Bill C-28 (Historical)

Budget Implementation Act, 2003

An Act to implement certain provisions of the budget tabled in Parliament on February 18, 2003

Jobs and Growth Act, 2012

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Speaker, I rise to speak to the Conservatives' latest omnibus budget legislation, Bill C-45, at report stage.

I will focus my remarks today on: one, how the New Democrats worked closely with and supported, helped, aided and abetted the Conservatives in their ramming of this omnibus bill through committee; two, a very dangerous precedent that was set at finance committee during the study of Bill C-45; and, three, some of the flaws in Bill C-45 that were identified by Canadians during the committee's study.

As members know, Bill C-45 is a mammoth bill. It is over 400 pages long and would amend over 60 different laws. It includes a large number of provisions that simply do not belong in a budget bill: rewriting the laws protecting Canada's waterways; redefining aboriginal fisheries, without even consulting first nations peoples; and eliminating the Hazardous Materials Information Review Commission. These are just a few examples of what is in Bill C-45 and examples of measures that would really have nothing to do with the fiscal situation of the country.

Canadians overwhelmingly disapprove of the Conservatives' use of omnibus budget bills to ram a large number of unrelated measures through Parliament without sufficient study or debate. A recent poll by Forum Research shows that 64% of Canadians oppose the Conservatives' omnibus legislative approach. Even a majority of Conservative supporters oppose the Conservatives' use, overuse and abuse of omnibus bills.

The Prime Minister once opposed the use of omnibus bills, but under his watch we have seen a clear trend toward the use of omnibus legislation. In fact, Bill C-13 in 2006 was 198 pages; Bill C-28 in 2007 was 378 pages; Bill C-10 in 2009 was 552 pages; Bill C-9 in 2010 was 904 pages; Bill C-13 in 2011 was 658 pages; and Bill C-38 earlier this year was 452 pages.

To put this in context, the largest Liberal budget bill was Bill C-28 in 2003, which was 144 pages in length, and it focused on fiscal measures, not on unrelated measures.

I will also speak about the NDP in this case. The NDP actually helped the Conservatives in passing Bill C-45 as quickly as possible through committee. The New Democrats say that they oppose Bill C-45 and they say that they oppose closure. However, their actions speak louder than their words. While they talk the talk, they do not walk the walk when it comes to actually standing up to the Conservatives and their abuse of Parliament. Instead of standing up to the Conservatives and providing any real opposition to Bill C-45, the New Democrats have actually been helping the Conservatives.

Here are a few examples. The New Democrats voted with the Conservatives to impose time allocation to limit the debate on Bill C-45 at committee. The New Democrats voted with the Conservatives to overrule the finance committee chair, the member for Edmonton—Leduc, a chair who is respected by all members of the House for his judgment. To have him rebuked by his own colleagues was bad and it was terrible to see the New Democrats gang up with the Conservatives against the member for Edmonton—Leduc. The New Democrats voted with the Conservatives to throw out the rules at committee and to shut down opposition to Bill C-45. The New Democrats then gave up one of their votes at finance committee and worked out a schedule with the Conservatives so the finance committee could get through Bill C-45 as quickly as possible. The New Democrats voted with the Conservatives almost 2,000 times at the finance committee to oppose measures that could have delayed certain parts of Bill C-45.

Federal-Provincial Fiscal Arrangements Act

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, I appreciate the opportunity to speak today at second reading of Bill C-54, which amends the Federal-Provincial Fiscal Arrangements Act with respect to the equalization program.

Briefly, the bill would provide the Minister of Finance with the authority to continue to make equalization payments according to the current formula for up to a year in the event that new legislation is not in place by April 1, 2004.

Let me stress “in the event”. The fact is that the minister has had very productive meetings with his provincial and territorial counterparts in October of this year and this is simply an insurance so that if in fact for some reason by April 1 we do not have in place a new agreement, when April 16 rolls around, we can continue to pay. Therefore, it is nothing more than an insurance policy.

I am sure all members of the House would want to ensure that this is in place so that on April 16 the payments can continue.

Before reviewing the measures in Bill C-54, I first want to set the legislation in context. No discussion of the equalization program can take place without a discussion of the overall federal transfer system and the role of equalization within that system.

As hon. members know, the federal government, in partnership with the provinces and territories, plays a key role in supporting the Canadian health system and other social programs. The provinces and the territories deliver their own health care, education and social services, while the federal government provides them with annual financial assistance through transfer payments.

In 2003-04 it is expected that provincial and territorial governments will receive $51.6 billion in federal transfers. Because of transfers, all Canadians can expect equal access to public health care, a safety net to support those most in need and the freedom to move throughout the country to seek work, higher education and training available to all who qualify and reasonably comparable services in whatever province one chooses to live.

The federal government provides the large majority of the transfers to the provinces and territories through four major transfer programs: the Canadian health and social transfer; equalization; territorial formula financing; and the new health reform transfer, which was created as a result of the February 2003 first ministers health care agreement.

