House of Commons Hansard #33 of the 38th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was seniors.

Topics

Department of Social Development Act
Government Orders

1:15 p.m.

NDP

Pat Martin Winnipeg Centre, MB

Mr. Speaker, we will fiercely fight to protect our jurisdiction in Manitoba when it comes to the delivery of social programs, but we will just as fiercely demand that this new ministry of social development does something about the inadequacy of the transfer payments to the provinces so that they can meet the genuine need within inner city ridings like ours.

The Canada health and social transfer has been an abject failure in terms of block funding for post-secondary education, health care and social services. Perhaps through this new Minister of Social Development we will be able to argue that basic needs in our communities are not being met by their current structure, their current policy and their current miserly treatment in the transfer of money to the provinces so that we can deliver those programs in our own jurisdictions.

Department of Social Development Act
Government Orders

1:15 p.m.

Liberal

Jean-Claude D'Amours Madawaska—Restigouche, NB

Mr. Speaker, last December, the Government of Canada established the Department of Social Development to provide a centre of expertise for social policies and programs, thereby enabling Canada to maintain and strengthen its reputation as a nation that cares about the well-being of its population.

In the past 10 months, Social Development Canada has taken bold steps in support of its mandate. Now, in introducing a bill to provide a legal basis for the department, we are building on the work accomplished and laying the foundation for a more aggressive approach to social issues at the federal level.

With its 161,000 non-profit organizations, the Canadian volunteer sector represents both a social and economic force in our country. Once again, I want to stress that, when we say that there are 161,000 non-profit organizations across the country, we have to pay attention to this great force.

The basic purpose of volunteer work and non-profit organizations is to ensure that we can help not only our region, our city or our province progress further, but the whole country. It is therefore extremely important to work with and support these organizations which, in practice, make a useful contribution, very often, in more specific ways than the government or other institutions could.

Non-profit organizations, including charities, provide a full range of services to meet human needs: child care, elder care and youth recreation.

Many organizations focus their efforts on the members of groups which are often marginalized, such as persons with disabilities, aboriginal people and new immigrants. They provide services such as education and training, housing and shelter, and places of worship. In so doing, they improve the quality of life of millions of Canadians.

While providing essential services, non-profit organizations also give Canadians an opportunity to reach out to their fellow citizens. Newcomers to Canada, for instance, get acquainted with their adoptive country through volunteer work, not to mention that this is an opportunity for all these newcomers to gain valuable and fulfilling work experience.

All in all, more than six million Canadians give their time to non-profit or community organizations. This is a donation of more than deux billion hours of work every year. I want to say that despite my full schedule, both in the past and the present, I have taken part in voluntary activities many times. I thought it was very important, not for myself, but like those millions of other Canadians, in order to help and encourage the rest of the population. In fact, when we belong to an organization that provides assistance to the public, we are certainly not doing it for our own personal good.

The assistance provided to these organizations is often dismissed as marginal. Nevertheless, we must never forget that without the concern of the people who keep voluntary organizations and volunteerism going, it would be even more difficult to ensure that everyone in our country is very well taken care of.

Two billion hours of work is a great deal. The Canadian people give many hours of their time so that everyone in Canada can benefit. Two billion hours of work per year is quite a contribution for the entire population of Canada and for its well-being.

Whether they are delivering meals to seniors in their homes, coaching in minor league sports or offering respite care for families in need, our volunteers are doing essential work that reflects well on Canada's dynamic communities.

When we talk about delivering meals, I would just like to point out that in my home region the Canadian Red Cross offers this service. But the service does not appear simply by saying, “We will do it”. It can only be provided by hundreds of volunteers all over Canada who donate their time and energy to help those who need it most.

Our volunteers also contribute to community life outside Canada's borders. They give their time to organizations that create awareness of the need for pollution controls, that establish bridges of hope and understanding between cultures, and that increase the ability of developing countries to help themselves.

These actions show compassion and well-understood personal interest. Once again, I have been aware for a number of years of the importance of working with these organizations and with the people who are attracted to them. It makes it possible for us, in our communities, to ensure that we can help others with needs greater than ours, and contributes to social progress in this country.

At the end of the day, what is given comes back. In other words, as sustainable development takes root in these countries, the entire Canadian population will benefit from the emergence of a safer world that is more stable and more prosperous.

The not for profit and community organizations in Canada are important allies in creating solid and dynamic communities. Not only do they fill a real and growing need, but they speak on behalf of the most vulnerable in Canadian society. Since they are close to ordinary people, they give the government valuable information that can help improve social policy.

When I say they give the government valuable information, I believe that it is important, as parliamentarians, to take some time to talk to these people and get involved in these organizations in order to have a better understanding. That is not to say we do not understand. Nonetheless, we have to make sure we have a better understanding of the needs and the benefits of the not-for-profit organizations that work in the volunteer and community sector. This will facilitate the establishment of a link to provide information to the government so that we can move closer toward really good social policies, as we are doing today.

The volunteer and community sector is at the heart of what is most often called the social economy. It includes all the not-for-profit companies and activities utilizing people and companies to benefit communities across the country.

