House of Commons Hansard #127 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was tax.

Topics

10 a.m.

The Speaker

Before we get into the daily routine of business, I will hear a point of order from the hon. member for Kindersley-Lloydminister.

10 a.m.

Reform

Elwin Hermanson Kindersley—Lloydminster, SK

Mr. Speaker, it is not a point of order. It is a request for an emergency debate. Is it appropriate at this time in routine business?

10 a.m.

The Speaker

I will hear him at the end of the daily routine of business.

Government Response To Petitions

February 11th, 1997 / 10 a.m.

Fundy Royal
New Brunswick

Liberal

Paul Zed Parliamentary Secretary to Leader of the Government in the House of Commons

Mr. Speaker, pursuant to Standing Order 36(8), I have the honour to table, in both official languages, the government's response to 15 petitions.

Petitions

10 a.m.

Progressive Conservative

Elsie Wayne Saint John, NB

Mr. Speaker, I rise pursuant to Standing Order 36 to present two petitions.

The first petition is signed by 84 people from my riding. The petitioners call on Parliament to urge the federal government to join with the provincial governments to make a national highway system upgrading possible beginning in 1997.

Petitions

10 a.m.

Progressive Conservative

Elsie Wayne Saint John, NB

Mr. Speaker, the second petition is signed by 332 people from the province of New Brunswick.

The petitioners feel that education and literacy are critical to the development of our country and call on the House to urge all levels of government to eliminate the sales tax, including the GST, on all reading materials.

Petitions

10 a.m.

Reform

Chuck Strahl Fraser Valley East, BC

Mr. Speaker, I have a petition to present signed by 233 people from my area and from British Columbia generally.

The petitioners are concerned about the GST, particularly on reading materials. They ask that this regressive tax on newspapers, reading materials and magazines be removed when any harmonization takes place. They request that the GST be removed from any reading material.

Questions On The Order Paper

10 a.m.

Fundy Royal
New Brunswick

Liberal

Paul Zed Parliamentary Secretary to Leader of the Government in the House of Commons

Mr. Speaker, I ask that all questions be allowed to stand.

Questions On The Order Paper

10 a.m.

The Speaker

Is it agreed?

Questions On The Order Paper

10 a.m.

Some hon. members

Agreed.

Request For Emergency Debate

10 a.m.

Reform

Elwin Hermanson Kindersley—Lloydminster, SK

Mr. Speaker, in accordance with Standing Order 52, I wish to ask for the adjournment of the House for the purpose of discussing a specific and important matter requiring urgent consideration. It is imperative that the House debate the important matter of delays in grain shipments to Canada's west coast ports.

Current estimates are that it is costing the Canadian economy at least $65 million. The matter requires immediate attention. Perhaps, more important, the minister of agriculture is scheduled to meet with the parties involved. Therefore, it is incumbent on Parliament to meet to debate the issue before he meets with the parties involved with regard to the delay in shipments to the west coast.

It is on that basis and according to the standing orders that I move:

That this House now adjourn to give urgent consideration to the important matter of delays in grain shipments from Canada's west coast ports.

Request For Emergency Debate

10:10 a.m.

The Speaker

The hon. member for Kindersley-Lloydminster was good enough to send me notice of his application for an emergency debate earlier today.

I have had an opportunity to look over the reasons for an emergency debate and the adjournment of the House and, in my view, this does not meet the exigencies of what we have set up as criteria for an emergency debate at this time. However, I thank the hon. member for raising the matter in the House.

Excise Tax Act
Government Orders

10:10 a.m.

Cardigan
P.E.I.

Liberal

Lawrence MacAulay for the Minister of Finance

moved that Bill C-70, an act to amend the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the Income Tax Act, the Debt Servicing and Reduction Account Act and related acts, be read the third time and passed.

Excise Tax Act
Government Orders

10:10 a.m.

St. Paul's
Ontario

Liberal

Barry Campbell Parliamentary Secretary to Minister of Finance

Mr. Speaker, I am pleased to open third reading debate on Bill C-70. This is landmark legislation. It will implement the harmonized sales tax in the provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador.