I would like to briefly review each of these programs beginning with the Canada health and social transfer, the CHST. A block fund, the Canada health and social transfer is the largest federal transfer providing provinces and territories with cash payments and tax transfers in support of health care, post-secondary education, social assistance and social services, including early childhood development.

The CHST upholds the five medicare principles of the Canada Health Act: universality, comprehensiveness, accessibility, portability and public administration. It also ensures that no minimum residency period is required to receive social assistance. In 2003-04 the federal government will provide $37.9 billion to the provinces and territories through the CHST and the CHST supplement.

Hon. members will recall that the CHST will be restructured, as of April 1, 2004, into separate transfers: the Canada health transfer, the CHT, and a Canada social transfer, the CST, to increase transparency and accountability.

I want to speak for a moment about tax transfers because this is one of the least understood aspects of the CHST, despite the fact that tax transfers are absolutely fundamental as to how the program functions.

A tax transfer provides the same support as a cash transfer. The tax transfer component of the CHST occurred in 1977 when the federal government agreed with provincial and territorial governments to reduce its personal and corporate income tax rates, thus allowing them to raise their tax rates by the same amount.

As a result, revenue that would have flowed to the federal government began to flow directly to provincial and territorial governments. The net impact of the tax point transfers on taxpayers is zero, but the impact on the federal-provincial governments is real.

The second transfer is the health reform transfer through which the federal government will provide $16 billion over five years to assist the provinces and territories in accelerating health care reforms, which were identified in the 2003 first ministers accord. These reforms include primary health care, home care and catastrophic drug coverage.

The federal government will ensure that the level of funding provided through the health reform transfer is integrated into the new Canada health transfer starting in 2008-09.

I would also like to mention that federal government funding under the CHST and the new health reform transfer is provided on an equal per capita basis to ensure equal support to all Canadians regardless of their place of residence.

An equalization program, which I will discuss in more detail in a moment, is the third major federal transfer. This program ensures that the less prosperous provinces will have sufficient revenue to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

The fourth federal transfer is the territorial formula financing, the TFF, which recognizes unique challenges and costs of providing services in the north. The TFF ensures that the territorial governments can provide a range of public services to their residents comparable to those offered by provincial governments. In 2003-04 federal payments provided under the TFF will total almost $1.7 billion.

Hon. members may be interested to know that the federal cash transfers are forecast to grow at an average rate of 7.7% between 2000-01 and 2004-05, substantially higher than projected growth in federal revenues.

Let me turn now to a more detailed discussion of the subject of today's debate, equalization.

I hope my colleagues on the other side of the House will really understand that this is simply an insurance policy, and not anything else, to ensure that those revenues continue to go to provinces after April 16. In many ways equalization is a program that expresses the generous spirit of Canada.

Equalization has been in existence since 1957 and has played an important role in defining the Canadian federation. It is unique among federal transfers in that its objective was entrenched in the Canadian Constitution in 1982.

According to the Constitution, the program's purpose is to ensure that the less prosperous provinces can provide reasonably comparable public services without their taxes being out of line with those of the more affluent provinces.

At present eight provinces qualify for federal support under equalization: Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba, Saskatchewan and British Columbia. Ontario and Alberta are not eligible.

The fact that equalization was one of the few programs which was exempt from restraint measures during the mid-1990s illustrates the importance that this government attaches to this program. The government clearly understands what equalization means to receiving provinces.

I should also mention that equalization payments are unconditional. Receiving provinces are free to spend the funds on public services according to their own priorities. In 2003-04 provinces will receive approximately $10.1 billion in funding equalization payments from the federal government.

Hon. members may be interested to know how the program works.

Let me begin by pointing out that equalization is the most important federal program for reducing the differences in the abilities of provincial governments to raise revenues. Equalization payments are calculated according to a formula set out in federal legislation to respond to economic developments in the provinces.

When a province's economy is booming relative to the standard provinces, its equalization payments decline under the formula, reflecting the increase in wealth of that province. Conversely, when a qualifying province's fiscal capacity declines relative to the standard due to a slowdown in the economy, its equalization transfers increase. As well, equalization payments are subject to a floor provision. Until recently they were subject to a ceiling provision too.

The floor provision provides protection to provincial governments against unexpected large and sudden decreases in equalization payments. The floor limits the amount by which a province's entitlements can decline from one year to the next, according to a formula based on the equalization standard.

The ceiling provision was the other side of the coin. It provided protection to the federal government against unexpected increases in equalization payments. In order words, the ceiling permitted changing economic circumstances unaffordably driving equalization payments through the roof. The ceiling thus ensured that the program remained sustainable in the long run.

As part of the February 2003 first ministers accord and in light of improved federal fiscal circumstances, the Prime Minister announced that the government would permanently remove the equalization ceiling on an ongoing formula basis beginning with the fiscal year 2002-03. This provision was announced in the 2003 budget and legislation in Bill C-28, the Budget Implementation Act of 2003, received royal assent in June of this year.