In Canada, some 10,000 social enterprises and organizations employ roughly 100,000 people and produce $20 billion in annual revenues. This is extremely significant in terms of revenues, but even more significant in terms of the number of people who have the opportunity to work at these social enterprises. Some 10,000 people working at 100,000 companies is significant, and it is extremely important to recognize and promote these companies.

The government is determined to foster the social economy. In fact, it has already started to reach its budget commitments of 2004 in this regard. The funding has been allocated to three priority areas. First, there is $100 million over five years in support of financial initiatives that will increase lending to social economy enterprises. As I mentioned, we can see that this contribution is important to help these social economy enterprises move forward and prosper in the country.The funding in the second initiative includes $17 million over two years for a pilot project for strategic planning and capacity building of community economic development organizations. Finally, in the third initiative, $15 million over five years will go to the Social Sciences and Humanities Research Council in support of community based research on the social economy.

It is extremely important to recognize these social economy enterprises and the importance of social economy in this country. It is important to recognize them because, often, they do not get the attention, but people need a little help that is often more moral than financial.

This investment in the social economy will total $132 million. However, funding is not enough. The government is committed to helping foster the environment that supports social economy enterprises. To this end, as the Speech from the Throne said, the government introduced a new Not-for-Profit Corporations Act, an initiative of Industry Canada.

The new legislation will modernize the regulatory framework, increase public confidence and streamline rules for charities. It will help create the necessary conditions so that social economy enterprises can prosper. In principle, everyone will benefit, since these enterprises put their surpluses back into the community.

Department of Social Development Act
Government Orders

1:30 p.m.

The Acting Speaker (Mr. Marcel Proulx)

It being 1:30 p.m., the House will now proceed to the consideration of private members' business as listed on today's Order Paper.

Resuming debate, the hon. member for Madawaska—Restigouche will have nine minutes.

Excise Tax Act
Private Members' Business

November 26th, 2004 / 1:30 p.m.

Conservative

John Duncan Vancouver Island North, BC

moved that Bill C-259, an act to amend the Excise Tax Act (elimination of excise tax on jewellery), be read the second time and referred to a committee.

Mr. Speaker, Bill C-259 is an act to eliminate the excise tax on jewellery. I think it is instructive to read the brief preamble and the actual legislative change in the bill, but before doing so I would like to say that I have had the bill in the hopper for a number of years. It is finally coming before the House largely as a result of the fact that we have changed the the way we draw bills. I was fortunate enough to win the lottery from the standpoint that my bill was picked sixth in this Parliament for private members' business. I feel quite blessed in that regard.

Bill C-259 is now a timely bill. When I first put it forward, we were dealing with a circumstance where this change had been promoted by the jewellery industry for decades, if not generations.

Now what has really changed is that we have everyone involved, right from the mining industry through to the retailer who has anything to do with diamonds and/or jewellery of all kinds, including costume jewellery. They are all now involved in this. Any item deemed to be jewellery that is sold at retail for more than $3 is subject to this tax.

Since I first introduced the bill in the House two Parliaments ago, Canada has become a diamond powerhouse, so the urgency of removing this anachronism of a tax is greater than it has ever been.

The preamble of the bill states:

Whereas manufacturers currently pay an excise tax of ten per cent on the sale price of jewellery manufactured in Canada and importers currently pay an excise tax of ten per cent on the duty-paid value of imported jewellery;

Whereas this tax was introduced in 1918 in respect of several types of goods considered to be luxury goods but today is the only luxury tax in Canada;

Whereas Canada is the only industrialized nation and the only diamond-producing nation that continues to have a luxury tax on jewellery;

And Whereas, as a result of this tax, diamonds mined in Canada cost more in Canada than anywhere else in the world;

Now, Therefore, Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

  1. Paragraph 5(c) of Schedule I to the Excise Tax Act is repealed.

That is pretty simple. The preamble actually says a lot.

Here is what Canada is currently doing. If we have an item manufactured outside of Canada and imported into Canada and it is identical to an item manufactured in Canada, we tax the made in Canada item and do not tax the item coming from outside. This is obviously killing jobs. The excise tax on jewellery is a 10% levy paid by manufacturers on the sale price of items manufactured in Canada and by importers on the duty paid value of imports.

The House of Commons finance committee reported in 1996 that the tax was an anachronism and concluded that it should be abolished. It said the same thing in 2004. The revenue collected from the tax in 2003 was $87 million.

As a result of the growth in the diamond industry, it is now producing government revenues at current rates of about $500 million a year. Canada is currently the third largest manufacturer of diamonds in the world. By the year 2012, Canada is going to be the number one producer in the world. Government revenues from this burgeoning industry are far more than the much smaller revenues that are coming in as a consequence of this unfair and discriminatory tax.

The average Canadian household spends about $170 per year on taxable jewellery, so the average Canadian is affected by this tax.

The threshold for defining taxable jewellery is items that cost more than $3. Therefore, on every jewellery imitation at a Kmart or a Zellers or a Wal-Mart, the tax applies in Canada, but of course that tax does not apply in those same stores in the U.S. We are penalizing ourselves and driving business across the border, where even expensive jewellery can avoid the taxation because people bring it back under the $750 tax exemption for returning residents.

