Bill C-33 (Historical)

Income Tax Amendments Act, 2006

An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act

Part 1 of the enactment enacts, in accordance with proposals announced in the 1999 budget, amendments to the provisions of the Income Tax Act governing the taxation of non-resident trusts and their beneficiaries and of Canadian taxpayers who hold interests in foreign investment entities.
Part 2 enacts various technical amendments that were included in Part 1 of a discussion draft entitled Legislative Proposals and Draft Regulations Relating to Income Tax released for consultation by the Minister of Finance on February 27, 2004. Most of these amendments are relieving in nature, and others correct technical deficiencies in the Act. For example, Part 2 enacts amendments
–       to implement various technical amendments to qualified investments for deferred income plans,
–       to clarify that certain government payments received in lieu of employment insurance are treated the same as employment insurance for income tax purposes,
–       to extend the existing non-resident withholding tax exemption for aircraft to certain air navigation equipment and related computer software,
–       to allow public corporations to return paid-up-capital arising from transactions outside the ordinary course of business, without generating a deemed dividend,
–       to confirm an income tax exemption for corporations owned by a municipal or public body performing a function of government in Canada, and
–       to provide that input tax credits received under the Quebec Sales Tax system are treated for income tax purposes in the same way as input tax credits received under the GST.
Further, Part 2 enacts provisions to implement announcements made by the Minister of Finance
–       on September 18, 2001, limiting the tax shelter benefits to a taxpayer who acquires the future business income of another person,
–       on October 7, 2003, to ensure that payments received for agreeing not to compete are taxable,
–       on November 14, 2003, to simplify and better target the tax incentives for certified Canadian films,
–       on December 5, 2003, to limit the tax benefits of charitable donations made under certain tax shelter and other gifting arrangements, and
–       on November 17, 2005, relating to the cost of property acquired in certain option and similar transactions.
Part 3 deals with provisions of the Act that are not opened up in Parts 1 and 2 in which the following private law concepts are used: right and interest, real and personal property, life estate and remainder interest, tangible and intangible property and joint and several liability. It enacts amendments to ensure that those provisions are bijural, that is that they reflect both the common law and the civil law in both linguistic versions. Similar amendments are made in Parts 1 and 2 to ensure that any provision of the Act enacted by those Parts are also bijural.

Income Tax Amendments Act, 2006

[Jay Hill, Conservative, Prince George—Peace River, BC]

moved that Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, be read the second time and referred to a committee.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, I appreciate the opportunity to introduce Bill C-33 at second reading.

The bill proposes measures regarding the taxation of non-resident trusts and foreign investment entities, as well as implementing certain technical amendments to the Income Tax Act.

The bill before the House today is indeed complex. Rather than focusing on its technicalities, I will illustrate for hon. members just how Bill C-33 fits into the commitment of how Canada's new government is working to improve our tax system and make it more competitive.

First , how can we have a competitive tax system when Canadians have been paying more taxes than is necessary? This new government believes that Canadians have been overtaxed for too long and we need to move that burden of excess taxation so we can encourage the qualities that are at the very core of what drives and enriches Canadian lives. That is what makes Canada competitive, especially in the global marketplace.

Why should Canadians keep handing over so much of their hard-earned money to government? Canadians need to keep more of their money. They need it to invest in their own families, in their own priorities and in their own futures. They also need it to invest in our economy and help businesses thrive. That helps all of us as Canadians.

The time is now to take less from Canadians in terms of taxes. That is what Canada's new government started doing in budget 2006 and will continue to do.

Members need only look at our record. We delivered almost $20 billion in tax relief to individual Canadians and families over two years. That is more tax relief in one budget than the previous government's last four budgets combined.

As members know, we reduced the GST from 7% to 6% effective July 1, 2006, and there is more to come. We made a further commitment with respect to another percentage point reduction. Cutting the GST cuts taxes for everybody, including those who do not earn enough to pay income tax. Is that not fair?

We did more for individual Canadians by providing personal income tax relief. We increased the basic personal amount and reduced the lowest personal income tax rate. These two measures will provide personal income tax relief of $4.6 billion in 2006-07 and 2007-08.

Last fall, the Minister of Finance announced the new tax fairness plan for Canadians. The plan will restore the balance and fairness to our tax system and create a level playing field between income trusts and corporations. This plan will also deliver over $1 billion of new tax relief annually to Canadians.

The measures in this plan are significant steps forward in the strengthening of our social security system for pensioners and seniors.

Canada's new government also recognizes the importance of Canadian businesses to a strong economy and we want to create a supportive economic environment that helps businesses compete and grow, and that rewards success.

In budget 2006, we started by eliminating the federal capital tax as of January 2006. We will be eliminating the corporate surtax in 2008 and we will be reducing the general corporate income tax rate to 19% from 21% by 2010.

These cuts will allow Canada to regain the solid statutory tax rate advantage that we had prior to the 2004 tax changes in the United States. We also helped small businesses.

An important way that Canada's federal income tax system supports the growth of small businesses is through a lower tax rate on the first $300,000 of qualifying income earned by a Canadian controlled private corporation. This measure helps these small businesses to retain more of their earnings for reinvestment and expansion, thereby helping to create jobs and promote economic growth in Canada.

To further encourage small business growth in Canada, in last year's budget we increased the amount of small business income eligible for the reduced federal tax rate to $400,000 from the current limit of $300,000 as of January 1, 2007. We also reduced the current 12% income tax rate applying to qualifying small businesses to 11.5% in 2008 and 11% in 2009.

I have spoken thus far about how Canada's new government has reduced taxes, both on a personal level as well as a corporate level. This reflects how this new government is dealing with the excessive taxation that Canadians have endured for far too long.

Canada's new government is committed to cutting taxes. In his speech for the recent economic and fiscal update, the Minister of Finance introduced advantage Canada, an economic plan designed to make Canada a world leader for today and future generations. It will help build a strong Canadian economy and make our quality of life second to none through competitive economic advantages.

One of the key advantages in this plan is a commitment to reduce taxes for all Canadians and establish the lowest tax rate on new business investment in the G-7. The tax back guarantee announced in the plan will ensure that Canadians benefit directly from debt reduction by dedicating interest savings from debt reduction each year to permanent personal income tax reductions. Any unanticipated surpluses will be used to accelerate that reduction and, hence, tax reduction.

Lower debt means less interest, which means lower taxes for Canadians. In short, this plan will create the right conditions and opportunities for families and businesses to succeed. As to the taxation of non-resident trusts and foreign investment entities, part of the equation in keeping taxes low is that everyone needs to keep their fair share and that is where the measures in Bill C-33 come in.

Bill C-33 moves forward in this government's goal in promoting fairness and equity in our tax system. Specifically, the bill amends provisions of the Income Tax Act to prevent tax deferral and avoidance though the use of foreign investment funds and trusts. In other words, if someone tries to avoid taxes by using these investment vehicles, any income earned on that investment will be taxed as if it were earned in Canada.

It is important to point out that most of these changes concerning non-resident trusts and foreign investment entities proposed in this bill are the result of extensive consultations with taxpayers, professional tax advisors and the taxation authorities.

It is also important to emphasize that the measure in the bill to prevent tax deferral and avoidance through the use of foreign investment funds and trusts is intended to protect the tax base as opposed to raising additional revenues. In fact, activity of this nature has moderated substantially in years. Bill C-33 would ensure that if that activity does occur, the income earned will be taxed as if earned in Canada.

Canada generally imposes income tax on the income of taxpayers resident in Canada from all sources. On the other hand, Canada generally taxes just the Canadian source of income of taxpayers that are not resident in Canada. An income tax incentive therefore exists for Canadian residents to earn investment income using non-resident trusts and foreign investment entitles based in a country other than Canada that imposes no tax or a low tax.

What this means is that without effective countermeasures, such as those proposed in Bill C-33, residents of Canada who use non-resident trusts and foreign investment entities to earn investment income would inappropriately avoid or defer the payment of Canadian taxes. That creates unfairness.

Avoiding taxes in that manner not only erodes the Canadian tax base, it creates inequities which, in turn, undermine the integrity of our tax system. The effect of these rules is that investment income earned by non-resident trusts and foreign investment entities on behalf of Canadian residents will be taxed in Canada. That income would have been taxed in Canada if the income were earned by resident trusts and resident investment entities on behalf of those Canadians. Therefore, the tax advantages of using non-resident trusts and foreign investment entities will be eliminated.

Not only that, the measures in Bill C-33 would have the effect of eliminating erosion of the tax base, promoting the integrity of Canada's tax system and levelling the playing field for all investment vehicles, whether Canadian or foreign based. These are important considerations.

The measures I just outlined constitute the major portion of Bill C-33. However, the bill also includes a number of technical amendments to the Income Tax Act that would accomplish a number of housekeeping objectives.

The amendments are too numerous to mention. Suffice it to say that the proposed amendments correct or clarify the application of existing income tax provisions or provide legislative authority for measures that have already been announced. Moreover, the bill proposes measures to deal with other income tax situations that require a legislative response.

In conclusion, when considering the bill today, I remind hon. members of the two important objectives of the proposed legislation.

First, Bill C-33 promotes fairness in our tax system. The measures proposed in the bill will help reduce inappropriate tax avoidance by ensuring that income from foreign investments is properly reported. The second objective, which goes hand in hand with the first, is to protect the integrity of Canada's tax system and deter the erosion of the tax base. Bill C-33 would address both of these objectives in such a way that will improve our tax system for the benefit all Canadians.

Since its election, Canada's new government has taken important steps in building a more successful Canada. Bill C-33 would help us continue down that road of prosperity by transforming the tax system into a competitive edge, not an impediment.

[Roger Valley, Liberal, Kenora, ON]

Mr. Speaker, my colleague mentioned Canada's new government. I point out that the present Conservative government is the first government to raise income tax. It raised income tax on the lowest common denominator and did it at a time when it could least afford it.

I will go back to one of the first speeches I heard the finance minister make. He talked about how much Canadians would save with the GST cut. He spoke about homes in eastern Ontario. He spoke about $50,000 vehicles. People in my riding do not have the opportunity for those kinds of purchases. They will be unable to save the grand amount of money about which the Conservatives speak.

How much money can people save with a GST cut when they do not have any disposable income? How much money can people save with a GST cut when they do not have a job? How much money can people save with a GST cut when first nations people are marginal people in Canada? Could the member tell us how much they can save when they have no money to spend?

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, the member mentioned an increase in personal income taxes, and we know that is not true. Budget 2006 set in law a reduction of personal income tax, which included the lowest personal level. He may want to check his facts. That is, in fact, factually correct.

He touched on the GST reduction of which I am very proud. He asked me how much people could save if they were in the lower income bracket. I believe in reducing the taxes on our lower income brackets, and that includes Canadians who do not pay income tax whatsoever. I suggest the member consider those people who do not pay income tax and the fact that we need to give tax reductions to those people who need it more than any of us.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, my colleague spoke about tax fairness. If anything, it should be tax complicated. The bill is 542 pages, which further compounds the absurdity of our taxation system.

The government has failed to address two issues of tax fairness, on which I would like the member to comment.

One is what the government calls tax motivated expatriation, in polite terms. We call it sleazy, tax cheating loopholes in the form of offshore tax havens. This does not plug offshore tax havens. It talks about earnings offshore et cetera, but it does not talk about sheltering money offshore to avoid paying taxes altogether. We expected the Conservative government to act on that issue of tax fairness because it was certainly critical when the Liberal government failed to act on it.

The second thing is the government did raise the basic lowest tax rate from 15%, as proposed by the Liberals, to 15.5%. It may seem small, but at the low income level it is serious. The other thing it did was reduce the basic personal exemption, the amount on which no taxes are paid, which means we pay taxes on more of our income. Hardly anybody seemed to notice this.

How can those members possibly say that they lowered the lowest level of taxes when they raised it? Have they considered the impact this had on low income Canadians, when the basic personal exemption went from $9,039 to $8,639 as of July 1, 2006, a $400 lower basic personal exemption?

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, I will address the hon. member's first question on the use of offshore tax havens, which is a concern of mine.

The hon. member might be interested to know that, in the prebudget consultation document, I specifically championed a recommendation that the government should look into the use of offshore tax havens and eliminate them. I know the finance minister is interested in this and he is working on it. I appreciated that the Bloc members also supported the motion and had it put into the finance committee's recommendations.

On the hon. member's second question, my point is quite simple. The government, in law, reduced the basic lowest tax rate to 15.5% from 16%. I am aware there were three budgets in 2005 from the former Government of Canada, the third of which made amendments to the tax act that were never passed in law.

Budget 2006 reduced the lowest personal income tax rate and increased the basic personal exemption in law from their previous levels. That is my point.

[Larry Bagnell, Liberal, Yukon, YT]

Mr. Speaker, the hon. member has now heard three times that the government, on July 1, 2006, increased taxes from 15% to 15.5%. It also reduced the basic personal income, as the member from the NDP said. This is despicable because people with high incomes, who did not ask for a tax break at the expense of low income people, received a tax break. It would not have hurt nor would it have cost very much to give people with low income the same tax break as people with high income. It was totally unfair.

Is the hon. member proud that his government deceived Canadians and told them it would never again tax income trusts? It was a blanket statement during the campaign. The Prime Minister said, “Never again”.

A single mother in my riding wrote to me. She said that all her money had been put into a registered education savings plan for her son. She had done so on the promise of the Prime Minister. That day it went down 25%. Is the hon. member proud of that deceit?

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, the hon. member may want to check his facts. Budget 2006 removed 655,000 low income Canadians off the tax bracket permanently, plus it reduced the GST for all Canadians. That was tax fairness.

On the hon. member's question relating to income trusts, I am very happy to take that. Does the hon. member believe that all Canadians should pay more taxes so corporations pay no taxes? Is that his point? Would he like to see the Government of Canada pursue that? I do not think that is tax fairness whatsoever.

The government did the right thing for standing up for Canadians. The hon. member should support it.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Mr. Speaker, it is not a question of whether the government taxed the income trusts. The hon. member for Yukon is correct. The government made a promise that it would not do so.

We in the NDP are intellectually honest about it. We said that we never should have had income trusts in the first place. Without notification, the Conservative government reversed itself. Thus, thousands of pensioners and individuals, who trusted the words of Conservative government, that it would not tax income trusts, lost thousands of dollars.

The hon. member can stand up and at least apologize to the constituents of the member for Yukon and to other Canadians. If he cannot blush and admit he was wrong, then at least say he is sorry, that eventually the government had to do the right thing. At least apologize for screwing these people out of so many thousands of dollars.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, I enjoyed listening to the hon. member's question. Quite frankly, I am amused the way he comes around to making his point. When something is clearly the right thing to do, one does it, that is leadership.

Clearly, as the finance minister has outlined, the situation pertaining to income trusts changed. That meant we had to take a different position on it, and it was the right thing to do. It has been backed up by credible sources, including the Governor of the Bank of Canada and every finance minister in Canada.

I know Liberal members are trying to make hay on this, and the actions they have taken are deplorable. We have taken a position of leadership for Canadians, one of which I am very proud. I am very proud of this government and the leadership it is demonstrating in protecting the tax base. We will be able to provide the services on which Canadians rely and a system of tax fairness by the decisions the government has made. I stand behind those decisions.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Speaker, I am very pleased to rise in debate on the bill. As my colleague opposite said, it is a technical bill. I do not think it is very controversial and it does useful things. In fact, it was produced under the Liberal government. Therefore, I do not think my party will have trouble supporting it.

However, I did notice a few of the comments of my colleague across the way and I would like to comment on some of them.

His comment about the allegation that the Conservatives cut income tax is a very good illustration of why politicians in our country are in such disrepute in public opinion. While he uses a technical argument about legalities, that our tax cut was not in legislation, the fact is it happened. Every Canadian who filled out his or her tax form paid that lower tax. The basic personal exemption actually went up under the Liberals. Yes, it was passed by a ways and means motion, but it happened, it was reflected on the tax forms and in the taxes paid by every Canadian. Then the Conservatives came along and raised the tax and put more Canadians on the tax rolls by reducing the basic personal exemption.

What I have just said is true. Every Canadian who has filled out his or her tax form knows it. The Conservatives raised income tax. Now they are saying they cut it, which is patently false, except if we use this legality subterfuge, which matters not a whit to Canadians who pay their income tax.

The point is the Conservatives raised income taxes and added people to the tax rolls in order to finance their GST cut. That is bad enough in itself, but when they do not have the basic honesty and decency to admit it, then I believe they have put all politicians into disrepute.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, I rise on a point of order. Quite frankly, we are debating Bill C-33 and his comments have nothing to do with it.

The member is basically suggesting that I have misled the House. I have not misled the House, and I ask that the point be—

[The Deputy Speaker, Bill Blaikie]

Order, please. I think the hon. member for Markham—Unionville was speaking about the hon. member's party collectively. The rules are such that he can say pretty much what he likes about people collectively as long he does not reflect on individual members.

The hon. member for Markham—Unionville.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Speaker. I did refer to the bill and I also am following up on some of the points the hon. member made in his own speech.

To resume that part of my speech, what I said is that not only is it patently false to say that the Conservatives cut income taxes when all Canadians know they raised them, and not only is it patently false to say that they took people off the tax rolls when all Canadians know they put them on the tax rolls, but it is also doing a general disservice to politicians from all political parties because it feeds this notion that politicians cannot be trusted.

There is another point I would like to allude to. In his speech, the hon. member talked about income trusts. My contention is that the government did two things wrong. First of all, there is absolutely no doubt that the Conservatives broke their promise. They said as clearly as it is possible to say that they would not tax income trusts, and then they did. As a consequence, one million-plus Canadians lost some $25 billion of their hard-earned savings, some $25,000 per person on average.

However, as if that was not bad enough, the second crime, the second indecency, is that this action was executed extremely incompetently. The evidence shows, and the witnesses that appeared before the finance committee will agree, that the government simply did not think through the consequences of its action.

The government thought there was a problem to address and, let us give it the benefit of the doubt, there was. Let us take that assumption, but the government addressed that problem by dropping a nuclear bomb on the industry unnecessarily, not only breaking its promise but destroying billions of dollars in savings by Canadians when it could have addressed those challenges in a much more surgical approach, which is what our Liberal proposal is doing.

I think the evidence shows conclusively that the finance minister not only broke the Prime Minister's promise, but he did not think through the consequences of his action. So it is not just that he destroyed $25 billion of Canadians' wealth, but he did it unnecessarily, because there were surgical, cleaner, more subtle methods available, which he chose not to use. So yes, he acted decisively, but he ended up being decisively wrong.

Part of the proof of my position is that he keeps changing his story on the subject of income trusts. First of all, in the early days he said we had to stop Bell and Telus because otherwise it would cost taxpayers $800 million in lost revenues. That was the basis for his action. Then, a little while later, Bell and Telus came out with statements saying that as corporations they would pay no tax or negligible tax for the foreseeable future. Whoops. That argument had to be jettisoned.

The finance minister had to scramble and find another argument so he said it was tax fairness, that income trusts would cost the government $500 million a year of lost revenue so we had to stop it or else corporations and income trusts would not pay their fair share and the burden would be shifted to families. That was his second argument.

However, we then had all those witnesses before the finance committee. About four of them testified that those numbers were totally wrong. Not one witness came to the defence of the finance department in terms of the numbers. They did in other matters, but I am talking about the $500 million number. The only witnesses there were against the finance department. The most credible witness, one who has worked with the department and has used the same methodology, said the cost was not $500 million a year but $32 million a year. Whoops. Another argument went out the window.

If the finance minister truly believed his story about tax fairness, he would release the numbers, but in spite of repeated requests from Liberals, the Bloc and other members of the committee, all we get is a blacked-out censored document with not one legible number. That is the government's defence of its basic argument for destroying those savings of Canadians.

He does not have a leg to stand on. His first argument about Telus and Bell was shown to be wrong. He then switched to his second argument, which was shown to be wrong. Now he is starting to talk about governance. There may be governance problems, but that has absolutely nothing to do with the central issue before us, which is why he so unfairly destroyed $25 billion in hard-earned savings of Canadians.

The government is guilty not only of breaking a promise, which is bad enough, but of acting incompetently, acting before it thought, not thinking it through and, in so doing, unnecessarily destroying $25 billion of the hard-earned wealth of Canadians, and also unnecessarily destroying a vehicle for savings, income trusts, which is extraordinarily important to seniors because it offers a higher yield than is available from many assets.

The seniors who have to live on the savings they have accumulated throughout a long working life to pay the bills are in a bad way, because the government destroyed income trusts. Not only did it did not fix the problem, it acted with such irresponsible and incompetent behaviour by dropping a nuclear bomb on it that it destroyed all those savings of Canadians. It took away this instrument that was extremely valuable for Canadian seniors. It is destroying a sector which, many studies have shown, and with which the Governor of the Bank of Canada agrees, improves the productivity in the energy sector. This is a disaster.

Our Liberal proposal, instead of imposing a draconian 31.5%, imposes a modest 10% tax that is refundable to all Canadian residents. That is enough, our experts have shown, to cover any tax leakage and ensure tax fairness. Experts tell us that will return to the Canadians who have suffered this terrible loss at the hands of the government some two-thirds of the $25 billion that has been lost.

I am disappointed that the NDP is refusing to join with the Bloc and the Liberals to force the government to change. The NDP, which prides itself historically as the party of social democracy, is abandoning in their hour of need those hundreds of thousands of Canadians who have lost millions of dollars. If the NDP were to join forces with the Bloc and the Liberals, we would come to a solution which would at least mitigate some of the terrible damage done by the government and would at least help the seniors and others, who have lost thousands of dollars each and billions of dollars in total, to recover part of those losses.

If the NDP, with its social democratic roots, were simply to come to the aid of those hundreds of thousands of Canadians in their hour of need, those Canadians who have suffered a grievous loss as a consequence of the behaviour of the government, then we would have the votes in Parliament to force the government to change its policy. But the NDP so far, probably because it is so low in the polls that it is desperately afraid of an election and feels it has no choice but to support the government, is refusing to do the rational, sensitive, caring thing, which is to come to the aid of the hundreds of thousands of Canadians who, because of the incompetent broken promise of the government, have seen their saving go down disastrously.

There is another thing I would like to comment on. I have just spoken for several minutes on income trusts and demonstrated not only the broken promise but the incompetence of the government and the fact that it did not think through the consequences of its actions. It is very important for a finance minister of any party, likely to be Conservative or Liberal because I do not think the NDP or the Bloc will be in government any time soon, but whatever party the finance minister belongs to, I think that person should think through the consequences of his or her actions before acting.

There was a really important situation affecting the livelihood of a million-plus Canadians and the finance minister simply did not think it through. I guess he likes to look decisive, but he ended up being decisively wrong and unnecessarily costing all of those hard-working Canadians some $25 billion in losses.