Federal and provincial officials review the program on an ongoing basis to ensure that these differences are measured as accurately as possible. In addition, the legislation is renewed every five years to ensure that the integrity and fundamental objectives of the program are preserved, the last renewal being in 1999. As we know, new legislation must be in place by April 1, 2004.

The purpose of Bill C-54 is to ensure, and I underline this for all of my colleagues in the House, an uninterrupted stream of equalization payments following March 31, 2004, the date that the existing legislation is set to expire. As I said earlier, it is an insurance policy to ensure the continuation of payments for up to one year in the unlikely event, and I stress unlikely event, that renewal legislation does not obtain parliamentary approval before the expiration of the existing legislation.

As the Minister of Finance stated about the bill, the equalization program reflects the core values of our federation, and I believe it is important to give this matter the consideration that it deserves.

The minister went on to say that this measure was a precautionary one to ensure that the payments on which the provinces depended were not interrupted. As the minister has said, we are committed to tabling full renewal legislation in time for passage by March 31, 2004 deadline, but we must protect the public services that the provinces fund through the equalization program for the benefit of their citizens.

Without a doubt, passage of the bill will ensure uninterrupted equalization payments to the provinces in the unlikely event that new legislation is not in place by March 31, 2004. As well, in the event that the government continues payments under the current legislation, the proposed bill will ensure that the floor payments will continue to be made.

I suggest to hon. members that they view the measures in Bill C-54 as extra insurance, given that the impacts on receiving provinces could be very significant without the legislation. Of course, the renewal legislation, when passed, will supercede this extension. I want to emphasize that.

I will say a few words about the renewal legislation which would ensure, for my hon. friends across the way, and I know they will support this, that the program remains up to date and that the best possible calculations and data are used to determine equalization payments.

The government has identified three key principles in this renewal. First, the government is committed to a strong equalization program that allows provinces to provide reasonably comparable levels of public services at reasonably comparable levels of taxation. This is our constitutional commitment. I believe that the current program does that.

Second, the government is committed to improving the predictability and the stability of the equalization program. Equalization payments to the provinces should not destabilize provincial fiscal planning, something with which I am sure we all agree.

Third, the government is committed to maintaining the integrity of the equalization program. This principle is founded in the premise that payments have to be based on an objective formula, thereby ensuring equal treatment to all provinces. Maintaining the integrity of the program requires periodic revisions to reflect the most up to date figures and, obviously, current provincial taxation practices, while ensuring long term stability of the program.

As hon. members know, equalization is not static. Rather, it responds to the changing fortunes and circumstances of provinces over time. Indeed, since the program's inception, all provinces except Ontario have received payments to varying degrees, but always in accordance with objective calculations at the time.

In short, the government's commitment to equalization renewal is about making appropriate, fair and accurate changes. It is not about cutting or enriching the program.

Before closing, I want to take a moment to review the government's response to some of the provincial concerns. I am pleased to say that the federal government has listened, particularly with respect to their concerns about the ceiling, strengthening the equalization program, as well as further work to ensure the stability of payments.

As I indicated before, as part of the February 2003 first ministers accord, the Prime Minister announced that the government would permanently remove the equalization ceiling on a going forward basis from that time. This addressed a key provincial concern and, as I said, that was dealt with by the Prime Minister earlier this year.

We also know that in consultation with the provinces the federal government is working toward a new equalization legislation for the five year period beginning in April 2004. The program is being reviewed to ensure that it continues to accurately measure fiscal disparities and the capacity of provinces to raise revenue.

As well, with the provinces, the federal government is also working on how best to improve the stability of equalization payments. We agree with the provinces that it is important to improve the stability and the predictability of payments under this program. I am sure my colleagues across the way are delighted to hear that.

In closing, let me mention a few key points. We know that all parts of the country cannot generate the same revenues to finance public services. Federal transfers therefore help to ensure that important programs are adequately funded. Transfers also help to ensure that all Canadians receive reasonably comparable levels of public services no matter in which province they reside.

Canada's equalization program reflects the values of our federation, ensuring that all Canadians can have access to quality public services no matter which province they live in.

The bill underscores the priority the government places on equalization and will ensure that the receiving provinces continue to have resources to provide the services their people need and want, if necessary.

This is an insurance policy. This is not rocket science. It simply means that in regard to an unlikely event after April 1 payments would continue. I want to assure all members that the discussions the minister had earlier this month went very well, but the fact is that it is always prudent to have an insurance policy. I would hate to be in a position where payments did not flow on April 16, so I would urge all members of the House to give quick passage to the legislation.

Income Tax Act

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, the legislation before us, Bill C-48, implements a new federal income tax structure for Canada's resource sector, to be phased in over five years.

To begin, I want to give the House a sense of the overall importance of the resource sector, especially mining and oil and gas, to the Canadian economy as a generator of investment, exports and jobs for Canadians.

