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Bill S-6, Canada Elections Act (Accountability with Respect to Political Loans)

 

Hon. Michael L. MacDonald moved second reading of Bill S-6, An Act to amend the Canada Elections Act (accountability with respect to political loans).

He said: Honourable senators, I am pleased to have this opportunity to begin the debate on this bill, which is designed to bring consistency, accountability and transparency to the rules governing political loans.

The bill addresses gaps in our law with respect to loans. Although parliamentarians have continuously strengthened the political financing measures in the Canada Elections Act over the past 35 years, the provisions governing political loans have not been kept up-to-date to meet the high expectations that Canadians have for their politicians.

For example, the reporting requirements for loans in the Canada Elections Act are not sufficiently transparent to enable Canadians to know who is lending how much money to which party or candidate and under what terms and conditions. Similarly, the lack of rules governing the source and limit of loans mean there is a risk that loans could be used to circumvent the contribution limits under the Federal Accountability Act. This can create a perception that politicians could become beholden to wealthy interests.

Since the 2006 election, our government has worked to enhance Canadians' confidence in the political process. We did this by passing the Federal Accountability Act, our first bill introduced in Parliament. Through the bill before us today, our government is seeking to build on this progress by making the provisions governing political loans consistent with the Federal Accountability Act.

I hope today to contribute to the debate by explaining some of the practical benefits of the measures proposed in this bill.

As I have noted, the bill has its origins with the Federal Accountability Act. That act significantly reduced the influence of wealthy interests in the political process by reducing the amount individuals can contribute to political entities to $1,100, by completely banning contributions by corporations, unions and associations and by ensuring complete transparency in political contributions.

However, during study of the act in the House of Commons, concerns were raised that the lack of equivalent rules governing loans could create a loophole and undermine the effects of the Federal Accountability Act. As a result, the Standing Committee on Procedure and House Affairs asked the Chief Electoral Officer to prepare a report on political financing issues with recommendations respecting the use of loans.

The Chief Electoral Officer's report in January 2007 stated:

While Parliament has imposed an extensive regime to control the source and extent of contributions, it has not done so with respect to the other source of funding constituted by loans.

His report went on:

The loans granted by lenders— who are not in the business of lending, who lend money at non-commercial rates, with terms that are not available to others, or in cases where there is little prospect of reimbursement— may be perceived as a means to influence the political entity to which the funds are provided.

The Chief Electoral Officer therefore made the following recommendations to the House of Commons: That political entities may borrow money in excess of the contribution limits only from financial institutions; that all loans by financial institutions be at commercial rates; that the limits on loans made by individuals should be their contribution limit; that a separate regime for the treatment and reporting of loans be established in the act.

Our government acted on the Chief Electoral Officer's recommendations by introducing Bill C-54 on May 8, 2007. Bill C-54 was at report stage when Parliament was prorogued and was reinstated as Bill C-29 in the subsequent session of Parliament. Bill C-29 was passed by the House of Commons on June 17, 2008; however, the Senate did not have time to complete the debate on this important bill before Parliament was dissolved.

Allow me to recap the important and welcomed changes proposed in this bill. The bill would create a uniform and transparent reporting regime for all loans to political entities, including the mandatory disclosure of terms and the identity of all lenders and loan guarantors.

The $1,100 annual contribution limit for individuals established in the Federal Accountability Act would now extend to the amounts of loans and loan guarantees. There would be a prohibition on loans by unions and corporations other than financial institutions. These same bodies are prohibited from making donations under the Federal Accountability Act. Financial institutions could still make loans, but those would have to be made at fair market rates of interest and be subject to full disclosure.

Finally, riding associations or parties will be held responsible for unpaid loans taken out by their candidates as a measure of accountability for the actions of their candidates.

One of the most important benefits of these changes would be the enhanced transparency requirements for loans to all political entities; that is, parties, candidates, electoral district associations and contestants in leadership and nomination races. In addition to the full reporting requirements, all loans will have to be made in writing; a backroom handshake will not suffice.

I note as well that the reporting requirements would apply when the party or candidate files their next statutory report with Elections Canada, a practical and reasonable measure. This change will bring the greatest increase in transparency in the case of candidates and nomination contestants who currently have only limited disclosure requirements. It will impose on these persons the same obligation of full disclosure that has applied to other political entities since 2003.

At the moment, candidates and nomination contestants need only disclose loans and the identity of the lender if the loan is over $200 and they do not report terms and conditions of the loan. In the case of unpaid loans, they do not report on the loans separately from any other unpaid claim in their campaign expenses.

Increased transparency for every loan means Canadians will be able to see for themselves who is borrowing from whom, when, how much and on what terms. It will ensure that loans are subject to the same transparency as contributions. This will be a welcomed change, especially at the grassroots level in our communities, but also at the national level. Uniformity and transparency will make compliance easier for those subject to the rules and also make enforcement easier.