Steven Parker appeared before the finance committee. He is a small business jewellery manufacturer based in Vancouver, whose company employs about 20 full time people making wedding rings, family rings, earrings and necklaces. He had these observations about the tax. He is at a tax disadvantage compared to imported products because the 10% tax applies to all his costs, including marketing, distribution, manufacturing and payroll costs. He can import and have a lower cost base that he applies the 10% tax to; it would be based on landed value only.

Steven Parker and others would manufacture more jewellery in Canada. Two large Canadian jewellery manufacturers relocated outside the country since the 1998 investigation by the finance committee simply because they got tired of waiting for the government to remove this excise tax. They concluded it was not going to happen. The companies were tired of being undercut by manufacturers outside of Canada, so they relocated. This tax is demonstrably killing jobs.

About one-half of the jewellery sold by value in Canada contains diamonds. Saskatchewan will soon be joining the Northwest Territories as a world class diamond producer. Any of the premiers who are involved in jurisdictions where diamond production is either present or about to be are calling for the removal of this tax. It is pre-empting local jewellery manufacture. It is pre-empting tourists buying jewellery made in Canada because they know they can get it cheaper elsewhere.

The Mining Association of Canada said this in May of this year:

In less than a decade, Canada has emerged as a diamond powerhouse...By providing the right mix of fiscal and regulatory policies, governments have the opportunity to maximize the contribution of Canada's diamond industry to the benefit of all Canadians.

One of the key recommendations is “eliminating the federal excise tax on jewellery”. There is virtual unanimity on this subject.

Finally, the application of this tax is an art, not a science. It is applied unevenly. This is very threatening to businesses that are looking for predictability on their taxation.

The finance committee this year heard from Mo Charania of Ottawa, a third generation jeweller with five stores. In 1999 he had an excise audit covering the previous three years. He was assessed over $800,000 in excise tax and was prepared to wrap up his business because that was a bill he could not pay.

Upon investigation of discrepancies and other ways to interpret the tax, especially in terms of how a manufacturer is defined, in his case, because of these discrepancies and differences they were able to reduce his tax bill to $340,000, which meant having to sell only a couple of the five stores in order to pay the bill. I say “only” rather satirically.

Upon further investigation, it became apparent that other companies were not being assessed by the Canada Customs and Revenue Agency because of an administrative policy created outside of the legislation which allows the excise to be paid at a discounted value for multiple items of the same article produced for retail. By application of this formula, it was not an $800,000 bill, nor was it a $340,000 bill. In fact, Mr. Charania would receive a credit.

This tax is incredibly complicated and very subjective in its application. On the part of the business owner, it often requires manual tracking rather than computerized tracking because of these characteristics. Also, it is subject to different opinions of and rulings by different auditors and people within CCRA. That is why CCRA has created a guide on how to apply it that is outside of the legislation. Only some of the businesses to whom this tax is being applied are even aware this guide exists. Obviously not all of the auditors, even with that interpretive document, operate the same way.

It is fairly easy to summarize many of the reasons why we should axe this tax. Consumers are paying a hidden luxury tax for non-luxury items. We can hardly describe a $3 item of costume jewellery as a luxury item.

Canadian jewellery retailers and manufacturers are discriminated against. Canadian jobs are lost. Canada will soon be the largest producer of diamonds in the world and our diamonds will cost more in Canada than anywhere else.

The finance committee has recommended that the tax be abolished.

First nations want the tax abolished; they are important participants in the diamond industry at the mining level and also increasingly in the value added participation.

A really important aspect is that retaining this tax is driving the jewellery industry in Canada underground. The volume of illegal evasion and legal avoidance of the tax is estimated to be in the range of 50% of recorded sales or larger. In 1990 recorded sales were $2.3 billion, just to give a benchmark of what kind of numbers we are talking about. When we get that kind of avoidance or evasion, the GST is also completely avoided, which means that in all likelihood this tax is actually revenue negative for the government and an incredible burden for the business community.

It is time to axe this tax. I have a letter from the member from Oak Ridges completely agreeing with my statement. That is dated January 30 of this year. I have a letter from the chair of the Manitoba caucus completely agreeing with my position. That is dated February 6 of this year. I have a letter from the minister of resources for the Northwest Territories that says the same thing.

My time is up, Mr. Speaker.

Excise Tax Act
Private Members' Business

1:45 p.m.

Conservative

Gerald Keddy South Shore—St. Margaret's, NS

Mr. Speaker, my colleague has done an absolutely stellar job of bringing forth this bill. It has been long waited for and is long overdue.

I wonder if he has any comments on why a government that has been in power for over a decade, nearly a dozen years, has not looked at this. We hear a lot of talk and speculation by the Prime Minister, of course it is when he is abroad, on making Yukon, the NWT and Nunavut into provinces, but no discussion from him on how these territories should fund their provincial governments.

Obviously, with the burgeoning diamond industry in the north, well instituted mining industries throughout the north, this would be one source of revenue for them and we hear about value added every day in this country. We tell all of our producers that we must have value added, yet we have a punishing tax that the government has done absolutely nothing about.

Excise Tax Act
Private Members' Business

1:45 p.m.

Conservative

John Duncan Vancouver Island North, BC

Mr. Speaker, my colleague's comments allow me to say a couple of things I forgot to say. My colleague from Durham, who seconded this motion, talked about a jeweller family, Hooper's Jewellery, which has been operating for 60 years and for the last two generations, the owners have wanted this excise tax removed. This tax has been there for 86 years. I know in the case of my own community, Preston Jewellers has been fighting this tax and I continue to receive letters concerning this issue.