I think it is shameful that the government broke its promise and behaved incompetently, but I would add that it is equally shameful that the NDP, which purports to be the party of social democracy, is refusing to come to the assistance of those hundreds of thousands of Canadians in their moment of need.

However, it is not as if that is the only negative thing that one can say about this government. I would remind the member opposite that his finance minister is one of the gang of three who were senior members of the Harris-Eves cabinet. I would remind all members opposite of their fiscal record.

I would remind the member opposite of the 2003 Ontario budget. It was a pre-election budget, no doubt full of election goodies, but according to the government of day, of which the current finance minister was a very senior member, it was a balanced budget. People would vote for this government, the government hoped, because it was handing out all sorts of goodies and running a balanced budget. We Liberals believe in balanced budgets and have had surpluses for many years consecutively. The mere act of running on a balanced budget is not bad, except we know what happened. They lost.

Dalton McGuinty's government came in. That in itself was a good thing, but then the government called in the auditors and said, “Tell us. Is this really a balanced budget?” The auditors went through all the items in the budget with a fine-tooth comb and issued a report. Do members know what the auditors said? That it was not a balanced budget at all. It was full of lies. In reality, there was a $5.6 billion deficit. Now, that is at the level of the Ontario government, but could members imagine how big the deficit would be if this finance minister learned from his earlier trickery, tried to repeat the same thing at the federal level and left an even bigger mess?

Those members ran on a balanced budget. It ended up that the auditors came in and there was a $5.6 billion mess that Dalton McGuinty and his government had to clean up.

That is the Conservative way. It is exactly what happened in 1993 with the Mulroney government and the Kim Campbell government. Do members remember that? The Conservatives ended up with two seats. Do members remember what their deficit was? It was $42 billion. It makes the Harris-Eves gang look like misers with only a $5.6 billion deficit. However, that was at the Ontario level.

[An hon. member]

What was Trudeau's deficit?

[John McCallum, Liberal, Markham—Unionville, ON]

The member mentions Trudeau. Canada had a consecutive AAA credit rating from Standard & Poor's from 1951 on, all through the Trudeau years. Do members know when it was downgraded? In 1992. Who was the prime minister? Brian Mulroney. What was the deficit? It was $30 billion to $40 billion. Standard & Poor's downgraded Canada under the Conservative regime. Under Trudeau, it had been AAA all the way.

We can detect a pattern emerging. There was a $5.6 billion deficit under Harris and Eves and our current finance minister, with the worst thing about that being the fact that they claimed it was a balanced budget, so they were lying. They only got caught because they lost the election and the auditors came in and went through every single item. They left a $5.6 billion deficit and left Dalton McGuinty to clean up the mess.

What do members think happened when Kim Campbell came in? She had a $42 billion deficit. She ran and was left with two seats. Who was left to clean up the Conservative mess? The Liberals. This is the sad fate of Liberals. It has been our lot in Canadian history and our lot in Ontario history that we are always called in to clean up these Conservative fiscal messes.

Someone has to do the job, so when the Liberals came in in 1993, Mr. Trudeau had had a AAA rating all the way, which I think the hon. member did not hear. He was a magnificently fiscally prudent chap in addition to all his other virtues. How else could he have been AAA all the way? Obviously Standard & Poor's thought he was doing okay.

The Conservatives left us this huge unimaginable $42 billion fiscal mess in 1993, and we lost our credit rating of AAA. We were downgraded by Standard & Poor's but we got to work. We took the tough decisions under Mr. Chrétien and the member for LaSalle—Émard. After getting a credit downgrade because of Conservative fiscal irresponsibility, we could not get our good rating back right away. It took until 2002, 10 years after the Conservative downgrade, before Canada finally got back its AAA rating, thanks to the Liberals successfully cleaning up the Tory mess.

My concern is that this Tory pattern, although I should not say Tory, this Alliance, neo-conservative, Conservative pattern of creating fiscal messes might be about to repeat itself. We had the Mulroney fiscal mess in 1993 of $42 billion. We had the fiscal mess of the current finance minister and his provincial colleagues in 2003, having claimed they were running a balanced budget. I am afraid that the fiscal accounting trickery that he learned during his time at Queen's Park might be about to be imported to Ottawa in the lead-up to the budget. I will not go further into that, but certainly the Conservative pattern is to run huge deficits.

I remember Mr. Pearson saying that John Diefenbaker, and we can go back that far, had run seven consecutive deficits. Diefenbaker was a Conservative. Before that it had been surpluses all the way under the Liberals. It is the fate of Liberals to inherit Conservative fiscal messes. We saw it under John Diefenbaker. We saw it under Brian Mulroney. We saw it under Mike Harris and Ernie Eves.

Look south of the border. We saw it under Ronald Reagan. He ran huge deficits. Remember: voodoo economics, Reagan economics, tax cuts paid for themselves. That had to be cleaned up by the Democrats. Look at the United States today under George Bush. Hon. members laugh but if they just look at the facts, Bill Clinton, a Democrat, ran--

[The Deputy Speaker, Bill Blaikie]

Order. The hon. member's time has expired. I did try to give him some warning, but if he does not look at the Chair, it is hard for me to warn him.

The hon. member for South Shore--St. Margaret's.

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

Mr. Speaker, the hon. member mentioned John Diefenbaker. Whenever I think of John Diefenbaker, I think of a Canadian prime minister who decided that Canadians needed a bill of rights. I think of a Canadian prime minister who was the first prime minister in the history of this country to give the vote to first nations. That is what I think about: real, honest to goodness, forward moving ideas from a Conservative prime minister.

I take exception to the hon. member's comments about a $42 billion debt. It was not a $42 billion debt. The debt, we all know, was much higher than that. It was the deficit, and $38 billion of that belonged to the previous Liberal government. That $4 billion increase in deficit, at a time when all governments were running deficits, was also at a time when this country had 19% interest rates. It was a ferocious time, a terrible time to be in business.

They were tough times. The previous Conservative government moved forward on a number of issues to bring this country out of the hole it was in at that time. It signed the free trade agreement with the United States, which was totally misrepresented and fought against by the Liberals. It brought in the GST to help finance debt reduction in this country and allowed the previous government to actually get rid of that deficit.

What is more, that $42 billion deficit was at a time when we did not cut transfer payments to the provinces. We did not cut payments for education and we did not cut health care. We did not get rid of the deficit on the backs of ordinary hard-working Canadians.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Speaker, I must profess to being a little shocked as I think the hon. member's comments have gone beyond the scope of Bill C-33. I would have thought you might have reprimanded him for that but since you did not, I would assume he is in order.

Certainly I am an admirer of Mr. Diefenbaker. I am just old enough to remember him. I used to enjoy listening to his French when my French was not very good. An anglophone listening to him could understand every word of his French.

I do not think he was uniformly perfect. I think he cancelled the Avro Arrow. He was nevertheless, I am sure, a great prime minister in many ways and I do not deny that. My only point is that numbers were not his forte because he ran seven consecutive deficits. The story is that Lester Pearson almost fired his speech writer because Mr. Pearson had a bit of a lisp and instead of saying “seven consecutive deficits“, he said something like “theven conthecutive defithits” and the speech writer almost got fired. That is why it stuck in my mind.

But, it is a fact that he did run seven consecutive deficits and it therefore goes along with my hypothesis. We can go from Diefenbaker, to Mulroney, to Harris, to Ronald Regan and George W. Bush south of the border, who were all examples of Conservative or Republican leaders who ran huge deficits and left big fiscal messes for their Liberal or Democratic successors to clean up.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Mr. Speaker, if he wants a lesson on fiscal records, Allan Blakeney of the NDP had 11 straight surpluses. In fact, a finance report that just came out said that the best fiscal premiers in the history of this country were New Democrats.

I do not have to remind my Conservative colleagues of the great Grant Devine who took Saskatchewan and ended up with half of his cabinet in jail. I do not have to remind them of the great Conservative John Buchanan who put Nova Scotia in such serious debt that we are still paying for it.

For my question we are going to go back to Bill C-33. The member talked about tax havens. According to records there may be over $80 billion worth of money offshore in these tax havens. In fact, the former prime minister, the member for LaSalle—Émard, is one of the beneficiaries of those tax havens. The reality is that this bill does nothing to stop those tax havens and nothing to close the loopholes.

The reality is that the member can yell and scream all he wants about income trusts. At least we are honest about them. We never would have had them in place had we been in government. The member is right about what the Conservatives did. They misled the Canadian people and on a promise Canadian people invested in those income trusts and now they are being punished.

If he is coming to the NDP to fix their problems, it is not going to happen. The reality is that I would like him to stand up in the House and say what the Liberal Party is prepared to do to close these loopholes and to stop the offshore tax havens.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Speaker, I recall from my days as minister of national revenue that we were working in that area and making good progress, but I would like to answer the hon. member on income trusts because we agree on certain things. Yes, the Conservatives were wrong to break their promise.

The member says that income trusts should not exist. They do exist. We cannot will them out of existence. The fact of the matter is that they do exist. The Conservatives were wrong to break their promise and the reality of the situation, as of today, is that there are hundreds of thousands of ordinary Canadians, not rich Canadians, many of them senior Canadians who have been saving all their lives, who put a lot of their money into income trusts wrongly believing the word of the Prime Minister and then because of the broken promise they lost a fortune.

We can debate whether income trusts should or should not exist. It is irrelevant. The reality is that those people are crying out for our help. They are getting help from the Liberals. They are getting help from the Bloc. Those ordinary Canadians in their moment of need are getting no help from the NDP. If the NDP would have helped us, we could have helped those people recover some two-thirds of their losses.

I say shame on the NDP, especially with its social democratic roots, for failing to come to the help of hundreds of thousands of ordinary Canadians in their moment of need.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, this debate is somewhat scattered, probably because the bill before us is quite technical in scope. Nonetheless, some of the measures in this bill are intended to prevent tax evasion. What is missing, however, are stricter measures to prevent Canadian companies from using tax havens—Barbados, for instance—to avoid paying taxes. As we know, certain members of the previous government frequently used this legal provision.

I would like to know the opinion of my Liberal Party colleague. Now that the Liberals are in the opposition, do they not think it is time to go further with this bill to put an end to tax havens and ensure that Canadian companies pay taxes, even if they reside in tax havens like the Barbados?

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Speaker, I want to thank my fellow member of the Standing Committee on Finance for his question. It is true that the Bloc and the Liberals do not entirely agree on the details, but we are united in the sense that we want to help those who have lost a fortune over the broken promise of this government. I want to thank him for that.

To get back to his question, when I was Minister of National Revenue, we had started to create a program where we were going to be much stricter as far as tax evasion is concerned. We recognized that there was a lot of it going on. It is difficult to do because lawyers, who are extremely well paid, always try to stay one step ahead of us when it is a matter of hiding these funds. Nonetheless, I think that if we were back in power, we would like to be much stricter than the current government is toward those who are trying, in an illegal manner, to evade Canada's tax system

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, I will continue to address tax evasion and the tax havens used in Barbados.

As my colleagues who spoke before me have said, Bill C-33 is somewhat technical and contains a number of provisions to prevent circumvention of the tax rules and to prevent tax evasion. It responds to a number of requests made by the Auditor General. The Bloc Québécois will therefore support the bill. However, as I said in the question I asked earlier, I think that it does not go far enough in dealing with tax havens. Contrary to what my colleague from the Liberal Party said, we are not talking about people committing tax fraud, we are talking about people who avoid tax and find legal schemes so that they do not pay tax. The reason they can do that is that the existing legislation lets them.

In my presentation, I will try to explain how these people operate and what has to be done to stop this. On the question of tax havens, I would like to tell the House about a comment made by the Auditor General on February 27, 2001. He said that one of the biggest threats to the tax base lies in the international activities of Canadian taxpayers, particularly the use of tax havens.

Tax havens are countries that have a zero or very low tax rate and loose tax rules. That combination is an incentive for taxpayers to settle there or transfer a portion of their activities there in order to be exempt from the Canadian tax system and not have to pay taxes here. Most of the time, these are countries that are notable for their absolute bank secrecy, which makes it impossible to trace all the movements of capital that take place there.

Because of that bank secrecy, it is difficult to measure this phenomenon. In 1998, the OECD estimated that from 1989 to 1994 foreign direct investment rose three times faster in tax havens then elsewhere. That is not a small matter. The OECD drew up a list of tax havens based on four criteria: no or only nominal taxes; lack of effective exchange of tax information; lack of transparency in the operation of tax laws; and no substantial activities in the country where operations are purported to occur. Thirty-five countries met those criteria. The OECD pointed a finger at 47 other countries which, while they were not tax havens, had provisions worthy of a tax haven in certain areas. It should be noted that Canada was on the list of 47 countries because of its tax policies relating to the international shipping of goods.

In 2001, that list was amended by a group of 13 OECD member countries, including Canada, to remove the no substantial activities criterion, which brought the number of tax havens—on paper, obviously—down to 7 from 35. Those countries have not ceased to be tax havens; they are still tax havens.

In 2002, Barbados was removed from the list of countries regarded as tax havens by the OECD. However, Barbados has not changed its fiscal practices; quite the opposite is true. The tax system in Barbados is interesting. I hope that the fact that I am talking about it will not encourage any Quebec or Canadian companies to move there, despite the wonderful conditions it provides, such as a fixed fees of $250 per year and a tax rate of only 2.5% on the first US$5 million in profits. It then declines gradually, to 1% after $15 million. For a company that does not want to pay income tax, this is extremely advantageous.

In Canada, the tax system is tailor made, expressly for Barbados. Let us look at how it operates. The general rule is that all income earned in Canada or abroad is taxable in Canada. However, if income is earned in a country with which Canada has signed a tax treaty to avoid double taxation, that income may not be taxable.

If the foreign subsidiary is deemed to be non-resident in Canada and the tax treaty prohibits double taxation, the general rule that all income received by a Canadian is taxable is bent. It is then the tax treaty that applies.

In theory, in the case of Barbados, the treaty does not apply to subsidiaries that have a tax rate of virtually zero. Like the tax treaty with Cyprus, the Canada-Barbados tax treaty specifically excludes what is known as international business companies or any other similar kinds of companies that enjoy the favourable tax treatment I referred to earlier in Barbados. If we exclude these companies and consider only the normal tax rate in Barbados, which is approximately 40%, virtually all the Canadian companies with a subsidiary in Barbados have established it specifically to enjoy favourable tax treatment. For the most part, these have been established under the Barbados International Business Companies Act and are therefore excluded from this convention.

The companies covered by this provision of the tax treaty are therefore considered under the Income Tax Act to be resident in Canada and therefore subject to Canadian taxation. Based solely on the Income Tax Act and the tax treaty between Canada and Barbados, dividends received by the Canadian parent corporation of a subsidiary in Barbados should be taxed in Canada when they are transferred home. So far, so good.

There are, however, provisions in the Income Tax Regulations which are specifically designed to enable companies to circumvent this difficulty and transfer profits from Barbados tax-free in Canada. I will spare you the whole list of provisions; suffice it to say that paragraph 5907(11.2)(c) of the Income Tax Regulations, if anyone feels like looking it up, renders moot article 30 of the tax treaty, the one that excludes international business companies. It sets out a series of criteria for a company to be considered non-resident in Canada and therefore not subject to tax. Thus, Barbadian subsidiaries of Canadian companies fall into that category.

By invalidating article 30 of the tax treaty, the regulation allows the dividends of Barbadian subsidiaries of Canadian companies to be tax exempt in Canada. Incidentally, through the Access to Information Act, the Bloc Québécois obtained a copy of correspondence between the Minister of Finance and an accounting firm, confirming that this section of the regulations was drafted specifically to allow Canadian businesses to use Barbados as a tax haven.

In July 1994, Wallace Conway, of the taxation policy branch of the finance department, confirmed the following to Craig Cowan, who was employed by the accounting firm Arthur Andersen:

Be advised that proposed paragraph 5907(11.2) is intended to ensure that a Barbados international business corporation which is a foreign affiliate will remain eligible to earn an exempt surplus.

So, the bill did not come into force until 1997, but it was specified that it would be retroactive to 1994. With this amendment to the regulations, Canadian businesses with a subsidiary in Barbados win on both fronts. First of all, since their business is not covered by the tax treaty, Barbados is under no obligation to share information with Canadian tax authorities and, second, since the income tax regulations disregard that exclusion, profits sent back to Canada are tax exempt. The behaviour of the Canadian government, particularly under the Liberals, was all the more deplorable considering that Canada even worked to undermine all the efforts being done by the OECD, this to ensure that Barbados would not be deemed to be a tax haven.

This work to get Barbados off the list was done in two stages. In 2000, the notion of tax havens was replaced with the notion of non-cooperative tax havens, following a recommendation made by a 13 member committee, which included Canada.

Secondly, that same committee changed the criteria to determine whether these countries were cooperative or not. Now, a tax haven simply has to commit to being transparent and to sharing tax information with other countries to be taken off the list. That is really very little.

The tax treaty is essentially based on the exchange of tax information. Thus, once a tax treaty is signed with a tax haven, it is virtually automatically removed from the list. That change made the working group on harmful tax practices completely pointless, and Canada, as a result of what the Liberal government of the time did, was a major participant in weakening it.

For years, the failure to act could be laid at the doorstep of the Liberal Party. We must now recognize, however, that the Conservative government has proposed nothing to fix this. I hope it will soon do so. Probably the budget will be an appropriate opportunity to do it.

The Auditor General has repeatedly deplored Canada's failure to act. She first did this in 1992. In 1996, she took up the issue for the second time; in 1998, for the third time; in 2001, for the fourth time; and ultimately, in 2002, for the fifth time. Still there has been no action by the government, no action by the Liberals at the time and still no action by the Conservatives today. In fact, Canadian investments in tax havens continued to multiply over the same period when the Auditor Generals were issuing us their warnings.

From 1990 to 2003, Canadian companies invested major and growing amounts in countries recognized as offshore financial centres, particularly in the Caribbean. Between 1990 and 2003, Canadian assets in those countries grew by a factor of eight, rising from $11 billion to $88 billion. In 2003, the five main OFCs I referred to earlier were among the 11 countries where there were the most Canadian assets, and so on.

We must realize, from the various reports on television that have dealt with the subject, that this is a situation in which there is more and more money being invested in tax havens, despite the warnings from the Auditor General and, of course, from the Bloc Québécois. The government has never done a thing and we still see nothing being done about this. This is particularly unfortunate from the Conservatives, who claim to want to stand up for taxpayers. What are they waiting for, to ensure that big businesses pay their fair share of taxes, by preventing them from using tax havens?

The Bloc Québécois proposes that all tax treaties go through the House of Commons, which they do not do at present. Bill S-5, which provides for tax treaties to come into force, shows the importance of international treaties in everyday life.

These treaties do not need implementing legislation to be passed. In this case, no treaty will be submitted to Parliament, quite simply.

The federal executive controls all phases of the process of adopting an international treaty. The executive is also responsible for what takes place in negotiations—which are for the most part secret. Nothing is made public during negotiations.

The provinces are seldom consulted, and in many cases they are completely excluded from those negotiations, even though, because of something that falls under their jurisdiction, they often have an interest in the negotiations.

Today, there is no democracy at all when an international treaty is involved. It is worth noting that there is no complete collection of treaties published. The government makes them public on a sporadic basis, and we do not even know whether it discloses all of them. Even the treaty section of the Department of Foreign Affairs does not have a list that we can consult. This is quite incredible, when you think about it.

The government is not even required to table them in the House. It is not even required to inform the House or the people when it signs or ratifies treaties. I find it incredible that in 2007, in our democracy, a government can sign an international treaty without even informing the population. Obviously, the House does not approve them, yet since 2002, in Quebec, the agreement of the National Assembly has been required for Quebec to sign any treaty. This improvement was brought in by the Parti Québécois at the time. It would be interesting to propose such an improvement in this House.

Not only does the House not approve international treaties, but the members are not involved in any way in the process. All we can do is consult with the people and try to obtain their approval.

As I said earlier, the government is not required to consult the provinces even when treaties concern areas of provincial jurisdiction. It is totally absurd that no consultation mechanism is in place. This situation is completely unacceptable.

It used to be that international treaties governed relations between States and had little or no impact on how society functioned or on the lives and rights of citizens. At the time, it was acceptable for the government to unilaterally sign or ratify treaties.

Now, however, international treaties, especially trade agreements, affect the power of the State, the workings of society and the role of citizens. Furthermore, they often have an even greater impact than many bills.

The Canadian treaty ratification process is not in line with this new reality. The people's representatives must be involved in decisions that affect the people they represent.

During the election campaign, the Conservatives promised to bring treaties before the House prior to ratifying them, but they still have not kept that promise. Recently, the government signed an investment protection agreement with Peru. I would note that the agreement still has not been put to the House and that it was already signed before the members could approve it. This agreement is based on chapter eleven of NAFTA, which has been criticized by many.

When the House presses the government to honour its international commitments, as it has done in the case of the Kyoto protocol, the government does what it pleases, with no regard for the will of the people or the promise it made when it signed the treaty.

It is rather paradoxical that the Kyoto protocol is probably the most important of all the treaties this House has approved, yet the government is refusing to acknowledge and implement it. This is a far cry from the Conservatives' promise to submit treaties to the House. I do not know whether the Conservatives meant that they would submit treaties to the House, but would not abide by the House's decision or respect its will. They may have forgotten to mention that when they made their election promises.

The government should have treaties approved and then enforce them.

Not involving representatives of the people is an anachronism in treaty ratification. I would like to point out that Canada is less democratic today than it was in the 1920s.

In fact, in 1926, Prime Minister Mackenzie King introduced a resolution that was unanimously adopted by the House of Commons. It read as follows:

Before Her Majesty's Canadian ministers recommend ratification of a treaty or convention involving Canada, Canada's approval must be obtained.

In 1941, Mackenzie King reiterated his commitment to this approach:

With the exception of treaties of lesser importance or in cases of extreme urgency, the Senate and the House of Commons are invited to approve treaties, conventions and formal agreements before ratification by or on behalf of Canada.

Over the years, the House of Commons had been consulted less and less, and even when it gave its approval in the case of the Kyoto protocol, the government refused to implement it. Nothing in the rest of the industrialized world can compare with that.

I said earlier that Canada was lagging behind Quebec. In Quebec, treaties signed by the Government of Quebec are approved.

On three occasions, the Bloc Québécois has introduced a bill on treaties to modernize the whole process of concluding international treaties. I am referring to Bills C-214, C-314 and C-260. Each time, the federalist parties have rejected the bill. This is very unfortunate.

In conclusion, this bill should be improved—

[The Acting Speaker, Royal Galipeau]

The hon. member for Peterborough for questions and comments.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, the member is a contributing member of the finance committee and I have a couple of questions for him regarding his speech.