As of April 1, 1997 the harmonized tax will replace the GST and provincial retail sales taxes in those provinces. This legislation also proposes over 100 technical amendments to the Excise Tax Act. These technical improvements will serve the dual purpose of paving the way for harmonization while making the GST run more smoothly in those provinces that have not yet agreed to harmonization.

Why do I say that Bill C-70 is landmark legislation? That is because harmonization marks a bold and creative development in the field of federal-provincial relations. The bill is a tangible sign of the progress that can be made when different jurisdictions work together and resolve to end overlap and duplication. The significance of four governments agreeing to move forward on harmonization of retail sales taxes cannot be overstated.

Once this bill is in place, businesses in the participating provinces will no longer have to follow two sets of sales tax rules and regulations. They will no longer have to deal with two different bureaucracies nor file two sales tax returns for every appropriate and different period under both regimes, the federal and provincial. Under the harmonized system there will only be one set of rules and one tax administration, and registrants will only have to file one sales tax return.

Harmonization will make life simpler for companies of all sizes. They will spend less time doing the books and filling out forms and more time doing business.

As my hon. friends will recall, the structure of the harmonized sales tax will parallel that of the goods and services tax. The tax will apply at the harmonized rate of 15 per cent to the same goods and services that are already taxed under the federal GST. The new combined tax rate will be almost five percentage points less than is currently the case of the combined rates in Newfoundland and Labrador and 4 per cent less than it currently is in New Brunswick and Nova Scotia. This will be a major cost saving for consumers in those provinces.

The rules for registering, filing returns and claiming input tax credits will be the same as those to which registrants across Canada have already grown accustomed.

As we moved to this system we were very conscious of the need not to saddle businesses with a whole new system, a whole new set of forms, a whole new set of rules to deal with a new tax administration, but rather, to the extent possible in moving to harmonization, to use forms and procedures, rules and regulations that businesses are already accustomed to and comfortable with.

One thing was clear as we travelled the country with the finance committee. When people in the country, consumers and retailers, said end this ridiculous anomaly of duplication, of double sales taxes, of ten sales taxes across this country and harmonize, they said "please, when you do that do not saddle us with an entirely new system. We have adjusted to the ways of dealing with the existing GST. When you harmonize, to the extent possible, let us use the same forms, the same rules and regulations", and we have responded.

In the participating provinces businesses will finally be able to recover all sales taxes they pay on inventory and other expenses. By contrast, in non-harmonized systems businesses have no way of recovering provincial retail sales taxes they pay. Any of us with experience in the complicated area of retail sales tax know that it is indeed costly to pay tax on those inputs and it is indeed complex to know whether or not particular inputs are subject to exemption certificates or whether tax is payable.

In the harmonized system this added cost will not be there. In the non-harmonized provinces, tax on those business inputs will continue to be passed on to consumers, both domestic and foreign.

Unrecoverable provincial sales taxes are buried at all stages as products move through the chain from manufacturer to wholesaler

to retailer. Those hidden taxes on inputs undermine the competitive vitality of Canadian firms. Clearly this works at cross purposes with our efforts to promote trade in this country, reduce deficit and foster a more competitive environment.

The integration of overlapping sales taxes with a single, value added tax structure will bring our tax system into line with other policies that promote competitiveness.

A key element of the harmonization agreement is tax included pricing. The pricing requirements will allow a shopper to be certain of the full cost of what he or she is buying before the cashier rings up the sale. To keep the tax visible to consumers, the amount or rate of sales tax payable will be disclosed on receipts. The suggestion that tax in pricing is just a convenient way for government to sneak in tax increases is simply and absolutely untrue. The tax will be clearly displayed on sales receipts and invoices for everyone to see.

Indeed, while members of the House have spoken about this issue and their concerns about hidden taxes, not one of them has complained about the current situation which prevails at the gas pump, where the tax is indicated on the receipt. As I have pointed out to the House on earlier occasions, in much of the rest of the world we do not see legislators or individuals standing up and railing against governments for hiding a tax which is clearly visible on receipts. We could choose any country in Europe and we will see taxes clearly indicated on sales receipts. Whether it is the VAT at a certain rate or the VAT at a certain amount, it is there for the world to see.