People have made such good cases in the last 10 years on several occasions before the finance committee and with their own independently commissioned reports and submissions to the finance department. They felt the case was so strong and the promises were so strong, that when there was no delivery at budget time, they have actually given up.

This private member's bill has reawakened some real optimism and they are thinking that this time it might really happen. It is rather inconceivable that members from all parties in the House of Commons are going to reject this notion. The tax is an anachronism.

In terms of the north and the provinces, the Premier of the Northwest Territories has stated publicly his real concern on several occasions. There is a burgeoning diamond industry and the Northwest Territories is getting about 4% return on the royalties. It is the same argument for the east coast offshore oil and gas.

During the east coast offshore oil and gas debate I empathized with Premier Handley's position because eventually the provinces, the territories and industry will find other alternatives or these ventures will not proceed simply because they are not the beneficiary. It is too indirect when the moneys go to the federal authority and then the federal authority transfers them back on a different basis and reduces or increases them on a one to one basis based on the royalties.

It is not a happy situation and needs to change. My bill does not address the bigger question. It only addresses abolishing this tax.

Excise Tax Act
Private Members' Business

1:45 p.m.

An hon. member

One step at a time.

Excise Tax Act
Private Members' Business

1:45 p.m.

Conservative

John Duncan Vancouver Island North, BC

Yes, one step at a time.

Excise Tax Act
Private Members' Business

1:50 p.m.

Ahuntsic
Québec

Liberal

Eleni Bakopanos Parliamentary Secretary to the Minister of Social Development (Social Economy)

Mr. Speaker, Bill C-259 proposes the repeal of the excise tax on jewellery. I am pleased to have the opportunity to respond to this proposal having worked with my colleague, the former parliamentary secretary to the minister of finance, as well as my colleagues on the finance committee and the Liberal caucus on this very important issue.

Jewellery and watch products are the only products that are subject to a hidden luxury tax. I agree with the Canadian Jewellers' Association, with which I have worked with for the last five years, including its former president, Mr. Pierre Akkelian, that the federal government is discriminating against this industry.

Some people believe that we are attempting to remove a luxury tax, yet this tax applies to inexpensive jewellery. Jewellery is not luxury. One in three households buy jewellery and the average household in Canada spends less than $130 annually, the hon. member said $170, on jewellery and watches. The average expenditure in fact for a female is actually $98 and for a male it is $36, according to statistics that were furnished by Ernst and Young.

Four million to five million households bought jewellery in 2001 and most of them are low and middle income households. Low and middle income households account for 50% of the sales of jewellery.

In my culture, being of Greek descent, we always buy jewellery for every newborn child. The grandmother tends to buy jewellery, under $100 normally, and gives this as a gift to the child. Looking at the statistics, it is very strange that we would in fact tax a wedding band that costs sometimes around $100 or $200, perhaps more, and we do not impose an excise tax on the wedding gown that costs maybe $1,000 or $2,000. So there is some incongruity in terms of our tax system.

A single mother, for instance, may buy a pearl necklace. It is important to keep in mind that it is not a luxury tax. It is in fact something that would help low and middle income families. As I said, in my culture, it is an automatic thing to do. We normally buy some jewellery for our children. The average receipt, even from a chain like Birks Canada, is under $400.

On the other hand, other true luxury items, and I have always pointed this out to both the present Minister of Finance and the former ministers of finance, such as yachts, expensive cars, designer clothing are all exempt from this tax. In my opinion this tax should be abolished.

As a starting point, I would note that this private member's bill is one of 15 such bills that have been tabled in the current session, each of which requests some form of tax relief in specific circumstances. The proposed measures cover a broad range of initiatives, such as the income tax treatment of adoption expenses, herbal remedies, and fees paid for participation in physical activity or amateur sport. I understand that additional private members' bills proposing tax relief are waiting to be tabled.

There can be little doubt that these proposals reflect genuine concerns about how Canadians interact with and are affected by the taxation system. At the same time, it must be recognized that each and every one of these proposals carries a cost to the fiscal framework. In fact, the 15 private members' bills amount to $2.5 billion per year.

In addition to the fiscal cost that is associated with these private members' bills, one must also consider the difficulties that they may pose for the integrity and robustness of the taxation system and fiscal framework that the government works under.

Taken in isolation, any one of the private members' bills may raise important issues and express intentions that deserve attention and investigation. I am already on the record that I agree with the removal of this tax.

What we should not lose sight of, however, is the cumulative effect that a series of such bills could have on the taxation system. Individual proposals, even those with a relatively modest fiscal cost, could result in an inequity vis-à-vis other taxpayers who would then need to have their circumstances reviewed. Proposals that are evaluated on a stand-alone basis may have unintended consequences or create difficult precedents. A series of such measures may well increase the complexity also of the taxation system or even create opportunities for tax avoidance and evasion, as the hon. member has stated.

On the basis of these considerations, I would suggest that a certain degree of caution is appropriate on the part of the government in terms of studying this bill lest the government lose sight of its longstanding commitment to fiscal responsibility. If there is something that we have come into government to do, it is fiscal responsibility.

