian to become an entrepreneur. This measure would also apply to start-up founders and solopreneurs. It would also cover gig workers. It would enable all of us to focus not on paperwork, nor on trying to fit into the system.
As entrepreneurs, we need fundamental government action now, and we need much more certainty about what we can work with in the upcoming years. What we want to focus on is what we do best, putting citizens back to work and growing our economy.
All right. Let me continue until we give up here.
Of course, we are encouraged by some of the programs the government has put in place. The number one concern of our members, of course, is their wage bill, the top expense for small business owners. We are, of course, encouraged that as of Monday businesses can start to apply for the Canada emergency wage subsidy. That is good news. Also, the bank accounts, the emergency business accounts, have added a second positive tool.
We are most encouraged that there are ongoing discussions between the federal government and the provinces for a substantive subsidy to help pay for commercial rent.
On slide 6, I share with you that 70% of small firms rent their locations and pay rent each month, but many are worried about their ability to pay. Fifty-five per cent have said they do not have the funds to pay their rent for the month of May, but they are encouraged that government is looking to step in and help them with these costs. Remember, businesses have been ordered to shut down to protect society, and it is deeply unfair that they would have to pick up the costs of keeping real estate open and paying those bills while they are essentially unable to earn an income. Many of our members are saying that the government really does need to make sure the rent relief would provide forgiveness, not just loans or deferrals, for their rent.
Moving to CEBA, the changes the government recently made to allow businesses between $20,000 and $1.5 million are positive steps, but 20% of businesses remain ineligible for the CEBA in several categories. I'll share more about that in just a second.
In terms of the recommendations we are making about the major programs right now, with respect to the wage subsidy we want to make sure there is flexibility for firms that fall short of the revenue test—that 15% or 30% revenue test—to make sure they don't lose the full 75% subsidy. I agree strongly with the earlier speaker that a universal subsidy would not cause business owners to be worried about whether or not they're going to hit the subsidy and would help them focus on keeping their employees rather than trying to artificially find ways to ensure they get the subsidy, or perhaps focus their attention on that rather than on growing their businesses as much as they possibly can.
The government has put in place a payroll tax rebate for staff, which is welcome news, so if you're using the wage subsidy for staff who [Technical difficulty—Editor], you will no longer have to pay EI and CPP or you can get a rebate on those dollars. We're asking for that to be expanded to all firms, not just those that have staff on furlough.
We also believe that government should be considering extending the wage subsidy beyond June 2. There are so many businesses in tourism and other key sectors that will be able to use this if it continues during what might be a rocky summer season ahead.
We also want to make sure the government clarifies that it won't be the responsibility of employers to go after employees who are using CERB or employment insurance, and that the government will take that responsibility and not require employers to do it.
With respect to CEBA, the loan program, the groups that are excluded right now include family businesses that pay dividends only. We had a speaker earlier talk about just that. Most of those who use contract workers, for example gyms, or those businesses that rent chairs to other parties, like hair salons, are excluded from benefiting from the CEBA program—a very positive one.
We also want to make sure that this program allows access to new firms. There was an extension made to the wage subsidy for newer firms that has not been provided for CEBA. We're suggesting that if you can demonstrate $1,700 in payroll for January or February, you should be allowed access to the program. For those other sectors that I mentioned, we should allow businesses paying dividends or contract wages or having rental chair income to use that to satisfy the payroll test, to allow them access.
We're asking government to [Technical Difficulty—Editor] into May, or potentially June, God forbid, and that governments look to ensure they expand the amount of the CEBA loan and expand the amount of the loan forgiveness that comes along with it.
Finally, as we look forward to a successful rent subsidy, we are urging the federal government and the provinces to ensure that something is in place before May 1 [Technical difficulty—Editor].
John, it's good to see you here.
That would help. If they took out the thresholds and eliminated the narrow little guidelines, some of these programs would work, CEBA being one. The payroll requirement is between $20,000 and $1.5 million, and if you're at the $1.5-million mark, $40,000 is almost zero.
You talked about a pig producer and said that's two days of feed. That would be about 0.4% of the feed that we use in a day, so it's kind of silly. If you're at the $20,000 end of the wage limit, it's still not that big a deal; it just doesn't help. Actually, it's $10,000 and not $40,000, because you have to pay back $30,000 of it.
It just doesn't really amount to anything with the scale of agriculture today.
Thank you. Yes, there are. Canada is getting there. It is starting to pick up some of the examples that have worked in other countries. Unfortunately, it's doing it really, really slowly.
