Finance Committee on April 14th, 2008

[Prof. Neil Brooks]

Food is exempt. Most of the necessities are exempt. That can't be the justification.

I'm sorry, I didn't mean to be partisan.

[The Chair, Conservative, Rob Merrifield]

Mr. Conway.

[Michael Conway]

It's interesting that Mr. Dykstra brought up the issue of the affordability of consumption taxes to lower-income earners.

Just as you indicated that possibly we shouldn't confuse one objective with another, we have proposed that the GST should not be reduced further. If there is a feeling that an incentive has to be given to lower-income earners, I wouldn't do it through consumption tax. You always have the ability to provide relief on the GST to the individuals earning less than a certain threshold through a credit mechanism. But I wouldn't do an across-the-board reduction of the GST just to benefit that selected constituency. There are other means. The consumption tax is a broad measure that applies across all of the constituencies.

If you want to target benefits to the low-income earners, there are other ways.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Pacetti, you have five minutes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you to the witnesses for appearing. It's been very interesting.

I'm going to try to ask one question to the three of you and maybe frame it a little bit differently.

The government needs x amount of money to run the government and provide its services, and I think Mr. Brooks stated the two or three different criteria that it usually follows. If we were to look at just how the government raises revenues, there's always the other side of the equation, which is running programs.

Now, if I look at your brief, Mr. Conway, I'd say you want to simplify the system—and I don't mean to pick on your brief necessarily—but then in turn you say we need money for training, and we need to put money into commercialization and things like that.

What should we do, in your opinion? Should we be throwing all the tax revenue into a pot and then, as the government determines what its priorities are, invest in that fashion; or should there be dedicated funds, whether they be for CPP, QPP, unemployment programs, or any new initiatives? If we were to take, for example, training or commercialization, should there be separate revenue collected so that there is accountability to start one of these programs?

[Michael Conway]

We use the term “patchwork quilt of complex regulation”. The tax act has doubled, or tripled, or quadrupled in size since I took my CA. I'm glad I don't have to do it again.

Our first recommendation, which is actually the last recommendation in our study, is to move to a comprehensive review of the tax act to simplify it, because right now there have been so many initiatives one year after another—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I understand that part. I'm in total agreement.

[Michael Conway]

We have to bring it down to a base.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

You say that in your first point, but then in the third point you say let's put money somewhere else. That complicates it even more, because this is just what you're asking for. Again, I don't mean to pick on you, but the next person will ask for something else, and the next person will probably ask for three or four additional things.

[Michael Conway]

I appreciate that. We did indicate we're trying to lessen the proliferation of imbalances across the system. We recognize there have to be some selective incentives in particular areas, but we're just pointing out that the tax act has become so thick, and year after year of budgets—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So do we use your criteria, or how simplify it? Where do we draw the line in the sand?

[Michael Conway]

I think it comes from doing a comprehensive review, and starting from almost ground zero, and then selectively identifying the areas that you want to incent.

If we take the CCA classes, for example, right now, embedded in the tax act there are something like 45 CCA classes. You can't find things anymore. We can start from scratch. Most OECD countries have around 10 classes. We can go down to 10 classes and just make it a lot simpler.

We use the example of high-priced consultants making lots of money, something that only the large corporations can afford in order to maximize their tax availabilities.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So the government should do the same thing and hire consultants, then.

We have limited time.

Mr. Brooks, maybe you can answer in the same vein. I may be picking on one particular aspect of your 10-minute presentation, but did you say that if the spending doesn't provide any services, if there is no purpose for the money, it shouldn't be provided?

[Prof. Neil Brooks]

Exactly. Go systematically through them, and if there's no legitimate government objective being served by these tax expenditures—as I say, there are over 150 of them in the act—they should just be taken out.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Again, on a non-partisan basis, if there is a legitimate purpose, should the government use its moneys from general revenue, or should it be a dedicated tax for that specific use?

[Prof. Neil Brooks]

No, I don't think it should be a dedicated tax. I think the government should design a tax system that is as equitable and as efficient as possible to collect the amount of revenue they need and then allocate that money to spending programs based upon their priorities. But I don't think you should try to link, in effect, the tax that's collected with something, because there's never a connection between them.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

And the basket of collected revenue, should that be a combination of the consumption, corporate, and personal?

[Prof. Neil Brooks]

Exactly. And indeed, even on EI. I don't understand why we have EI premiums, because it's totally unrelated to the benefits. So you either go to a system where you experience rate, which some people are in favour of.... I'm not. What I would do is take those EI premiums and just turn them into a general payroll tax, because as these charts show, one area where Canada is below international standards is in social security contributions, essentially payroll taxes. I think what we should do is take those EI premiums, turn them into a federal payroll tax, collect the money through that payroll tax, and finance EI out of general revenues.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Heady, very quickly.

[The Chair, Conservative, Rob Merrifield]

I'll allow one for Mr. Heady.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

In the same sort of vein but more toward the revenue side, on the corporate side, when is enough enough? When is it low enough, where it really won't impact whether you'll attract more additional foreign investment? I'm referring to corporate taxes. What's your experience?

The only country I could think of that is doing a good job is Ireland. Is there a point where the corporate taxes won't make a difference and a company will stay or make the investment whether the corporate taxes are at a certain rate or not?

[Christopher Heady]

I don't think you can say that there's any corporate tax rate where a further reduction wouldn't encourage additional investment. What I think is that there are some countries where changing the corporate tax rate doesn't make much difference, but those are countries with very weak tax administration and very poor general conditions for investment. But for a country like Canada, I couldn't see that there's some rate below which you shouldn't go.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

The social security programs are what I'm looking at. Will a company or a corporation look at social security benefits, like Canada has?

[The Chair, Conservative, Rob Merrifield]

A quick answer, and then we'll move on. Go ahead, if you have an answer.

[Christopher Heady]

Sir, we know that when companies are investing they look at the social security contributions they have to pay. We don't know whether they look at the benefits. But I would assume that they do look at the benefits, yes.