One of the hallmarks of the annual budget process is the consultation that takes place with the government asking Canadians for their input to help determine the difficult choices that must be made among competing priorities. Every year, as the hon. member pointed out, the Canadian Jewellers' Association has come before the finance committee with at least two reports, if I am not mistaken because I am not a member, that have suggested that the government do remove this tax. Both the Liberal members and the chairs, who were Liberal, agreed and there was, I believe, all party agreement.

In its May 5, 2004 appearance before the finance committee, the Canadian Jewellers' Association reiterated its request for a repeal of this tax and raised several concerns about this tax. As the hon. member said, the act's $3 tax threshold suggests that the federal excise tax on jewellery is a remnant from a bygone era, something that was once considered a luxury but is no longer considered a luxury. It is the only remaining luxury tax still levied by the federal government

While taxes on alcohol and tobacco can be justified, rightly or wrongly, for health promotion reasons, there seems to be little justification for the excise tax on jewellery as a luxury tax, since other luxuries, as I mentioned earlier, do not face a similar tax. Furthermore, according to the association, because Canada's tax system largely moved away from excise taxes with the replacement of the complex manufacturers' sales tax with the more transparent GST, the CRA no longer has the ability to administer a tax as complex as the federal excise tax on jewellery.

In its presentation to the committee, the Department of Finance disagreed with the characterization of the federal excise tax on jewellery as a luxury tax, noting that “most jewellery sold in Canada is relatively inexpensive and purchased by average consumers”. The department agreed, however, with the Canadian Jewellers' Association that the tax favours imported jewellery over domestically manufactured jewellery and that deficiencies in the tax “make it prone to tax avoidance and evasion”. The department has agreed with everything that we have said so far. According to the department, if “the jewellery excise tax were not already in place, it is less than certain that Parliament would want to legislate one today”.

I would like to add a point that perhaps was not raised by the hon. member. The president of the World Jewellery Confederation, CIBJO, wrote to the Prime Minister and stated that Canada was the last remaining country to have a jewellery tax. Australia and Russia have removed it because of the diamond industry and we are the last remaining country with this tax. Canada cannot be competitive internationally because of this excise tax. As a member of Parliament, I have had the opportunity to make recommendations to the finance committee. The elimination of the jewellery excise tax is one of the issues that I have raised and supported.

To assist the government in its support for small business, following up on budget 2004, the Minister of Finance wrote to the chair of the finance committee asking that the committee take an active role in assessing the merits of a number of measures proposed to support business. The finance committee has recently delivered its second report dealing with excise duties and taxes as they affect vintners, small brewers and jewellers. The report from the committee recommends some form of tax relief for each of these three industries, including a recommendation to phase out the excise tax on jewellery over a five year period.

In delivering its report, the finance committee is mindful of the need to assess competing priorities and the fact that limited fiscal resources are available, but the committee is making a recommendation to the minister. The government supports small business and will continue to review measures to improve the environment for small business to succeed.

I note that the private member's bill also proposes to eliminate the excise tax on jewellery and makes particular note of Canada's role as a diamond producing nation. I want to put on the record that I agree with the hon. member's statement that Canada is a diamond producing nation and we must be competitive. We are known worldwide as having an exceptionally good diamond industry. I agree with his comments that we will continue to help, especially in aboriginal communities.

Mining exploration in Canada, including diamonds, should be supported by targeted income tax provisions designed to recognize the special operating environment of this capital intensive and high risk industry. Provisions include the write-off for capital costs and the carry forward of resource deductions. Exploration companies also derive considerable benefit from the ability to flow expenses that would not otherwise be claimable within the company to investors in flow through shares.

The government has taken several recent actions to improve the taxation of the resource sector. I will end by saying that I agree with the hon. member. Liberal members and other members of the finance committee have been supportive of the removal of this measure.

Excise Tax Act
Private Members' Business

2 p.m.

Bloc

Guy Côté Portneuf, QC

Mr. Speaker, jewellery is a powerful symbol that transcends centuries and cultures. When we think of jewels, we think of James Bond in Diamonds are Forever , or Marilyn Monroe singing Diamonds are a girl's best friend . Unfortunately, I do not think today that I would have got far offering Marilyn a $5 diamond.

Canada and Quebec both have their jewellery industries. This is why I will be supporting Bill C-259 of my colleague for Vancouver Island North. In Canada, the jewellery industry has a total worth of $1.2 billion, most of this is concentrated in small and medium businesses. Some 4,500 companies employ a total of 35,000 people. In Quebec there are about 9,000 such workers in 1,200 companies.

As has been pointed out, hon. members need to keep in mind that this excise tax was created in 1918 to help with the war effort. We won that war, but unfortunately that tax, like many others, although meant to be temporary, had a tendency to put down roots and is still with us. I would give just one other example of such a tax: the income tax that was inaugurated during the second world war.

Indeed, at that time, it was a tax on luxury goods, such as jewels and watches. While a $3 item of jewellery was a luxury item in 1918, as was mentioned earlier today, it is no longer the case today.

But what exactly is the excise tax? According to the Excise Tax Act, it is a federal tax collected on goods that are imported, or made or produced in Canada, based on the duty paid value of imports, or the sale price in the case of the item made or produced in Canada.