I want to say, just for the record, that I recognize that civil servants have been working around the clock to put together programs that have never existed in Canada, and that's an incredibly difficult job. I give them credit, but the delay we had in launching the wage subsidy, for example, and on top of that the addition of all sorts of rules and regulations, meant that many are excluded from using the program.
Governments in Europe, for example, were admittedly a couple of weeks ahead of us, and when they took these measures, they put them in place quickly and, for the most part, cleanly, without a million different conditions and attestations that you're going to give your firstborn if something goes wrong. That, I think, is one of the struggles we're having. In England, for example, the program they launched was an 80% wage subsidy, full stop. Every employer, small, medium and large, whether they're ahead, behind or somewhere in between, can gain access to it.
I think we do need to reflect on that as we now design programs for rent, in that if we make them too cumbersome, business owners begin to give up. If we delay the launch of these programs, business owners give up.
The policy mix that the government is pursuing is a positive one. I think the wage subsidy was most important. Some lending was also important.
Rent has been the piece. With the May 1 rent coming around the corner, we just need to deliver something on that quickly. If we do that, I think we have a fighting chance of having the majority—not all, but the majority—of our small business community make it across the emergency phase of this.
I'd like to welcome the witnesses and thank them for their statements.
My questions are for Mr. Lachaîne.
The picture you painted makes it seem as though start-ups are falling through the cracks of the existing programs, at least, for the most part. I'd like you to describe the situation for us and tell us what you think should be done. I have four specific points I'd like you to comment on.
First, please explain what a pre-revenue start-up is and why a business like that doesn't qualify for the programs in place and probably won't qualify for the rent assistance measure that is forthcoming.
Second, I'm curious about the problems faced by businesses like yours, with several departments or divisions within a single company. What would you suggest as a solution?
Third, I'm interested in the delay in sales. Clearly, it depletes private capital and increases the risk of bankruptcy. Please talk about that as well.
Finally, I'd like you to comment on why it's hard for you to take advantage of work-sharing and to access supports through the Business Development Bank of Canada because of the requirement that you have to have been in business two years.
The floor is yours.
A pre-revenue start-up is a young company that has invested time and private capital but not yet made any revenue. Some may have had sales, as we did in our product division. We used our consulting service to fund research and development for our products.
Our product division is at a complete standstill. What's more, we used our private capital to kick-start production. We received the merchandise, but we can't deploy it, so we can't generate or take in revenue.
We aren't eligible for the wage subsidy. The same is true for other start-ups without revenue, not just those with two divisions. Businesses have to be able to show a drop in revenues, but without revenue, you can't show that you suffered a 15% loss in revenues.
Many of us aren't eligible for the emergency loan measure either, because you have to have a certain date at the beginning and you need to have paid a certain amount in payroll last year. In my case, I don't even qualify for the emergency benefit for individuals because I didn't pay myself last year.
As for the rent assistance program, I don't know what's coming, but most start-ups won't qualify because they're sublessees. It's similar to the WeWork shared workspace model for those who are familiar with it—it's a lease on a lease.
Actually, our competitors are all eligible for the wage subsidy. That puts us in a very unique situation, where the government is stepping in and changing the market rules.
In terms of the innovation assistance program, or IAP, announced yesterday morning, there is absolutely no information. We'll fill out the paperwork and submit an application. We know what the eligibility criteria are, we know there won't be enough funding available, and we know that it's a wage subsidy. We don't know how much it will be, we don't know who will get it, we don't know what the criteria are, and we have no idea why we are filling out the paperwork to apply.
Start-ups usually need about two years before they really start generating revenue and creating jobs. If all of those entrepreneurs no longer have any support and end up going under, the other problem is that they don't qualify for the Canada emergency response benefit, known as CERB, or they'll be penalized if they have some income.
How does that help entrepreneurship rebound and ensure start-ups are around for the recovery to rebuild and grow the economy?
The trouble is you have to apply for programs like the IAP, which means working with industry advisers, but there aren't suddenly way more industry advisers out there.
Last year, the National Research Council of Canada was given funding to dole out. Applicants competed and less than 10% of project applications were selected. The projects weren't 100% funded; rather, the support was in the form of a joint investment in partnership with private investors.
We met with our adviser on Monday. We thought we were going to apply for the traditional program, based on government funding for the current fiscal year—in other words, the year that began on April 1—but our adviser told us that all the funding had already been allocated in November and December. The projects and programs had already been chosen.
Even though the government has put $250 million into the IAP, we have no idea right now what we'll be able to rely on. We are trying to lessen the market uncertainty caused by COVID-19. No one knows when the lockdown is going to end, and we don't know the repercussions all of this is going to have. We have a good idea, so we can make some forecasts, but the programs add to the uncertainty. Our competitors are subsidized, but we aren't.