In 2001, for example, the sector accounted for almost 4% of Canada's GDP, with over $64 billion in exports and more than $30 billion in capital expenditures. As well, over 170,000 Canadians work in resource businesses.

The potential for future resource development exists right across the country. While the mining industry is vital to rural and northern economies, the oil and gas industry is important to both the western and Atlantic provinces and the territories.

Internationally, Canadian resource industries are large investors in innovative technology and they also play a significant role in the provision of exploration and extraction services.

Overall, the changes in Bill C-48 will be positive, both for mining and for the oil and gas industry, but before discussing them, I want to briefly review the existing sector specific tax measures.

As hon. members know, income earned in Canada from the extraction and initial processing of non-renewable resources has historically been subject to a range of targeted tax measures.

For example, certain provisions determine the timing of deductions for capital expenditures. They include Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses and capital cost allowances. These measures recognize the risks involved in investing in resource exploration and extraction and also play an important role in ensuring a competitive business environment.

In addition, the resource sector is able to use flowthrough shares to raise capital for resource exploration and development. Individuals investing in flowthrough shares for grassroots mineral exploration are also eligible for the 15% mineral exploration tax credit, introduced in October 2000 as a temporary measure to moderate the impact of the global downturn in exploration activity on mining communities across Canada.

Another resource specific provision is the 25% resource allowance. This provision was introduced in 1976 primarily to protect the federal income tax base from what were rapidly increasing provincial royalties and mining taxes, which had been deductible for federal tax purposes.

The resource allowance, however, is an arbitrary deduction that does not necessarily reflect the actual cost of royalties and mining taxes. Consequently, it can distort the returns from individual resource projects and the allocation of investment between projects within the resource sector and between the resource sector and other parts of the economy.

As well, the complexity of the resource allowance calculation has meant substantial compliance costs for the industry and administrative costs for government.

The economic conditions that led to the introduction of the resource allowance have changed significantly since the 1970s, leaving the original need for it less relevant. In today's economic environment, there is greater pressure on producers to be efficient and on host jurisdictions to levy royalties at competitive rates.

The government recognized that the resource sector tax regime is capable of generating even greater investment and jobs for Canadians. In designing a new tax regime for the sector, the government was guided by three main goals.

First, the tax regime must be internationally competitive, particularly in the North American market. Second, it must be transparent for firms and investors. Third, it must promote the efficient allocation of investment both within the resource sector and between sectors of the Canadian economy.

Following extensive consultations with the industry, and I underline extensive, the government announced in the 2003 budget that it intended to improve the taxation of resource income.

Subsequently, on March 3 the Minister of Finance released a technical paper on the budget proposals. These proposals were reviewed in the course of extensive consultation with the industry and with the provinces. In response to these consultations, some special transition measures were incorporated into the legislation before the House today.

I would now like to briefly review the measures in Bill C-48. The proposed new tax structure will ensure that the resource sector firms are subject to the same statutory rate of corporate income tax as firms in other sectors. It will also ensure that these firms can deduct their actual cost of production rather than an arbitrary allowance.

Let me explain a little further. The first measure in Bill C-48 would reduce the federal statutory corporate income tax rate on income earned from resource activities from 28% to 21% by 2007. This rate is often the first piece of information viewed by prospective investors. If Canada is to send a positive message to investors that it is competitive, then this uniform lower rate is indeed essential.

The second measure would eliminate the arbitrary 25% resource allowance and would provide a deduction for the actual amount of provincial and other crown royalties and mining taxes paid. This means that projects would now be treated in a more comparable fashion. This change would promote efficiency by ensuring that the investment decisions were based more consistently on the underlying economics of each project. It would also result in a simpler tax structure, streamlining tax administration and compliance.

The government has recognized the particular circumstances of the mining sector in Bill C-48 by proposing a new 10% mineral exploration tax credit and it will apply to both Canadian grassroots exploration and preproduction development exploration for diamonds, base or precious metals and industrial minerals that become base or precious metals through refining.

It is proposed that these new measures be phased in over a five year transition period. An exception is the new mineral exploration credit which will reach its full rate in only three years. The proposed implementation schedule provides a reasonable transition to an improved tax structure in a fiscally responsible manner.

In addition to the resource tax changes, Bill C-48 includes measures that promote renewable energy and energy conservation projects by improving the treatment of Canadian renewable and conservation expenses, the CRCE. These expenses are fully deductible in the year that they are incurred and can be transferred to investors under a flow-through share agreement.

As I clarified in the standing committee hearings, we are discussing federal tax changes only. To the extent that the provinces rely on the federal tax base though, if offsetting adjustments are not made, provincial income tax revenue from the resource sector may increase as a result of these changes.

The international competitiveness of Canadian firms will be maximized where provinces provide a mechanism to return to the industry any provincial revenue gain arising from the changes to the federal tax structure.

The new tax structure for the resource sector complements other measures in the 2003 budget. We discussed these measures during the debate last spring on Bill C-28, the Budget Implementation Act, 2003. That bill eliminated the federal capital tax over five years, which will strengthen the Canadian tax advantage for investment in the capital-intensive resource sector.