The second major change is to include loans made by individuals in the individual contribution limit. Now there will be a limit to how much you can lend, and that will preclude anyone from using loans to bypass the contribution limits for individuals. This can happen when a large loan is made and then written off, allowing the borrower to avoid repayment. Such loans are essentially a contribution in disguise.

The third change requires that only financial institutions can make loans to political entities beyond the $1,100 limit and at fair market rates of interest. Loans from unions and corporations will be prohibited outright.

The effect of this change is to prevent unions and corporations from doing indirectly through loans what they are now prohibited from doing through contributions. This is neither an unreasonable nor onerous restriction, given that the class of eligible lenders is broad, including domestic and foreign banks, trust and loan companies, credit unions, caisse populaires and insurers.

By preserving the role of the small lenders in our communities, including cooperatives, and in financing grassroots political campaigns, the bill does not unnecessarily concentrate lending in the hands of just a few banks, and the disclosure requirements will ensure transparency.

Requiring a fair market rate of interest further levels the playing field for all borrowers and lenders. There will no longer be situations that raise questions of whether favourable terms were offered to political entities in exchange for special consideration.

The most welcomed effect of this change will be to close off one of the last remaining opportunities for unions and corporations to exert financial influence in the political process by extending loans to political entities. It means that politicians will have to seek contributions from voters, not corporate entities or special interest groups. That change will focus accountability where it belongs, between citizens and their elected representatives.

Once again, it will protect MPs, riding associations and parties from any misperception that they might be beholden to a corporate entity with its hands in our purse strings.

The final set of changes is about responsibility for loans taken out by candidates at the grassroots level, closest to the citizen.

It will surprise many Canadians to learn that under the current rules, a riding association is not accountable for money borrowed by its candidate to finance an election campaign. That is right; if a local candidate borrows money and does not pay it back, the riding association is not held responsible for repayment. This change will be an important means of ensuring that candidates and riding associations are held accountable for money they borrow in that community.

Honourable senators, these are simple, straightforward rules for loans. They are not radical or revolutionary, as similar rules exist in many provinces. In fact, provincial governments have taken the lead in this area.

For example, in Ontario, loans can be made only by financial institutions, and riding associations are liable for the unpaid loans of their candidates. In Quebec, loans can be made only by an elector or a financial institution. In Manitoba, only financial institutions can make loans for an amount of more than $3,000. In Alberta and Newfoundland and Labrador, loans can be made only by financial institutions.

The fact that many provinces already have similar rules in place should answer any concerns that the bill may have unforeseen consequences.

Honourable senators, the bill before us today is substantially the same as the bill passed by the House of Commons in the last Parliament. Minor adjustments have been made on the advice of legislative counsel and Elections Canada officials to ensure the bill is consistent with the existing provisions of the Canada Elections Act.

One change I want to highlight is one proposed by the Liberal Party to change the contribution limit for a leadership contest to an annual limit rather than a per-contest limit.

This bill received a fair amount of scrutiny by the other place, leading to amendments in committee and at the report stage.

In the interests of fairness, a government amendment at committee excluded from the annual contribution limit any portion of a loan that is repaid to the lender and any unused loan guarantees. The effect of this change is to allow a lender whose loan has been repaid, or whose guarantees have been unused, still to contribute up to the annual contribution limit.

Opposition amendments at committee require the Chief Electoral Officer to hear representations from affected interests before making a determination about a deemed contribution. Opposition amendments also extended the period that loans must be repaid or become deemed contributions from 18 months to three years. The government accepted these amendments.

As is evident, the government worked with the opposition parties in the House of Commons to ensure that the bill would have broad, multi-party support.

I look forward to working with honourable senators when this bill is referred to committee. I know the committee will provide a thorough review of the proposed measures.

Before concluding, I want to stress that loans are a legitimate source of financing. However, the provisions governing political loans have not kept pace with other reforms to political financing, and are now significantly out of date.

In recent years, party finance has changed dramatically in Canada. Less than a generation ago, political financing was essentially unregulated and wealthy interests could exert control through large donations. The situation was open to abuse. Canadians were losing trust in the political process and confidence in their democratic institutions.

Now the playing field is much more level. Political financing is controlled, transparent and subject to rigorous standards of accountability. It is therefore doubly important to ensure that loopholes are closed quickly and decisively lest the influence of the wealthy regain a toehold.

Stronger accountability and transparency have made politics fairer in Canada, and have improved accountability to citizens. They help preserve public trust and public confidence in Canada's democratic institutions.

With these changes, loans will have caught up with the rest of the political financing regime as updated through the Federal Accountability Act. More important, loans will have been brought up to date with the higher expectations of Canadians for accountability and transparency. That bill is a good thing for everyone and for all concerned.