We heard the previous speaker in the House refer to the income trust hearings that have been going on in our committee and the member spoke about a number of things, and this certainly comes under the heading of some of his discussions. I would like to ask him, on behalf of his party, if he could make their position clear.

We know the Liberal Party has had three specific policies on income trusts, all quite different, and none would have solved the situation that surfaced on income trusts.

We heard supporting testimony from people such as David Dodge, from the Bank of Canada, Jeffrey Olin from Desjardins, Kevin Hibbert of Standard & Poor's, Dominic D'Alessandro from ManuLife, Kevin Dancey of the Canadian Institute of Chartered Accountants, Art Field of the National Pensioners and Seniors Federation, Ramy Elitzur of the University of Toronto, the hon. Mitch Murphy from the Government of Prince Edward Island, and I could go on and on.

This is really important because I know that the issue of the fiscal imbalance is very important to the Bloc Québécois. We have had many people coming forward and saying this tax leakage issue is a real issue, it is something that the government has done correctly. They are saying that we have acted correctly to protect the tax base and encourage tax fairness. I would like to know if, after listening to all these expert witnesses, the Bloc Québécois is now prepared to support the measures taken by the government relating to tax fairness on the income trust issue.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, it is somewhat surprising to see my colleague from the Standing Committee on Finance oppose these infamous income trusts, given that, during the election campaign, he promised not to tax them. In my opinion, the crux of the problem before us today and the billions of dollars lost by investors basically stems from that absurd, irresponsible and ridiculous promise made by the Conservatives during the election campaign. That said, the Bloc Québécois has always believed that the financial structure of a corporation should not be dependent on tax benefits.

For this reason, we believe that we should no longer—as was true in the past and remains true today—give tax benefits to income trusts, which means and which meant that more and more corporations were converting to income trusts, not because it was the best business structure for them, but simply to reap the tax benefits. That is an unhealthy way to structure the economy.

The Conservatives' promise to not do what they have just done was irresponsible. They should not have promised it. They could have then done things differently and done them properly. The Bloc Québécois proposes increasing the transition period from four years to ten years, in order to stop the conversions to income trusts and to grant more time to existing income trusts, in order to appease and accommodate investors.

[Larry Bagnell, Liberal, Yukon, YT]

Mr. Speaker, I have two questions for the member.

First, as he mentioned, the Conservatives seem to be ignoring more and more what Parliament does in motions and even in bills. When they were in opposition, as the member will remember, they would say that it was an affront to Parliament or an affront to the people.

In particular, relating to the bill put forward by the hon. member for Honoré-Mercier on Kyoto, which the member mentioned in his speech and which basically told the government to come up with a plan, the government's answer was that there was no plan in the bill.

Obviously, the bill is telling the government by law to come up with a plan. I would like the hon. member to comment on that.

Second, does the hon. member not think that the government tax increase on July 1, 2006 for the lowest income people in this country from 15% to 15.5% was totally unreasonable and unCanadian when everyone else was getting a tax decrease?

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, following the tabling of the budget and discussions of the Standing Committee on Finance, I had the opportunity to sit in on the never-ending debate between the Liberals and the Conservatives about who raised taxes and who lowered them. Frankly, I find this rather ridiculous. They do not want to acknowledge that the decrease in taxes planned by the Liberals had not yet been adopted but that, in practice, it had already gone into effect. It is a silly game and they can keep on playing it.

To return to the first question, it is disconcerting to see the government disregard the will of this House. It is unfortunate and it seems that the government does not understand that it is in a minority position, that the majority of Canadians did not support it, that it must find a way to work with various parties and that if it is isolated, it must give way to the opinion of the majority.

I do not understand why the government would not abide by the Kyoto protocol bill. It must abide by it. If the House adopts a principle, it must respect the principle and the rules. The Bloc Québécois tabled a motion calling on the government to set absolute targets for greenhouse gas reductions and this resolution was adopted by the majority of the House. In my opinion, a responsible government would not wait to have a bill before it to respect the will of the House.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Mr. Speaker, I thank the hon. member for his continued support for the Kyoto protocol. My question to him is related to taxation and the discussion we are having today.

As he knows, a few years ago the Bronfman family sent $2 billion out of the country to avoid paying taxes. A gentleman from Winnipeg actually took the issue all the way to the Supreme Court. Unfortunately, he was not successful, but the fact is, it should not have been an individual from Winnipeg doing that. It should have been the government putting a stop to that.

The problem is that the loopholes for tax havens are still there. If I am not mistaken, the finance minister recently reported that over $80 billion are secured offshore in tax havens.

I would like to know if the hon. member can speak on behalf of his party. Is the Bloc Québécois prepared to close the loophole that stops Canadian dollars from being secured in offshore tax havens?

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, for some time the Bloc Québécois has been seeking to limit and prohibit the use of tax havens.

As I previously explained in my presentation, some might say they are loopholes in the legislation. However, as I demonstrated earlier, they are not loopholes but are put there by design to enable people, certain wealthy individuals and companies, to avoid paying taxes.

I mentioned the case of an exchange of e-mails proving the intent. I will attempt to find it because it is very interesting. In 1994, an official of the Department of Finance told Craig Cowan, of Arthur Andersen, the following:

Be advised that proposed paragraph 5907(11.2) is intended to ensure that a Barbados international business corporation which is a foreign affiliate will remain eligible to earn an exempt surplus.

Obviously the government wanted a way around the legislation. It is not a loophole. It was designed that way.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Mr. Speaker, I am pleased to participate in the debate on a lengthy bill, Bill C-33.

For those viewers watching the program today, who may have missed the point, this bill is about income tax changes, many of them technical in nature, but we have digressed a great deal and we are talking about a number of other issues.

I intend to speak to the bill and I will do it in three ways. I will address the issues of income trusts, tax havens and the question of unfairness in our tax regime.

I will begin with income trusts because it seems that the Liberal finance critic, the member for Markham—Unionville, has chosen to spend most of his time attacking the New Democratic Party. I did not realize that we had so much power and that we were in a position to determine the affairs of the nation but that clearly is what the member from Markham thinks.

The member's bullying tactics against the NDP, and myself in particular, will not work, just as the bullying tactics of the big oil companies will not work when they take out paid advertisements attacking me directly and the NDP for having dared to suggest that income trusts have no place in our system and should have been phased out. We acknowledge the fact that we have been consistent on this issue from day one and have not flip-flopped or changed our minds, as both the Conservatives and the Liberals have done.

We have not used this issue as a political football and we have not attempted to put one over on Canadians. We will continue to indicate why we are concerned about income trusts and the huge loss of revenue for government programs and the very important programs and initiatives for Canadians.

There is no question in our mind that we are talking about tax leakage, tax slippage and tax loopholes that the Liberals, for over 13 years, upheld and which the Conservatives now seem determined to be party to.

When it comes to this issue, it is clear that the Liberals cannot hold a candle to anyone. They are absolutely shameless when it comes to attacking others, when in fact their record is horrific. The Conservatives, obviously, have fallen into the footsteps of the Liberals by ensuring the perpetuation of large tax loopholes and havens for their corporate friends. That needs to be stopped for the good of all Canadians.

I am not surprised at the member for Markham—Unionville, given his banking background. We know that when push comes to shove the Liberals will be the defenders of big oil and big banks. That was apparent over the last 13 years.

Today we are dealing with a bill that arises out of concerns from the Auditor General about the perpetuation of tax loopholes and tax havens. If truth be told, we are talking about Auditor General reports that go back 14 years, to 1992. The first report of the Auditor General on tax havens happened in that year. It was followed by a report in 2001, a report in 2002 and, more recently, a report in 2007. In each and every case, the Auditor General raised concerns about tax havens.

The Liberal government had ample opportunity to address this very serious issue and chose not to. In fact, it chose to go the opposite way by encouraging tax havens and ensuring that the Barbados remained as a tax haven for investors. That haven continues to be used today by big drug companies, big banks, big oil companies and big shipping companies.

We are talking about the loss of a huge amount of money that ought to have been put to the benefit of Canadians to ensure they and their families were able to make ends meet. If truth be told today, one could say that if anyone deserves a break, it is average families, hard-working Canadians who have seen their ability to cover growing expenses become more and more difficult, while in fact the rich get richer and big corporations get more and more access to tax loopholes and havens.

The point of today's legislation is to crack down on tax loopholes and tax havens but I doubt that this bill is adequate to do the task. However, we will, over the course of the debate, be making some suggestions.

I will be proposing an amendment to the bill that would deal with one of the outstanding issues pertaining to income trusts, which is that many investors, in using income trusts as a way to make money, have overvalued their trusts. As a result, Canadians have been taken to the cleaners and have lost a great deal of money.

Today we propose that the government take the NDP private member's bill to deal with this and ensure accountability and transparency in all aspects of the income trust field so long as they are with us knowing in fact we would like to see them phased out.

The House resumed from February 21 consideration of the motion that Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, be read the second time and referred to a committee.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Speaker, I am pleased to rise today to speak to this fascinating bill, Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act.

The bill represents a necessary update to the Income Tax Act, particularly as it relates to foreign amendments and other domestic measures. The majority of the bill's provisions are taken from the Liberal government's budget of 1999. The government put the proposed changes up for public comment in July 2005. The changes we are debating today also contain revisions made to that July 2005 release.

Although the amendments to the income tax will be mainly administrative, it is important to highlight them to have a better understanding ahead of an eventual vote.

The bill can be broken down into three parts.

Part one deals with amendments to provisions of the Income Tax Act governing the taxation of non-resident trusts and their beneficiaries and of Canadian taxpayers who have interests in foreign investment entities.

Part two deals with technical amendments that were included in part one of a discussion draft entitled “Legislative Draft Proposals and Draft Regulations Relating to Income Tax”, released by the minister of finance in February 2004.

Part three deals with provisions of the act not opened up in parts one and two.

The proposed measures in part one deal with non-resident trusts and foreign investment entities designed to ensure Canada is properly taxing those Canadians who are earning income through foreign intermediaries in the same manner that income would have been taxed had it been earned directly.

It is essential that Canada close tax avoiding loopholes, not only to protect our own tax base but also to demonstrate our commitment to the international community. We must show our international partners that Canada takes its international responsibilities seriously and that Canada is not a destination for taxation loopholes.

If I look at the bill, it is over 500 pages long. It is not likely that anybody in the chamber has read it. Even if people have, I am not too convinced they can understand this type of bill. However, as vice-chairman of the finance committee, I look forward to sending the bill to the finance committee after second reading so we can further study to determine if any amendments will be needed to make it an even better bill than what it is today.

We need bills like this. They may be complex, but in debating the bill in the past, members have decided to concentrate their points on other areas. As an accountant, I know the foundation of these bills are important. They are just as important as any other bill we debate in the House. That is why, if read some of the debate that went on in previous sessions by members of the opposition, especially government members, they had trouble determining what was a tax haven, what was a tax treaty and what were international tax agreements.

Tax havens are jurisdictions where people park their money, or investments, and they pay no income tax on the income generated on these moneys. Tax havens are countries like Bermuda, Cayman Islands, Turks and Caicos, Gibralter, just to name a few, where people or companies put their money, leave it there and it accumulates tax free. The purpose of the bill is not to address tax havens.

The second point is government members feel these are tax treaties. This is not a tax treaty. A tax treaty is like one of the bills we discussed a few months ago, Bill S-5. Tax treaties are conventions between two countries. Normally the purpose of the tax treaty is to avoid double taxation so Canadians or residents of the other countries do not have to pay double tax. Bill S-5 was our agreement with countries like Mexico, South Korea and Finland.

Some of the other problems we get into when we speak about tax treaties, tax havens and international conventions is our tax base does not get protected. Canada's tax base needs to be protected. If people start taking their hard-earned money and parking it elsewhere, Canada will be unable to maintain the revenue stream that we need so we can rely on the social programs.

The other item that makes Bill C-33 important is there are advantages to using a non-resident trust. If we do not put limits on it, the foreign investment entities will be eliminated.

There are a lot of points on which I would like to speak, but one of the items is the international tax agreements. We can sign these international tax agreements because this affects foreign entities. From what I understand, in the 1990s, although I was not in the House then but perhaps the Speaker was, a tax treaty with Italy was passed by the House. Italy has yet to ratify that treaty.

Italy now has two members of Parliament from other countries who sit in the House of Commons. It has an elected member of Parliament representing the riding of North America. One member of Parliament was born in the United States. The other one was born in Canada. It even has a senator. These elected members of Parliament and senator live outside of Italy but they have full right of vote. One MP seems to be lobbying. He has asked what has happened with the treaty. It was signed with Canada but it has not been ratified.

This is a typical example of a treaty we signed with a developed country and there has been no advancement. Some residents of both countries have had to pay double tax. Then they have to file their tax returns to get some of the money back, all because one country has ratified the treaty and the other country has not.

We can talk about the tax treaties and what these types of bills do on the international scene. When we look at what the government has done in the last little while on its international tax position, we think about regulation. I read in the today's paper that we have a regulation as to foreign ownership in the telecom sector, but we still see foreign entities trying to take over one of our biggest corporations in Canada, BCE, formerly Bell Canada.

Some of the articles say that they are looking for Canadian partners. If we do not protect ourselves with agreements like this, foreign corporations can come here, set up non-resident trusts, with Canadian owners but not really beneficial owners, and take over our corporations. We have seen that in the last few years. We just saw it last year when Inco was taken over by another foreign company.

If things continue as they are, all our historic corporations, which have added to the country's past, will slowly slip away. CN has its head office in Montreal, but it is just a skeleton. Most of the decisions are made in Chicago. We have lost part of that.

These agreements are important. The government has to realize that when it makes a decision, it has to be an overall decision to protect Canadian interests. Canada's financial markets represent 1% or 2% of worldwide markets. We need to protect Canada's corporations or they will be swallowed up in this international global economy that we live in today.

In the budget just tabled one of the items concerns me when it comes to the international tax system and fairness. Canada and the U.S. apparently have agreed in principle to update the Canada-U.S. tax treaty. They want to eliminate the non-resident withholding tax on interest payments and Canada also plans to unilaterally remove the withholding tax from arm's length interest payments to other countries.

What does that mean? Does that mean we will not collect any money on interest payments that are made to foreign companies? How about having an agreement with the U.S. in this case to ensure that the money will be taxed on the other side? When companies from the U.S. pay Canadians, we can collect our taxes from those Canadians.

The government then says that we need to promote more business investment. We turn around and look at the budget. Budget 2007 proposes to eliminate the deductability of interest incurred to invest in businesses and business operations abroad.

How does that make any sense? The government wants Canadian businesses to buy foreign entities. Does it want foreign entities to buy Canadian businesses? This will eliminate the deductability of interest incurred to invest in business operations abroad.

How will that help Canadians to expand, to go abroad and increase productivity? It will not. I am not sure what the government is trying to avoid here. There is no basis for saying it is going to affect revenues in Canada. Most Canadian companies that borrow to purchase foreign affiliates borrow from Canadian financial institutions. The Canadian financial institutions from what I understand pay taxes here.

Perhaps the government should have put a disclaimer that said if a Canadian business was to purchase an operation abroad, as long as it borrowed the money from a Canadian financial institution, that interest could be deducted.

When other members spoke on the bill, they spoke about income trusts. Income trusts have a non-resident aspect to it. We see now that the rules were changed. Some REITs are still allowed, but the government has put a limit as to how much foreign ownership or foreign property they are allowed to invest in.

In the news it said that Canadian REITs were not allowed to invest in foreign entities or foreign real estate up to a certain level. How will that help Canadian companies if they cannot go abroad? As we say in French, “Les bâtons dans les roues”.

Getting back to income trusts, the government has imposed a 31.5% tax on income trusts, which is fine if it chooses to do that. Now it has totally eliminated that sector because it says it did not pay tax or claimed too much tax. The government keeps flip-flopping in terms of its position.

Now we have income trusts that are now going to have to pay 31.5%. People were interested in investing in income trusts, especially the energy sector, because these allowed corporations to go out and get capital at a cheaper price because they were selling units instead of shares. Then the government decided to implement this 31.5% tax. It said that trusts were no longer allowed to operate as of 2011. Existing corporations cannot be converted to trusts.

What has happened is there are no restrictions for foreign entities to buy these companies and turn them into private entities or private trusts to be controlled by foreign entities? There are no restrictions on the actual way in which incomes trusts can now function.

The Liberal way would have been to tax earnings only, to keep the income trusts and tax the non-residents who benefit from the tax free distribution from these income trusts.

Before I get to my next point on private members' bills, I want to go over the tax treaties. The government has also decided to unilaterally provide U.S. companies to borrow in Canada on these limited partnership payments.

What has happened again, if we look at what is in the news, is these limited partnership entities that are allowed to operate in Canada and are allowed to deduct interest payments in the United States are now going to be able to buy up Canadian companies and get a deduction in the United States as well as here in Canada. The only problem is that Canada is not getting cooperation from the U.S. They will probably be able to deduct the interest here in Canada, buy up Canadian companies and use Canadian capital. There is no consistency in how these fee agreements are treated.

There is a whole page on the interest deductibility on the foreign affiliates. There are going to be a lot of problems when we go through this in the finance committee. We are already hearing that Canadian corporations with foreign affiliates are not happy that they are not able to deduct these payments. These items will have to be dealt with when the budget implementation bill is sent to the finance committee.

There was just one more aspect that I want to talk about. If the government is serious about getting a handle on money offshore or making sure that people are not hiding income from Revenue Canada, there are certain procedures that could be used. Some of the departments here in Canada could monitor these moneys or shifts in large sums of money that seem to go offshore and are not accounted for.

FINTRAC, the Financial Transactions and Reports Analysis Centre of Canada was established a couple of years ago. We just did the five year review so it has been around for five or six years. There are financial institutions that have to report to FINTRAC whenever they receive payments of more than $10,000, so FINTRAC could easily monitor any payments that are going offshore.

The problem is that FINTRAC's basic responsibility is to look at whether sums of money are used for terrorist financing or money laundering. It is for crime proceeds. Tax avoidance does not seem to be within its mandate. This is one of the amendments that I had asked for when we were doing the five year review of its mandate, to see if FINTRAC could look at the way tax avoidance is handled in this country.

Another idea that I had was similar to an initiative which has been done in Europe and a couple of countries. It was to provide Canadians with a once in a lifetime opportunity to declare all their worldwide income, and if they repatriated back here, to charge them something like 10% or 20%, and split that amount with the provinces. It would be a good way to generate some revenue even for the provinces. If somebody had forgotten to declare some money or they happened to have some money in another country, they could bring it back. We could assess a tax of 10% or 20% tax. They would not have to pay any interest or penalties on those sums of money.

This initiative seems to have worked in a few other countries. I do not have the stats but apparently there was a good take on it and it increased government revenues by a good 10% or 15%.

There are other ways in which we can look at how tax havens and tax treaties are handled. A 500 page bill is definitely an interesting way to look at all these complex items. The bill tries to amend the Income Tax Act. The Income Tax Act is one of the more complex pieces of legislation, although apparently, the Employment Insurance Act is much more complex.

These are all issues the government should be looking at. I am looking forward to seeing Bill C-33 come to committee so we can analyze it and get a better understanding of what this 500 page document is all about.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Speaker, I am trying to understand what my Liberal colleague is saying. To the Bloc Québécois, Bill C-33, which deals with foreign investment entities and non-resident trusts, aims, in part, to counter tax avoidance.

I understand that my colleague was talking about income trusts, among other things, and I see that he was trying to connect that with foreign trusts. But for us, this is a bill to counter tax avoidance.

I would like to know if my colleague is for or against tax avoidance, and if he is for or against the bill.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Speaker, I would like to thank my colleague for his question.

We believe that we have to use every tool at our disposal to combat tax evasion. However, the problem with this bill is that it has a lot of details that are difficult to understand. I do not think that this 500-page document will help us prevent all tax evasion. That is the problem.

The government has several tools at its disposal. Sometimes it seems as though the government is not prepared to react because we can be quite certain that some Canadians have money in other countries that they do not declare. Revenue earned with that money is not declared. There is a way to recover that money.

At the end of my speech, I was not talking about that bill in particular, because it is just one part of a long process that will bring additional revenues into government coffers so that it can provide services.

When I say the government, I do not mean just the federal government. I also mean provincial governments. If we can recover money that is not declared in this country—which is tax evasion—and if we bring that money back here, the provinces will also benefit. Every provincial finance department will be able to tax that revenue.

[John Baird, Conservative, Minister of the Environment]

Mr. Speaker, I listened with great interest to the speech by my colleague from Montreal. I agree with him that it is a very complicated bill, as most tax measures are. He mentioned that he was vice-chair of the finance committee and said that he looked forward to the bill reaching the finance committee.

I hope that the committee will look at the issue of tax avoidance seriously. I know in my constituency of Ottawa West—Nepean the average middle class family in my riding does not have the capacity to exercise any tax avoidance scheme beyond an RRSP contribution. This is a real concern for people who work hard and pay their taxes. They want to know that their fellow citizens, whether they be individuals or businesses, are paying their fair share.

I think this is not an issue of the right or the left. I think it is very much an issue of tax fairness. I know the party opposite did not support the budget. I do hope those members will give some meaningful consideration to the measures to reduce and eliminate tax avoidance so that we can move to a fairer tax system. That is what the average senior in my constituency would say. That is what the average hard-working family in Ottawa West--Nepean would want me to say here today.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Speaker, the member across the way is not only a member of the governing party, but he is also a minister who can do something about these tax avoidance vehicles.

I think we are going to be in favour of it. It is a 500 page document that is quite complex from what I make of it. I read a bit of it. I am in favour of it, but I will have to see if I am in favour of it after second reading.

The government has other ways in which it can handle tax avoidance and it has not done anything. There are four or five pages that talk about international tax treaties and ways in which the government wants to address international investment, but it is not doing anything to attract international investment. It is not going to attract any additional revenue from people who are avoiding tax.

There is nothing in the budget to address tax avoidance. If anything, it is going to hurt even more. The legislation the government opposite is going to table regarding income trusts is actually going to encourage foreign entities to come into Canada, pick up our energy trusts at a discount price, and write off all the investment related to those income trusts, especially in the energy sector, and not pay tax on them.

I would like the minister to tell me which party is for tax avoidance.

[Dennis Bevington, NDP, Western Arctic, NT]

Mr. Speaker, I have enjoyed the debate today. I look forward to the bill going to committee so the 500 pages can be reflected on by members in the detail that is required.

Last night I had the opportunity to attend a function put on by people from Nunavik. They were talking about tax fairness, but they were talking about the northern residents tax deduction and the unfairness of that deduction.

