Madam Speaker, I am appreciative of having the opportunity to participate in this debate because it is an issue very near and dear to my heart. It is an issue that is near and dear to the heart of every member of Parliament. You cannot be in public service today without hearing from your constituents that they are frustrated with the current tax act of Canada.
When you test a tax system it should stand up to three basic criteria. First, is it simple enough that the person on the street who basically has to be responsible for participating in the tax system can understand it? On simplicity the tax act of Canada fails.
Second, on fairness we have heard time and time again of examples within the tax act where people who are making millions of dollars a year are not paying anything and people in the lower income spectrum, sometimes under $50,000, paying more than multimillionaires. When it comes to the test of fairness, it does not pass the test of fairness either.
When you talk about the third criteria, efficiency, my goodness when it comes to efficiency there is no one in this country who would stand up and say that the current tax act is an efficient system.
I must start off by reminding everyone in this House that the Prime Minister during the last election led the debate on tax reform. He led the debate. He said it in the red book. He came to Toronto on more than one occasion. I can vividly remember in the control room of CFRB when they confronted him on the issue of tax reform. The Prime Minister, then the Leader of the Opposition, said our government will be committed to comprehensive tax reform and it will have to meet the tests of simplicity, fairness, and of course efficiency.
We have been in office for just six months and we have started the process of addressing comprehensive tax reform. I believe the finance committee has done a terrific job going across the country and listening to all the different ideas that were presented.
The previous government moved arbitrarily on the GST, without proper consultation, and it ended up getting us all in a mess. It ended up fracturing the confidence of Canadians. It
destroyed a good part of our retail industry, not to mention that it exacerbated an underground economy beyond our ability to calculate right now. The underground economy it is said could be as high as $30 billion to $40 billion.
I say to the members of the Reform Party that they are not alone in their quest for comprehensive tax reform. All of us on this side of the House are on the same pathway as they. I have to caution them, and I say this humbly to the members of the Reform Party, that it is not easy to reform the tax act of Canada.
I believe that I can say that from a bit of experience. I began this journey on tax reform four and a half years ago when the Prime Minister of Canada at that time, Prime Minister Mulroney, and Michael Wilson would stand up on this side of the House and when we would criticize the GST they would say: "Come up with an alternative. Don't just criticize it. Come up with an alternative". A group of us got together and said: "This is going to be an interesting exercise". We came up with this idea called the single tax system.
I want to spend a couple of minutes explaining why we called it the single tax rather than the flat tax. I think it is very important to understand this point. I believe it is essential in advancing comprehensive tax reform further down the path.
For years there has been an attempt to reform the tax system. The number one alternative for debate was called the flat tax. The problem with the flat tax system was that the proponents never took into account the constituencies that needed to be addressed when it came to progressivity. In other words, and I am not suggesting the Reform Party is doing this because I have listened carefully to their speeches, the flat taxers tended to say: "No credits for seniors, no credits for families with children, no credits for charitable donations, to heck with the RRSPs". The flat tax system developed a very bad name. It was: "Here is the gross revenue. You have one single credit and then after that you are 20 per cent, over and out".
The seniors in our community, families with children and charitable organizations, the most disadvantaged in our community who we should care about the most, started to look at the flat tax and said: "The social side of the equation is being ignored in the flat tax system". Regrettably the flat tax got a very bad name. The biggest slam against the flat tax was it was not progressive.
A group of us who were dealing with this problem and doing the research said: "We can't go with that name because if we are going to get acceptance we have to design in the tax form credits that will make sure that those people who are most disadvantaged in our society are looked after right up front". We came around to this name called the single tax, a single rate of tax, corporate and personal.
We designed the personal side of the form. I am sure many members have seen this form. It is a relic now because it is draft two which was done in about April 1989. We are now at draft 19. In five years seven or eight of us have been listening to thousands and thousands of Canadians, probably about 100,000 Canadians over five years who gave us advice and input on how we could refine it. I only bring this point out that it took five years because most of those points that people made were good points. It taught me a big lesson.
Even though I wanted to come in in one year or two years and reform the tax system, I realized that a package this complex could not be done overnight. Believe me, I am not being defensive. I still support the idea of a single tax. One cannot just do it. It is not like putting something in the microwave and 20 seconds later, it is there, ready to go.
Going back to the personal side of the single tax, we started off with the following premise. We must for starters make sure families with children are recognized in the single tax. Therefore they must have a credit. We then said that the seniors need to feel comfortable with this tax act, therefore they need to have a line in the tax act and a credit.
Another line that we put in the credit was for charitable donations. I want to tell members that that 1 per cent line for charitable donations is essential. When we did our early research on this issue we called Drs. Hall and Rabushka from the Hoover Institute at Stanford. They said to us: "Do not make the mistake, Dennis, that we made when we started. We scrubbed the charitable donations line. We said no more charitable deductions".