The simplest thing to do would be to give everyone the subsidy by leveraging payroll deductions, without making people apply for a whole slew of programs and fulfill all kinds of criteria. At the end of the year, the government could retroactively tax those who didn't need the support, so it doesn't add to their profits.
The important thing is to make sure that everyone is on equal footing for what comes next and that jobs aren't lost.
Okay. Thank you for that.
My next question is for Mr. Lachaîne. I have a question about the start-up community. I take your point that there are groups of people who can't demonstrate a loss of revenue that would qualify them for the wage subsidy if they had no revenue in the first place or, in many cases, did not even exist last year. I think the new businesses that can demonstrate revenue month over month have somewhat been taken care of, but you've quite rightly pointed to some of the highest-growth-potential firms that exist in Canada.
When I've reached out to members of the start-up community, one of the points they've made to me is that not all businesses are without money right now, because they've had a pre-existing angel investor from before crisis. The VC community, however, is looking forward in the short term with a lot less confidence than it had even just a couple of months ago.
For these firms that are not without cash but are looking for their next round of funding from a pool of investors who are just not there, I'm wondering whether the better approach might not be a revenue-based wage subsidy, but some sort of a program that would provide grants to companies in the innovation space. Or perhaps they could even look at BDC, which is fairly plugged into this network, in taking equity stakes in companies, maybe not with a view to hanging onto them forever, but to demonstrate to the community of investors that, hey, BDC has confidence that the start-up community can exist.
Would a program of that nature fill the gap more effectively than a wage subsidy if it's a market-based approach that would give an opportunity for start-ups with real viability and potential for success to get access to further working capital?
On your first question about how the private investors' rounds work, typically start-ups will raise money for 12 to 24 months but typically around 18 months. Any start-ups start to try to raise money about six months before they're out, because we typically aim for growth and not profitability in the first few years.
This means that the impact on the start-ups will be that they won't be able to start their rounds in the next six months. For anyone trying to close a round right now, it will be really, really tough. Especially in the early-stage companies that we call pre-seed and seed rounds, this will be very difficult. The other problem with all of those programs is that these companies are going to run out of money after the program ends, because the programs are available right now and the problem will come in many months.
The second part of your question was about the BDC. BDC was very helpful with my previous companies; I've worked with it. It has two parts, and one is the banking side. As I said, most of its programs are for companies with two years or more of revenues, companies that are profitable. The other side of its business is BDC Capital. It invests but it mostly invests in funds of investors. It sometimes co-invests with other investors, although keep in mind that 97% of start-ups do not have capital—outside of the moms and pops that have their own private capital—and fewer than 1% receive venture capital, VC.
Putting more money into BDC Capital would help the start-ups that already had some money, but as I said, the ones that are in the first two years of development are all out. They cannot get access to this money. The big problem with the programs is that there's a big delay in getting the programs out, the money in, etc., and all we're doing in the meantime is not working on growth but working on trying to fit in the different programs and figuring out how we're going to make this work.
What we would like to do right now is to work on growth and to have a fair playing space so that the incumbents, the existing companies, number one, would pay the same taxes that we do—if you read the news, you hear that Netflix and others are not necessarily paying all of their taxes here—and, number two, have a level playing field so that our competitors, who might have more than two years, are not subsidized when we are not.
I believe that Dan was talking about rent deferral. We're always talking about big companies. For small businesses now in Canada, I wish that the Canada Revenue Agency would go through their T4s or their revenue. Not many of them make more than $50,000. In the short term, it's great that we're given the $2,000, but as a business owner, I can tell you that $2,000 does not pay for my insurance. I have businesses, insurance, cars. It doesn't help.
So I think the government should work directly with the landlords to give them subsidies for rent and work with them on a one-year proposal. If any business opens in Ottawa or anywhere in Canada and cannot pay its rent, it cannot survive. You're going to have 40% to 50% of those businesses closing their doors?
I'm talking now about small businesses. We're all afraid about what's going to happen when we open up again, with social distancing. What does that mean? I went to the bank yesterday. They made me stand six feet away. I was not able to get in. Most of these restaurants have 100 chairs. You're going to drop that to 50, or most of the services may not be able to survive, and there are the big things you have to think about, for the long term. Is the world going to open its borders? Is the United States going to open its border 100% for us? Is China going to open its border? Are the Mexicans going to visit? This is a big question the government has to consider, to help these people survive for the next year, at this specific point.
I talked earlier about businesses being able to survive. In Ottawa I know 20 to 30 businesses that pay rents of between $6,000 to and $7,000. They pay their rents and they get their salaries as dividends. This $40,000 program is not helping them.
