Mr. Speaker, I am hoping after having heard the first round of debate that we can restore some clarity and context to the whole issue of the harmonized sales tax and specifically the motion before us that deals with compensation.
In order to do that I want to go back a step and focus on the early part of our mandate when the government asked the House of Commons finance committee to consider alternatives to the GST and to essentially consult broadly with Canadians on some alternatives.
The committee heard from tax experts, business people and Canadians. In fact the committee heard from nearly 500 witnesses and received over 700 briefs. It reviewed about 20 different alternatives and found that the broadest consensus by far was in favour of harmonization, replacing the current patchwork of sales tax with a single tax based on a value added system.
As you will remember, Mr. Speaker, because you were here in the last Parliament, this really became the foundation of the HST, the harmonized sales tax. It was an agreement between the federal government and three Atlantic provinces, New Brunswick, Nova Scotia and Newfoundland. Throughout this agreement which came into effect last April these provinces replaced a system which was in fact quite cumbersome, costly and complicated with one that proved to be simpler and essentially more efficient. Most important, these changes will add up to a better system that promotes a stronger economy and will result in greater job creation.
Consumers in participating provinces are benefiting in a number of important ways. Most important, there has been a reduction in the rate of tax. For Nova Scotia and for New Brunswick the combined rate of 15% represents a decrease of essentially 4 percentage points in an effective sales tax rate. In Newfoundland and Labrador the rate decrease is closer to 5%.
We heard a lot about businesses this morning in the first round. Businesses are also benefiting from the lower combined tax rate. They now have to deal with only one set of tax forms, one set of rules and one tax administration. Essentially it means lower compliance costs, and we know that translates into savings and those savings translate into the firm's own bottom line and can benefit consumers.
The Canadian Institute of Chartered Accountants estimated that if all provinces were to join in the national sales tax system Canadian business could save between $400 million and $700 million a year in administrative costs alone. I should also point out that a someone who has been part of the small business community, and Mr. Speaker, you are also part of the business community, the benefits of lower compliance costs will particularly be advantageous for the small business community. We know that the small business community also bears disproportionately the cost of dealing with two separate tax systems.
A further benefit to businesses in the participating provinces will be the recovery of the HST payable on inputs, something that was not being done before the implementation of the HST. In fact, harmonization will eliminate over $700 million in hidden sales taxes on business inputs in the three Atlantic provinces. This will in fact reduce the cost of Atlantic exports and essentially eliminate the unintentional competitive advantages that imports currently enjoy in the Atlantic provinces. The HST adds up essentially to a simpler, fairer system and really a stronger economy.
Let me now turn to what is really the aspect of this legislation that has too often been attacked, including today's motion, and essentially attacked by those who placed partisan politics and narrow regionalism ahead of clear objective thought. This of course is the decision by the government to provide a formula for short term adjustment assistance to provinces when they face significant structural costs to participate in a new and integrated system.
Under this legislation adjustment assistance is available to provinces which experience a revenue shortfall in excess of 5% of their current retail sales tax receipts by moving to a single harmonized sales tax system at a combined rate of 14% or 15%. It is important that we emphasize that this is also a short term measure limited to a period of significant transition that these provinces will be going through. It will end after four years. It is not an ongoing program which some of the members have alluded to in this House as being a subsidy. It will end after four years and it provides provinces with sufficient time to adjust to a harmonized system.
It is also important to note that it is truly a joint program. Under the formula there is near equal sharing between the federal government and qualifying provinces of the adjustment costs that harmonization would entail over a four year period, but what I find disappointing is that there are some Canadians who have attacked the entire concept of adjustment assistance.
This mindset essentially ignores history. It misreads the present and quite frankly it lacks the vision for the future. Canadian history makes it very clear that government has played an essential role in our economic evolution and adjustment.
There were tax and land grant support for a national rail system, the development of the St. Lawrence seaway, megaprojects from Lloydminster to Hibernia, special tax concessions for oil and gas development, for research and development, and for small business. I could go on and on. The list is long and quite honourable.
These government investments respond to opportunities. There is a long and proud list of federal assistance for sectors and regions that face economic difficulties and dislocations or must in fact confront some core structural change.
Equalization payments are an essential part of our constitutional framework. They recognize that all of Canada is stronger as a society and as a marketplace when we help less affluent provinces to provide a basic level of public service and support.
Perhaps some members are not aware of this, but back in 1972, when the federal government instituted income tax reform, every single province received adjustment assistance totalling more than $2.7 billion over a seven year period.
More recently the federal government provided assistance to farmers following the collapse of world grain prices. Now they are being compensated for the elimination of the Crow rate.
We have provided bottom line support for maritime fishers who were confronted by a tragedy of decimated fish stocks.
We equally shared in the cost of solving the problem of tobacco smuggling in Ontario and Quebec.
These actions were not charity. They were not partisan politics. They were essentially a reflection of the contract Canadians have struck with themselves, a nation building contract which says that there is a critical role for government and that critical role is to help when help is truly needed and where it can in fact be truly effective.
That takes me to the present. Today more than ever we must manage assistance with much more rigour, innovation and insight. The world of global competition for trade, investment, business opportunities and jobs demands that government remain constantly conscience of the bottom line.
We all know that a government which squanders resources imposes on the nation the costs of high deficits, high taxes and even higher interest rates. These we all know are job killers and investment killers. More important, they are future killers and they are hope destroyers.