I noticed in the 2007 budget the government talks about tax fairness regarding the capital gains exemption. It is suggesting that it be raised from $500,000 to $750,000 because it has not been raised for 20 years. The same situation exists with the northern residents tax deduction. It has not been raised for 20 years.

Does the hon. member think that the finance committee in its deliberations on fairness, whether it is foreign taxes or other taxes, could set some standards for the fair development of our tax system so that we can apply these standards in any debate that goes on about taxation and the Canadian public?

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Speaker, there is no easy answer to the member's question.

Members of the finance committee looked at visiting places in the north. We ended up going to Whitehorse, which I do not is a typical place to get a snapshot of what the north is all about. It has a booming economy. Some people hold two or three jobs. People go up there for all kinds of things, whether it is winter sports, hunting, fishing, or tourism. It is the gateway to Alaska. I do not think that was the answer.

We talked about maybe going to Iqaluit and other places in the Arctic and up north because we understand there is a problem. Canadians are overtaxed. There definitely needs to be some tax fairness. That was my point, to get money to come back to Canada. If we could get them to pay the proper amount of tax on the money that actually belongs here in Canada, then perhaps we would have enough money to help people in the north.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Speaker, on behalf of my party, the Bloc Québécois, I am pleased to speak to Bill C-33. I am going to read the title so that the people listening will understand it. This is an Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act.

Now, just from reading the title of the bill, it is clear that it is somewhat complicated, for everyone. This bill is over 400 pages long. I was not joking when I asked my Liberal colleague, a few moments ago, whether his party was for or against tax avoidance, because in the speeches we hear in this House, no one has taken a clear position as the Bloc Québécois has done.

This bill must be passed for the good and simple reason that at present, as we speak, as old age pensions are not being indexed by the federal government, as electricity bills are going up for families in Quebec and probably everywhere else in Canada, as registration fees for car licence plates are going up, as the cost of everything is going up, companies and individuals are using legal entities that are allowed in Canada either to transfer capital abroad or so as not to pay income tax on investment funds. This bill must therefore be passed.

Our position is clear, but we will never stop there. The Bloc Québécois has a single principle: all tax avoidance must be eliminated. It is not acceptable that while some people are having a hard time, others are taking advantage of the situation in order not to pay their taxes here. And then, once those taxes have been collected, we could index old age pensions and raise the various income supports so that people would be able to pay for what they need to survive and meet their everyday expenses.

That is why what some colleagues in this House are saying is incomprehensible. We must never distance ourselves from the public. Certainly this is complex, and we can try, as the Liberal member was just saying, to say that these 400 pages do not solve anything. It is not accurate to say that in 400 pages nothing is being solved. However, he is entirely correct, because tax avoidance is not being solved once and for all. As well, I am not sure that the Liberal Party, which was in power for 13 years, wanted to solve the problem of tax evasion. It did not want to solve the problem, and today, even though the Liberals are in opposition, they will not solve it and they will not do everything in their power precisely to recover all the money that is needed so that we can restore fairness.

I was pleased to hear the minister of the Environment say a moment ago that he wanted to try to restore fairness. This is true of this bill, in part, but the Conservative Party has to be logical in what it says, and restore fairness once and for all. The first aspect of fairness that it should have restored was to index old age pensions on April 1, so that at last everyone who has contributed to the growth of Quebec and Canada would be able to receive dividends on all the time, money and energy they have invested and all the taxes they have paid in the last 40 or 50 or 60 years. That has not been done.

It would be even better if we were told today that what will be recovered with Bill C-33 will be given to those most in need in our society. Never has a Conservative risen in this House, however, to tell us that money would be recovered so that it could be given to those who deserve it. No, that is not what happens. The money is going to be recovered and that is good. The Bloc Québécois agrees with these measures and supports them. You will have our entire support with regard to Bill C-33 and all bills that you propose to eradicate tax evasion once and for all. We will be there to help you, provided that afterwards we can take this money, reinvest it in programs to help those most in need, index old age pensions—as I told you earlier—and be able to reform employment insurance.

With regard to employment insurance, since 1994 the federal government has not invested one cent in the employment insurance plan. It consists of contributions from employers and employees. Believe it or not, the government has managed to generate over $51 billion since 1996, which it has used to reduce the debt and for all sorts of investments, except improving the employment insurance system so that those who have paid into employment insurance are capable of avoiding the famous black hole or seasonal gap, except in a few regions. It is true that the governments, both Liberal and Conservative, have listened to part of what we had to say, since in certain types of industry and in certain regions some pilot projects have been adopted.

The problem is the lack of jobs in all sectors. There have been massive job losses, particularly in manufacturing, in the past two years.

Furthermore no solution has been found for the problem of older workers who have lost their jobs and who deserve an assistance program so that they can enjoy their old age pensions with decent incomes. We have not been able to do that, even though we are swimming in billions of surplus dollars from the employment insurance fund.

All the Liberal and Conservative members will say today that there is no employment insurance fund; it is the government’s consolidated revenue fund. Obviously they collect more from the plan than it costs them, more than they expend on services or insurance for workers.

They make a profit, quite simply. They make money with the employment insurance premiums paid by employees and employers. The reality is that they make a profit. What do they do with the money? They do not give it to the citizens who need it most. They do not improve the plan. We are talking about seasonal workers and workers over 55 who have lost their jobs and who deserve some help until they are eligible for their pensions. We do not see any of that.

There has been no speech in this House, neither from a Liberal nor a Conservative, to say that if we ever passed a bill such as Bill C-33, we could help the least fortunate with that money.

I am not asking that we give this money to those who could benefit from a new employment insurance program. We could simply use the surplus in the fund to improve the EI system. And we could very well use the money saved or recovered through Bill C-33, which addresses tax evasion, to index old age pensions and any other assistance program for the least fortunate in our society.

Once again, and as usual, we are in for a long fight. Those watching us must realize that things do not progress very quickly in the Parliament of Canada. It is a big machine, a big, spacious box with many members and bills that are renewed from one Parliament to the next. Often bills come from previous Parliaments because of elections, etc.

A bill is introduced and then we are informed in this House that the bill did not go through, that we were unable to see it through because we ran out of time and it did not go through all the stages. It is very complicated. However, we must not forget that the party in power often benefits from this, in other words, it arranges things to ensure that the bill does not see the light of day. That is the harsh reality.

We work hard, we try to see bills through, but sometimes the government decides not to pass them quickly. A fast-track procedure exists. Many journalists and media report that we have fast-tracked a bill. What is fast tracking? It is used when we want a bill to pass and we set things up so that it does: we do it quickly and we skip a few stages.

This will not be the case for Bill C-33. The Conservative Party does not want to fast-track. It apparently wants to show an interest in correcting tax evasion.

The Bloc Québécois will give its full support to this bill and any measure seeking to advance the bill as quickly as possible on the parliamentary, jurisdictional, constitutional or any other agenda.

We are prepared to fast-track this bill so that it is enacted as quickly as possible. Why? Because Bill C-33 corrects various provisions of the Income Tax Act. These provisions are being corrected because they made it possible to circumvent tax rules and to evade taxes. The bill is 400 pages and is indeed complex.

Some follow what is happening in terms of tax evasion. Major tax evasion trials are often televised. Individuals have been accused of tax evasion and fraud. Do not get me wrong, but it does not constitute fraud because the law allows tax evasion.

Those who avoid tax have often paid consultants, professionals and a whole host of experts. They have a lot of money and they spend a lot of it to have experts find loopholes in the Income Tax Act, enabling them to avoid expenses and paying taxes.

Today, to deal with the problem, we could all just say that if the government wants to solve the problem of tax evasions it should go ahead and do so. More than 400 pages is needed just to correct some small paragraphs in each amendment. I will not read them all, unless I have the unanimous consent of the House to continue speaking until next week, which I will certainly not obtain.

Be that as it may I would gladly list the sections, paragraphs and sub-paragraphs that have been amended by this bill. In the end, the objective is quite simply to make it more difficult to circumvent the tax regulations and to avoid paying taxes.

The bill responds to the shortcomings identified by the Auditor General in her 2005 report.

It often happens that, here in Parliament, we need the Auditor General to tell us things that we all know. We know that there is tax avoidance in Canada. Cases are reported in the media. People find it maddening that investment money can be legally transferred to other countries without being taxed in Canada. In order to verify that a request was made to the Auditor General. In 2005, in her report, the Auditor General raised the very problem we are trying to rectify today.

The bill before us today will require disclosure of additional information about foreign trusts, which will allow a more rigorous analysis of the figures submitted to the Canada Revenue Agency, in accordance with the recommendations of the Auditor General.

This means data will have to be up to date in order to have all the required information. That is also complicated. We would be hard-pressed to find out how the money was moved, as was the case with trusts; where the money went; where it came from and all the rest. The government absolutely must adopt legislation to control that because, as I said earlier, the big financiers and all those who want to take advantage of the loopholes in the act can hire any number of professionals to help them.

The Auditor General said that this has to stop and that all the required information must be provided. The bill requires that foreign trusts and foreign investment groups must provide all the information required so that we can curb tax avoidance and put an end to it.

I listened to my Liberal colleague earlier and what seems to be the Liberal philosophy. They say they want to put an end to tax avoidance and go after the money offshore so that people pay the taxes they owe. That could take a long time because the money is already gone.

This bill at least has the advantage of allowing the money to be collected before it leaves. That is a good thing in itself. We agree with collecting money that is already in other countries and has not been taxed. We have said that we support any regulations or amendments to the bill for the purpose of recovering taxes from people who have not paid them. But let us start with Bill C-33 to collect taxes from people who want to send their money abroad. We know about foreign trusts, and about all of the foreign investment bodies and entities that transfer capital, and that should be declaring it. We will therefore be collecting the tax right at the start. That is the primary objective that this bill adopts and that the Bloc Québécois adopts.

Tax evasion is much more complex and significant than it appears. This is a principle of fairness. People have to pay their taxes on the money they earn, in Quebec and in Canada, on their sales or however they get it.

When someone sells a car, or a household item, or shares, or whatever, the Income Tax Act allows for exemptions, and that is good because it encourages investment. However, apart from those exemptions, once everyone has understood that after so much profit, they have to pay income tax, this is a simple principle of fairness. In order to redistribute wealth better, we must be able to collect all of the money owing.

We have to stand up. On the day when a government stands up tall, it can tell everyone that they have to pay their taxes, as the law requires them to do, and there will be no more tax evasion or signing of agreements with countries like Barbados, as was done in the past. We denounced the agreements with Barbados, which also allowed the former Liberal prime minister to transfer capital to foreign countries. We have already said a lot about that here in Parliament. This has to stop.

On the day when this message is sent, businessmen will understand that when they make profits, they pay taxes. Our problem is that we allow them to do things and we open the doors that they use. They pay professionals so they can use those doors. On the day when we stop and say that it is over, because we want to have fairness, we will require that they pay their taxes. Because the profits they make are thanks to all the taxpayers who make a lot of corporations wealthy. They often try to make even more profits. We can name them. We saw them when we were talking about income trusts. They are banks and companies that we are dealing with today. Even Bell Canada wanted to create a trust.

One day, we will say to all of them who tried everything they could to make their shareholders wealthy from dividends every quarter, that they have to pay their taxes as they should, and that after that has been done, they will pay dividends. That is it. Dividends will be a little lower, but they will have paid their taxes. When that time comes, the government will be able to resolve the fiscal imbalance once and for all, as we are calling on it to do, not half of it or part of it.

Yes, the Bloc supported the government because it fixed 60% of the fiscal imbalance. But maybe if it recovers all that, it will fix 100% of the imbalance. It will index the old age pension, as it should have on April 1. Maybe it will take a look some day at what an old age pension cheque is supposed to cover. Maybe it will look not only at the cost of living but more at the cost of medications for older people.

It will also look at the cost of housing. Safe housing, including services, is getting more expensive. But the pension has not been indexed for the last 10 years. We have never taken time to discuss the cheque received by older people. Is it really suited to the current needs of our older people, who find that it is getting more expensive to find safe housing. There are a lot of home invasions and people need housing with good security. Are we there yet? No, and we know it. The old age pension was not even indexed on April 1, and it will not be. People who did not know that know it now. I think that most people have already received their cheque and they know that it was not indexed.

In my view, there will have to be a debate some day and the richer people in our society will have to be told that they already have enough and are wealthy enough. They should therefore pay their extra share in taxes. After all, they are not losing all their perks. Corporations and trusts have their own tax rate, which is much lower than the individual rate. They already benefit from the largesse of the system. They already have their ways of saving a few bucks. They will just not get any additional gifts.

The problem is that people who make a lot of money cannot be prevented from wanting to make even more. When people find that the door is wide open and they can detour their funds through foreign trusts and invest their money tax-free elsewhere, why would they not do so, when they can see that their neighbours are doing it?

The income trust story is something like that. The Conservatives are now wrestling with a promise they did not keep and the Liberals with a promise they probably should not have kept. Why? Because originally it seemed like a good idea. But when everybody took advantage of it, they realized that if it continued, one day the big companies would no longer be paying any tax. All of that because they created a little loophole in the Income Tax Act to try to help out. That was done by lobbyists.

We often hear our colleagues tell us that MPs should no longer be there and that lobbyists should take our place. Income trusts have led to this. Lobbyists probably treated members and ministers to lovely evenings with a bottle or two where they had some fine chats about the future. However, lobbyists work for banks and large corporations. They try to find ways for them to make more money. Meanwhile, ordinary citizens sit in front of their televisions and may no longer be able to pay for a meal out. That is difficult to reconcile.

The Conservatives rise to tell us that the Bloc Québécois should disappear. We now have lobbyists. So, all MPs will be replaced. Members will all belong to the same party and the lobbyists will become the official opposition. That will be great, right? That will be just great. Usually, lobbyists do not speak or ask questions in public. Everything is done behind closed doors in order to obtain results.

So, that is how the Conservatives want to govern, and the Liberals before them were not much better. That is the harsh reality. We have allowed lobbies to take over Parliament. It is one of the hard realities faced by new members and they are aware of it.

We receive dozens, even hundreds of invitations every month from various lobby groups trying to take our place as politicians. Personally, I think it is quite something that we have let them take over. Today it has become such a part of daily life that members of the Conservative Party say that there should be no opposition members; the lobbyists will do their work for them. Well, that is how it is. That is what they want because they can be controlled and they have the money to buy them.

One thing is certain: you cannot buy members of the Bloc Québécois. We will always defend a bill, such as Bill C-33, that makes the rich pay their fair share in order to distribute it to those most in need.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, I believe there is broad agreement in the House that Bill C-33 is a fairly technical and broad based agreement to close some technical loopholes and things of that nature.

I wonder if the member has addressed his mind to the provision in the budget with respect to the deductibility of interest by Canadian corporations when they acquire corporations or other businesses abroad. I wonder whether he has directed that particular issue in the budget to this morning's headlines in The Globe and Mail and, I assume, in the Montreal newspapers with respect to the proposed acquisition of Bell Canada by a New York based company.

I appreciate that the hon. member knows that Bell Canada is possibly Canada's oldest and one of Canada's biggest companies. It is critical to the welfare of Montreal, Quebec and Canada. It probably has the largest law firm in all of Canada, with a huge number of accountants, a huge number of computer specialists and so on.

I wonder whether the member would be prepared to comment on the potential acquisition of Bell Canada by a New York firm that is not subject to the proposed provision in the budget presented last week. That New York firm will be able to deduct any interest costs.

Could the member tell me why we would handicap Canadian companies acquiring foreign based companies while we would not handicap foreign based companies acquiring Canadian companies such as Bell Canada?

While he is answering that, maybe he could also answer what impact he would anticipate the acquisition of Bell by a foreign based company would have on downtown Montreal.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Speaker, I completely agree with the member. It makes no sense that a foreign company is able to acquire a Canadian company. Bill C-33 attempts to deal with the opposite situation, to prevent Canadian companies from acquiring foreign ones without paying their fair share of taxes.

We will always be prepared to support any bill that could prevent what is happening with Bell Canada. This is another great example of what is allowed. As was said, Bell Canada has a whole team of lawyers and probably accountants and bureaucrats who will try to find a loophole that lets this company make the acquisition, because it would be lucrative for Bell Canada shareholders at this point in time. It would be very detrimental to the Quebec and Canadian economy if all our companies became 100% foreign owned. We must move quickly.

Personally, I would be in favour, and the Bloc Québécois will support any such similar bills. I would like Bell Canada to come here and tell us that it was the recent budget that did nothing to counter it, I believe it knows, but that does not matter. The recent budget could not have predicted that Bell Canada would be the target of a foreign takeover this week. I believe we must intervene quickly and pressure the government to immediately bring forward a bill to stop this takeover. I believe we must act quickly. We cannot do anything but. We cannot say that, since our businesses are being taken over by foreign interests, we will vote against this bill so that our local companies will then be able to make foreign acquisitions without paying their taxes.

I believe we are in the process of creating two different worlds. We are going to allow other companies to come and buy up our businesses without paying any taxes and, to compensate, we will tell Canadian companies that they can now acquire foreign companies without paying any taxes. This seems backwards to me. I am all for fairness and justice, and this means in the United States and in Canada. I have nothing against the Americans. If the Americans had a little more common sense, perhaps they would be willing to spread the wealth a little more. I think they have a serious problem in that regard. If we can help them by adopting legislation to counter this type of argument, similar to what is happening right now with BCE, I think it must be done, and the Bloc Québécois will support this measure.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, I take his point. We are in agreement with this issue.

I know his party will support the budget but contained within the budget is this issue of interest deductibility for foreign acquisitions, which effectively handicaps Canadian corporations, whether they are based in Quebec or elsewhere. That, in turn, will lead to a hollowing out of the phrase “corporate Canada”. People have actually spoken out about that.

Is the member concerned with this particular provision in the budget, and we have a live example in front of us, which would effectively hobble Bell Canada, for instance, acquiring businesses elsewhere but not have any impact on those businesses that would like to acquire Bell Canada or other companies in Canada? If that provision remains, the result will be that business in Canada will be run offshore. The huge irony of that is that we will actually create the very things we are intending to prevent in Bill C-33.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Speaker, I would like my colleague to be a little more creative. The budget provision that prevents Canadian companies from writing off interest when they buy foreign companies is completely appropriate.

If we allow them to deduct interest, we are authorizing expenses that reduce their income taxes. If they acquire foreign companies, it makes sense that their interest costs should not be tax deductible in Canada. That would enable them to reduce their income taxes and opt out of social equity.

Likewise it does not make sense to allow foreign companies to buy domestic companies, such as BCE. We have to intervene and table a bill to oppose that kind of takeover. We have the right to protect our Canadian enterprises and prevent foreign entities from acquiring our companies. We have the right to do that.

If the member is asking for our support in preventing the Conservatives from selling off all of our companies to foreign interests, he should know that he has it, no problem. The Conservatives want a free market everywhere. The Liberals are creating the same problem by saying that we should let everyone buy up lots of foreign companies, make a profit somewhere other than in Canada, and, moreover, not deduct interest or expenses. This is completely backward. If they protect our Canadian companies and table another bill to prevent the kind of takeover that is happening in BCE's case, they will have the Bloc Québécois' support.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, I agree with the hon. member in a lot of his analysis but it seems to me that his solution is that when the horse is out of the barn we will pass a bill, when in fact a provision is in the budget, and I would refer to it as an obnoxious provision in the budget, which makes Canadian companies less competitive and less able to acquire foreign based companies and, because they are less able to acquire foreign based companies, they, therefore, will be acquired themselves.

It seems to me that we would want to strengthen our Canadian companies' ability to acquire rather than play defence by passing a bill that says something to the effect that no foreign based corporation can acquire a Canadian company up to a certain level of shareholding or something like that.

Would the hon. member agree with me that this very blunt instrument that the budget proposes needs to be, in effect, stopped in its tracks very quickly because it will have a huge number of unintended consequences, one of which may actually be playing out today in the pages of our national newspapers with respect to a Canadian icon?

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Speaker, I cannot agree with my colleague's interpretation.

If companies are allowed to write off interest, that means that their tax rate—or the taxes they will pay in Canada—will decrease. I will never agree with letting them pay lower taxes to make more profit, which is paid to their shareholders every three months. I will never agree because the shareholders will not distribute the wealth any better than the government could.

When we let them write off interest, they save taxes in Canada and Quebec. So the revenues of Canada and the provinces are reduced to enable companies to expand their empire and make more profits, which they pass on to their thousands or millions of shareholders, while the rest of the population is penalized. I cannot agree with his interpretation.

These companies must pay their taxes. They should not be allowed to write off interest, since that enables them to save taxes. It should not be allowed. The measure must be maintained, and legislation should be adopted to prevent foreign companies—that would receive tax benefits our companies are not entitled to—from buying up companies here. The share of foreign companies in our companies must be limited. This is what needs to be done, plain and simple.

[The Deputy Speaker, Bill Blaikie]

I am sorry to bring this series of exchanges between the two hon. members to an end, but the time for questions and comments has expired.

It is now my duty pursuant to Standing Order 38 to inform the House that the questions to be raised tonight at the time of adjournment are as follows: the hon. member for Davenport, Automobile Industry; the hon. member for Etobicoke Centre, Multiculturalism.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I am happy to join in this debate on Bill C-33 on behalf of the NDP caucus. In doing so, I would like to recognize and pay tribute to the work that our finance critic for the NDP caucus, the member for Winnipeg North, has done in this regard.

Many of the provisions that we will find in Bill C-33 were actually dealt with in the last Parliament. Many people on that committee worked on many of these details and find them wrapped up in this omnibus package that we see today.

Let me say, as a relative layperson in regard to these matters of high finance, that my first observation as a dumb carpenter is that I find this volume almost mind-numbingly complex. My first observation as a Canadian taxpayer is that I lament the fact that our tax system is becoming increasingly complex, to the point that every time someone seeks clarification or points out a shortcoming in the tax system it seems to add another layer of complexity, to the point that we get 500 page documents like the one we are dealing with today, which we will add to the volumes and the libraries of pages that already have been written on this tax system.

Just as an aside, I have been going through some boxes of documents belonging to my parents. As we were editing through them, I found an old tax form of my father's from 1950. It was one page long. In fact, it was one-half of one page, and it asked how much he earned. Then it had a line for how much the tax would be. Then one would sign it and send it off. Well, we have come a long way, baby, since those days of a relatively straightforward, understandable tax system that the average working person could actually understand.

We have heard a lot about tax cuts in recent Parliaments. In fact, it has been the flavour of the month not only in this country but throughout developed nations. We hear more about tax cuts than we hear about tax fairness. That is what I would like to focus on today.

Our tax system is not supposed to be rigged like some shady ring toss on a carnival midway, but that is how some of us feel sometimes, in that as the system gets more complex it is to the advantage of the privileged few who can manipulate it and use it and take advantage of the opportunities that are deep, deep within this tome, this incredible volume. The rest of us are lucky if we can take advantage of an RRSP or an RESP with whatever extra capital or cash we might have that year.

