House of Commons Hansard #18 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was provinces.

Topics

Income Tax ActGovernment Orders

7:30 p.m.

The Acting Speaker (Mrs. Maheu)

I am sorry but the period for questions and comments has expired.

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7:35 p.m.

Bloc

Pierre Brien Bloc Témiscamingue, QC

Madam Speaker, before I start my speech, I would like to comment on what was said by the hon. member for the Reform Party about simplification. Of course there is a case for simplifying the entire tax system, and I am referring to income tax returns as well as tax shelters, but I do not think we can agree on everything, and there are other options that should be considered very carefully.

Bill C-9, An Act to amend the Income Tax Act, has an aspect that may be somewhat odd, I suppose, for members on the other side of the House. In fact, we are legislating measures that arise from the last budget. I am not sure, and I did not go through Hansard to see what the reaction was to these measures when they were announced, although it might be interesting to do that, but now, they have no choice, and neither do we. These measures must be enacted. This legislation will implement measures which in fact businesses were able to take advantage of all last year. Legally, these measures had not been adopted, but they will be in the weeks to come, which will more or less finalize what was announced in the last budget. These are very technical aspects.

However, there are also some principles involved, and we could do a repeat of last year's budget debate, but we cannot really affect the outcome. The fiscal year will end in a few months, and by that time we will have a new budget, in a matter of weeks even, and there are rumours it might be in less than two weeks. At that time we may have something more interesting to discuss.

Nevertheless, there are a number of comments we would like to make about the last budget and the measures arising from that budget, in a final attempt to influence what will be in the next budget, and especially in next year's budget, because the Minister of Finance is already saying they will not have time to put everything they want in this year's budget and that it will have to wait until next year.

Whether that is the real reason, who knows? I think they are hoping for a strong economic recovery and that they are overestimating the positive impact of economic growth on the deficit, despite all the nice speeches by the Minister of Finance and despite his good intentions. He said that he would not repeat the mistake of the past, the mistake of the Conservative government in overestimating evenues. We can see from last year's budget that spending was grossly underestimated, and the Liberals say they will not do that. As far as revenues are concerned, I can tell you that we will be watching closely.

The dozen or so measures contained in this Bill were announced in the December economic statement and in the budget last May. The rest is made up of changes to the wording of the law. All that is very complex, given the number of areas covered by the Income Tax Act, and with time we even get conflicting clauses, but I will come back to that.

These measures were meant, to a great extent, to stimulate small and medium sized businesses. That was really the target sector. There was also something for research and development, and finally measures concerning exploration for natural resources.

That budget had extended for another year the use of registered retirement saving plans for home buying. This is a good measure which we hope to find again in this year's budget for application next year.

I heard some members say that representations were made by some of their constituents showing that this particular measure had a positive impact. Obviously this is a kind of measure which is easy to evaluate, and that is interesting.

I will conclude, not on the basis on my speech but on that of the proposed measures, that the government will have to do better in the future.

Last year's budget was very disappointing. It seemed as though the government wanted to preserve maximum flexibility so that the next Conservative Party Leader would have the leeway to adapt it at will. Maybe that was not a good idea. I do not believe that, in these difficult times, we can postpone for a year, not even for a few months or weeks, our fight against the deficit nor efforts towards better management of public funds. It seems we have wasted a year and that is very disappointing.

What do we expect from the next budget? A decrease in expenditures, naturally; but we also hope it will propose a complete tax reform. We have heard nothing along that line yet. We feel as though we were preaching in the wilderness. We

cannot wait for the government to announce even a slight intention of addressing that issue, of reviewing our very complex personal and corporate tax system. Such a measure would increase the confidence of Quebecers and Canadians alike in their taxation system and thereby, their confidence in their representatives and institutions.

We expect a simplification of the process. As my colleague, the member for Portneuf said: very few people can prepare their own income tax return. It is not an easy task to read the Tax Guide; even the one you receive with the short form is quite exacting. Just think of the elderly; it is not easy for them. Even if we prepare specific short forms for senior citizens, it remains too complex.

There are many measures that could benefit people who, unfortunately, do not understand them. They do not know that they apply to them. They are ill-equipped to use the tools they are told could be of benefit to them. They hear about them from a friend or a colleague, but more often than not, they ask an expert, such as an accountant, to prepare their income return for them. These people do not tell them what they should do to improve their financial situation and personal planning. It is very complicated and that is the reason why very often new tax measures bear more heavily on the middle-class since it is having a difficult time adapting rapidly to changes or even understanding quickly the tax system.