Together with the elimination of the federal capital tax, the new measures in the bill we are considering today will substantially reduce the effective tax rates, both for the mining and the oil and gas industries.

For oil and gas, this reverses a current disadvantage relative to the United States. For mining it will build on an existing advantage. In both cases the changes place the Canadian resource sector in a markedly improved position to attract capital for exploration and development.

Bill C-48 reflects the government's ongoing commitment to an efficient and competitive corporate income tax system which plays an important role in creating a stronger and more productive economy. The resource sector attaches considerable priority to the delivery of these proposed changes. I cannot emphasize that enough for the members.

During the finance committee hearings on Bill C-48, the industry representatives and many committee members indicated that they considered the timely delivery of the legislation to be of utmost importance to their constituents and, indeed, to many provinces such as Alberta, Saskatchewan, Nova Scotia, et cetera. Given the benefits of these changes for the resource industries and the communities on which they depend, I would encourage all hon. members to give quick and speedy passage to Bill C-48.

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Madam Speaker, I appreciate my colleague's intervention more than he knows.

I will go over the four provisions again: Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses and capital cost allowances determine the timing of reduction for capital expenditures. These provisions recognize the risks inherent to the large investments required for resource exploration and extraction and play an important role in ensuring a competitive business environment.

Also, there are two targeted income tax vehicles: the Atlantic investment tax credit that supports resources development and other investment in Atlantic Canada; and flow-through shares, which are designed to support junior exploration firms.

As well, the 15% mineral exploration tax credit was introduced in October 2000 as a temporary measure to moderate the impact of global downturn in exploration activity on mining communities across Canada.

The 25% resource allowance was introduced in 1976 to effectively put a ceiling on deductions in respect of rapidly increasing provincial and other crown royalties and mining taxes. This allowance functions as a proxy for actual royalties and mining taxes paid to provinces.

The government recognizes that the resource sector tax regime can generate greater investment and jobs for Canadians if it achieves these three goals. First, the sector must be internationally competitive, particularly within the North American context. Second, it must be transparent for firms and investors. Third, it must promote the efficient allocation of investment both within the resource sector and between sectors of the Canadian economy. I believe the measures in Bill C-48, which would be phased in over five years, meet these goals.

As we know, in a global economy with intense competition for capital, a tax system with a lower tax rate, applied uniformly across all sectors with a simpler and more efficient tax structure, is far more effective than one with a higher rate of tax applied on a less efficient tax base. Bill C-48 would address this issue by reducing the federal statutory corporate income tax rate on income earned from resource activities from 28% to 21% by 2007.

The federal statutory corporate income tax rate is important because it is often the first piece of information viewed by prospective investors. A uniform, low statutory rate sends a positive signal to investors in Canada and internationally about Canada's relative competitiveness. In addition, a single rate reduces compliance and tax administration costs. The resource tax package will result not only in more competitive tax rates but also in a more competitive tax structure.

I would like now to look at changes relating to crown royalties, mining taxes and the resource allowance. As hon. members may know, the existing tax structure disallows the deduction from income of crown royalties or mining taxes. The resource allowance can either exceed or be less than non-deductible royalties and mining taxes for a specific project annually or over its economic life.

The resource allowance also introduces complexities in the tax system, thus adding to the cost of compliance and administration. It operates in economic conditions that have changed significantly from those that gave rise to it in the 1970s and earlier 1980s. Oil and gas markets are now deregulated and international competition for exploration and development capital is more robust.

All these factors put pressure on producers to be more efficient and, on host jurisdictions, to levy royalties and mining taxes at competitive rates.

By providing through this bill a deduction for the actual amounts of provincial and other crown royalties in mining taxes paid and eliminating the resource allowance, projects will now be treated in a more comparable fashion. This means that investment decisions will be based more consistently on the underlying economics of a project.

When fully implemented, this measure will result in a tax structure that imposes the same corporate tax on resource income as on other corporate income, and one that also allows deductions for actual costs instead of an arbitrary allowance.

These changes with respect to the resource allowance and royalty deductibility present important structural improvements to the treatment of costs in the resource sector.

Another measure introduces a new 10% mineral exploration tax credit for corporations incurring qualifying mineral and pre-production exploration expenses before a mine reaches production in reasonable commercial quantities. The new tax credit will be available only to corporations and will not be refundable or transferable under a flowthrough share agreement or through a partnership or trust. It will apply to both Canadian grassroots exploration and pre-production development expenditures for diamonds, base or precious metals, and industrial minerals that become base or precious metals through refining.

I should point out that this new tax credit is not to be confused with the 15% temporary mineral exploration tax credit that Bill C-28 is extending to the end of 2004. That credit is only available to individual investors in flowthrough shares. It was introduced as a temporary measure, as I mentioned earlier, to moderate the impact of the global downturn in exploration activities on mining communities across Canada.

Bill C-48 also includes special transitional arrangements. I will provide a little background at this point.