The fact is that the increasingly complex tax system we are seeing, added to again here today, is still missing basic elements of tax fairness, things that we could have addressed long ago, things that have been raised time and time again by our finance critic and others within the NDP caucus. There are gaping loopholes that cost us an enormous amount in lost revenue and there are great shortcomings that result in lost opportunities for ordinary working people. Again, that does not do us any favours.

The Minister of Finance just presented a massive budget. We were optimistic that some of these glaring loopholes would be addressed in that budget. I actually thought I heard the Minister of Finance talking about tax havens, for instance, and about making every business pay its fair share of taxes. I thought I heard him say that we were going to lower corporate taxes but insist that all businesses pay at least what corporate taxes are left.

However, I was shocked to learn just recently that it was all smoke and mirrors. When we read the references to offshore treatment of tax treaties and tax havens, we learn that these loopholes are not plugged. It is all the same. It is just like it was.

Honestly, the Minister of Finance views Canadian taxpayers the way P.T. Barnum viewed circus-goers, I think, because in analyzing the budget, the satisfaction is not there. It is a lost opportunity along a theme that we have adopted in our caucus. I would like to talk about this.

Our tax system is the instrument or mechanism by which we can implement fairness in the way that we redistribute wealth, so to speak, in this country. What we have identified in our caucus is that there was a deal in the post-war years, a labour accord, such that when profits are up and productivity is up, workers' wages and standards of living are supposed to go up. It was a tacit agreement between capital and labour that resulted in a generation of labour peace and productivity.

That compact has been broken. This is what we find. If we were graphing or charting productivity and profits, we would see that workers' wages and families' standards of living were not going up in any kind of corresponding way. If there ever was such a deal, it did not survive. It got violated. It has been compromised. It simply does not exist.

There is a prosperity gap. We are not sharing in an equitable way the prosperity of this great nation. Our tax system is perhaps the most effective instrument that we have to address that shortcoming.

As for when we do put all of the eggs in one basket in terms of addressing some of the inequities, let me point out some reading that I have been doing. There is a disproportionate amount of wealth in one category. I have some interesting figures that I would like to share with members.

One figure is that 1% of the population owns 47% of the stocks and shares on a market value. The remainder of 4% is the bottom quintile of shareholders. When we are addressing only the advantage for a certain segment, we are not redistributing wealth in any meaningful way.

One of the shortcomings that we would point out on this issue of tax havens is that we are not even trying as hard as some other developed nations. In the United States, for instance, even though the Americans have not outlawed tax havens altogether, they are certainly becoming aware of the problem and the revenue loss in allowing this to carry on.

In California, for instance, the state will not do business with any company that is sheltered offshore. In other words, tax fugitives may make the choice that they are going to shelter their companies offshore to avoid paying their fair share of taxes in their home country, but they are not going to get any contracts with the government.

We note that one company that has been in the newspaper recently as a tax fugitive, seeking to avoid paying its fair share of taxes in Canada, is Merck Frosst. Merck Frosst, by some happy coincidence, just benefited enormously by this budget. The budget just introduced by the Minister of Finance announced a $300 million program for vaccinations against cervical cancer.

While this on the face of it is a laudable idea, there is only one company in the country that can provide that vaccine against cervical cancer, at approximately $300 per unit. That company is represented by Ken Boessenkool, a well-connected lobbyist who was formerly a senior adviser to the Prime Minister. Is that a coincidence? We do not know, but it certainly is a very fortuitous situation for Merck Frosst, a tax-sheltered company that is taking part in these offshore tax havens.

Nobody has been able to assess the full impact of allowing this tax fugitive or tax haven or tax-motivated expatriation to carry on. In the United States, the Americans estimate it at about $70 billion a year of lost revenue. If we go by ratio and proportion, perhaps we are 10% of that. Perhaps it is only $7 billion a year that we are knowingly and willingly allowing to fly out of the country, but that is a significant amount of change in a period of time when we have seen budgetary cutbacks in key social programs that are nickel and diming us on issues, whether it is literacy or status of women offices. The government is willingly watching that amount of money fly out of our national revenue.

We do not understand it. We do not understand why the government continues in this vein, especially at this point in time when we actually thought that in this budget it might be addressed because the one high profile example that I believe stopped the previous government from addressing tax havens should not be an issue for this government. If the previous government was unwilling to step on Canada Steamship Lines' toes, I do not know why this government would have that same hesitation.

Setting up these shell companies in a tax haven to take earnings from Canada, filter them through a dummy company and call them expenses through that company, I do not know how we can allow it on moral and ethical grounds if we are at all concerned about that, but those people who do operate that way are not in very good company.

Enron had 881 offshore tax havens and dummy shell companies. I do not think they moved any of their production there because they did not need to. There is convenient assistance being marketed on the Internet for anybody who wishes to undertake an offshore tax haven. I pulled off only one as an example, just to show and share with other members of Parliament the type of language and the type of sales pitch that goes on, and what is featured here if we allow it to carry on.

One company called Offshore Companies House is a resource that corporations can look to. It states: “We have many services available from which a client may choose”. For immediate use, we could buy into an offshore shelf company or off the shelf vintage companies. The offshore shelf companies are clean and have never held a bank account. They are 100% tax free and clean, but they also offer the ability to funnel our activities through what they call a vintage company, which is already established.

It says that due to unpleasant changes in legislation and tax policy, some of the offshore tax havens are no longer recommended: Cayman Islands and Switzerland, for instance. It recommends some others that have come on board. Belize, Dominica, Seychelles, Panama, Gibraltar and Barbados are in fact recommended as convenient places where we might shelter our company's activity if we choose to be a tax fugitive or engage in this offshore expatriation of our obligations.

It seems to me a missed opportunity, when we open up the Income Tax Act, to not address some of the most glaring issues. I do not who got to the government. I do not know who convinced the current government of the day that it should not avail itself of this opportunity and plug this unbelievable loophole.

It is not as though the government is not aware of it. I have heard Tory members in the last Parliament rail about this, in fact. Now two budgets have gone by and the government has chosen not to plug this idea. It has tinkered with it enough to where the Minister of Finance can say that he has addressed the issue, but the government certainly has not put a stop to it.

For instance, part two of Bill C-33 enacts provisions to implement announcements made by the finance minister on September 18, 2001, limiting the tax shelter benefits to a taxpayer who acquires future business income of another person, and on October 7, 2003, to ensure that payments received for agreeing not to compete are taxable. A number of these things are not directly applicable. They are simply dealing with tax sheltering, tax exemptions, et cetera.

I am concerned, though, about the issue that was raised by previous speakers in debate that we are also silent on the idea that foreign capital is gobbling up Canadian corporate entities and institutions. This is something that used to be debated with great passion in the House. When I look back over the years, people like Walter Gordon and others in the late sixties and early seventies were fiercely proud Canadian nationalists. They were horrified that a lot of our Canadian businesses and corporation, institutions really, were being bought up.

The government put measures in place where there would have to be a mandatory review of these foreign takeovers to make sure that allowing them to go ahead was in the interests of Canadians.

I cannot find a single example where the Canadian government has ever put the brakes on or said no to one of these foreign takeovers to the point where 80% of businesses in this country are now foreign controlled. I believe that figure is even higher now because that number is a couple of years old.

I am just wondering where the oversight is. Who is minding the store as our Canadian businesses get turned into branch plants, satellites of larger foreign corporations that may or may not have the same interests and loyalty to our best interests?

I am not saying that capital has a conscience. We do not expect these companies to conduct themselves any differently just because of any affinity or love for this country. Those of us in the House of Commons have a love for Canada. We have an affinity for Canada. We want what is best for this great nation.

Somehow there has to be some intervention or some oversight. There needs to be a better accounting of whether these takeovers are in fact in Canada's best interests. Somehow that fell by the wayside to the point where it became unpopular in the era of globalization to put up any barriers or boundaries in terms of takeovers or acquisitions. That was a mistake. We were on the right track when we were putting our foot down. We have seen other countries do it.

It is not only foreign corporations that could be taking over our companies, but foreign nations, state controlled companies. Is it a good idea to let China buy our resource companies? We better give that some serious thought because our precious natural resources are our birthright as Canadians and they may wind up in foreign hands. We would lose control of those resources and we would not be able to steer the industry sector toward our own best interests.

These are concerns that come to mind as we delve into this weighty bill of 500 pages, Bill C-33. The amendments in relation to foreign investment entities and non-resident trusts would add layers of complexity rather than clarity to our income tax regime. Ordinary Canadians would like to know first and foremost if we are acting in the best long term interests of Canada and Canadians, and not pandering to other interests. We on this side of the House are concerned that our tax system is operating to the advantage of a few but maybe not all.

There is an English folk poem that I came across in my research for my speech which says:

They hang the man and flog the woman
That steal the goose from off the common,
But let the greater villain loose
That steals the common from the goose.

That was great wisdom in 1764. I am not sure that we are not allowing this kind of same mentality to drive us today.

I found great insights in this book that I have quoted from. It is called Pigs at the Trough by Arianna Huffington, a woman in the United States who was once married to a billionaire. She went through a nasty divorce and ended up telling a lot of secrets out of school about how billionaires conduct themselves. This book gives great insight into how the tax system is manipulated to benefit the wealthy.

We do not really know what is going on. It does have some interesting recommendations. One of which I will restate here for the record, “I believe that any Canadian company that is engaged in tax motivated expatriation, [in other words tax havens, tax avoidance] should be cut off from any government contracts. They should not even be on a pre-qualified list to bid on whatever it may be”.

The Government of Canada is a large consumer of many types of goods and services. There is a choice. If the government is not going to plug the loophole and keep allowing the loophole, then it should at least cut off the tax fugitives. They should not be allowed to bid on any government contracts. That is what California has done to Ingersoll Rand and some of these companies.

[Bill Siksay, NDP, Burnaby—Douglas, BC]

Mr. Speaker, I want to thank my colleague from Winnipeg Centre for his interesting intervention in the debate this afternoon on Bill C-33, the income tax amendments act.

I want to ask the member to comment on the question that our NDP colleague from Hamilton Mountain put to the Minister of Finance this afternoon in question period. She noted in her question that on January 1, by the time that Canada's top CEOs are sipping their morning coffee on that New Year's Day morning, they have already earned more than the average Canadian earns in an entire year. I think that is a very dramatic example of the growing prosperity gap in Canada.

Indeed, our colleague went on to point out that CEOs earn 240 times what the average Canadian worker earns. That is a huge prosperity gap.

What is worse, she went on to point out that those companies that pay these CEOs those huge salaries can write off those huge salaries against their business taxes, which amounts to a subsidy by Canadian taxpayers of these outrageously huge salaries of these wealthy Canadian CEOs by people who are struggling to pay bills and to make ends meet.

I do not think that Bill C-33 deals with a change to the Income Tax Act or to our tax laws that would make it impossible for that to happen. In fact, the member for Hamilton Mountain has a private member's bill which suggests that any CEO's salary in excess of $1 million should not be deducted from business taxes. One million dollars sounds like a pretty high threshold and a pretty generous threshold to me, and an acceptable level.

I want to ask the member for Winnipeg Centre to comment on this issue of tax fairness. Could he comment on why this huge loophole in our tax laws has not been covered by the legislation we are discussing?

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I thank my colleague from Burnaby—Douglas for pointing out a perfect graphic illustration or example of the point I was making of how our tax system is really stacked against the ordinary person with these advantages that some of us have not even realized.

We owe a debt of gratitude to our colleague from Hamilton Mountain for pointing this out. All the salaries in a business are tax deductible, including the $2 million, $3 million, $5 million or $8 million compensation packages for CEOs in some of these big corporations.

This means that we are underwriting or subsidizing with a tax deduction this outrageous CEO salary issue. I think it is an excellent illustration. It is poignant the way my colleague from Hamilton Mountain pointed out that by 10 o'clock I believe on January 1 some of these CEOs have already made more than the average income.

The Canadian Taxpayers Federation used to have tax freedom day around June 11. It used to have a corporate tax freedom day, but it kept getting in the way of the New Year's Eve celebrations, so it had to cancel it. These corporations were already at an advantage before they had taken their bells and whistles off for New Year's Eve.

The other thing is that stock options should be expensed on the financial statements of the companies where we invest. Some of these white collar corporate governance issues are actually blue collar issues. Many of us in the trade union movement have our pensions invested far and wide in corporate Canada in the financial sector. We need to know because some of these stock options do not show up and only the CEO's salary shows up. The CEO might be sitting on stock options which are greater than the total net worth of the company.

We should have a right to know those investments. We have to be able to trust the financial statements of the companies where our pension plans are investing.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, I must admit that the last comment by the hon. member is close to the dumbest thing I have heard in this Chamber ever. Not being able to deduct salaries against income makes absolutely no sense. I have heard some pretty loony ideas from that far corner but that is close to the best so far.

I just have a few minutes left and I want to talk about this issue of tax fairness. Bill C-33 is about closing some loopholes and issues with respect to offshore entities. There is not much question that it will enjoy great support in the House. It is a worthwhile bill and it needs to be supported.

However, I want to caution Canadians that whenever the finance minister starts talking about tax fairness they should probably start heading for the hills, especially if he is saying that during an election or during a budget speech.

The folks from the income trust debacle have learned, to their great chagrin, to never trust a Conservative during an election. After specifically and repeatedly saying that they would not tax trusts, they shocked Canadians by imposing a Draconian tax on trusts destroying over $25 billion in hard-working Canadians' savings and values.

People are so staggered that they have actually taken to putting ads in the national newspapers. Mr. Speaker, I need your help here because all of the ads refer to Stephen Harper and I do not want to say that in the House. I know that you will get upset if I say Stephen Harper, so I want you to correct me and say Prime Minister.

[The Acting Speaker, Andrew Scheer]

I will warn the hon. member. He just said it twice and I will not be correcting him every time he makes a mistake. I urge him to read ahead of what he is going to be quoting from and ensure that he does not make that mistake.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, I need your help because that is the way the ad is written. However, I will use his title, the Prime Minister.

The add reads, “[The Prime Minister]'s word is worthless. Just ask 2.5 million Canadian who own income trusts. [The Prime Minister] garnered votes in the last election by promising not to tax income trusts. He promptly reneged on that promise and the process wiped out $35 billion in Canadians' life savings. He then refused to disclose his analysis behind this policy reversal. If [the Prime Minister] wants a majority, then it's time he started listening to the majority”.

Here are the results of an Angus Reid poll. What part of this poll does the Prime Minister or indeed the Minister of the Environment not understand?

“Was it right for the Prime Minister to break his promise?”

In view of the information provided by the government to date on the tax effect of income trusts, and given the material loss of retirement savings by income trust investors, do you personally believe it was right or wrong for [the] Prime Minister...to break his election promise concerning income trusts?

The Angus Reid poll showed that 70% of people said that it was wrong, which is way beyond the magic 40% that the Prime Minister is looking for. The poll asked: “Is the Prime Minister a leader or is he a misleader?”

The ad goes on to state, “Just ask the premiers of Saskatchewan, Nova Scotia, Newfoundland and Labrador”.

There is a saying in the House that if there is still discussion about the budget 48 hours after it is presented, it is a bad budget. Here we are, 10 days after the budget, and the government has irritated beyond belief the premier of Newfoundland and Labrador to the extent that he takes out national ads. He has a lawsuit from the premier of Nova Scotia. The folks from the income trusts have taken out an ad. The premier of Saskatchewan is also upset.

The Prime Minister promised not to include oil and gas revenues in the equalization formula. It turns out his word is worthless. The constituents in Scarborough—Guildwood actually write and tell me this. I think the Minister of the Envrionment would be interested in knowing what they said. In fact, I will share with him my e-mails any time he wishes to see them. It appears Canada has a budget deficit. It is a deficit in integrity.

The premier of Nova Scotia, Rod MacDonald, had this to say, “Very disappointed. It's an agreement that we signed, an agreement that we expected our federal government to uphold”.

The premier of Newfoundland and Labrador, Danny Williams, had this to say, “What they've done today is basically completely shafted us”. He said that Newfoundland was very disappointed at being betrayed.

It is really quite extraordinary that on the same day the premier of Newfoundland takes out a full page ad in national newspapers and quotes a Conservative pamphlet distributed during the election. The pamphlet states:

There is no greater fraud than a promise not kept.

No small print. No excuses. No caps.

On March 19, 2007, in his second budget, the right hon. Prime Minister broke that promise. It was a promise that he made in a pamphlet. He stood on two election platforms and said it to our faces. I see the Minister of the Environment is going crazy because he realizes that everything that the premier of Newfoundland says is true. He wrote in letters over and over again that it was a simple, unequivocal promise and he broke it.

The Minister of the Environment understands that completely, which leaves us--

[An hon. member]

Because he is part of the problem.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Indeed, he is part of the problem.

It leaves us with a simple and unequivocal question: What does that leave us, not just the people of Newfoundland and Labrador, but us, we the people of Canada? If we cannot accept at face value the promise of thePrime Minister, then who can?

Can the people of the Atlantic provinces or Saskatchewan or, yes, even the people of British Columbia and Alberta accept his promise, because all have had promises made to them of one sort or another? All of them should be now asking what those promises are worth. A promise made should be a promise kept and, as the Prime Minister pointed out, there is no greater fraud than a promise not kept.

Then our Prime Minister will not keep a promise as simple as the one he made to us. It is not just the people of Newfoundland and Labrador who lose. We all lose.

When we are talking about tax fairness, Canadians should beware when the government talks tax fairness. If two ads in the national newspapers are not enough, then the premier of Saskatchewan piles on with his outrage. What we have is a Prime Minister so bent on his partisan agenda that he is willing to throw out a promise he made to Premier Lorne Calvert and the people of Saskatchewan and, by the way, other Canadians.

The House resumed from March 29 consideration of the motion that Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, be read the second time and referred to a committee.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, I rise to continue my remarks.

This is a technical bill. It is designed is to prevent a circumvention of tax rules and to prevent tax evasion, particularly through the use of tax havens. This bill results from a consultation process initiated in 1999 by the previous Liberal government. We saw its fruition in 2005. Bill C-33 is basically the photocopy of the Liberal initiative commenced over those years. As a consequence, the Liberal members of Parliament will be supporting the bill, as I hope all members of the House will.

I will start with a little background. As we know, Canada has a fairly complicated tax system. It has been negotiated over 14 years of consultation. It is fairly complex in that many considerations have to go into in writing an income tax act. We also have something in the order of 81 bilateral treaties with other countries, so any amendments on one side have to be balanced with amendments on the other.

The essential goal is to make sure that Canadian companies are not taxed twice, once in the jurisdiction in which the money is earned, and then once again in the jurisdiction of residence. Generally this system works quite well.

Occasionally, however, some residents go to zero tax jurisdictions and the result is that there is no tax at all, which I think all members will agree is an unfair proposition. Bill C-33 will help to ensure that when this happens all that income will be taxed in Canada.

We as legislators need to ensure that the Canada Revenue Agency has the proper tools in order to be able to make sure that everyone pays his or her fair share. In the previous Liberal government, we worked very hard to ensure that all Canadians paid their fair share.

In the 2005 budget, we provided the Canada Revenue Agency with an additional $30 million annually to strengthen its capacity to administer the tax system in areas where aggressive tax planning and compliance risks have the potential to erode the tax base.

Our government used that money to create 11 aggressive international tax planning centres of expertise whose main focus is to develop new ways to track and combat aggressive tax planning and the use of international tax shelters. These are centres in which we gather together the best and the brightest Revenue Canada has to offer in order to be able to deal with a series of complicated schemes to see whether they are designed merely to avoid income tax in this country. Specifically, the centres were designed to deal with tax havens and any illegal activities that were going on in those tax havens.

In order to effectively combat this problem, we must work with international partners, because there is no sense in being the boy scouts of the world. Thus, part of our responsibility is to work with the OECD, the Pacific Association of Tax Administrators and the Joint International Tax Shelter Information Centre.

All of these centres of excellence were created by the previous Liberal government.

We want to weed out the good taxpayers from the bad taxpayers. That is not always an easy job.

It is regrettable that the government seems to be engaged in some exercise in overkill. Let us take, for instance, the minister's latest blunder in a whole series of blunders coming out of the budget and in what looks like an endless series of fiscal missteps. He said at page 241 of the budget that he wants to “eliminate the deductibility of interest incurred to invest in business operations abroad”.

In short, the budget proposed to put an end to all interest deductibility for loans used to invest abroad. This would have ended a longstanding principle that when we invest money abroad the interest is considered a cost of earning it and is therefore deductible.

Since just about every other major developed country continues to allow these homegrown operations to do this, eliminating Canada's advantage in this respect would put our companies at a serious disadvantage in the competitive global marketplace.

The policy received virtually universal scorn from pretty well everyone from the Chamber of Commerce to any other business entity. Allan Lanthier, former chairman of the Canadian Tax Foundation, had this to say:

This measure would put Canadian companies at a significant competitive disadvantage and I think the economic fallout to the Canadian economy is potentially disastrous...I don't think the finance minister understands that, I don't think he was properly advised by his Finance officials.

I've been practising [tax] law for 35 years--this is the single most misguided proposal I've seen out of Ottawa in 35 years.

Let me quote Len Farber, formerly a senior official with the Department of Finance, who said:

This goes beyond tax havens, this impacts good, complying, taxpaying corporations in many ways. The Canadian economy is a fairly small economy and if a company has reached its capacity here, if it doesn't continue expanding, it becomes a target for a takeover.

We have certainly seen that. Mr. Farber continued, saying:

Now they're making the cost of borrowing higher, so it's a pretty hard blow.

The budget did not distinguish if a company wants to borrow money to invest in the Cayman Islands or the United States or Germany. In one broad stroke, the finance minister lumped every single country in the world together and in the same breath told us that this measure was to fight the abuse of tax havens.

Shortly after the budget, the minister went to Toronto but had to beat a hasty retreat. He had to admit that he had made a colossal blunder. He now says that he will only go after Canadian companies that abuse the system by using tax havens for their investments.

The minister then got into a series of clarifications. Beware of clarifications, I say to everyone, because that is political-speak. What it means is: “I really goofed and what I am trying to do is redeem myself”. When questions got raised after the budget, he was quoted as saying:

We are satisfied with what we proposed in the budget, but I will certainly listen [to stakeholders]...

It would have been nice if he had listened before he put it in the budget. He continued, saying:

We have to have budget confidentiality before we bring issues forward.

However, one can have consultations. I know that idea is novel for his government, but it can be done. The minister continued:

But I will listen and we will design [the measure] in the most advantageous way possible.

People then legitimately asked, “So what does that mean?” Finance official and director of communications Dan Miles said:

No, he's not backing down. The policy is the policy.