I will give all three examples, although the bill only applies to jewels. People at that time spoke of 10% of the portion of the selling price or duty paid value over $50 of clocks and watches for household or personal use, except railway men's watches, another example of the anachronism of those regulations, and watches specially designed for the use of the blind.

It is also 10% on all kinds of articles made in whole or in part of ivory, black amber, amber, coral, mother of pearl, natural shells, tortoise shell, jade, onyx, lapis lazuli or other semi-precious stones. Finally, something pertains a little more specifically to us, it is 10% on articles commercially known as jewellery, whether real or imitation, including diamonds and other precious or semi-precious stones for personal use or for adornment of the person, and goldsmiths' and silversmiths' products except gold-plated or silver-plated ware for the preparation or serving of food or drink.

Again, there is no denying that this tax no longer plays a role at all. We are talking about $3. I have three children who regularly ask me for some change on the weekend. They come back, indeed, with trinkets and some jewels from the discount store. I am surprised to think that they paid a 10% tax on the value of a good for which they may have paid $4 in the first place.

Worse yet, the cost of administering this tax is not known with certainty. According to the Canada Revenue Agency, its administration would cost a maximum of $1.5 million a year. However, it has to be mentioned that the Canadian Jewellers Association told the Standing Finance Committee that administering this tax would cost somewhere between $7 million and $14 million. I agree that there is a very wide gap, but given the often erroneous forecasts by the finance department, I would be inclined to grant more credibility on this issue to the Canadian Jewellers Association.

It would appear increasingly unjustified to collect such a tax on jewels as luxury items. In the current context, in other words in 2004 and no longer in 1918, other luxury items are not treated this way. One could mention, only as an example, yachts, estates, mink coats, caviar and champagne. Nowadays, they are considered luxury items, but they do not come under the scope of this tax.

Our Liberal colleague took great pleasure in mentioning the whole gamut of measures proposed in various private members' bills which increased the costs for the government. I can understand why the government is concerned to some extent, as this excise tax generates roughly $55 million in its coffers.

If the government is really concerned about how to make up for this loss of income, allow me to remind it that the Minister of Finance is planning to put $31.5 billion in the contingency reserve over the next five years. So, I do not think that a little $55 million will jeopardize the government's balanced budgets.

As part of its representations to the Standing Committee on Finance, the Canadian Jewellers Association pointed out, among other things, that while the jewellery excise tax applies only to imported and national items, Canadian jewellers are facing a relatively higher tax bite for three reasons. First, the duty paid value is generally lower for importers than the sales price of Canadian items of jewellery. Second, the popularity of Internet sales makes it easier to order from abroad jewellery that is then imported into Canada, while avoiding—bearing in mind that this is legal—duty and taxes. Third, the excise tax is in fact a tax on stocks in the sense that it limits the quantity of jewellery that a dealer may stock, display and sell.

I want to reiterate something the Liberal member opposite said in her speech because I thought it was important. She said that in her presentation to the Standing Committee on Finance, the Department of Finance and the Canadian Jewellers Association agreed that the tax favours imported jewellery over domestically manufactured jewellery and that deficiencies in the tax make it prone to tax avoidance and evasion. According to the department, if the jewellery excise tax were not already in place, it is less than certain that Parliament would want to legislate one today. I doubt it as well.

That is why we feel that the federal jewellery excise tax is outdated: it no longer meets any social policy objective nor it have the characteristics a tax should have. What are those characteristics? They are: fairness, effectiveness, ease of administration and transparency.

We believe that this tax has a negative impact on employment and the viability of the jewellery sector. Even the provincial, Quebec, and territorial ministers of mining agree that this tax should be eliminated in order to encourage the retail sale of diamonds.

Representations have been made over the last few years by various stakeholders. In committee, the Bloc Québécois, among others, expressed its position a number of times on this issue. Also, back in 1996, the Standing Committee on Finance proposed various recommendations to eliminate this excise tax, and these recommendations were adopted. I sincerely hope that Bill C-259 will be passed by the House. We will support this legislation.

Excise Tax Act
Private Members' Business

2:10 p.m.

NDP

Ed Broadbent Ottawa Centre, ON

Mr. Speaker, all the arguments in favour of the bill, notably by the mover himself, have already been made and I will be brief in reasserting a number of those to explain why my party gives its support, as it did at the committee stage, for the bill.

As has been pointed out, this tax was first introduced in 1918 and, as my colleague from the Bloc has just said, it remains an anomaly. With the tax system now it is the only luxury tax left in the country. As a result of this tax, diamonds mined in Canada cost more here in our country than anywhere else in the world, which is ridiculous. We have become recently the world's third largest supplier in value of rough gem quality diamonds.

In the Northwest Territories a boom is going on. Currently some 47 different mining exploration projects are going on in that part of the country alone. It is an important basic industry for us.

Our jewellery industry employs some 40,000 people in over 5,000 businesses, many of which are small businesses and a number of which are cottage industries in small communities that are disadvantaged by this tax.

In short, we support the bill because removing the tax simply makes sense for Canadians, Canadians who mine diamonds, small businesses that sell jewellery and Canadian consumers wherever they may live.

Excise Tax Act
Private Members' Business

2:10 p.m.