Following the budget announcement that the government intended to improve the taxation of resource income, on March 3 the Minister of Finance released a technical paper on the proposed changes.

The government reviewed the changes with industry and the provinces. Further to these discussions the government made two changes to the transition provisions of the new tax structure.

The first change will achieve a better measure of taxable resource and non-resource income for the purposes of applying the general corporate rate reduction during the transitional period by utilizing resource pool deductions in the determination of resource income.

The second change targets the Alberta royalty tax credit, ARTC, transitional relief set out in the technical paper to get a greater number of small and medium size producers. The Alberta royalty tax credit, as many hon. members know, is one of the most significant refund programs for crown royalties. Under this program the province of Alberta refunds a minimum of 25% of the first $2 million in crown royalties paid by each corporation or group of corporations.

A special transitional measure will reduce, during a 10 year transitional phase-in period, a portion of the refund that must be included in income tax for tax purposes. It will be available to individuals who receive the ARTC and to taxable Canadian corporations that pay no more than $2 million in Alberta crown royalties. Taxable Canadian corporations that may pay more than $2 million but less than $5 million of Alberta crown royalties will be eligible for a reduced amount of special transitional fund.

This new measure will further assist smaller corporations in their transition to the new tax structure. Both the general five year transition and the 10 year ARTC transition will provide investors with the certainty they need when making investment decisions.

There will be several benefits to the changes implemented through the bill. These changes will increase Canada's international competitiveness in oil and gas and in mining. As I indicated earlier, they will result not only in more competitive tax rates but also in a more competitive overall tax structure.

Regardless of how a firm's tax base is affected by the removal of the resource allowance and deductibility of crown royalties, all resource firms will benefit from a lower rate of corporate income tax. The oil and gas sector will pay less federal corporate income tax as a whole as a result of this change. Similarly, it is anticipated that the new taxation regime for mining, which includes the new pre-production mining tax credit for corporations, will result in a lower tax burden for that sector. For the most part there has been strong positive feedback on these proposed changes from industry organizations.

When these measures are fully phased in, it is estimated that the annual revenue cost to the federal government will be about $260 million.

There is one more important element of this bill that I would like to discuss. Bill C-48 also includes a measure that will enhance the treatment of the Canadian renewable and conservation expenses, the CRCE. These expenses are associated with the development of certain renewable energy and energy efficiency projects. The measure will also allow corporations to renounce Canadian renewable and conservation expenses to flowthrough share investors in a year where the CRCE will be incurred in the subsequent year.

This change was proposed in a July 26, 2002 Department of Finance news release. It will apply to qualifying renewable energy and energy conservation projects and will provide greater flexibility in the timing of investments financed through flowthrough shares. The treatment of flowthrough share investments in such projects will now parallel that of investments in non-renewable energy projects.

This new tax structure will achieve what it is designed to do. It will improve the international competitiveness of the Canadian resource sector, in particular relative to the U.S. It will promote the efficient development of Canada's natural resource base by establishing a common corporate income tax rate for all sectors and by treating costs more consistently, both across resource projects and between the resource sector and other sectors of the economy. It will simplify the taxation of resource income, streamline compliance and administration, and send clearer signals to investors.

This is a very important new regime. It will build upon Canada's tax advantage to support investment, innovation, productivity, growth and jobs for Canadians. I would urge all members of the House to support this bill.

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Madam Speaker, I appreciate the opportunity to present Bill C-48 for second reading today.

The bill would implement federal income tax changes that were announced in the 2003 budget for Canada's resource sector, comprising the mining, oil and gas and fertilizer industries.

The 2003 budget takes concrete comprehensive action in several areas to build the society that Canadians value, the economy that Canadians need and the accountability that Canadians deserve. Included in the budget are measures to help Canadian business become even more competitive in the North American and global economies.

This new structure for federal income taxation of the resource sector reflects the government's ongoing commitment to an efficient and competitive corporate income tax system.

As hon. members know, a better economic performance for Canada tomorrow requires a more productive, innovative and sustainable economy today. Our tax system plays an important role in creating a stronger, more productive economy.

An efficient tax structure can enhance incentives to work, save and invest. It can also support entrepreneurships and the emergence and growth of small businesses. In addition, a competitive tax system is critical in encouraging investment in Canada, which leads to greater economic growth and job creation.

That is why the government launched a five year $100 billion tax reduction plan, the largest in our history, which has strengthened the foundation for economic growth and job creation in this country.

Among other things, it lowered the general federal corporate income tax rate from 28% in 2000 to 21% in 2004. With the tax cuts implemented to date, the average federal-provincial corporate tax rate in Canada is now below the average in the U.S.

The 2003 budget builds on the Canadian tax advantage for investment.

Several measures that will benefit the resource sector were included in Bill C-28, the Budget Implementation Act, 2003, which received royal assent last June.