Really, though, it is the policy but not necessarily the policy.

On May 8, the minister went to Toronto again to issue another clarification. Today, he was in Toronto again, to issue another clarification, so we are clarifying on the clarifications on the previous clarifications.

First of all, he said he was against all interest deductibility. Then he was only against interest deductibility through tax havens. Then it was only for two years, which meant, okay, I have tax deductibility for two years, so I will not really be upset for two years. Then he said no, it would now be 10 years, so I will be upset in 10 years. He then clarified again to say that it was not all interest deductibility and it was not two years and it was not 10 years and it was not just against tax havens: it was against double-dipping.

What the minister knows about double-dipping could probably be learned at a Dairy Queen, but now today he is against towering, which is a sort of subset of double-dipping. It is sort of like sprinkles on the double-dip. Now he is against the sprinkles on the double-dip.

He had changed this from two years to 10 years but now he is against it for five years. In five years he will be upset about it, but maybe not even then, at least until the tax experts and the panel get back to him. If we then read the rest of his press release, it is all blah-blah and Conservative propaganda.

If would be really interesting to find out, at one point or another, what it is the minister actually means as distinct from what he actually said in the budget. Also, as I and others have asked, if he is going to change the budget, could he at least table a precise ways and means motion so that we know exactly what it is he is upset about?

I do not know much about towering, but from what I do understand, it is a series of corporations and tax-flowing entities, that is, entities through which people can flow their profits, the objective of which is to eliminate withholding tax. It is not clear to me at this stage whether we are merely closing a loophole for a foreign jurisdiction, which will benefit the foreign treasury of another country but will have no impact on ours.

We may have gone through this whole entire exercise of corporation, non-corporate entity, another corporation, another non-corporate entity, through to the operating company and back up and down that whole tower, as they describe it, and all we will have achieved is a tax point for a foreign jurisdiction.

I hope that is not what he means, because then he certainly has a lot of people upset about absolutely nothing. If that is the case, then he will reduce the after-tax revenue to Canadian companies. That makes a lot of sense, does it not? Thus, we put money into somebody else's treasury, take money out of Canadian companies, and do nothing for our own treasury.

It will not benefit our treasury at all, so I do not know what the fuss is all about. Hopefully, we will find out if the minister actually tables something that has some precision and some meaning. As I said, the press release is just a glorified bunch of propaganda and rhetoric, but is very short on specifics.

What is obvious today is the minister has backed down from his position of all interest deductibility all the time to a microdot of interest deductibility. In two months from the budget, he has gone from two years, to ten years, to five years. He is so enamoured with this spinning exercise that he has spun himself into the ground. He is so excited about tax havens and so-called tax fairness that now he appears to be in favour of tax havens and is not fussed about tax unfairness.

I sincerely hope the minister is choosing not to throw the baby out with the bathwater and that he will arrive at some level of precision to which we are all entitled.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, on occasion the hon. member and I agree on a number of things. There may well be something we can agree on, which is a specific example that we saw in finance committee the other day when we were looking into the specific case. The finance minister has rightfully indicated that he would like to put an end to it. It was where a corporation borrowed money from a tax haven, lent it back to another tax haven, to lend it to a subsidiary of itself in the United States. This was tried by the CRA and it lost. The CRA could prove that the same company had claimed the same $20 million interest expense twice, taking a tax credit for it twice, incurring the cost only once, but the CRA lost, indicating that the courts felt this was perfectly legal.

This is a big problem. The point was made that if I could claim deductions on my taxes for interest expenses that I had not actually incurred, I would be more competitive. Indeed, I would be able to purchase more. I would be better off. Some of these corporations are doing that, and it is wrong. This is double-dipping.

Speaking about that specific example where the same corporation claimed the same tax deduction twice, but incurring it only once, does the hon. member believe that is wrong, or does he thinks it is fair? I do not think it is fair. It is not fair to Canadian taxpayers. I would love to hear what the hon. member has to say about it.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, the hon. member will recollect that the testimony of the witnesses said that 10 cases had been dealt with on this particular point, or themes and variations on this point. Five had gone in favour of the taxpayer and five had gone against the taxpayer in favour of the Crown. It is a point of contention.

There is no issue here about double deductions which are illegal. That is not the issue. The way in which the minister has phrased the budget is that all interest will apply. In other words, he has taken a cannon to the entire concept, which I think even the hon. member will realize this. If we cannot deduct interest for acquisition costs, then we are at a severe disadvantage to anyone else with whom we are competing.

At this point, it is five and five. Then there are the files that are resolved outside of the court. The tax officials indicated that they had been having a lot of success in resolving this issue under the general anti-avoidance rule. The general anti-avoidance rule is essentially a large omnibus rule which says if the scheme is only for the purposes of reducing or eliminating tax liability, it is avoidance and the person or corporation will be taxed anyway.

I still would like to see the hon. minister put on the table what precisely he is upset about, give us a break from all this tax unfairness and tax havens nonsense and just say what he means.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Mr. Speaker, admittedly many people watching this probably may not have a full grasp on this. They probably assume that corporations are getting away without paying their fair share of taxes. However, would the hon. member to break it down?

Some people in my riding owe about $1,600 or $1,700 in back taxes. They are being charged interest and penalties on that to the point where the interest and penalties are even more than the principal amount they owe. The CRA is going after them very hard, yet we hear consistently of companies that are getting away with tax avoidance altogether.

Would the member to break it down when he talks about tax fairness? The member is right in that the minister should table in the House specifically through a ways and means motion what he is upset about. However, an awful lot of Canadians are upset as well. If the minister can screw up so badly on this file, what do average, ordinary Canadians think about what is happening to them with their taxes?

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, it is more than just mildly disturbing to see a minister so badly, as the member put it, screw up in this file, particularly in such an area of acute sensitivity, not only sensitivity for the companies that might be involved in this, but also for all taxpayers generally.

As a general proposition, all of us want tax fairness for everyone. There is not anybody, not a member in the House, who does not want tax fairness for everyone. That is not the issue. The real issue is we want tax certainty when we do tax planning. I will take a simple example like a deduction in our RRSP. Everybody knows we can deduct up to $18,000 against our current income and put it into our RRSP.

What happens if the Minister of Finance says that he is against that deduction? A lot of people would pretty upset if he made a blanket statement in his major budget document saying that he was against that deduction. Then over the next two months, he spent all kinds of time backing down and backing down, saying that he was not really against the deduction and that he would phase it in over two years. Then he would say, no, that he would phase it in over 10, then he would go back to five years and say that it was only tax deductions for a certain class of people, like people owing over $1 million, or it was only tax deductions for people who were earning over $1 million, but earning it somewhere other than Canada.

We are back down from the universe of everyone who deducts for RRSPs to a very small group of people who may or may not, under certain circumstances, be possibly abusing the system.

The minister should table it. He should let us know and then we can debate the actual merits of it. This is a bizarre way to be the chief person in Canada responsible for the nation's finances. I wake up in the morning wondering what his next blunder will be.

The GST was idiocy from the standpoint of intelligent management of the nation's finances. We do not up income tax to down consumption taxes. Everybody knows that. We do not say one thing in an election about income trusts and eight months later slam the folks into the ground. Now with this thing the entire business community, and that affects everyone, is very upset. They have lost a competitive advantage in the marketplace. Now the minister is backing right down.

I do not know what he means. I read the material issued this morning by the minister. Maybe there are clairvoyants who can read this better than I can, but I certainly do not know what he is talking about.

[Claude Bachand, Bloc, Saint-Jean, QC]

Mr. Speaker, I am pleased to speak today on this bill. I will begin by saying that the Bloc Québécois will support this bill because we feel it is a step in the right direction.

Allow me to explain what I mean by that. I believe that many members of this House went into politics to try to make our society fairer. Fairness can apply to many things, such as upholding rights or justice, but it should also apply to all tax measures. There is much criticism of our taxation system, and many people wonder why they should work so hard when others can use tax avoidance strategies to hold onto nearly everything they earn.

This bill really comes down to fairness, and it is important to us. We are not saying that the bill is perfect and should stop there. On the contrary, we even think the government should keep going in this direction and ensure that the middle class and the disadvantaged are treated fairly compared to the wealthy.

Often, the disadvantaged and the middle class feel that the wealthy have access to an unfair number of tax avoidance measures. Tax fairness is crucial to the continued health of a society. People see it as unfair that they are doing a good job but are not being paid enough or that governments are deducting too much money for the services they provide.

Once they sense this unfairness, many people will engage in illicit behaviour, such as working under the table or moonlighting, in order to make ends meet at the end of the month. This is because these people realize that the very wealthy can avoid paying what they should ordinarily pay.

Offshore trusts are commonplace today, and they are not currently illegal. I believe that people object to such measures not because they are illegal, but because they are improper. People say that the very wealthy should not be able to get away with depriving the government of revenues and thereby depriving the middle class and the disadvantaged of additional services.

To achieve a balanced budget, revenues are either increased through supplementary taxes, in other words, taxing a little more, or by cutting expenses, or both. However, in society, when exorbitant amounts of money escape the tax authorities, someone else must pay, either by paying more taxes or by giving up various services.

As we speak, places like Quebec are experiencing problems in health care and education. I think people realize that we cannot place full responsibility for these problems on the provincial level of government. People realize there are a number of levels of government: federal, provincial, municipal and even boards of education. People know they have to contribute to all these levels.

Like the fiscal imbalance, when there is imbalance people start to wonder why things are that way and why balance is not restored. That is the whole issue with the fiscal imbalance between Ottawa and the provinces. I think we are not alone in Quebec in complaining about this injustice and imbalance.

Many other provinces are having a hard time making ends meet when it comes to health care and education. Ottawa has been amassing surpluses, year after year, for many years now.

I will not get into employment insurance, even though there is injustice there as well. People know that they do not get out of it what they pay into it and that some of this money ends up in the consolidated revenue fund. People question these measures and start to wonder. They wonder why Ottawa has so much money while the public is dealing with extremely costly health care and education services. Ottawa does not really have extremely costly budgetary items, with the exception perhaps of the Department of National Defence. The government is investing a lot of money in defence right now.

People are wondering how we can regain balance in all this. The bill we are debating today will help to that end, or at least it is a start. For far too long now, in my opinion, the government has not moved on these matters. This has caused people to ask questions and express misgivings about all governments.

I would venture to say that this is the type of injustice people are criticizing, regardless of where the member or public official stands in the polls.

Unfortunately, people often lump all politicians together, even though they are certainly not all the same. There are certainly some good MPs. When a minister of finance or a prime minister does something that seems unjust to the public, they react. Often, the whole party or group of public officials end up paying for it.

So we think that this is a positive step. Non-resident trusts make income splitting possible, which is also completely absurd. This means that someone who has a large fortune and many children could split his income in a non-resident trust. This lets people who have no means and who have 18- or 19-year-old children who do not work or are still in school, split their income in order to pay less tax. It is very important to change this as soon as possible, because it is not right that someone who earns a lot of money and who has a big income at the end of the year is able to use this out, to split their income among three, four or ten people, and to pay less tax. In such situations, progressive taxes apply. What does that mean? Usually, the more income a person makes, the more taxes they pay. If someone earns $1 million per year, they must pay more than 50% tax. If they can split it among 10 people in the family, this would mean each person earns $100,000, and will pay less tax. This must be fixed. A number of other injustices must be fixed.

Consider tax treaties, for instance. On that topic, the former finance minister for the Liberal Party thought he was doing a good deed when he said he wanted to eliminate tax havens. He wanted to put an end to tax treaties because they were robbing the government of revenue. Furthermore, it was not fair that very wealthy people were going elsewhere, such as to the Bahamas, to shelter all of their income from Canadian taxation.

I would remind the House that the hon. member for LaSalle—Émard, the former federal finance minister for the Liberals, eliminated nearly all tax havens, except for Barbados. A few months before the elimination of all the other tax havens, that individual—the one I just mentioned—transferred his funds from various tax havens to Barbados. Barbados was the only tax haven that remained active. He patted himself on the back for eliminating 80% of the tax havens. However, he transferred his own fortunes from other tax havens to the only one left, Barbados.

Thus, a tax loophole still exists for wealthy families. We must continue to work to correct this.

The Bloc Québécois analyzed the bill in detail. I would now like to briefly address the importance of ensuring not only of the appearance of tax equity, but also that the government has enough revenues to deliver all the necessary services.

In that regard, if we decide to amend legislation—as we are discussing here today—and say that it will be increasingly difficult for non-resident trusts to avoid taxation, this will mean that people are going to have to pay more taxes. If they pay more income tax, the government will have greater revenues. If the government has greater revenues—because everyone is treated equally—there will be a number of possibilities. For instance, we can lower taxes for middle-income Canadians, who very much need that. We can create additional social programs, and we can also ensure, with appropriate fiscal balance in Canada, that all Canadians are treated equally from province to province.

I referred earlier to problems in the areas of health and education in Quebec as well as in other provinces. There are, however, provinces where there are no problems in these areas. Alberta comes to mind, with the huge amounts of money oil companies are making. This points to some unfairness. We have to correct not only inequities between individuals, but also inequities between regions and jurisdictions. Additional federal income could help resolve once and for all the fiscal imbalance in Quebec. That is not what the government has done in its latest budget.

As we said before, we voted for the budget because the government took a step in the right direction by addressing part of the problem. But transferring money from Ottawa to Quebec is not the whole answer. A tax transfer is also required. The government has to recognize that there is a problem. The way to solve it is through a tax transfer, because the great benefit of a tax transfer is that it makes it possible to plan over a much longer term.

At present, Quebec is practically choked by its health and education services. It takes what Ottawa is giving, but this government's philosophy and policies could change next year, and Quebec and the other provinces in need could be getting much less. That has a direct impact on health and education services.

This government does not want to hear about a tax transfer from Ottawa to Quebec—which would allow the Quebec government to make long term plans—because tax transfers are hard to take back. A cash transfer of $700 million, $800 million or $900 million, however, does not bind the government to keep transfers coming year after year. Should things get rough at the federal level one year, it could simply decide not to make transfer payments that year.

It is therefore important that the bill before us today not only restores tax equity between individuals, but also between the various Canadian provinces. When a state has increased revenues, it can do as it pleases with its surpluses.

Middle-income people and workers will finally be able to see that a particular individual or family that makes a lot of money will also have to pay a lot in income tax. They know that, with the help of a good accountant, people can use tax instruments and invest their money elsewhere or invest it in a tax haven, because the bill before us did not resolve this aspect. Instead, it resolves the issue of non-resident trusts, but we also need to resolve the tax haven problem. We are not the only ones to denounce them. The Bloc Québécois has always denounced tax havens. We must not be taken in by the ploy used by the former Liberal finance minister, who said he eliminated 80% of tax havens, as I mentioned to the House a moment ago.

This bill is therefore important to us. The Bloc Québécois intends to examine it carefully and in detail. At first glance, we are pleased with this bill. Generally speaking, the Bloc Québécois is pleased with everything that comes from the Auditor General, which is also why we like the bill.

For a number of years, the Auditor General has been criticizing the unfair treatment of citizens and the fact that certain very wealthy families are able to find loopholes. Thus, we always pay close attention when the Auditor General has something to say. She also instigated a number of changes, including policy changes. Although she normally acts as more of a watch dog, the sponsorship scandal had serious political ramifications for certain parties in this House.

Because our federal government spends more than $250 billion a year, we need someone, an Auditor General and his or her team, to thoroughly examine various issues in order to be able to eliminate unfounded tax loopholes or denounce certain realities.

The federal government has a number of important departments. I sit on the Standing Committee on National Defence, and I often listen to the Auditor General's criticism of defence. There is currently a lot to criticize. Some scandals have been reported by the Auditor General and some changes have been made not just to the Canadian electoral map, but also to Canadian law. That is what we are dealing with today.

We are pleased with what the Auditor General said in 2005, and we are pleased that the government is taking action today and making changes through this bill. It will put an end to what we want to see an end to and that is offshore trusts. No longer will these wealthy families be able to take this route. However, the issue still has not been resolved. If people withdraw money from their offshore trusts and deposit all of it in Barbados, we are back at square one. We would simply be plugging one loophole and allowing these wealthy families to benefit even more elsewhere and still not pay taxes. The government, which is depriving itself of revenue, will continue to do so.

Once again, as far as fairness is concerned, people are taking notice. Unfortunately, they often blame the government for these loopholes and these ways of doing things. They also say that the government is never on their side and is always siding with major corporations. This is currently the case with the Kyoto protocol. We know what side the government is on. It is not a green plan they keep proposing, but a brown one the colour of oil. People know it. They even see a certain association between the government and major companies.

On the political spectrum, the Bloc Québécois is much closer to the centre; maybe slightly left of centre. We agree that everyone should pay their fair share of taxes.

There are indeed legal tools. For example, the middle class can use RRSPs. You would never see the Bloc Québécois ever agree to axing the retirement savings programs. With much greater longevity and limited government resources, we are going to run into problems.

The bill before us is important. The government has to recover revenue and they know how to do that. Gone are the days of trying to get this money from the middle class by raising taxes or cutting services. Wealthy families now have to do their part. We feel this bill is the first step and that is why the Bloc Québécois is pleased to support it.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, I enjoyed listening to the comments from the hon. member. I commend the Bloc for supporting what is a great budget for Canada. This budget moved from fiscal imbalance to fiscal balance and provided significant resources to the provinces in areas like education and infrastructure.

I also want to commend the Bloc Québécois for its stand on tax havens. I would love to hear some insight on this from the hon. member since he has been in this House for quite some time and has taken a stand against tax havens. Several reports from the Auditor General spoke about tax havens. In fact, the Auditor General highlighted this issue for the former government.

I would love to hear from the hon. member why he thinks the former government did nothing to protect taxpayers and ensure tax fairness while tax havens continued to grow. I would love to hear from the member why he thinks that was the case.

[Claude Bachand, Bloc, Saint-Jean, QC]

Mr. Speaker, I thank my colleague for the opportunity to reopen the debate on tax havens. I would again like to talk about the Bloc Québécois experience with this issue under the former Liberal government. It was understandable that the former Liberal finance minister, who subsequently became prime minister, would object to eliminating tax havens. According to some reports in the electronic media, several did not even fit the definition of a tax haven. For example, the one in question was supposed to have a corporate office and employees working there.

I remember very well that the tax haven where the company of the prime minister and finance minister—he served in both positions—was domiciled was the subject of a television report. The journalist went down there and found only one or two individuals and virtually no signage. When the journalist arrived, the individual telephoned the head office here in Canada and asked what they should do. It was obvious that they wanted to shelter from tax the wealth of the then prime minister, the former minister of finance. The Bloc Québécois denounced this state of affairs. What happened was wrong because in order to save himself he said he was going to eliminate tax havens. He eliminated them all, except for Barbados. A few months before shutting them down he transferred all his money to Barbados. He then said he was a great man because he had shut down 80% of tax havens, except for Barbados. We later learned that he had transferred his money to Barbados. He kept Barbados and shut down the others. Citizens are not fools and find such action unacceptable.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, I wonder whether the hon. member would comment upon Quebec as a tax jurisdiction. Would he agree that Quebec is among the highest, if not the highest, tax jurisdiction in North America?

Would he agree that government spending on a per capita basis is something in the order of $1,500 per person greater in Quebec than in other provinces, particularly the province of Ontario?

Would he agree that the province of Quebec is struggling to retain business to grow its economy, that in fact the province's GDP has not been expanding in the last number of years?

Would he recognize that corporations, and persons for that matter, seek lower tax jurisdictions in order to be competitive? If they do that in Canada and they do that internationally, would he then agree that some corporations in order to be viable end up siting themselves offshore, because if they do not, they will simply cease to exist?

If he agrees with all of that, would he therefore agree that the only issues we should be addressing in this chamber are those abuses which are abuses designed effectively to evade taxes rather than to avoid taxes?

[Claude Bachand, Bloc, Saint-Jean, QC]

Mr. Speaker, I will try to answer my colleague's five or six questions briefly.

I am somewhat opposed to his approach. I have never been the sort of person who believes in the law of the jungle, which says that might makes right. Nor am I the sort of person who bows down to big corporations and tells them that they can come and do business here for free. We have seen that happen. Hyundai received a $300 million subsidy, then closed its doors.

Anyone who takes a close look at the competitive system—with which I am familiar because I go to the United States often—and compares Quebec to its neighbouring states will find that Quebec is very competitive. For example, we have a very clean and non-polluting energy source that makes Quebec attractive to companies. Quebec's tax system also appeals to them. That does not mean we should tell companies that they do not have to pay their fair share. That does not mean we should tell company owners that we do not mind if they send their money to Barbados. That is taking things too far.

Quebec is forced to tax Quebeckers heavily because of the fiscal imbalance. When the federal government realizes that it has too much money for the services it provides and when it transfers money to the provinces that need it, such as Quebec, then it will be in a better position to understand. In the meantime, I would reiterate that my party's preference is for us to keep all of our income and sales taxes and make our own decisions about service delivery. We think that is the best solution at this time.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, it is difficult, but let us deal with the facts. Quebec is a high tax jurisdiction. Quebec spends more on a per capita basis. Quebec's GDP has flatlined. It has been flatlined for quite a number of years. Quebec is facing a demographic crisis. To nobody's great surprise, business is not going to Quebec; it is in fact leaving Quebec.

As a consequence, it ends up with policies which say that if Quebec gets all the money, somehow or another it will decide how it gets distributed. The problem is that there will be no money unless there is a competitive tax regime.

How does the member expect that Quebec will continue to carry on in the fashion that it is without a competitive tax regime? Why does he continue to think that it will spend in GDP per person way more than everyone else spends and continue to carry on without massive subsidies from the rest of the country, which is effectively what the transfers are?

I ask the hon. member again, does he think the first step in Quebec's recovery to being a contributing member of Confederation, regardless of whether or not it wants to separate, is to try to find a competitive tax rate and regime which competes effectively with Ontario, New Brunswick and the northern states in the U.S.?

[Claude Bachand, Bloc, Saint-Jean, QC]

Mr. Speaker, I repeat that Quebec is a competitive environment. Of course we make choices. For example, a portion of the payroll tax that employers must pay goes to health care.

Some people will say that in order to remain competitive, we should eliminate the payroll tax. However, in the northeastern United States, even though a sum of money may not be deducted from the payroll, employers and employees have to take out insurance. And we have proof that this costs much more than what is done in Quebec.

There is a basic issue. As long as we are in a federal system, a societal choice is made in the House of Commons. Quebec does not always share that choice, which comes at a cost. That is my answer to my colleague's question.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Mr. Speaker, I am pleased to speak to this bill. While I support in principle many of these amendments, out of the principle of tax fairness there is one major issue addressed here that goes against what is truly fair for all Canadians. That issue is income trusts.