This same challenging competitive environment also demands that government continue to play a role in helping its citizens, sectors and regions to meet the global challenge. That is exactly what we are doing with the adjustment assistance for the sales tax harmonization.
Assistance is a necessary investment in making Canada stronger, through helping disadvantaged regions move to a modern tax system to meet the modern challenges of today. It is a 21st century type of investment. It reflects the fact that government must change how it involves itself in economic development.
The assistance formula which we have developed applies equally to every province. There is no discrimination. There is no favouritism. More important, let me state very clear that there is no bribery involved, as was mentioned earlier by a number of members.
Any province in the country which faces a transitional revenue loss exceeding 5% because of harmonization qualifies for assistance. I cannot make it much clearer than that. It is pretty straightforward. After four years it is on its own. It is a transitional measure.
That means that British Columbia, Alberta and Ontario would not meet the threshold. They will not lose money on harmonization, just like Quebec did not lose any money when it partially harmonized.
Let us go directly to the heart of today's motion by the Bloc. There is simply no truth to the fiction that Quebec incurred revenue losses under harmonization with the GST. That means that there are no grounds for its claim that it is being shortchanged.
Let us go with the facts. After beginning its phased in harmonization in 1991-92 and 1992-93, Quebec sales tax revenues were 20% and 17% higher in each fiscal year, respectively. These figures are not based on my documents. They are not based on the documents of the national government. They are based on Quebec documents.
It is a fact that annual Quebec sales tax revenues over the 1990-91 to 1995-96 fiscal years were on average 12% higher than the province's preharmonization revenue in 1989-90.
I can go further. It is a fact that when we draw the analogy with the other provinces over that same period, Ontario with a retail tax system similar to the one Quebec replaced had an average annual sales tax revenue drop of 3% below 1989-90 levels. In other words, when you make the comparison of where Quebec was with harmonization, the improvement we saw in Quebec, and look in that same period at the experience of Ontario, which has a similar retail sales tax system, we see that harmonization was a winner for Quebec.
Let me again be very clear. It is a fact that compensation is available for those provinces that fully harmonize with the GST. Let me explain that. Full harmonization with the GST means that you have the same tax base, the same rate and that members of the HST, provinces and the national government, would move in concert if we see a rise in rates, a reduction in rates or an expansion of the tax base.
The second point is that the revenue loss because of harmonization be significant. Quebec is not fully harmonized. It is partially harmonized. Quebec's revenues went up after harmonization.
The other point that was brought forward this morning by an hon. member from the Bloc was that the premiers across this country supported Mr. Bouchard when he said they are entitled to $2 billion of compensation. That was the message from St. Andrews.
Let me clarify what the premiers said in St. Andrews. What they said is that all provinces should be treated equally. Quebec in this instance has been treated like all other provinces that do not suffer a decrease in revenue due to harmonization.
Let us talk about who would have qualified for compensation under the HST in 1996 since the emphasis has been on the Atlantic provinces and that the deal was made with the Atlantic provinces, and solely with the Atlantic provinces.
Under the formula Manitoba would have qualified for compensation in 1996 had it decided to participate in the harmonized sales tax. I do not recall there being a Liberal government in Manitoba in 1996. I believe it was a Conservative government and still is a Conservative government.
Saskatchewan would have qualified in 1996 for compensation under this formula had it decided to participate in the HST. The last time I checked Mr. Romanow was still the premier of Saskatchewan, the leader of the New Democratic Party.
It is not a deal that was struck solely because we have a number of Liberal governments in the Atlantic provinces. The Atlantic provinces saw merit in participating in the harmonized sales tax. They recognized the efficiency it would provide for their business community and the fact that it would make them more competitive and improve their exports.
Let me go to another fact. André Bourbeau, former Quebec finance minister, declared earlier this year that Quebec did not lose money by harmonizing its tax rates with the GST. To the contrary, he said that the operation has generated hundreds of millions of extra dollars to the Quebec treasury.
A comment was made earlier about the fact that because Quebec did not receive compensation for this harmonization it was forced to increase corporate tax rates to make up for that compensation.
I cannot make it any clearer than that. Harmonization occurred and revenues went up. If there were any increase in tax rates for corporations in Quebec it was solely because of the decision made by the Quebec government at the time. It had nothing to do with whether or not Quebec qualified for compensation. Any linkage to that is truly false.
For the three Atlantic provinces, with their less developed economies and such problems as fish stocks, harmonization carries a painful interim cost. There is no denying that. That is why we developed this compensation formula and why they will receive about $960 million of assistance over four years to deal with the structural adjustment they are required to make as a result of harmonization.
It is surprising and quite frankly frustrating that our approach has been turned into a political football. There is tragic cynicism at work here, the type of cynicism that always knows the price of everything but the value of nothing.
Who can argue with the value of helping provinces to provide the environment to industry to help it thrive, not just one sector or two sectors but all businesses in the region? It is particularly true for the Atlantic region, which is why it has moved to accept the harmonized approach.
By what illogical leap can it be suggested that because some provinces qualify for assistance it should then be provided to every province, even to those who will not suffer major losses?
I will return to my example of 1971 when changes were made to the income tax system and every province received compensation because they were adversely affected. That was not a prescription. It is a comment we cannot agree with.
Since I only have a couple of minutes left, let me close by saying that I reject the competing point of view so often expressed by the Bloc and in effect by the official opposition that opposes any compensation. It ignores the obligation framed by 130 years of Canadian history to help disadvantaged regions become equal partners in a strong, vibrant and growing country.