These measures include: eliminating the federal capital tax over five years, a move that will strengthen Canada's tax advantage for investment in the capital-intensive resource sector; increasing the amount of annual qualifying income eligible for the reduced 12% federal small business tax rate from $200,000 to $300,000; and extending the existing temporary 15% mineral exploration tax credit until December 31, 2004, and providing an additional year for issuing corporations to make expenditures related to these arrangements.

When fully implemented, the measures in the legislation we are debating today, Bill C-48, will require that firms in the resource sector are subject to the same statutory rate of corporate income tax as firms in other sectors and that they will be able to deduct actual costs of production, including provincial and other Crown royalties and mining taxes.

Before discussing the measures in detail, I would first like to put them in context.

The resource sector is an important generator of investment, exports and jobs for Canadians, indeed, a significant component of the Canadian economy. In 2001, for example, the resource sector accounted for almost 4% of Canada's GDP, with over $64 billion in exports and more than $30 billion in capital expenditures. Over 170,000 Canadians work in resource businesses.

As well, the sector in general, and the mining industry in particular, is vital to rural and northern economies, while the oil and gas industry, long important to western provinces, is now also a significant economic presence in Atlantic Canada.

The potential for future resource development exists in virtually every region of the country. Moreover, Canadian resource industries are large investors in innovative technology and major participants in the provision of exploration and extraction services internationally.

Historically, income earned in Canada from the extraction and initial processing of non-renewable resources has been subject to special tax treatment. There are three main reasons for this.

The first is that resources are key economic assets. Since the development of non-renewable resources can create significant economic and social benefits, there is a strong initiative for governments to design a sound, economic and fiscal framework for large capital investment requirements.

The second reason underlying the tax treatment of the resource sector is that governments have come to accept that there is a specific set of risks and benefits inherent in the business of resource exploration and extraction. The tax treatment acknowledges that the resource sector is operating in a distinct environment.

The third reason underlying this special tax treatment is the direct competition for international investment dollars. Historically, international capital has been critical to the development of our resource industry. Competition for this capital, including Canadian capital, is increasingly intense.

I would like to review for members the current income tax provisions that are specific to the resource sector.

There are four provisions: Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses--

Supply

[Paul MacKlin, Liberal, Parliamentary Secretary to the Minister of Justice and Attorney General of Canada]

Madam Speaker, I welcome the opportunity to speak to the motion put forth by the hon. member for Joliette. While I commend the hon. member for bringing this matter to the attention of the House, I am unable to support the motion.

Following my remarks I am confident that hon. members may well share my views. In the time allotted to me today I want to focus on two issues. First, I want to set the record straight about the government's commitment to tax fairness and tax equity. Second, I want to review with hon. members why Canada has a network of tax treaties or tax conventions, as they are often called, in place.

Let me begin with the tax fairness and tax equity. Since the beginning of our mandate back in 1993, two of the government's ongoing priority areas continue to be sound fiscal management and fairness in our tax system. The government is fully aware that better economic performance for Canada tomorrow requires a more productive, innovative and sustainable economy today.

Our tax system plays an important role in creating a stronger, more productive economy.

An efficient tax structure can enhance incentives to work, save and invest. It can also support entrepreneurship and emergence and growth of small businesses.

In addition, a competitive tax system is critical in encouraging investment in Canada, which leads to greater economic growth and job creation. That is why, in the budget in 2000, the government introduced its five year $100 billion tax reduction plan, which is the largest tax cut in history.

The tax reduction plan is putting in place a tax advantage for business in Canada as a basic part of the strategy for fostering a strong and productive economy. With the tax cuts implemented to date, the average federal-provincial corporate tax rate in Canada is now below the average U.S. rate.

The 2003 budget builds on that tax reduction plan to further improve the tax system and enhance incentives to work, save and invest.

Hon. members will recall that Bill C-28, the Budget Implementation Act of 2003, received royal assent in June. That bill contained several measures that improve the tax system. We will soon be debating Bill C-48 which introduces a new tax structure for the resource sector to make it more internationally competitive, again a measure that stems from that 2003 budget.

I can assure hon. members opposite that the government remains committed to a fair and equitable tax system, one that is reasonable and compassionate and that we will continue to introduce measures as appropriate to ensure that this commitment is met.

This brings me to the topic of today's motion, that is the tax treaties or conventions. Our tax treaties our tax treaties are there to assure us of how Canadians will be taxed abroad. At the same time, these treaties assure our treaty partners of how their residents will be treated in Canada.

Canada, as we have already heard today, has over 70 tax treaties in place. This speaks volumes to the work behind the scenes on behalf of the government to set up this extensive network.

Canada's tax treaties are all designed with two general aims in mind: first, to remove barriers to cross-border trade and investment; and second, to prevent unintended tax results by encouraging co-operation between Canada's tax authorities and those in other countries.