Last week I had an opportunity to stand in the House and speak on how the government's reversal, or betrayal, of its promise on income trusts had affected some of my constituents. The response I received from people like the Bouchards, who have had to rethink their retirement plans and plans to buy a home, strikes to the heart of how badly the government has bungled.

My constituents were very grateful and gracious in their praise that someone here in Ottawa was finally speaking for their interests. The silence, the lack of consideration and responsiveness from the government has left them feeling shut out from the decisions that dramatically affect their finances.

It brings to mind the last time the Minister of Finance visited my riding of Newton—North Delta to speak to the local Chamber of Commerce. He would not take any questions. He finished his speech and simply ran away from having a real dialogue with my constituents.

These constituents are local businesspeople who pay their taxes and contribute to their community. These are the people who need and want answers from the government. These are the people who should have been truly consulted on major changes to the nature of investment in this country.

Now we know in real numbers the cost of not consulting: an estimated $35 billion, which is an average of $25,000 for each Canadian. The income trust tax has resulted in at least 15 takeover attempts of Canadian companies in the last five months. How is that encouraging enterprise in this country?

The investment business is no different from my local business community in one respect. It will look for the best competitive advantage for its customers. It will try to get the maximum return for those who invest with it.

The taxation on trusts, as my colleague the hon. member for Markham—Unionville said in his speech, did not have to force these takeover attempts. There are better ways of handling this than the nuclear bomb solution the government chose to put in place. As the Angus Reid numbers confirm, 91% of ordinary Canadians did not want this to happen.

We have to ask ourselves who benefits from taking this valuable investment vehicle out of the hands of some of our most vulnerable Canadians. They are Canadians who are beyond their peak earning years. They are Canadians who are just starting out and who are investing for simple goals, like owning a small home to have a roof over their heads. They are not making more than $30,000 a year. In fact that is the only tax bracket for which the government raised the income tax in the previous budget.

The government would have us believe that only big companies were benefiting from income trust investments. The truth is that all Canadians will have to make up the deficit in revenues. The $16 billion distributed in revenues through trusts to hard-working Canadians brought in $6 billion in tax revenues for the government. That money is gone now. As the Canadian Association of Income Trust Investors suggests, we could make up the money by increasing the GST from 6% to 7.5%, or we could add $463 in taxes to each ordinary working Canadian.

It will be interesting to see what the government tries to do to find that money. Perhaps the Finance Minister is hoping that the amendments to close tax havens will provide us with a lot of the lost revenues, but the real losses are not felt here in Ottawa. They are felt in communities like mine, in Surrey and Delta.

Canadians are not feeling the economic benefit of a budget surplus. Many are just doing what they can to stay in the black and not the red. Many are wondering what happened to the sound, fiscal management of the 13 years of Liberal government that saw their after tax income grow by 11%. That sound fiscal management amounted to year after year of balanced budgets and surplus budgets, the best economic performance and turnaround of any G-8 country.

We do not get those numbers by making the kind of decisions the government is making. We do not get them by stealing money from seniors or hard-working average Canadians or by denying investment options to the most vulnerable people who do not have the benefit of pension plans and big salaries. Approximately 70% of hard-working Canadians, like my constituents, cannot depend on these options.

As the Prime Minister himself said, there is no greater fraud than a promise broken. We can do what we can to make up for these losses like closing tax havens. As I said, for the principle of fairness, I support such measures, but the Conservatives will never make up for this fraud and this betrayal of Canadians. Canadians expect and deserve more from their government.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, I listened to what the member had to say and quite frankly, I am disappointed with his comments.

It would seem to me that the hon. member would be a little bit more impartial in how he looks at things. He might consider expert testimony from individuals like Kevin Dancey with the Canadian Institute of Chartered Accountants or perhaps Finn Poschmann from the Rotman School of Management. How about David Dodge, the Governor of the Bank of Canada who said that these measures taken by the government demonstrated leadership. Because let us face it, it was not an easy decision. It was not something we wanted to do. It was something we had to do to protect the tax base and protect the future for Canadians.

The Governor of the Bank of Canada, David Dodge, said specifically, without these measures, what was facing the country was lower investment, lower productivity, less employment and less wealth. That is why the government had to act. That is why the Prime Minister demonstrated leadership, something I know the Liberals know very little about, given the state of the Leader of the Opposition and his performance in the House.

I will say one thing to the hon. member. He should stand up for the taxpayers in his jurisdiction and support tax fairness in general as a principle because the people on this side of the House certainly do. We will make the difficult decisions when we need to. I think the hon. member should support difficult decisions when they are made for the right reason, like the one that he spoke of. I would love to know why he does not.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Mr. Speaker, the hon. member is talking about the Governor of Canada, Mr. Dodge. He did not advocate for this.

The member was talking about fairness. I will read from a pamphlet of the Canadian Association of Income Trust Investors. It states:

91% of Canadians think the tax fairness plan is not remotely fair, here's why: Promise Made--Promise Broken. False Premise for Broken Promise. Fraudulent Analysis. Promotes Foreign Takeovers. Exacerbates Canada's Two-Tiered Pension System. Double Taxation of RRSPs. Panders to Life Companies and CEOs. Eliminates an Essential Investment Choice. $35 Billion Windfall for Private Equity. Energy Subservience--Deep North American Integration. Bad for all Canadians.

This is not what I say as a partisan politician. This is stated by the Canadian Association of Income Trust Investors.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Speaker, today we are debating a bill that discusses trusts among other things. There was also the statement by the Minister of Finance this morning concerning tax havens, although he seems interested in only one aspect. And any impact is going to get buried in the work of an advisory panel.

Does my colleague not think that now the government should not only pass this bill, but also conduct a real investigation and take concrete action to eliminate tax havens? For example, the treaty with Barbados allows approximately $4 billion in profits into Canada every year tax free. But if this money were taxed—as is usually the case with tax treaties—there would be $800 million in taxes that would not have to come out of the pockets of the middle class and all taxpayers.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Mr. Speaker, I agree with the hon. member from the Bloc. In fact, I would like to remind the hon. member that this is the bill that the previous federal Liberal government brought forward in 1999. We, as Liberal members, are supporting this to make sure that all those technical amendments are made to make this fair for all Canadians and that is why I am supporting it as well.

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Speaker, I had the opportunity to participate in the finance committee hearings in which the finance minister presented his calculation of the so-called tax leakage. Unfortunately, many of the people, including the Governor of the Bank of Canada, had prepared their speeches prior to hearing the evidence of expert witnesses who demonstrated clearly that there was flawed methodology and incorrect assumptions in the finance minister's presentation.

The facts are that tax revenues on an annual basis will be reduced some $6 billion a year as a result of the private sector, private equity takeovers of income trusts to date.

Since the tax leakage that the finance minister was talking about was only $5 billion, and that was over six years, maybe the member could help to answer how can Canadians determine that in fact losing $6 billion a year is a better scenario than simply losing $5 billion over six years?

It seems to me that tax fairness means that we make sure that everybody is paying their fair share, but certainly that we do not give away all of the tax revenue with respect to income trusts that have been taken over because of this broken promise.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Mr. Speaker, before I address the hon. member's question, over the last two weeks I have received letters from students in grades 5 and 6 asking for members of Parliament to restore decency in the House. I would request the hon. member for Peterborough and other Conservative members who have been heckling to listen to me. They can ask their questions when the opportunity arises. I would like to remind all members of Parliament of that.

As the hon. member mentioned, tax revenues are gone because these companies are being taken by overseas companies.

[Dean Del Mastro, Conservative, Peterborough, ON]

That is not what the statistics are saying.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Mr. Speaker, I do not know why the member for Peterborough is not listening. I remind him of the letters I received from grade 5 and grade 6 students about restoring decency in this House.

Companies will be paying their taxes overseas and we will not be able to collect from them. The loss to Canadians will be even bigger than what the hon. member thinks.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, the hon. member points out that I had a number of things to say. I certainly want to get back in on this debate. I have a hard time listening to comments that are being said because there is such a distortion of the actual truth.

[Paul Szabo, Liberal, Mississauga South, ON]

CAITI and the Liberal Party. Step outside and say it.

[Dean Del Mastro, Conservative, Peterborough, ON]

The hon. member wants to quote from CAITI, Mr. Speaker. Absolutely. Let me tell the member what journalists are saying about CAITI. They are saying that CAITI is a bunch of thugs that are beating up on the media and will not allow the media to tell the truth on this story. Journalists are afraid. We can see what CAITI has done to the hon. member for Winnipeg North, the NDP finance critic, who has been under attack from CAITI. I commend her for not backing down from a bunch of thugs.

I would like to know why the member is siding with CAITI in light of all the evidence that has been brought forward by experts from coast to coast who have said that what was happening with trusts was bad for Canada long-term, bad for investment, bad for productivity and bad for employment. This government made a tough decision to do the right thing and the member should support it. He should not support the thugs.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Mr. Speaker, if the member had been listening to me he would know that I am in fact standing here in support of the bill.

This government blacks out things and bypasses things. I am on the access to information committee and last week we had to deal with the report on Afghanistan. Does the member know which government blacked out things? It was the present Conservative government. The figures speak for themselves. When we inherited the economic disaster from the Conservatives in 1993 and this country was--

[The Deputy Speaker, Bill Blaikie]

Order, please. It breaks my heart to bring this lively exchange to an end.

Resuming debate. The hon. member for Montmagny--L'Islet--Kamouraska--Rivière-du-Loup.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Speaker, it is my pleasure to rise to speak on this bill. I know that my remarks will be interrupted because there is only five minutes left before members' statements and oral question period after. In the first part of my remarks and from the outset, I want to say that the Bloc Québécois will be supporting this bill with respect to changing the rules for foreign investment entities and non-resident trusts. It was high time that this kind of action be taken to bring about changes in the major areas in this bill, on which I will elaborate a little later.

On this day when the Minister of Finance announced what he called a tax fairness debate, we can see that the government has overlooked two things. This bill should also have included something about the whole issue of the tax treaty with Barbados. If there is a loophole for tax avoidance in Canada right now, that is the one. In addition, on the face of the government's proposal this morning, it would seem that it simply voids what the budget said. Very rarely is a decision that is not to be implemented for another five years, and that will be submitted to an advisory panel in the meantime, announced in a statement by the finance minister.

The government realized somehow that what was announced in the budget was not specific enough. It was having a major negative impact on the economy while at the same time not addressing all potential abuse in that area. It is therefore right to vote for Bill C-33 to ensure that this legislation can come into force. Indeed, tax fairness issues had been identified by the Auditor General, and even by predecessors of hers, but had not yet been addressed.

However, today, we would have liked—particularly the Bloc Québécois—the government to take advantage of the great opportunity provided by this bill to correct a problem, to address a major flaw in Canada's whole international tax structure, namely the infamous tax treaty with Barbados. We expected the minister to deal with this issue. Unfortunately, he merely dealt with the deductibility of interest costs, by coming up with a solution that looks like an attempt to muddy the waters. Moreover, there is no indication at all that the issue of the tax treaty with Barbados will be settled.

When we talk to people about this issue, they find it a bit complicated. It is simply a matter of understanding that, under the existing system—which is the result of the government's action, not something that happened by accident—each and every year, we lose $800 million in taxes that should be paid by businesses on the profits that come back from Barbados without being taxed. Indeed, we would have expected the government to do something about this situation in today's legislation, but it did not.

The bill amends the rules that apply to non-resident trusts and to foreign investment entities. These changes were necessary in order to amend the Income Tax Act, which sets the tax rules for these non-resident trusts. Normally, a trust falls under Canada's Income Tax Act if it has received a transfer or the proceeds of property from a partnership, joint venture, trust, fund, organization, etc. The trust is required to pay taxes on its revenues to the Government of Canada. If it does not do so, beneficiaries are held responsible and they must pay those taxes themselves. However, the amounts imposed on beneficiaries will reflect their contribution to the trust. An additional relief will be provided to those beneficiaries whose contribution is minimal, compared to the other contributions made to the trust.

So, this bill includes various measures and amendments that change the rules that apply when this money is brought back to Canada. More specifically, these measures define the additional criteria used to determine the fair market value of the assets held by a non-resident trust. In addition to correcting this situation, we would have liked the government to also deal with the issue created by the tax treaty with Barbados.

I will let the House reflect on this issue that is not dealt with in the bill, on this major lack of fairness that has a huge impact on Canada's tax system.

[The Deputy Speaker, Bill Blaikie]

Order, please. The hon. member will have 15 minutes left to continue his remarks.

We will now proceed to statements by members. The hon. member for Dufferin—Caledon.

The House resumed consideration of the motion that Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, be read the second time and referred to a committee.

Income Tax Act

[The Speaker, Peter Milliken]

Before question period, the hon. member for Montmagny—L'Islet—Kamouraska—Rivière-du-Loup had the floor and he had 15 minutes remaining.

The hon. member for Montmagny—L'Islet—Kamouraska—Rivière-du-Loup.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Speaker, I would like to remind this House and those who are listening that we are debating Bill C-33, Income Tax Amendments Act. The objective of this bill is to amend certain rules concerning trusts, to ensure tax fairness.

The Bloc Québécois agrees with this bill, and this amendment should have been made a long time ago. The first part of the bill deals with an amendment to the rules concerning non-resident trusts and foreign investment entities. It is an amendment or clarification of section 94. This part of the bill sets and clarifies the taxation rules for non-resident trusts. These clarifications and amendments are made through the amendment of section 94 of the Income Tax Act, which sets the taxation rules for non-resident trusts.

In general, a trust is subject to the Income Tax Act if it has received a transfer or loan from an association, joint venture, trust, fund, organization, individual, company, general partnership or syndicate residing in Canada.

Non-resident trusts must pay income tax to the Government of Canada. If they do not, the beneficiaries are held responsible and must pay the amounts owing themselves. However, beneficiaries will be taxed in proportion to their holdings in the trust. Additional tax relief will be in place for beneficiaries whose revenue is minimal compared to other revenues from the fund. The purpose is to make this balanced and sensible. The changes proposed in this part of the bill amend the rules that apply when money is brought back into Canada.

More specifically, these measures define additional criteria to be used in calculating the fair market value of assets in a non-resident trust. Fair market value is the highest price, in terms of money, that can be obtained for an asset on a completely free, unrestricted market during a transaction between a buyer who wishes to buy and a seller who wishes to sell who are prudent, informed and competent and who are acting independently of one another. Naturally, there is always some leeway in determining fair market value, but the bill nevertheless sets out the concepts in such a way as to control the tax implications of this type of activity.

The second part of the bill addresses the Income Tax Act's definition of an exempt foreign trust. This part of the bill specifies the kinds of trusts that are eligible for tax exemption under the Income Tax Act. These measures ensure that only those trusts that are truly eligible for tax exemption can benefit from this tax advantage. We know that trusts are created for all kinds of reasons. We must therefore ensure that only trusts that are eligible according to the act can benefit. This will result in fairer tax treatment of all citizens.

A list allows to distinguish between the trusts that can be exempted and the ones that must pay income tax. For example, trusts that are eligible to be exempted from the Income Tax Act are as follows: exempt non-resident trusts, trusts for beneficiaries with mental infirmities who are non-Canadian residents and whose contributions to the trust were required to support the needs of the beneficiaries. In other words, it makes quite a lot of sense that trusts whose purpose is exclusively humanitarian should not be taxed. There are also trusts that are created as a consequence of the breakdown of a marriage and whose beneficiaries are children under 21 years of age, or under 31 years of age if enrolled full time at an educational institution, resident trusts that are eligible for the tax exemption, trusts operated for the purpose of administering or providing retirement pensions to employees and charitable trusts.

Thus, the first part deals with changes to the rules applying to non-resident trusts or foreign investment entities, the second one provides the definition of foreign trusts that are exempted from the Income Tax Act and the third one contains general changes to the Income Tax Act.

The main measure provides more general amendments to this act. First, elements have been added to the employment income. This includes any amount receivable at the end of the taxation year in respect of covenants agreed to by an employee, and a change to the calculation of the amount reported through stock option plans for employees.

Then, various other items that will become deductible from employment income are added. For instance, employees will be allowed to deduct from their income legal expenses incurred in legal proceedings to collect amounts owed by the employer, and the premium under the Quebec parental insurance plan. These changes are designed to bring the Income Tax Act in line with the new realities.

For example, the parental leave scheme is very popular in Quebec. It was established when the federal government finally agreed to give back the EI amounts intended for this type of provincial initiative. It took a long time, but now the scheme is in place. It provides parents with sufficient income for flexible amounts of time, which they like better. It has already started to have a significant impact on birth. In this respect, it meets two important objectives at once. Now, we are amending the federal Income Tax Act accordingly. I think it is appropriate to support this measure and, indeed, the bill as a whole.

The last part of the bill contains amendments in relation to terms or expressions that could have a different meaning in French and in English. This may sound like a detail, but in reality, it can often cause legal problems when it comes to interpreting the law. The Bloc Québécois believes that Bill C-33 will improve the application of the Income Tax Act. The Bloc Québécois supports this bill, which will restrict the use of non-resident trusts as tax loopholes.

With fewer loopholes, the government will be able to increase its revenue by collecting from people who should be doing their part.

As an aside, this bill will fill a number of holes in the legislation in terms of tax fairness. But one glaring hole remains. I am referring to the one left open with tax treaties and tax heavens, and more specifically the one between Canada and Barbados.

Like any other tax treaty, the Barbados tax treaty initially provided that profits generated by Canadian companies should normally become taxable when the money was repatriated to Canada.

One section, section 5907, was added, which eliminated all taxation. Thus, while money invested in Barbados by Canadian companies is hardly taxed—it is almost ridiculous—thus leading to huge profits, that money can be brought back to Canada and is still not taxed. As a result, this becomes a tax incentive. At the end of the day, this is tax avoidance and has absurd repercussions. For example, over the course of 2007-08, a total of $4 billion will be brought back from Barbados in the form of dividends and recovered by Canadian companies, which will pay no taxes on that money.

We find this decision somewhat absurd, an abnormal situation that should be handled differently. Today, the Minister of Finance made a announcement regarding tax fairness and interest deductibility when companies borrow money to invest abroad. We would have liked to see part of his announcement address the tax treaty with Barbados. Surprisingly, it did not even touch on it.

During question period today, the minister was very careful not to respond to this question and to reiterate the action taken concerning interest deductibility. His announcement today more or less drove the nails into the coffin. He announced that interest deductibility will prevent double taxation. However, in five years, he is establishing a panel to examine the issue. I think it is a rather well organized retreat, but it reflects this government's lack of preparation in the related texts.

As regards the budget, we were expecting some details to be provided, and we were hoping that this tax avoidance hole would be plugged, but that is not going to happen. It is rather strange to give a warning that this is going to be done in five years from now. At the same time, a committee is being set up to look at all these issues. Usually, when it comes to finance, the government brings forward ways and means notices that immediately come into effect and that send a clear message. Let us hope that the minister's decision will not add to the negative message that was sent when the budget was tabled. At the time, the government did not explain how it was going to ensure that tax avoidance is eliminated. The specifics that were provided today can certainly, in a way, make companies feel more secure, but they are also a threat hanging over all the industries. In the industrial and financial sectors, investments are often made 5, 10 or 15 years in advance.

The message being sent today is still not good enough. And worse still—as I pointed out during the first part of my speech, in reference to the statement made today by the minister—the minister was totally silent on how the tax treaty between Canada and Barbados should be amended.

Let us not forget that we are talking about tax havens, about states where the rate of taxation is nil or very low. Their lax tax system encourages many wealthy taxpayers to discreetly transfer a portion of their fortune there, and many businesses to set up subsidiaries. They are then able to avoid paying taxes on part of their revenues.

People complain that they pay too much taxes and they wonder why that is, given the level of services that they get in return. There is one aspect that must be taken into consideration: if there are groups in our society that do not pay their share, then other groups must make up for the shortfall. What happens in reality is that either some people pay more taxes than they should, or else some services are not provided, all this because we did not manage to put a stop to the tax avoidance situation caused by this tax treaty.

It is very surprising that the government did not go forward on that issue since the problem is the result of changes made by the former Liberal government. We have been counting on the new Conservative government to address the situation. However, even today, we still do not have any indication that it intends to do that. Even though the Standing Committee on Finance is making a study on the subject, after the Bloc made a proposal to that effect with the support of the Conservative members, the minister does not seem ready to do anything and is not indicating that he would take action even if there were recommendations going in that direction.

The House can be assured that in the report that will be produced at the end of the current review by the finance committee, the Bloc will undoubtedly make concrete recommendations. Indeed, on tax issues it has often been said that the questions regarding trusts are very complicated. However, with regard to the issue of the tax convention with Barbados, there is a very simple solution. There is one subsection in the very long section 5907 that we could simply abolish. After that, all profits coming from Barbados could be taxed at the time they are brought into Canada.

We would find that quite acceptable. If we had a tax agreement whereby, when money was invested abroad, the profits would be adequately taxed once they were brought home, an appropriate deduction could then be allowed. This is roughly the model developed by the United States and Japan. This is a theory, a practice that should be examined by Canada. Rather than continuing with the current practice—the very discriminatory regulation 5907—we could quite simply allow the money to be invested in Barbados, and when it is comes back to Canada, subtract the amount the company has already paid in income tax to Barbados from the amount due to Canada. There would still be a significant contribution within Canada to correct the situation.

As I am being signalled that I only have two minutes left, I will end with these comments. I urge the government to examine this issue over the course of the next few weeks. We hope that the study by the Standing Committee on Finance will result in concrete measures being introduced in the fall economic statement or next year's budget. However, a solution absolutely must be found because, at present, all political parties agree that we are not getting our money's worth, despite the contribution of taxpayers. Such measures could be key to lessening the burden on taxpayers, on those who benefit from various government programs. It is important that we move in that direction.

The Bloc Québécois continues to take a constructive approach. We are voting in favour of the bill but we hope that the Conservative government will move forward as quickly as possible to find real and concrete solutions to the significant problem of tax evasion presented by the Canada-Barbados Income Tax Agreement.

The House resumed consideration of the motion that Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, be read the second time and referred to a committee.

Income Tax Amendments Act, 2006

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Speaker, I thank the member for doing a very good job on some selected issues out of this bill. It is only 550 pages long. I can assure the House that I will vote in favour of the bill to get it to committee where it can have the rigorous scrutiny it requires.

The member has raised some interesting points with regard to tax havens and other issues. He also talked quite a bit about some of the values or some of the attitudinal positions we should take with regard to a number of these changes, particularly as it relates to the interest deductibility quagmire that we seem to be in, given the finance minister had made a very broad sweeping general statement about cancelling the interest deductibility on foreign investments.

Now we have some changes again. We have had ten year periods, now we have five year periods. We have had some towering effect. This is a moving target.