Those who can benefit fully from it are the most wealthy, which causes people to say that the system is unfair. You do not have to go very far. We all have heard, at one time or another, someone in our riding say that the system is unfair, that the rich pay less taxes. Even if there is a trend, statistics show that, on the whole, it is not true; of course there are exceptions, and even a few are already too many. They create a lot of discontent.

Let us look more closely at the dozen of provisions contained in the bill. The first one is interesting to look at and study from the following point of view. On this side, we often talk about overlapping jurisdictions. But we forget to mention interdepartmental co-operation, a very complicated issue. The Auditor General mentioned it and pointed at a lot of things that could be improved. The government is doing something with one hand and doing something else with the other that reduces the effect. In last year's budget, this first measure said that unemployment insurance premiums would be reduced as a way to create more jobs and to encourage businesses to hire more people. This year, it was already announced that unemployment insurance premiums would go up at the beginning of January. In the same year, they give with one hand and take with the other. People have trouble getting a clear message from that. There is something very contradictory. In the same fiscal year, there was a change of government, but the policy orientation is hard to grasp. I am the first one to say so. Why did they do that? We suppose that they took the money to finance the infrastructure program. That may be a reason or it may be to finance something else as well. But I have trouble understanding why with all those resources and so many competent people around, we find ourselves in situations where contradictory measures are taken, not by the same government but by the same level of government. To be sure, we can understand that in some cases the federal and provincial governments act differently, since they do not always share the same policy orientation, but it is very hard to accept the same level of government acting in a way that contradicts itself.

There are also temporary investment tax credits for small business. The temporary nature of this measure-

Madam Speaker, would you please ask hon. members to-

Income Tax ActGovernment Orders

7:45 p.m.

The Acting Speaker (Mrs. Maheu)

Order, please. If the hon. members wish to pursue a conversation, I would ask that they do it outside the Chamber. The hon. member for Témiscamingue may continue.

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7:45 p.m.

Bloc

Pierre Brien Bloc Témiscamingue, QC

Thank you, Madam Speaker. Our friends would do well to listen. When the subject is taxation, we have the impression that they are no longer listening, that they are afraid-

Income Tax ActGovernment Orders

7:45 p.m.

Liberal

Ronald J. Duhamel Liberal St. Boniface, MB

I am listening.

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7:45 p.m.

Bloc

Pierre Brien Bloc Témiscamingue, QC

Indeed, there are some-and they deserve full marks-who listen closely.

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7:45 p.m.

Liberal

Ronald J. Duhamel Liberal St. Boniface, MB

We listen quite religiously.

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7:45 p.m.

Bloc

Pierre Brien Bloc Témiscamingue, QC

Indeed, and I am even expecting some questions.

Let us continue. Another measure, one of a series of very technical measures, is the extension of the small business financing program under which a small business in financial difficulty may refinance its debt. This measure, which provides for a different tax treatment, is very interesting for businesses as well as for financial institutions.

Another measure provides for the abolition of the penalty tax. How ineffective can this be. The penalty tax on excess small business properties held by RRSPs and registered retirement income funds is repealed from October 31, 1985. It is not important to understand the technical aspects of this measure-

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7:45 p.m.

The Acting Speaker (Mrs. Maheu)

Order. Could members please, if they must speak, do it outside the Chamber. I have trouble hearing what the hon. member is saying.

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7:45 p.m.

Bloc

Pierre Brien Bloc Témiscamingue, QC

Thank you, Madam Speaker. I am happy that you have trouble hearing me as it shows there is at least one person listening besides my colleagues, or two persons I should say.

The technical reason for this measure abolishing something retroactively to 1985-not the technical reason but the actual principle-is that it could not be implemented in real life. It was too complex to manage. It took eight, almost nine years to put in place this measure and the revenue department could not make it work. It is very hard to understand. Why did we wait so long and what happened to the money given to debtor businesses that could not be recovered? All this remains to be seen and we will ask questions when this bill is reviewed by the finance committee.