They told us that the charitable organizations went to their local politicians and went to the press and they were such a force that they condemned the system even before it got out of the gate.
One has to have a line in one's tax act for charitable donations. One can cap it, but one must be generous because ultimately one is going to need those constituencies supporting the system if you are going to pull it off.
Then we said that we cannot do away with the RRSP structure. The RRSP structure is almost a part of our fiscal framework. We put that in the act but we capped it. Of course there was the basic deduction.
After all, there are those deductions or those progressive credits. I want to put the emphasis on progressive because the biggest criticism of this project is that it is not progressive enough. One can design progressivity into the act or into the
card. At any rate after those progressive features were designed, we told them that after their basic income and those deductions they could take a single rate of 20 per cent.
On the corporate side, because one needed to have a fully integrated system, we said that there should be a very progressive credit for small business on the first $50,000, no tax. After that, it is their basic corporate expenditures and after those corporate expenditures and their basic depreciation is put in place, there is a single rate there as well.
That is the direction that we have been working on. We believed that would accomplish a number of goals. The most important thing is simplicity. I think very few people would argue that this system is not simple. There it is. One can see it. One can fill it out. It is very straightforward.
The next most important thing is to make it doable and that is the challenge that we have in this Parliament.
There are difficulties in moving a tax system that primarily ran and to this day runs the economy of Canada and now we are saying, those of us who support this type of idea, that we want to stop running the economy of Canada through the tax act. We basically want to make it a tax collection unit; no more preferences, no more loopholes, flush them all out with those exceptions that I mentioned for seniors, families with children and charities.
I have to say to the Reform Party that the transition from the current system that we are in to a single tax system is really the debate that we have to engage in because that transition period is the real challenge.
I do not believe the challenge is one of whether or not we are going to generate enough revenue because right now the current tax system is so flawed that some experts say the underground economy is over $40 billion or $50 billion and growing. The notion of a simple, fair tax system is reinforced by the underground economy right now.
There is another factor and it is called having a globally competitive tax system and I do not believe we have been talking about that issue enough. Our tax system right now is driving people not only underground but offshore. In other words, our achievers, our entrepreneurs who are creating real wealth are starting to leave. Over a million Canadians are in California right now and we did a survey and found that many of them are there because of our tax act.
I believe that one of the reasons we should investigate comprehensive tax reform which the Prime Minister and our party have supported is that we need to reverse the capital flows. We have to design a tax system that causes the capital to flow back into our country rather than flow out. The current tax act is not doing that very well.
People from time to time come to me and ask how I could support somebody making $60,000 a year paying 20 per cent and someone making $1 million a year paying 20 per cent. Is that not unfair, inequitable?
For me it is not. There are many others in Canada who believe two things. Number one, the harder you work and the more you achieve and the more you earn, you should at least be able to keep some of it in your pocket. There is another thing. Right now there is no guarantee that we are getting anything on the person who is making $1 million or $2 million whereas in the single tax it is airtight. We are going to get that 20 per cent no matter what, including family trusts. In other words, under a single tax system all income is in the loop, it is airtight.
I suggest that if we had a system like that then those people, whether they be scientists or doctors or people who have achieved entrepreneurial wealth, rather than being tempted to leave would stay. Not only that but we would see other capital from around the world coming to our country because we would have a competitive tax system, a tax system that respected wealth creators, job creators, a tax system that respected people who have achieved through their intellect all kinds of scientific discoveries.
I want to say that we on this side of the House support the pathway that leads to comprehensive tax reform. However, at the same time I want to say as someone who has been engaged in this debate for a long time that it is not an easy task. This transition period is going to be a very tough period.
Let me give an example and let us deal with the energy sector right now because many of the Reform members are from western Canada and I know that the energy sector is very important to their constituents.
Right now in the tax act there are billions of dollars of tax grants to the energy sector. Under the single tax all of those grants or those preferences are gone, eliminated. When a company from the province of Alberta that has been used to getting these tax deductions, some of which are actually in the billions, finds that all of a sudden they are gone, it is a tremendous kick to the cash flow of that particular company. It is going to come running up to Ottawa or to members in their constituency offices saying it is out of business if that tax credit is cancelled.
Therefore, we are going to have to have a transition period because we are going to have to analyse whether that entire tax grant should be eliminated.
My own view has always been the following. Any grant, whether it be a direct grant in a line department or an indirect grant through the tax act, should always be linked to the policy objective of creating jobs. The problem is that because these tax grants are buried in the tax act there is no accountability as to whether they are meeting the policy objective.
I am going to close in 30 seconds. I want to say to the members of the Reform Party that we have to make sure when we move those grants into the line department we link them to job creation. If they do that, where they are transparent and accountability, we could have a successful tax act.