The fact that the taxes will be indicated on receipts in the harmonizing provinces clearly puts the lie to the suggestion that taxes are being buried or hidden.

Tax inclusive pricing will address a longstanding consumer irritant. It is something which the finance committee heard a great deal about as it travelled the country studying this matter. Consumers are always on the hook for a sum of money that is different from and greater than the price that is posted or marked. It does not matter if the person is buying a restaurant meal or a refrigerator. The point is that almost every time a cash register rings in this country we can be sure that a consumer is caught short, surprised, inconvenienced or embarrassed.

I stress that Canadians overwhelmingly related stories to us, as did retailers, of awkward moments at the cash register when they were confused as to the price of items because tax had to be added. In testimony before the finance committee of this House, a retailer said this to us when commenting on the prices of goods in his shop: "I cannot sell shoes in my store for $11.49, but I can sell them for $9.99". But the reality is that a consumer cannot buy those shoes for $9.99; they really cost $11.49.

While we may have some sympathy for the marketing needs of retailers and, as I will explain later we have gone a great distance in responding to their concerns about tax inclusive pricing with flexible guidelines, we have had very much in mind the need for consumers to know what things really cost, what they will really have to pay. The marketplace place will function better because consumers have that information.

Public opinion research has shown conclusively that tax inclusive pricing is favoured by the overwhelming majority of consumers. An Ekos Research Associates survey conducted this past month found that consumers in Nova Scotia, New Brunswick, Newfoundland and Labrador strongly support tax in pricing. When respondents were given a choice between tax included and tax excluded pricing, 80 per cent of consumers preferred tax included pricing, a finding that is consistent across all three provinces.

When asked about their intensity of support or opposition to tax in pricing, 42 per cent of consumers said they supported it and 37 per cent said they strongly supported it. Over 65 per cent of respondents said that it is extremely important to know the full price before reaching the cash.

The reasons stated by consumers for preferring tax inclusive pricing are compelling. Eighty per cent agreed that taxes should be included in the price so that the total price of a good is known before getting to the cash. Seventy-six per cent of respondents said that including sales taxes in the price displayed on the product is a more honest way of showing prices to consumers. Sixty per cent of respondents did not think that adding sales taxes to the display price would make things more complicated for consumers, an assertion we have heard from certain people.

While 69 per cent of respondents said that they pretty much know the total price of an item before reaching the cash, 64 per cent of respondents said that they are often unpleasantly surprised at differences between sticker price and total price at the cash. Remember my example of the $9.99 item that the retailer says he can move at that price but also the $11.49 actual price under the new system.

Participating governments in consultation with affected businesses have developed guidelines for tax included pricing. We have made and participate along with the other participating governments a concerted effort to ensure that the pricing requirements that accommodate the wishes and needs of consumers do not do so in a way that imposes an undue compliance burden on vendors. In this spirit of a fair and practical approach, the participating governments are continuing to refine the pricing guidelines which were released some weeks ago with a particular emphasis on the issue of price advertising in the harmonizing provinces.

The guidelines issued a number of weeks ago go a long way toward addressing retailer concerns about cost and inconvenience in moving to the new tax inclusive system. I note just two options that exist for retailers pursuant to the guidelines, namely shelf pricing or bin pricing. There will not be a need to go through and reticket every individual item. There are options to shelf price, to bin price items, to dual price so that price points can be advertised as long as the full tax inclusive pricing is also available. So there is a great deal of flexibility in accommodating vendor concerns.

The government has listened and has responded but it has never forsaken the desire of consumers in this country to know once and for all the real cost of items they wish to purchase.

During the finance committee's recent study of this legislation one of the main criticisms was that it might criminalize offences under the pricing requirements. The participating governments are certainly eager to encourage compliance with the new system. Consumers would expect no less of us, but I can assure the hon. members that failure to comply with tax inclusive pricing is not a criminal offence but a regulatory one. In addition to clarifying this point I would like to make the more general comment that the government intends to take a flexible approach to monitoring compliance with the pricing requirements.

While it is true that the new system will come into place in April of this year, monitoring, education and assistance will be available and compliance will only be effectively looked at six months later. In August, as the pricing guidelines indicate, is the time by which it is expected that vendors will have made the transition, with all the help that the guidelines provide and other help which relevant departments in the participating provinces will provide; a full six months to adjust to the new scheme once it is implement. That is in addition to the time which retailers have had and have spent consulting with government which has resulted in the very effective response to the pricing guidelines.