Another measure that we wish to see extended further in the future is the home buyers plan. This is a valuable measure with a stimulating effect on the construction industry. It allows individuals to buy a home, which is desirable. The bill provides for tax incentives and ways of doing things in terms of taxation which are very positive. When we talk about reform, we are not suggesting that everything about the present tax system is wrong. Some aspects of it are more positive than others, and this is one of them.

Two measures regarding flow-through shares and exploration expenses were included in an attempt to repair the mistakes made by the Conservatives when they axed the flow-through shares program. The Quebec government had jumped on the band-wagon and I can tell you that it had disastrous consequences in my region.

In 1987, the unemployment level was about 7 per cent in Abitibi-Témiscamingue. Today, we would call that full employment. In the beginning of the 1980s, full employment was fixed at about 4 per cent, but we must adjust this figure. After two recessions, one in the beginning of the 1980s and the second one ten years later, the unemployment level is now higher. Our economy was thriving. There was indeed abuse. As with everything else, there are some who take advantage of good policies. That is what happened and that is why we had to make drastic cuts.

A popular expression applies here: we threw out the baby with the bathwater. It could have been possible to correct the situation with a few technical amendments. We tried to make up a little for this. These measures are interesting, but a lot less, and it is not the main concern of the Association des producteurs et des exportateurs. I can tell you that the former incentives and flow-through shares plan were much more interesting than these measures.

There is another measure that must not be considered only in this light because one has to dig a little to put it in perspective. It is important since it is closely related to a suggestion made by the Bloc Quebecois, and which, hopefully, the government will study one day.

It provides for a maximum annual investment tax credit. This credit will be eliminated. Before, businesses could use this credit up to a maximum of 75 per cent. They could reduce their benefits by 75 per cent, so why not totally eliminate them and not to have to pay any tax?

It will now be possible. This has to be considered along with another measure from the previous year, namely a capital tax to ensure that most businesses pay a minimum of taxes. Where there may a problem, although we have to be careful and examine this issue in a much more technical and thorough fashion, it is with this capital tax of .02 per cent which applies only to a capital amount of $10 million or more. Do businesses with a capital of $5 to $10 million deserve this break? This is a good question which we must ask ourselves. It must at least be raised, but it should be examined and I hope it will be when the Finance Committee will look at this piece of legislation.

The other two measures were aimed at promoting research and development, and at ensuring the payment of tax instalments. The amount has been raised to help more people.

This bill is exactly identical to the one tabled by the Conservatives following their budget, except for the change to the GST refund. I do not object to the fact that it is so similar to the previous piece of legislation. What I am saying is that there is only one change. There will still be four quarterly payments, which is a good thing, and which also enabled the previous government to change somewhat the record keeping and underestimate the deficit. Now, it has the opposite effect with the new government, which uses it to slightly overestimate the deficit.

This is certainly not a major change. Some like the idea of four payments, others would prefer two, but in terms of public finances as a whole, this is of no consequence. It is essentially a cosmetic change.

Finally, there are two things about taxation and fiscal policy that bother me. These measures often target small businesses. Earlier, I heard an hon. member talk about the importance of the people and of the rural communities. I urge him to carefully consider the situation of the small and medium sized businesses, because there must be some in his riding too.

These businesses have a lot of trouble dealing with a very complex tax system. If the system is complicated for the individuals, it is even more so for small and medium sized businesses, who completely rely on an accountant or an analyst of their acquaintance for advice, even though it is not always in their best interests. They are told about temporary one-year

measures, but they are unable to assess quickly enough the benefits they can derive from these measures.

They do not take full advantage of the measures. The government should put in place a simpler mechanism, easier to understand, particularly in the area of research and development. There is not enough R and D done in the private sector in Quebec and in Canada. With all the economic changes that are occurring, the level of R and D in the private sector will have to increase. The government will have to encourage these people to get into R and D. However, they need about eighteen months before there are any significant results. I can tell you, Madam Speaker, that we have excellent tax incentives, the best in the world in some areas, but they are not well understood by businesses and they are very difficult to use.

Obviously, pharmaceutical companies understand them well and use them well. They are doing very well in Quebec. But in other areas, companies are not even aware of the tax incentives that exist. The Department of Industry, Trade and Commerce has a program, the Department of Finance has another program, there are just too many programs. Businesses have trouble finding their way through the maze of programs. They have to look at all the possibilities and it takes time. It is not only the GST that costs businesses a lot of money. There is also the cost of trying to understand all the government support programs. It can be very difficult, particularly for small and medium sized businesses.