Mr. Chair and others, just to finish the thoughts that René presented to you, we know that's actually a very low number. Today, for example, Tyson Foods in the U.S. closed its third American plant because of COVID. Right now in Canada, we know that we've had a flavour of some plant closures, and those were devastating in that region in Quebec and in Ontario and the Maritimes.
We are on the cusp, so although we make this request, our sector changes by the day and sometimes multiple times a day. If we have the misfortune of plants closing, as the people in the U.S. do, then we have bigger problems, and, to go to your point, $20 is nothing.
On Annie's question in regard to the things that are being done on the pork side as well, right now there are some super procedures that are in place and are being put in place. We've had the fortune of seeing others around the world with their misfortune, and that has prepared us.
We're fortunate and blessed to be in that position, but our guards are not down at the processing plants, and our guards are not down on our farms. We understand biosecurity on our farms, so COVID is not a scenario that's lost on farms or at the processor level in terms of all the due diligence that is required. As was mentioned earlier on, we are an essential service for Canadians, and food security is also very critical.
Thank you very much, Mr. Chair. I appreciate it. I did want to go back to Mr. Kelly, who now has rejoined us, with translation.
Thank you very much for being with us.
First, you mentioned during one of your last responses that it might not be your usual reputation at the CFIB to be advocating for this kind of immense public spending to combat an emergency. I'm curious as to when the time will come when you live up to your pre-existing reputation.
You see, the challenge right now is a bit easier in some ways, I find, because everyone, more or less, is suffering from a particular common threat, with some obvious exceptions. There's going to come a time if these emergency temporary benefits remain in place for too long where the benefits may actually have a market-distorting effect, where we will be rewarding people who do not rebuild their businesses successfully and creating a competitive disadvantage for business owners who, for example, no longer see a 30% drop in revenue.
When are we going to know when it's the time to rip the band-aid off, so to speak, and to know that the emergency is over and we should let the market, rather than government supports, dictate which businesses succeed?
It's an excellent question and I absolutely 100% agree with its premise that the reasons.... Subsidies for business are a bad thing. They create all sorts of terrible incentives and we should do as little subsidization as possible.
This is, of course, very different. The government has imposed a shutdown for good and valid reasons, a needed shutdown on swaths of the business community. As we begin to lift those restrictions, that will begin to be the time when we can start to take away some of the measures.
However, there are businesses that are not going to see the effects of the problem in the immediate phase. For example, the tourism industry right now is in a fairly slow season, but we worry that while Canada is coming back up and running—let's hope, over the summer—if tourism hasn't bounced back by then, the impact on that sector will be huge. If it misses those bookings during those valuable summer months, it will not then be able to rely on its income in the rest of the year.
It's going to be an art far more than a science and we're going to have to plan as we go, but it is absolutely critical that there are some significant subsidies in place right now that really do freeze businesses and protect them so that we can then take those supports off at the earliest opportunity.
I know that in years to come in the finance committee, you'll be pointing at this testimony when I'm complaining about higher taxes, so please do keep it, Chair, on record; but we're going to have to deal with that when it comes. Right now we have business owners who are absolutely not sure where to turn. The supports are needed right now, and we will work with you to find opportunities to take them off, but I think you're absolutely right that we should be thinking about that carefully.
You first mentioned the problems, the delay and the inefficiency, in deploying capital in programs. This is why I said that universality is required, and also, to not change market conditions right now for the future. Just for us, if we were to have the wage subsidy, it would be $100,000. It's very important.
On the uncertainty that it creates in the market as we go along, we're only four weeks in, and as it goes along it's creating more uncertainty in the market, because we don't know what other programs are going to come in. There is uncertainty for investors investing even in new technologies, because they don't know if competitors in the future are going to get some subsidies and not them.
That's a very important point, that universality, and also, you know, maybe raising taxes specifically for this year retroactively at the end of the year for people who received it and shouldn't have. They haven't created value, and what we want is to create growth and value.
On the second part of your question on what we can do post-COVID, I believe that we should plan something universal that would decrease the wage subsidies as we go through the months. We need to give people time to pivot. In the start-up world, pivoting means that you're testing something. When it doesn't work, you change either the market or something in the product, and you adapt.
As a country, we now need to decide if we accept this as the new reality, that this is the worst-case scenario, and we adapt. We can pivot the whole economy into a low-touch economy. If it's going to stay for two years, it's going to be in our habits afterwards. People are going to work from home more. This is going to change the economy, so we can't continue doing what we do.
I believe that one of the key points for putting more people into entrepreneurship and having more people start and grow businesses and get value would be to have a universal basic income. It takes two years to get a start-up up to speed. During those two years, you have your private capital, so this is—