Liberal

Lloyd St. Amand Brant, ON

Mr. Speaker, I am pleased to have the opportunity to deliver comments to private member's Bill C-259, which asks hon. members to repeal the excise tax on jewellery.

The first point I would like to make concerns the importance of private members' bills. The proposals that are put forward by individual members represent an important link between Canadians, their elected representatives and our parliamentary process.

Where private members' bills affect the taxation system, as is the case with Bill C-259, it is especially important that the government take careful note of the intentions that are being expressed.

In the present case, the idea is to repeal the excise tax on jewellery, a long standing federal tax that raises in the order of $85 million per year. Repeal of this tax is being put forward as a means of providing relief for the jewellery industry. Private member's Bill C-259 also makes special note of Canada's status as a diamond producing nation.

I would like to address each of these points in turn, starting with the excise tax on jewellery as a tax that affects small business in Canada.

The government supports small business in Canada and continues to review measures to improve the environment for small businesses to succeed. Indeed, the suggestions from entrepreneurs and small businesses have formed an important part of the budget consultation process over the past recent years.

In order to assist the government in identifying the best options for future consideration from among the many competing priorities, the government requested in budget 2004 that the Standing Committee on Finance undertake the important role of assessing the merits of a number of measures proposed to support small business.

Recently, in October 2004, the finance committee delivered its second report highlighting the role of excise duties and taxes as they affect Canadian winemakers, small brewers and jewellers. The committee recommended that tax relief should be provided to each of these industries including a recommendation that the 10% excise tax on jewellery be phased out over a five year period.

At the same time, the finance committee noted that there are many other instances where small businesses would benefit from appropriate tax changes and that the number of worthy proposals far exceeds the capacity of the government to fund these changes in a fiscally responsible manner.

In this context, it is interesting to note that there are currently 15 private members' bills affecting the taxation system that have been tabled in the current session. The estimated fiscal cost of these proposals is as much as $2.5 billion per year. I understand that additional bills are in line to be tabled.

Clearly, with such a great range and breadth of requests for relief, it is incumbent on the government that these proposals be managed in the context of a comprehensive approach to tax policy and fiscal planning. Individual proposals must be evaluated through a process that carefully assesses competing priorities with a view to preserving the fundamental principle of fiscal responsibility.

Against this backdrop, the report from the finance committee will receive very careful consideration, as will other proposals for tax relief that are received during the budget consultation cycle.

I would like to now address Canada's role as a diamond producing nation. The emergence of this industry in Canada has been nothing short of remarkable. With exploration expenditures of more than $1.5 billion over the last 10 years and the establishment of two worldclass mines in the Northwest Territories, Canada now accounts for about 15% of world diamond production and is the third largest producer by value after Russia and Botswana.

Canada has a long tradition of mining and exploration, along with a number of important tax provisions that are designed to recognize the unique operating characteristics of the industry.

These provisions include writeoff for capital costs and the carry forward of resource deductions. Another important feature of the mining taxation regime is the ability of exploration companies to flow expenses that would not otherwise be claimable through to investors in flow-through shares.

The government has recently taken action to improve the taxation of the resource sector, including a number of measures that were announced in budget 2003: reducing the corporate tax rate on resource income; phasing in a new 10% tax credit for exploration and pre-production expenses relating to diamonds and other qualifying minerals; and phasing out the federal capital tax, an important measure for capital intensive industries such as mining.

For its part, the excise tax on jewellery poses no competitive disadvantage to the Canadian mining industry as exports are not subject to the tax. In sum, the mining taxation regime including the excise tax on jewellery, provides a strong base for mining and exploration in Canada, including diamonds.

It is worth noting that the Ekati and Diavik diamond mines are the largest private employers in the Northwest Territories with a total of 1,300 direct employees. This is clearly a great boost for the north, an area where the government continues to make strategic investments to facilitate economic and social growth.

In addition to the provision of roughly $2 billion per year in transfer payments, the federal government also provides funding initiatives that are tailored to meet specific needs in the north. Budget 2004 for instance announced the following measures: $90 million over five years to support a northern economic development strategy; $3.5 billion over 10 years to clean up contaminated sites, over 60% of which is expected to occur in the north; and $51 million over 10 years to conduct seabed mapping of the Arctic continental shelf.

As well, in the fall of 2003 the Government of Canada announced $190 million for northern infrastructure investments and $155 million for a national satellite initiative to provide high speed broadband Internet access services to improve access to telehealth, e-business and distance learning services.

Budget 2003 included other measures which will benefit the north, including $25 million over two years for the aboriginal skills and employment partnership, $20 million for aboriginal business Canada and $16 million for northern science.

All of these measures will greatly facilitate economic and social progress in the north, including the development of skills and infrastructure that will support the mining industry and diamond industry.

Finally, I would be remiss if I did not return briefly to expand on the fundamental issue of fiscal responsibility. I have already commented that private member's Bill C-259 is but one of many bills seeking relief from taxation in specific circumstances. No matter how well intentioned these bills are, the government must nevertheless be mindful of the cumulative fiscal impact, as much as $2.5 billion, and also the inherent difficulties of considering these proposals on an ad hoc or piecemeal basis that does not provide an effective mechanism for assessing and evaluating competing fiscal priorities.