The goal is to make sure that businesses have plenty of time to become more informed of their obligations and fully apprised to the various options available to them in fulfilling their obligations.

Tax included pricing is not the only benefit that will accrue to consumers under harmonization. They will pay lower prices on many items. For the sake of argument, let us forget for a moment about the layers of provincial retail sales taxes that are absorbed in business costs, the tax on tax, the tax cascading that consumers pay the price for, and consider only the nominal rate of tax that consumers pay directly. Even with this assumption Nova Scotia and New Brunswick consumers now pay a combined rate of 18.77 per cent on most goods that they buy. In Newfoundland and Labrador the combined rate is almost 20 per cent.

Under the harmonized sales tax consumers will pay only 15 per cent. This may mean a higher rate of tax on some services, as we move to the GST base, but in the rate debate the bottom line is what really matters. When all is said and done, I want to reiterate what we have said in this House before, the overall tax burden on consumers in the harmonizing provinces will decrease under the harmonized system. How could it be otherwise as the rate moves from 20 per cent in Newfoundland and Labrador to 15 per cent and from almost 19 per cent in Nova Scotia and New Brunswick to 15 per cent?

The bottom line is overall tax will go down and consumers will see that as they reflect back on their overall purchases over the course of any year in the new system. This is a benefit that will be felt across all sectors of the economy.

I would now like to move away from the consumer related aspects of Bill C-70 and mention that several technical motions were adopted by the finance committee earlier. These were motions that have addressed witnesses' specific concerns.

I want to pause for a moment on behalf of the government to thank the finance committee for the very fine work it did in the hearings that were held here in Ottawa where it heard from dozens and dozens of individuals, interest groups, interested parties who came to speak to Bill C-70. In addition to that I would like to thank the individual members of Parliament on all sides of this House who held consultations in their ridings, town hall meetings, and reflected comments back to the government with respect to Bill C-70.

As the chairman of the finance committee said during the hearings here in Ottawa, there is not one witness who came forward to the clerk of the committee asking to be heard who was not heard, who could not be provided for if they wished to be heard here in Ottawa. In addition, members held individual hearings and town hall meetings in their ridings and there was a tremendous amount of input. In addition to the witnesses who appeared here in Ottawa, dozens of other witnesses provided written briefs to the committee and to individual members.

As a result of that consultation held by the committee, a number of motions were brought forward by the government to bring amendments to Bill C-70 at that stage which reflected concerns that had come to the government's attention. By pausing to speak about that process, it is to say that the system works. The committee deliberations resulted in very specific responses to precise problems that certain groups brought to our attention.

For instance, one group brought to our attention certain cash flow problems that they would have as a result of the new system. We responded to that. Individuals asked for clarification with

respect to the suggestion that failure to comply might amount to a criminal breach. That is not the case. Clarifications came forward. There were other examples as well.

I spoke about the cash flow issue to give an example. Under the proposed simplification measures originally reviewed by the committee, auctioneers would have been responsible at all times for remitting the tax collected on auction sales to the government rather than passing the tax back to a registered principal.

In response to concerns raised at the committee stage, these rules are being amended further to alleviate the cash flow burden that this measure would otherwise create for wholesalers selling large lots of goods through auctioneers. This will be accomplished by giving auctioneers and certain principals the option of making an election that would allow the auctioneer to pass the tax back to the principal.

I have been speaking about the process in responding to witnesses to debunk those who stand in this House and say that to propose amendments at the committee stage, or indeed at this stage in the House, is to suggest that the government has not done its homework or that there is something wrong with the legislation. This is how the system works in this House and in this country. If a government fails to listen to witnesses who come forward with compelling reasons why legislation should be amended to respond to particular inequities or to clear up certain anomalies or confusions, then it is a sad day indeed.

I find it somewhat remarkable to have people stand in this House and criticize that process when, if we presented a bill and entertained no amendments whatsoever at committee stage or here in the House, we would be accused of some sort of dictatorship. The system works. It works effectively and it works well.