I am about to conclude. Fiscal measures should always be evaluated as to their fallouts and costs before being announced. In economic jargon, it is simply called a cost-benefit projection. Then, results can be made public. This is rarely done and it is easy to understand why. When facts are published, the people can evaluate how good their government is. Thus, I hope that for the sake of openness this government will do more than its predecessor on this. The Minister of Finance has often promised to do it and his colleagues should press him to deliver.

To conclude, we will carefully monitor these measures and the upcoming budget. That is when it will truly start. And if this government does not want to end like the previous one, it should take a completely different approach.

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7:55 p.m.

St. Boniface Manitoba

Liberal

Ronald J. Duhamel LiberalParliamentary Secretary to Minister of Public Works and Government Services

Madam Speaker, I wish to thank my colleague for his speech. First, I want to assure him that our approach is totally different.

I have four quick questions for him. First, since some Canadians took certain decisions in response to budgetary measures announced by the previous government-I insist on that point-I would like to know if, yes or no, the Bloc Quebecois agrees with the Bill.

Second, you heard the members of the Reform Party say in this House that they oppose all taxes. They said: "No taxes, no taxes, no taxes," even for wealthy corporations or individuals who benefit from tax shelters. I would like to know the position of your party on that subject.

Third question, I would also like to know whether the Quebec income tax guide and forms to be filled out are really different and more complex than the federal ones. I take that question at heart and no doubt you know the answer.

Finally, the member spoke about small and medium-sized businesses and indicated that one of the things that bothered them-and I want to make sure my colleague understands this last question since it is probably the most important-was the complexity and large number of regulations and so on. But he did not mention access to capital. At home, in St. Boniface, that great place at the geographical centre of Canada, we are mostly interested in access to capital for small and medium-sized businesses.

Maybe he can make very short comments on my four questions, answering by yes, no, or maybe.

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7:55 p.m.

Bloc

Pierre Brien Bloc Témiscamingue, QC

Madam Speaker, I would like to thank the hon. member for St. Boniface for his questions and especially his last point, which I will comment, but only after I have answered his questions in sequence.

First of all, the hon. member asked whether we agree with this bill. As a matter of fact, it will pass at second reading whether we agree or not. We will support the principle of this legislation, but we will examine the bill clause by clause in committee and ask very specific questions. Third reading will come afterwards. That is the way it goes. This bill will be referred to the Finance Committee, a committee which always has a busy schedule, but it will only be one more piece of legislation on a heavy agenda.

Now he wants to know what our position is compared to the Reform Party's. I think I see what he is getting at. Do we consider that reducing tax shelters is different from raising taxes? I think that was the thrust of his question.

There could be a difference, except that, on the whole, we are collecting more revenues. One day, we will have to agree on a definition of tax increase. Traditionally it means increasing the consumption and income taxes. Can we say, however, that reducing tax shelters and fiscal incentives is in effect a tax increase? This is debatable, but the results are the same: more revenues for the government.

In some instances, we will agree with a given tax shelter; in others, we will not. We will study them one by one.

If we compare the tax returns for Quebec and for Ottawa, we see that they are both complex, because there are two governments involved. That is very important.

In Quebec, Mr. Yves Séguin tried very hard to simplify the tax returns, but there is still a lot to be done. We often talk about administrative overlap, but there is one thing that drives people crazy. Let me assure you that Quebec's sovereignty will have a great benefit in people's daily life, if only for the fact that they will only have one tax return to fill.

Overall, the figures may not change much, but it would be a lot simpler. The individuals will feel better, as will the businesses, and that will be a great step forward, one we have never been able to take so far.

We will not have to hear a lot of rhetoric about harmonization all year long, without ever achieving it.

In closing, I want to speak about access to capital. I tell the hon. member that we will have to see what the government will do. The federal and the provincial governments tend to offer more and more assistance programs to businesses, including the business development centres. There are even regional investment funds. We hear people talking about putting more pressure on financial institutions, but what will happen?

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7:55 p.m.

The Acting Speaker (Mrs. Maheu)

It being eight o'clock p.m., the House stands adjourned until tomorrow at ten o'clock a.m., pursuant to Standing Order 24(1).

The House adjourned at 8 p.m.