Over the last 10 years the government has pursued an unwavering commitment to budget balance and fiscal prudence within the context of an integrated policy and fiscal framework. The net result has been an impressive record of economic and social progress.

The government has put forward seven consecutive surplus budgets, achieved a $61 billion reduction in the federal debt and an annual saving of $3 billion on debt servicing costs. Cumulative tax reductions of more than $100 billion have been delivered since 1996, with a primary focus on middle and low income families.

The government is not convinced that the repeal of the excise tax on jewellery should be undertaken, at least not on the basis of private member's Bill C-259. Repeal of the tax is one of many competing priorities, particularly as among measures to support small business.

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Private Members' Business

2:20 p.m.

Conservative

Gerald Keddy South Shore—St. Margaret's, NS

Mr. Speaker, it is certainly a pleasure for me to speak to private member's Bill C-259 put forward by the member for Vancouver Island North. When he spoke earlier, I had the opportunity to ask a couple of quick questions. I said that he had done an absolutely stellar job in presenting this bill. I wanted to put that on the record one more time.

This is an important bill. It is important not just to a burgeoning diamond industry in Canada's north, but it is important to our resource sector. It is important to the gold mining industry, the silver mining industry, the gemstone industry across this country, and specifically and probably most important right now, to the diamond industry.

In 1918 a tax was brought in, which obviously was to pay for some of the reparations of World War I and the cost of sending Canadian troops abroad. At that time, just as the Income Tax Act which was brought in after World War II, it seemed to be a good and important idea, but today, times have changed.

I am a bit apprehensive and concerned. In his speech the government member who just spoke used all kinds of flowery words about fiscal responsibility and whether the government must look at this in a piecemeal fashion or use a bigger umbrella. I have some real concerns that the government will try to find a way not to support this piece of legislation.

It is one thing to talk about the importance of private members' bills and it is another thing to support them. This is a good bill. The industry has been requesting it for years. It is important and the government needs to support it without any ifs, ands or buts.

I want to speak about the Department of Finance for a minute. There was a study done by the Department of Finance about removing the excise tax. Remember that jewellery is the only luxury item that still has excise tax on it. People can buy a $50 million yacht in this country and not pay excise tax because it is not a luxury item. People can buy caviar, champagne or a mink coat and none of those are luxury items. Those are necessities of life. Yet a person cannot buy a piece of jewellery worth over $3 because that is a luxury. It is just wrong-headed.

The study done by the department concluded that removing the tax would not have a significant impact on contraband activity and therefore, would not offset lost revenue. I would like to speak to that for a second. How did it come up with the conclusion that it would not have a significant impact on contraband activity?

Even though the Canadian dollar has increased in value, it is still worth less than the American dollar. However, our jewellery costs more because there is a 10% tax on it. We are going to pay 17¢ on the American dollar to go to the United States to save 10% on a piece of jewellery, which we are going to smuggle back into the country. And this would not stop that? It would absolutely stop it in a heartbeat. People would not even consider it.

Why would a person buy a $5,000 diamond ring in Canada and pay $500 more than he or she would have to pay south of the border? The person could put it on his or her finger and wear it home. Everybody would do that. Everybody is doing that. This bill is only common sense.

Any money lost, or any thought of losing money, would be more than compensated by the increase in jewellery sales and the collection of the GST, which is 7%, on those sales. This is not rocket science. Even Liberals should be able to figure this out. This is common sense, straightforward, financially sound legislation and it is long overdue.

Let us look at a couple of numbers. In 2003 11.2 million carats of diamonds were mined in Canada for a total of $1.7 billion. That is out of two mines, the Ekati and Diavik mines. There are another three or four mines ready to come on stream. There is another diamond mine in Nunavut ready to come on stream. A half carat diamond has been found in northern Alberta. Diamonds have been found in northern Saskatchewan.

We have finally signed, through the United Nations, an accord to reduce the blood diamond industry of the world. We have the best source of quality gemstones in the world. We are continuing to punish the industry by saying it has to pay 10% more, ship them abroad. If people want nice diamonds, they can go to Antwerp or Boston. Perhaps there is a secret message, and the Liberals want us all to go somewhere else. I am not sure. We really have to deal with this. Tongue in cheek aside, it is an extremely important industry.

Along with that $1.7 billion diamond industry, Canada is the seventh largest gold producing nation in the world. Canada mined 152 tonnes or $2.7 billion worth of gold, with no value added. Keep Canadians, and northerners in particular, as hewers of wood and drawers of water. The government does not want them to think for themselves or to set up an industry that would allow them to become financially secure, independent and produce for themselves. Even the rest of Canada cannot not take advantage of that. It exports it and then considers giving it back.

Silver would be another idea. Canada produced 1,254,712 kilos or 1,229 tonnes of silver last year.

We have a golden opportunity here. All we have to do is get rid of this punishing excise tax.

Excise Tax Act
Private Members' Business

2:30 p.m.

The Acting Speaker (Mr. Marcel Proulx)

The time provided for the consideration of private members' business has now expired and the order is dropped to the bottom of the order of precedence on the order paper.

It being 2:30 p.m., this House stands adjourned until Monday, at 11 a.m., pursuant to Standing Order 24(1).

(The House adjourned at 2:30 p.m.)