The arguments in favour of sales tax harmonization are too compelling to refute. All stakeholders stand to gain from it. The participating governments have developed a framework for harmonization that is balanced and reasonable. Bill C-70 will reduce the tax burden on individuals in the harmonizing provinces. What could be wrong with that?

We have responded favourably to Canadians' desire to know the full cost of something before paying for it at the cash register. What could be wrong with that? We have responded to consumers who were afraid of not being able to know the tax if they need to know it. It will be there on the receipt for all to see. What could be wrong with that?

Harmonization represents a fundamental restructuring of the way in which sales taxes are levied and administered. It eliminates overlap and duplication. It is simplified in administration, it is simplified for retailers in compliance. What could be wrong with that?

There will be minimal potential for disruption and confusion during the transition period because of the pricing guidelines and the delays allowed to retailers to get on side. What could be wrong with that?

The legislation shows innovation and foresight for it leaves the door open to any province that may wish to harmonize in the future. What could be wrong with that?

In this country we cannot wait to move forward with important changes, for every province to sign on. Indeed it is the structure of this federation that often opportunities are presented for provinces to go their own way for a time. But the wisdom of this harmonization now being embraced by three provinces will be understood soon by other provinces because their consumers will demand it, their retailers understand it.

With the exception of one witness, every witness who appeared before the finance committee supported harmonization across this country and urged the government not to give up on trying to effect harmonization with the rest of the provinces. I might point out at this time that the province of Quebec is currently harmonized with the federal GST. The province of Quebec understands the benefits of harmonization. What could be wrong with harmonization? If it is good enough for Quebec, why is it not good enough for the Atlantic provinces?

Before closing, I would like to focus on an aspect of harmonization which has been much discussed and some might say yelled about in this House as it was a moment ago. It is the decision by the government to provide a formula for short term adjustment assistance to qualifying participating provinces when they face significant structural costs to enter the new integrated sales tax regime.

Under this legislation, this move to a harmonized sales tax, adjustment assistance becomes available to provinces that experience a revenue shortfall in excess of 5 per cent of their current retail sales tax because of moving to the single harmonized sales tax system. I repeat the formula is that adjustment assistance becomes available to provinces that experience a revenue shortfall in excess of 5 per cent of their current retail sales tax revenue because of moving to a single harmonized system.

This is the case for Newfoundland and Labrador. This is the case for Nova Scotia. This is the case for New Brunswick. Under this formula, Quebec would not have qualified for adjustment assistance when it harmonized, nor would British Columbia or Ontario if they harmonized right now.

In fact, while my friends opposite rail against this adjustment assistance, Quebec did not experience a loss of revenue when it

harmonized because of the way in which it harmonized over a period of time, not all at once as the participating provinces are. Quebec ran two parallel systems and experienced an increase in revenue, not a decrease.

There is another aspect of this adjustment assistance debate which needs to be repeated in this House. Our history is rife with examples where such assistance has been offered to provinces or regions. I hear little from members opposite about those other examples when they benefited their provinces. However they rail against this adjustment assistance to Atlantic Canada which some of them would not qualify for.

When the Crow rate which helped the farmers of the west respond to the challenge of distant markets was abolished, over $1 billion in adjustment assistance was provided to grain farmers. I did not hear any complaints from the members of the third party such as we are hearing with respect to adjustment assistance for Atlantic Canada in moving to the harmonized system.

In 1972 when the federal government instituted income tax reform, every single province received adjustment assistance, a total of $2.7 billion over a seven-year period. I did not hear anyone say: "No, do not give our province any of that".

When subsidies were scaled back for the agricultural sector, compensation was also provided. I did not hear members of the official opposition or the third party stand up and say: "No, we are not entitled to that. Do not do that".

It is curious. Those examples, the Crow rate and agricultural subsidies benefited particular regions and provinces and not Atlantic Canada. This adjustment assistance which is justifiable, which is justified, which is appropriate because of revenue losses in those provinces, is being criticized by people who stood silent in this House when adjustment assistance went their way. I think that says it all.

What I find disappointing is that there are Canadians who have attacked the entire concept of this adjustment assistance, but that is a mindset which ignores history, misreads the present, misunderstands the past and lacks vision for the future.