It concerns me because similar to the income trust debacle, the broken promise, signals were given to the marketplace, which interrupted the market and disrupted the marketplace to the extent there was a virtual meltdown.

Now we have some questions within the investing community on the interest deductibility. It is disruptive in my view. Does the member feel that the uncertainty or the lack of clarity from the finance minister, whose name rhymes with clarity, could give us an idea whether this can have some negative impact on the decision making of businesses while we deal with this strange animal that he has put on the table for us?

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Speaker, ever since the budget was tabled, we have been waiting for the budget implementation bill that will address this issue. We expected that the Minister of Finance's statement today would clarify the situation. In his statement, we read this:

Our proposed anti-tax-haven initiative is composed of four specific parts:

--Firstly, preventing the use of double dipping and other tax avoidance schemes—

--Secondly, we are providing corporate Canada with a transition period of almost five years—

--Thirdly, any tax revenues generated through the anti-tax-haven initiative will be used to further reduce business taxes in Canada—

--Finally, we will continue to look for ways to bring fairness to Canada’s tax system.

This is not clear. The government said it was important to have the right tools to help companies compete internationally. Many other countries have these sorts of measures. The government told us that it would do away with tax avoidance and the excesses that result from it.

Yet today, the statement simply says that double dipping—making one tax deduction here in Canada and another in the country that receives the funds—will be prohibited. There may even be three countries involved. This should be clarified.

The statement also says that companies will have five years to comply with the rules. These rules must be defined as soon as possible. If they are not clarified in the coming months, companies might invest in the wrong place or delay investing. This is a downside to the government's current position. We need clear, accurate, relevant information as soon as possible.

The government still has work to do. We hope it will release information as soon as possible. In a similar vein, why does the government not just go ahead and abolish the tax treaty with Barbados or at least the specific provision of the treaty whereby profits that return to Canada from Barbados are tax exempt? This is not fair to taxpayers.

[Guy André, Bloc, Berthier—Maskinongé, QC]

Mr. Speaker, I would like to congratulate my colleague for his excellent speech on this bill that amends the Income Tax Act as far as trusts are concerned. Of course, as our colleague told us, we approve this bill because it contains some measures that are more in keeping with some social measures that we have put forward.

However, I would like my colleague to explain something. What is the public to think of a government that cuts programs for the poorest in our society—whether they are literacy programs, the court challenges program or women's programs—, a government that does not encourage people on EI but at the same time maintains a treaty that provides tax havens to rich companies?

How does my colleague explain this situation? What is the public to think about this lack of ethics on the part of a government that continues to help the rich while cutting programs for the poorest of the poor?

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Speaker, I want to thank my colleague from Berthier—Maskinongé for his question and the examples he gave us. Indeed, the money not paid in taxes under the tax treaty with Barbados is paid by others. As a result, we do not have adequate services. We can list the cuts made by the Conservative government over the past year in a number of areas, including the court challenges program, programs concerning women's groups or different parts of our society that need these types of services. There lies the answer.

For this year, the federal government will probably fail to collect $800 million in taxes. This $800 million would go a long way. Some of it could go toward lowering taxes and some of it could be used to reinstate services that have been cut. This would be an important gesture and it is a very good illustration of the current balance in Canadian taxation. There is a major problem with the tax treaty with Barbados and the solution is simple: the elimination of just one paragraph from section 5907 would correct the situation and bring about more fairness.

This would be realistic, quick and we could assess the facts, while the government's position on interest deductibility seems to be bogged down. There is no indication as to how the government is going to get out of this. I am anxious to see how the business sector will react. Between yesterday and this morning's announcement, things seem to be looking up because the government is putting off its decision. However, this sends a tenuous message to the business sector.

It is this type of situation that needs to be corrected. I would like the federal government to take a swift decision to correct the tax treaty with Barbados. This does not require vast studies. We already have all these figures at the Canada Revenue Agency or at the Department of Finance. Then a very clear message could be sent that would be consistent with the minister's promise to take care of tax havens. Nonetheless, to make good on his comments, he needs to at least take that one step.

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Speaker, the member commented on an interesting point. If we provide tax cuts in certain areas and reduce revenue, it means it has to be made up by either raising taxes in another area or cutting services.

The member may want to comment on the advisability of the pension income splitting program, which would only benefit those who have defined pension benefit plans, who have a partner and whose pensions are in excess of about $38,000 just to start to get any benefit. It seems that it is benefiting high income earners over low. How does that ties in with the whole theme of tax fairness?

[The Acting Speaker, Royal Galipeau]

The member has 45 seconds to answer.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Speaker, this is a complex issue which deserves much attention and probably more than 45 seconds. Obviously, at each step, it must be determined if a given tax measure is adequate. Its fairness, its efficiency in generating revenues and its relevance must be taken into account.

I hope that the government will display the same maturity we are finding today in Bill C-33, which we support, but many aspects of this issue have not been addressed.

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, to begin with, I would like to congratulate my colleague from Montmagny—L'Islet—Kamouraska—Rivière-du-Loup. His presentation was extremely clear. I will probably have the opportunity, in my own presentation, to substantiate even more what he just said. As he pointed out, the Bloc Québécois is in favour of Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act. It corrects a number of things.

Again, this is somewhat like when I spoke to the changes to the excise tax. Sometimes, we debate in the House of rather casual subjects. This is far from Tintin in the Congo or Tintin in Tibet and even farther from The Crab with the Golden Claws or, for example, The Castafiore Emerald . This is not very sexy for a debate, but it is a necessary debate, just as the one on the excise tax. Bill C-33 corrects various provisions of the Income Tax Act which made it easy to circumvent tax rules and allowed tax evasion.

The bill responds to the shortcomings identified by the Auditor General in her November 2005 report. This bill will require disclosure of additional information about non-resident trusts, which will allow a more rigorous analysis of the figures submitted to the Canada Revenue Agency, in accordance with the recommendations of the Auditor General.

As my colleague has mentioned, tax evasion goes against the basic principles of horizontal and vertical fairness in the way we treat individuals. We must never forget that fairness is of paramount importance if we want people to have any trust in the tax system. This means fairness not only between individuals, but also between the different categories of individuals.

When the tax system is viewed as being unfair, there is also, unfortunately, a certain nonchalance in the public opinion about everything that relates to tax evasion. Working for pay under the table is a case in point. We absolutely need a tax system that not only is extremely fair, but that also has the appearance of being fair. Every time we can close a loophole and prevent people from believing that there is a double standard that benefits those who can afford those mechanisms, we have to do so. We were talking earlier about tax havens and about specialists and experts who can teach people how to avoid their collective responsibility.

It seems to me that we have to try and close those loopholes, and that is what this bill is doing. As I mentioned before, the Bloc Québécois will support Bill C-33.

Both the absence of fairness and the perceived absence thereof create a sense of laxity within the affected society. They also cause taxpayers to feel that they are being treated unfairly. As I said, practices that do not quite comply with the legislation are becoming more and more accepted and commonplace. Moreover, the government is losing revenue that, as my colleague said, must be made up for by higher taxes elsewhere, especially for the middle class, or by cuts to necessary public services.

As I said, we will support this bill even though it lacks that something special. It is definitely relevant, and as such, I think it deserves our attention even though it is not exactly a fun read.

I will provide a little background. In Canada, taxable revenue on trusts is calculated for individuals, not families. Here, income can be split among family members, resulting in major tax advantages. In fact, this is a common financial planning tactic among higher-income taxpayers.

They use family trusts to split income among as many family members as possible to take advantage of those family members' tax brackets. Obviously, when the income is split among many, some members of the family may have lower tax rates than if just one or two family members declare the income.

Canada's income tax system is based on a progressive tax rate structure. As such, individuals who have low or medium income pay less tax than high-income earners. As I just said, splitting income is one way to save taxes within a family or household.

To take advantage of this method, one must have a family trust. In addition to allowing income splitting, the trust can protect assets against the beneficiaries' creditors or ensure the use of an asset by a spouse until death before transferring the property rights to the children. The trust can also ensure that children have sufficient capital to cover the cost of tuition or living expenses while studying.

Even though trusts may seem to be an attractive way of avoiding tax, annual management fees can run to several thousand dollars. Once again, often it is the wealthy who are able to invest and who have enough money so that the advantages and disadvantages balance out and these trusts become attractive investment vehicles. Therefore, trusts are clearly investment vehicles that are available primarily to wealthy taxpayers.

In my opinion, on the whole, taxpayers do not appreciate income splitting, because it goes against one of the main principles of taxation policy: fairness. I mentioned this earlier. To comply with the principle of tax fairness, government gradually regulated the use of trusts and tried in various ways to reduce the benefits of income splitting.

The use of offshore trusts as investment vehicles has many advantages in terms of tax avoidance. Offshore trusts enable Canadian taxpayers to shelter assets from the tax system. Since Canadian tax authorities can have a very hard time obtaining information on investments in such vehicles, this opens the door to tax avoidance.

I remember that in a report—I think it was on the show Enjeux—journalists went to Barbados to locate companies such as the ones owned by the sons of the former Prime Minister, the member for LaSalle—Émard. The journalists were astonished to find that the headquarters of CSL International was not only a law office with four employees, but also the headquarters of about 100 other companies. Unfortunately, this information was not known previously, because it is not always easy to travel to conduct the necessary investigations. That is why it is important to have an easier way to obtain the necessary information.

In January 2000, the federal finance department introduced legislation to prohibit splitting with minors. People may not use children under 18 years of age, who are usually not yet working and therefore have no income of their own.

Under the attribution rules, capital gains on shares in the trust can be split, enabling the trustees to save on tax. Contrary to the attribution rules, this provision taxes the recipient of the split income at the top marginal rate, instead of reattributing the income to the transferor or lender.

However, the lack of clear legislation pertaining to foreign trusts created loopholes allowing the use of trusts established in foreign countries in order to continue to profit from the various advantages of income splitting. Moreover, the problems with information gathering—and I gave an example of that earlier—to establish the market value of assets of offshore trusts has facilitated tax evasion. In my opinion, it is important to remember that.

We also need to remember what the market value of assets is, that is, the highest price that would be agreed upon in a completely open and unrestricted market between fully-informed, knowledgeable and willing parties dealing at arm's length without constraint. This is the definition of fair market value. As I said earlier, it is a provision that was put in in that regard.

It was hard to establish the fair market value of offshore trusts. This value could be underestimated or the owners could find ways to ensure that the people at the Canada Revenue Agency had the impression that the value was lower.

Consequently, in a section of her 2005 report the Auditor General looked at the various loopholes found in the application of the Income Tax Act. She made a number of recommendations to close these loopholes with respect to the treatment of foreign investment trusts.

Of course, a ways and means motion was introduced on November 9, 2006. The Minister of Finance included this motion in Bill C-37 and its purpose is indeed to amend various rules concerning income tax. This ways and means motion had three main components.

First, the bill amends the Income Tax Act in order to clarify and specify the tax rules for non-resident trusts and foreign investment entities. Those provisions will allow the government to better regulate the use of those offshore investment vehicles by clearly establishing the foreign investment entities that may be exempt from taxation, the rules for ensuring that the foreign trust will be deemed to be resident in Canada and the investment vehicles to be taxed. The provisions will also specify how the attribution rules will apply when a foreign trust is deemed to be resident.

On that subject, I would remind the House that California, for instance, amended its legislation two or three years ago to ensure that, in the case of a company established in California and whose head office is in California, but that does business all over the world, revenue generated by that company must be included in the revenue of the head office. People saw this as strong action against tax avoidance and against tax havens. In fact, this has existed in Canada for a number of years. As a rule, a company whose head office is in Canada must pay taxes on all its revenue, regardless of whether it is generated in Canada or abroad, as long as there is no tax treaty, of course. If a tax treaty exists—we have such treaties with several countries—it is a matter of not taxing the same entity twice for the same revenue. This is completely understandable.

The problem I want to underline, and maybe I will be able to come back to it, is that when we have a tax convention like the one we have with Barbados, where the tax rate varies between 2.5% and 1%, this is a regressive tax instead of a progressive tax. The tax rate goes down as revenues go up. Of course these are only symbolic tax rates. Canada considers that revenues have been taxed a first time in Barbados and does not tax them a second time in Canada. When the tax rate of the foreign country is reasonable and comparable to the rates we have in Canada, tax conventions are totally acceptable. Unfortunately, when we deal with a country that does not have a real and transparent tax system but a system that is used only to allow taxpayers to avoid paying income tax in Canada, we do have a serious problem.

The second aspect relates to a number of general provisions in the Income Tax Act. I am still referring to the ways and means motion of November 9, 2006. First, it changes some general provisions of the act to ensure an efficient enforcement of the measures contained in the first part. The bill proposes a few changes to the Income Tax Act to include different measures in Bill C-28, A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006. That is to say that the bill is modifying a previous bill that had already been introduced in this House. Some of the changes were suggested by the Canada Revenue Agency to clarify or facilitate the enforcement of measures included in the Income Tax Act.

The third and final component deals with the bijural aspect of the proposed amendments.

In other words, this last part adds or modifies expressions in the English and French versions in order to respect the semantics of civil law and common law. As we know, both apply in Quebec. This is inherent to the unique nature of the Quebec nation.

Let us now examine the individual parts of the bill resulting from the means and ways motion. The first part refers to changes to the rules that apply to non-resident trusts and foreign investment entities. A certain number of amendments and clarifications to section 94 establish the rules for taxation of non-resident trusts.

This part of the bill establishes and clarifies the rules regarding taxation of non-resident trusts. These clarifications and changes are made by amending article 94 of the Income Tax Act, as I already mentioned, which sets the tax rates for non-resident trusts.

As a general rule, a trust is subject to the Income Tax Act if it has received the transfer or loan of assets from an association, a joint venture, a trust, a fund, an organization, a natural person, a partnership or a financial syndicate resident in Canada. The non-resident trust must pay tax on income to the Government of Canada. If it does not, the beneficiaries are held responsible and must pay the amounts due. However, beneficiaries only pay their share of the tax on the trust. Additional relief is provided for beneficiaries who make a minimal contribution compared to other contributions to the trust.

The various changes proposed in this section of the bill amend the rules that apply to repatriation of moneys to Canada. More specifically, these rules define additional criteria for calculating the fair market value of assets. I have already mentioned the definition of fair market value for assets held by a non-resident trust.

Second, again in part 1, there are definitions of foreign trusts exempt from the Income Tax Act. This part of the bill specifies which type of trusts are eligible for tax exemption under the Income Tax Act. These measures will ensure that only trusts truly eligible for tax extensions could use this tax benefit. This will result in fairer tax treatment for everyone. Without going into too much detail, the following list indicates which trusts can be exempt and which trusts must pay tax.

Among the trusts eligible for exemption under the Income Tax Act, the exempt non-resident trusts, are trusts for beneficiaries with a mental infirmity who are not residents of Canada, and whose contributions to the trust are made to provide for the beneficiary's needs. This goes without saying.

Also exempt are trusts established after the breakdown of a marriage to provide for the children from the marriage who are under 21 years of age or under 31 years of age if they are enrolled full time at an educational institute, as well as charitable trusts, of course.

As far as the first exemption is concerned, I believe it is entirely consistent with what the Minister of Finance announced in his budget in February on the possibility of parents amassing, through a specific plan, money to provide for the needs of their severely handicapped children.

Resident trusts eligible for tax exemption are trusts for administering or providing pension benefits to employees, as well as charitable trusts.

Finally, the changes made to the Income Tax Act essentially mean that we have to ensure, quite simply, that the legislation as a whole is consistent.

In closing, Bill C-33 will ensure better application of the Income Tax Act.

The Bloc supports this bill to restrict the use of non-resident trusts as tax loopholes. This will allow us to maintain tax fairness—or improve it since it is not fair enough yet—and also show taxpayers in general that parliamentarians are interested in this and are concerned about their perception of fairness in the system. This will bring in a little more money for the good government.

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Speaker, the member has raised some extremely good points particularly with regard to the family trust issues. Prior to becoming a member and as a chartered accountant, I used to work for a couple of clients who had these arrangements. They are not illegal, but the avoidance of taxes or the reduction of taxes can be very substantial for the highest income earning Canadians.

In a speech given by the member for Peterborough, he said that one of the objectives of this bill was to maintain the integrity of the tax base. He also talked about income trusts.

In terms of maintaining the integrity of the tax base, I would ask the member to comment on the income trust broken promise, and whether or not it appears the government thought this through in terms of the impacts on investors and indeed on the consequential sell-off of income trusts through private equity takeovers. This has been estimated to now cost Canada the loss of about $6 billion of revenue each and every year. That is way more than the differential in the tax burden between corporations and income trusts. This does not seem to be protecting the integrity of the tax base.

I wonder if the member is aware of the impact of the lost revenue on the takeover of income trusts. Should we not be pursuing some protections to ensure that this kind of hemorrhaging of the tax base does not continue?

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, I thank the member for his question. Indeed, Bill C-33 contains interesting aspects regarding the reduction of tax evasion. However, it is still just a band-aid on a cancer. We think there are other priorities. I spoke about the tax treaty with Barbados. If the Minister of Finance and the Conservative government really want to reduce tax evasion, they will have to amend that treaty and the law in order to turn off the tap. Until now, we have not seen the minister show any such commitment.

There has been a lot of talk about interest deductibility for Canadian companies investing abroad. The minister backed off and said that he was doing this to prevent tax evasion in tax havens. This is also a measure which could be interesting in some regards, but it is throwing the baby out with the bath water. So, it is good to see the minister backing off from his initial plan, but even if he maintains the non-deductibility of interest charges for Canadian companies investing abroad, this is still a small measure in the big picture. It is somewhat the same for income trusts.

During the proceedings of the Standing Committee on Finance, I was very surprised to see that the Minister of Finance was not able to demonstrate to us that existing income trusts were generating a tax loss that is extremely harmful to the Government of Canada's financial position.

Minister Audet told me that, in the case of Quebec, these trusts were responsible for a shortfall of about $40 million. That is significant, particularly since the Prime Minister made a promise regarding this issue during the election campaign. It seems to me that the government could have found a solution that is more respectful of the two and a half million Canadians who contributed to income trusts and who, among other things, probably believed the Prime Minister during the election campaign, when he promised that he would not touch these trusts.

That said, my greatest concern with income trusts was their effect, in the longer term, on Canada's economic development. For example, BCE, a corporation, was to become an income trust, because of the pressure exerted by one competitor, TELUS, and not because of its own corporate interests. In my opinion, this was more important than the issue of revenue losses for the federal or the Quebec government.

The hon. member is right when he says that this is creating a perverse effect, particularly regarding the value of the Canadian dollar. Many of these businesses represent a minor investment for foreigners, particularly Americans. So, we found out that there was a very real risk.

I have learned one lesson from all this. As with interest deductibility, as with income trusts, and as with many other issues, the Minister of Finance has good intentions, but he takes measures that seem improvised and whose consequences have not, in my opinion, been properly examined.

In conclusion, this will not prevent the Bloc Québécois from supporting Bill C-52. However, it could mean that, in the coming years, all parliamentarians, and the members of the Standing Committee on Finance, may have to look at this issue again, in order to suggest to the government, regardless of which party may be in office at that time, ways that are more effective on an economic, fiscal and financial level.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Speaker, I would like to expand on the comments of my colleague from Joliette, who is very familiar with financial matters. He gave examples of situations where the current minister, with the best intentions, proposed a policy that was in need of some fine-tuning. The picture I am getting could be added to the one he was talking about. I am thinking about the program for GST rebates for tourists.

In this case, the Bloc Québécois, the industry and other political parties had to make strong and repeated arguments to achieve a few partial corrections to an unacceptable situation, in which organizers of conventions for outfitters or other similar events were losing a considerable international competitive advantage. It is the same type of situation with interest deductibility.

As for GST rebates for tourists, an extra effort should be made to come up with a reasonable solution for duty-free shops.

But my question is more general. I would like my colleague from Joliette to tell me, since pre-budget consultations on next year's budget will be starting soon—it is already the time to be working on these things—should tax avoidance not be an important issue? Should it not be important to make increasing transparency in Canada's tax situation a priority, or to ensure that there is a significant improvement beyond Bill C-33, which we are studying right now?

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, I thank my colleague from Montmagny—L'Islet—Kamouraska—Rivière-du-Loup. I finally pronounced the name of his riding correctly. I will prepare myself a little better when he asks me a question in the future, so I can get the name of his riding correct.

He is absolutely right. In my opinion, if we want the public and the taxpayers to remain confident in the income tax system, we must resolve this tax evasion issue which, year in year out, erodes the tax base, as a former Auditor General, Mr. Desautels, pointed out, I believe.

The part that is not paid by those taxpayers who do not assume their collective responsibilities has to be paid by others who have no other choice, simply because they have no TP4 and they cannot play with all these loopholes in the Income Tax Act.

In such cases, we sometimes feel—as we clearly felt in Quebec and I think it must have happened in other regions as well—a kind of revolt of the taxpayers, because they think the joke is on them and they are the only ones being stuck to pay for everyone else. This is not entirely true, because our system is actually rather progressive, but at the same time it is not entirely false, because there are big holes that need to be fixed. The tax treaty with Barbados is one of these holes that we have to fix if we want to keep the confidence of the whole population in our taxation measures.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Speaker, I thank the hon. member for his comments and his efforts on the finance committee. I want to point out that it was with the support of that member and his colleague on the committee that allowed us to have the whole topic of tax havens put into the federal budget recommendations.

Would the member like to make some comments on why that is important and why it should be important to all federal members of Parliament?

[The Acting Speaker, Royal Galipeau]

The hon. member for Joliette has 30 seconds for his comments.

[Pierre Paquette, Bloc, Joliette, QC]

I have to admit that any time he gets an opportunity, the Minister of Finance talks about tax havens. He talked about it last October in his fall economic statement, and he also talked about it in his two budgets.

We see a number of measures that are headed in the right direction, but it seems that the government is reluctant to tackle the root of the problem which is the tax agreement with Barbados. For the whole financial world, at the international level, Barbados is a tax haven for Canadian interests and we must adopt very strong measures to counter that.

[The Acting Speaker, Royal Galipeau]

Is the House ready for the question?

[Some hon. members]

Question.

[The Speaker, Peter Milliken]

The question is on the motion. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

On division.

[The Speaker, Peter Milliken]

I declare the motion carried.

[The Acting Speaker, Royal Galipeau]

(Motion agreed to, bill read the second time and referred to a committee)

[The Acting Speaker, Royal Galipeau]

It is my duty pursuant to Standing Order 38 to inform the House that the questions to be raised tonight at the time of adjournment are as follows: the hon. member for Richmond Hill, Foreign Affairs; the hon. member for Surrey North, Health; the hon. member for Rimouski-Neigette—Témiscouata—Les Basques, Passports.