Finance Committee on May 16th, 2007

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Thibault.

Mr. St-Cyr.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you, Mr. Chair.

I would like to follow up on the fiscal imbalance, because this is a battle that the Bloc Québécois has been fighting for a long time. In fact, for years, we were the only ones talking about it in the House. Now we are the only ones fighting on so that the fiscal imbalance can really be resolved. In the last election campaign, the Conservatives started to talk about it, but they seemed not to grasp the concept completely. The tax aspect of the fiscal imbalance has been completely neglected.

The Séguin Commission, with which all Quebeckers agree and which in a way forms the foundation of this struggle to correct the fiscal imbalance, identified the concept of “fiscal imbalance” and coined the phrase. This was not just picking two random words out of a hat. The words were chosen because we were talking about an imbalance that was indeed fiscal in nature.

There is only one solution to this imbalance, and it too must be fiscal in nature. How can you claim that the fiscal imbalance is corrected, when your own officials who came before this committee admitted that there was no fiscal transfer in your last budget?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I'm quite familiar with the issue you've raised, of course, having been a provincial finance minister in Ontario. I've been to the meetings where we would have these discussions about how one creates fiscal balance. Does one better create it by the transfer of tax points, which has been done in past, or is it done better through the transfer payments mechanism and a principle-based formula?

But we have chosen a certain path. We have chosen a principle-based formula that is founded on the expert report by O'Brien, with some modifications, and that's a choice that was made by the government of the day. That is not to say that a different choice could have been made about transferring tax points and so on, but it isn't the choice that was made.

At least we and the Prime Minister certainly have it right about acknowledging that there's a fiscal imbalance between governments in Canada and are proceeding to fix it on a principled basis. As you know, the Liberal Party and its leader, Mr. Dion, does not even believe that there's a fiscal imbalance between governments in Canada.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Quebeckers are demanding that there be a fiscal transfer, such as tax points, for example, or from an area of taxation like the GST, in order for a permanent solution to be reached. I think that everyone was a little shocked to hear you and to hear the Conservatives say that a definitive solution had been found.

So whatever your party's statements, or whatever the advertisements that it pays for on television say, we know that any government, a future Liberal government or a majority Conservative government, could take all these budget transfers back with no difficulty at all, whatever the reaction of Quebeckers and their National Assembly. Nothing is preventing this government from doing it.

How can you say that the problem is fixed once and for all given that any future government, as early as the next budget, could put everything back to zero, and force us back to square one?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I say to you respectfully that there's nothing to stop any government, even if they transfer tax points by then increasing the federal income tax rate and in effect taking the points back again. There's nothing to stop Parliament from doing that, short of a constitutional amendment.

But we have a principle-based formula now. There is an academic basis for this, through the expert report and the rationales and the clear reasoning that one can find in the O'Brien report. So there's a foundation for what we've done here, an intellectual foundation, based on principles, and I think this will serve us well as we go forward.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Minister, you are aware that Quebeckers heard your promise during the election campaign, and were talking about the fiscal imbalance as defined by the Séguin Commission with which everyone in Quebec agrees. We were not talking about the O'Brien Report, which had not even been published at the time. You made a promise and told Quebeckers that the problem would be corrected. We expect it to be corrected as the people want and anticipate. Was it at the very instant you made the promise that you were...

[The Vice-Chair, Liberal, Massimo Pacetti]

Merci, Monsieur St-Cyr.

Mr. Cannan, five minutes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thanks, Mr. Flaherty and your staff, for being here this afternoon.

Coming from the interior of British Columbia, from the riding of Kelowna--Lake Country, we have a good balance of young entrepreneurs. There's a cross-section of progressive seniors who are moving to the interior for the weather, and those in their retirement years who appreciate the pension-splitting.

We have different areas working within our community. Obviously we have the wine industry, we have a forest sector, and post-secondary. A big area is tourism, the hospitality industry. I had Minister Ritz out to the riding last month. We had a good meeting with some of the folks, a cross-section from the chamber and the tourism community. We talked about the visitor rebate program that had been eliminated.

Maybe you could expand on how the new foreign convention and tour incentive program will help British Columbian and Canadian businesses welcome tourists from around the world to Canada.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Thank you for the question.

As you well know, this is an important area of the Canadian economy in the west, in the interior of British Columbia, and elsewhere in the country. We certainly have had a lot of input from tour operators and others in the tourism business in Canada.

The old rebate program was ineffective. It did not represent good value for money. It had a very low take-up rate but was costly to administer.

We recognize the contribution that tourist dollars make to the Canadian economy and the importance of promoting Canada as a destination of choice around the world in this tourism industry that is growing. We think the new program will be more effective than the old program at promoting tourism and will be a better use of taxpayer dollars. It will provide tax relief for foreign conventions, which are very important, and non-resident tour packages focusing on segments of the tourism market that are traditionally more competitive and price-sensitive. It will also provide a new accountability framework, which was lacking in the old program, to ensure that the government can better evaluate the effectiveness of the new program going forward.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you.

