OTTAWA – The federal budget will give Ottawa an expanded role in the banking industry as the federal government expresses frustration with the performance of lending institutions.
The provisions would affect credit-card companies and commercial banks as the federal government acts upon complaints it heard during months of pre-budget consultations.
The Canadian Press has learned that Ottawa would claim the right to regulate when credit-card companies slam customers with unforeseen rate hikes.
Sources say the budget will include legislative measures that force companies to be more transparent about rate changes, and also give the government expanded regulatory powers.
The government will also follow up on frequent complaints about banks from would-be borrowers who say access to credit has dried up at commercial institutions in recent months.
Sources say the government would expand the volume of loans offered to businesses through Export Development Canada and the Business Development Bank of Canada.
The budget will also offer modest tax breaks and a shower of spending that will see Canada sink into a $34-billion deficit following 12 years of surplus budgets.
A senior federal official said the same themes kept coming up during 680 pre-budget consulting sessions between federal representatives, their provincial counterparts and the business community.
“One thing we heard consistently was a lot of frustration with the big banks,” he said.
“We’ll make credit available to businesses in ways the banks won’t be able to obstruct.”
He said the frustrations with the banks have been myriad: that they have been slow to pass on cuts in the overnight rate to consumers, and that even the most solid customers have been getting charged high interest rates despite sterling credit records.
The banks have bristled at the criticism and cited data that suggests they’ve actually increased lending amid the current economic crisis.
Just last week the Bank of Canada reported that while residential mortgages had declined slightly in December, personal loans and non-residential mortgages had both increased.
The official provided few details about the measures Ottawa intends to introduce.
In the case of credit-card companies, he said customers are often surprised to see their rates skyrocket without warning.
Some card-holders can sign up for a card offering low rates, only to discover that they’re stuck paying interest above 20 per cent after missing monthly payments.
“One of the things that we’re looking for is more transparency,” the official said.
“If you’re looking at sudden rate jumps, like if somebody calls and signs you up for a low-interest card and all of a sudden it jumps to 18 points, we want more transparency.”
As for the credit for businesses, he did not provide a dollar figure for the expanded programs the government intends to announce Tuesday.
Officials say the tax measures are aimed primarily at the middle class, and designed to make people spend.
Meanwhile, CTV reported Monday night that the budget would also see corporate tax cuts moved up and permanent tax cuts for those making under $80,000.
An unprecedented torrent of stimulus measures will wipe out more than a decade of fiscal prudence as the government slides into the red for the first time since 1996.
The deficit is not the biggest in Canadian history, but the fiscal turnaround has been historic in its speed and scope. Just weeks after shrugging off warnings from economists that a recession and deficit were imminent, the Conservatives now agree swift action is needed to stave off disaster.
In the latest stimulus announcement, the government said Monday it would spend $7 billion on public infrastructure – especially “shovel-ready” road, bridge and sewer projects.
That’s on top of the billions it has already promised for items ranging from social housing to worker retraining.
The tax breaks may be among the lone surprises left in a budget whose contents were largely divulged by the government over the last several days.
Amid speculation the government could offer spending vouchers to get people back into stores, the prime minister remained coy Monday about what form the tax measures would take.
“Some of those tax initiatives will involve getting money in consumers’ pockets,” Stephen Harper told CTV.
“So that (way) ordinary people, working class people, middle class people, can spend money.”
Public Works Minister Christian Paradis hinted Monday that the tax breaks could take a non-traditional form. He said the Tories envisioned modest measures that would make people spend, instead of simply paying down their regular monthly bills.
Two other government officials said that the tax measures will be substantive but not large, and are intended to provide a quick jolt to the economy.
The unique historical circumstances were underscored as a new session of Parliament opened Monday with one of the briefest, gloomiest throne speeches in memory, replete with references to war and the Great Depression.
The four-page document was printed on pages barely bigger than a greeting card, but crammed into that uncommonly short address were 10 variants on the word, “economy” or “economic.”
The speech, read by Gov. Gen. Michaelle Jean, laid out the broad strokes of an economic rescue plan, with the all-important details to be revealed in the budget.
It outlined a six-point action plan that includes infrastructure spending, ensuring access to credit, stabilizing financial institutions, and helping the most vulnerable.
In addition to the $7 billion for infrastructure, the government has confirmed a number of spending measures in the budget:
-$1.5 billion to help train laid-off workers and provide them with new skills.
-$1 billion to help the hardest-hit communities adjust to the economic downturn, especially one-industry towns or those dependent on agriculture, mining and forestry.
-$1 billion to renovate social housing.
-$600 million for aboriginal housing.
-$550 million for farmers
-$150 million to help the forestry sector develop new technologies and promote the industry abroad.
-Billions of dollars in loan guarantees for the auto industry.
The speech Monday made only indirect reference to the variety of other promises outlined in the 16-page throne speech introduced last fall, such as a crackdown on youth crime.
A government often noted for its combativeness stressed the need to work together in unstable economic times, referring to the “spirit of open and non-partisan co-operation.”
The Tories made similar peace overtures in the fall, just before including what proved to be a poison pill in December’s economic statement – a bid to end public financing of political parties.
That prompted the Liberals and NDP to form a coalition – backed by the Bloc Quebecois – in a push to bring down the minority Conservatives.
Harper only survived by proroguing Parliament until now.
Liberal Leader Michael Ignatieff said he will wait to see the full budget and consult with his caucus Tuesday night before deciding the fate of the government.
He said he was encouraged by the soft tone of the throne speech and suggested the Tories copied Liberal language on protecting the vulnerable. But he warned that trusting the government isn’t easy.
“This government appears to have a split personality,” he said. “One time it uses one language, another time it uses another, and our difficulty … is figuring out which government to believe.”