The assistance we have developed applies equally to all. There is no discrimination, no favouritism and no bribery. The participating provinces are joining in the harmonized system because it will make their economies more efficient, more effective, more competitive and consumers will benefit.

Some critics may view this bill as an easy target if their ambition in life is to grab headlines and score cheap political points in the short term. However, the legacy of this government is sound management, not sound bites.

As I just said in English, Bloc members are against harmonization, which is very surprising, because Quebec already has harmonization. Is it because they want to keep the benefits of harmonization for themselves, their companies and their consumers?

Could that be the reason? Do they want to keep a comparative advantage for themselves? Atlantic Canada wants that same comparative advantage. Its governments have decided that they shall have it and indeed they will.

As an economic policy and as a model of federal-provincial co-operation, the merit of this legislation is unassailable. Therefore in closing, I urge hon. members of the House to support Bill C-70.

Excise Tax Act
Government Orders

10:40 a.m.

Bloc

Yvan Loubier Saint-Hyacinthe—Bagot, QC

Mr. Speaker, it is a pleasure to speak on third reading of Bill C-70. This is a very important bill. It is certainly not routine. This bill will have crucial consequences for the maritimes but also for all citizens in Quebec and Canada. In my view, this bill is highly controversial, concerning as it does a measure that the members of this government fiercely opposed when they were in opposition.

Hon. members will recall, and especially my colleague from Sorel, the battle of epic proportions which the Liberal Party of Canada waged against the GST. Later on I will share with you some quotes from the Liberal opposition's report when the GST was introduced and from the debates that preceded its introduction. The position taken in this report was the exact opposite of the position taken today by the Liberal government, the opposition at the time.

Bill C-70 provides that in three Atlantic provinces, provincial sales tax will be merged with the GST, so there will be only one tax, referred to as it the "HST", the harmonized sales tax, which will be 15 per cent. Basically, this agreement compensates three maritime provinces for harmonizing their sales tax with the GST. In fact, this compensation will be paid for by the people of Quebec and other Canadian provinces outside the maritimes and is expected to amount to nearly one billion dollars.

The government has not provided any solutions. If the government wanted to achieve anything at all with respect to the GST, it certainly did not do so with this bill. We will comment on the government's commitments later on. The harmonization that was much vaunted by the other side for many months has not come through. It is only being done in a specific geographic area, in three maritime provinces. Harmonization should mean harmony, but that is certainly not the case.

During the three days of public hearings held by the Standing Committee on Finance, even representatives from the maritimes disagreed with the government's proposal and, meanwhile, the government did not have a clue how to get out of this mess.

Before getting to the crux of the matter, I would like to make two comments regarding the procedures followed for this bill and the conduct of the government's representatives. First of all, the government's representatives behaved in a manner I would call undemocratic, ever since we started examining this bill.

At the second reading stage, we received the bill 24 hours before hand. Twenty-four hours to examine a bill that is more than 300 pages long, plus explanatory notes. We were told to do our job. We must explain to the public that certain parts of the bill could cause problems and should be debated in the House.

It is unheard of to receive a bill as important as this one, with so many clauses and having so many potential consequences, only 24 hours ahead of time. It is hard to explain why, unless we realize that the Liberals want to talk about GST as little as possible. They want to give us as little ammunition as possible with which to attack the GST because their own arguments are so weak. From the very beginning, their approach has been very much ad hoc.

Quite simply, I wish to point out two things in connection with the attendance of the witnesses over three days in early January and the way the Liberals presented things.

First of all, right from the word go, right from the start of these hearings, the Liberals arrived at the finance committee with 16 amendments to their own bill. Imagine how unsure of themselves they must have been to have seen problems in the bill they had tabled themselves, to start off by giving the committee 16 amendments.

We saw those amendments at the same time everyone else did, even though our role as official opposition would require us to have access to them in advance so we could assess their scope. And that is not all.

On the third day of the hearings, because hearings on such an important matter were restricted to three days, the Liberals tabled 113 amendments on the very evening that the bill was being analyzed clause by clause. Yes, 113 amendments to a government bill introduced by representatives of the government-there is some incongruity to that.