In another area, I spent nine years in local government. I know that our municipalities, and FCM, working with the provinces, appreciate the certainty and stability from the provincial and the local levels for funding, working in partnership with our local business community to provide that tax fairness and reduction of business taxes.

We also have to balance the environment, to have environment sustainability. One initiative that really caught my eye was the funding for the Nature Conservancy of Canada. Maybe you could explain why the proposed $225 million is included in Bill C-52 for the year 2006-07.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

That's an important initiative. It's brand new. It's a way of preserving some of the most environmentally sensitive areas in Canada.

Through a partnership with the Government of Canada and the Nature Conservancy, this will be a great step forward. I think it will be well remembered over many years as Canadians see the benefit of preserving these properties, these environmentally sensitive areas, in cooperation with the Nature Conservancy, which has a very good reputation of doing this kind of work and accomplishing these goals in Canada.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Excellent.

The registered disability savings plan is one of those real golden nuggets in the budget that hasn't really received a lot of attention. In my riding specifically, there are some people who are very appreciative and who have been working on it. Maybe you could expand on that. Will that be coming out in the fall bill?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Yes, the registered disability savings plan will be in the fall budget bill. We're working now in cooperation with informed people on this issue, disability groups and so on, to get it right in the drafting. We're also working with the provinces to make sure they don't claw back. It's the same issue we have with the workers income tax benefit. Most of the provinces, I can tell you, have the right attitude on this issue.

I had the honour today of speaking at lunch to an international group that deals with disability issues. They were here meeting in Ottawa, 300 people from around the world. I'll tell you, this initiative is a global leading initiative. This has not been done elsewhere, so it's a good example of Canada being able to lead in many areas, including in this area.

It addresses the worry that many parents have with severely disabled children--that is, what will happen to their children in terms of financial security when the parents are gone and the children remain alive. This will help alleviate the sincere worry that people have. I'm sure members of Parliament have heard this in their constituency offices over many years.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Cannan.

We'll try to go to a final round with Mr. McKay and then Mr. Wallace.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Minister, you went from the universe of interest deductibility in a very broad budget statement down to a microdot of double deductibility on this concept of towering. You did it through a whole series of stages of clarifications after clarifications after clarifications. You went from two years to ten years, back to five years, and then you made your latest announcement last Monday.

Last Monday those who read your material and listened to your announcement said afterwards, and here I'm quoting from the Ernst & Young team: (a) “The Government has ignored the adverse macroeconomic impact of the proposals”; (b) “Minister Flaherty's revised proposal broadly strikes at tax planning arrangements that reduce foreign taxes--not Canadian taxes”; and (c) “The minister's anti-tax haven initiative is not restricted to arrangements involving tax havens”.

So I'd like your comments on those three criticisms by the Ernst & Young team.

I'd like to know, as well, why you didn't deal with the obvious one of debt dumping. This is a concept where a foreign company lends money to a Canadian affiliate. The Canadian affiliate then lends the money, in turn, to a third country affiliate, meanwhile ratcheting up its debt, the consequence of which is that it reduces its income tax, the consequence of which is that there is less revenue for the Canadian treasury and no discernible economic activity in this country.

Why in heaven's name would you pick this one, as opposed to one that's a bit more obvious? Wouldn't it have been better to have actually engaged the panel of experts first and then have decided from the panoply of choices that one might have available to choose what is most advantageous to the Canadian treasury and to Canadian companies and the least advantageous to foreign treasuries?

The second question has to do with the income trust rate. You've whacked them for 31.5%. You've said that you would share the revenues with the provinces. It's perfectly obvious that at the end of the four-year period the pension funds will unload them and that non-residents will not hold trusts. Therefore, the revenues will be reduced; and because the revenues are reduced, the provinces will have nothing to share in. If there's nothing to share, there are no tax revenues. You've snookered the provinces on this heavy-handed, dishonest proposal, which you put forward on Halloween.

I'd like your comments on both of those. I'd appreciate it if you'd minimize the rhetoric and stay with the specific questions.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I just love this. This is proof positive that the Liberals deserve to be in opposition for a very long time, because when they were in government for 13 years they did absolutely nothing--

[John McKay, Liberal, Scarborough—Guildwood, ON]

Well, let's answer this question. Get to the answer--

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

No, Mr. McKay, you had a long question--

[John McKay, Liberal, Scarborough—Guildwood, ON]

Get to the answer. I'm not interested in your rhetoric. Get to the answer.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Your question was about three minutes long. You did nothing on income trust--

[John McKay, Liberal, Scarborough—Guildwood, ON]

I asked a specific question. Answer the specific question--

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

You did absolutely nothing. You looked at the issue, you screwed up the market, and you botched the file.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Answer the Ernst & Young question--

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Now you're complaining about a government that actually does something about it--

[John McKay, Liberal, Scarborough—Guildwood, ON]

Just try to answer the question--