International trade and investment decisions can be influenced by the existence and terms of a tax treaty and their importance in this regard should not be overlooked. Tax treaties do not impose tax nor do they generally restrict countries from taxing their own residents as they see fit under their domestic tax laws. Among other things, however, tax treaties set out the rules under which one country can tax the income of a resident of another country. This is particularly important for traders, investors and others with international dealings who are interested in doing business in Canada. It is only natural that they would want certainty as to the tax implications associated with their activities here and reassurances that they will be treated fairly.

The importance of eliminating tax impediments to international trade and investment has grown even more important now that the world economy has become so intertwined. It should not, therefore, come as any surprise that it can be advantageous to have tax treaties in place with other countries.

One of the most disconcerting things to a taxpayer is unrelieved double taxation, in other words, to have income taxed twice when the taxpayer lives in one country and earns income in another. Without a tax treaty, both countries could claim tax on the income without providing the taxpayer with any measure of relief for the tax paid in the other country.

To alleviate the potential for double taxation, tax treaties resort to two general methods. In some cases, the exclusive right to tax particular income is granted to the country where the taxpayer resides. In other cases, the taxing right is shared but the state where the taxpayer resides is obliged to eliminate double taxation by providing relief for the tax paid in the other country.

Put another way, tax treaties reduce the frequency with which taxpayers of one country are burdened with the requirements to file returns and pay tax in another country when they are not meaningful participants in the economic life of that country or where it would be a nuisance for them to do so.

Withholding taxes are also a common and important feature in international taxation. In Canada's case they were applied on certain income, for example, interest dividends and royalty payments that Canadian residents make to non-residents. Withholding taxes are levied on the gross amounts paid to non-residents and generally represent their final obligations with respect to Canadian income tax. Without tax treaties, Canada usually taxes this income at the rate of 25%, which is the rate set out in our domestic law or, more precisely, under the Income Tax Act.

Our tax treaties specify the maximum amount of withholding tax that can be levied by Canada and its treaty partners on certain income. These rates are almost always lower than the 25% rate provided for in the Income Tax Act.

I now want to turn to the second objective of tax treaties, namely that of preventing the unintended tax results by encouraging co-operation between Canadian tax authorities and those in other countries.

The most obvious unintended result from a tax administrator's perspective is that of tax evasion or avoidance. Like their predecessors, tax treaties are also designed to encourage co-operation between tax authorities in Canada and in the treaty countries to prevent tax evasion or avoidance.

Treaties are an important tool in protecting Canada's tax base as they allow for consultations and the exchange of information between our revenue authorities and their counterparts in these eight countries.

Because of tax treaties, tax authorities are able to deal directly with each other to solve international transfer pricing issues, to reach satisfactory solutions to concerns raised by taxpayers, to complete audits and to engage in other discussions aimed at improving tax administration.

But there are benefits. Many positive benefits ensue for taxpayers and businesses alike from tax treaties. For example, taxpayers benefit from knowing that a treaty rate of tax cannot be increased without substantial advance notice.

Investors and traders benefit from the atmosphere of certainty and stability that the mere existence of tax treaties will foster.

Our tax system works more effectively with the introduction of mechanisms to settle disputes. Our expanded tax treaty network generates more international activity which impacts favourably on the economy. Of course, assurances against unrelieved double taxation are always applauded by taxpayers.

In concluding my remarks, Canada's network of tax treaties with other countries is one of the most extensive of any country in the world. Canada's exports now account for about 40% of our annual GDP. Further, our economic wealth also depends on direct foreign investment as well as inflows of information, capital and technology.

Clearly the impact of tax treaties on the Canadian economy is significant. Without these international agreements, double taxation can adversely affect economic relationships between countries, mainly because tax treaties are directly related to international trade in goods and services and therefore impact directly on our domestic economic performance.

Let me reiterate: The passage of tax treaties results in many meaningful benefits for taxpayers, benefits that include a more simplified tax treaty system, a more stable environment for investors and traders and most important, the elimination of double taxation that might otherwise result in harmful international transactions.

Given the success of the existing tax treaty system and its contribution to creating fairness and equity in the tax system, I feel that the premise of today's motion is not relevant and I am unable to support it.

[Eugène Bellemare, Liberal, Ottawa—Orléans, ON]

Mr. Speaker, I am pleased to have this opportunity to address the motion put forth by the hon. member for Port Moody—Coquitlam—Port Coquitlam.

While I appreciate his concern, and commend him for bringing this matter to the attention of the House, I am unable to support his motion.

Does the hon. member not realize that there are many demands today on the government's scarce resources, not just his? I would hope that he realizes this, because it is important for the government to remain firmly committed to sound financial management and fairness in the tax system.

The government intends to continue to follow a balanced approach to managing the wide range of priorities and pressures facing it, as exemplified by measures in the 2003 budget, which I will discuss in a moment

Since the beginning of our mandate back in 1993, two of the government's ongoing priority areas continue to be sound financial management and fairness in the tax system. Balancing these two equally demanding commitments has been a challenge for the government. It would appear that my hon. colleagues opposite have not been paying attention to any of the tax measures our government has consistently introduced since 1993.

The government is fully aware that better economic performance for Canada tomorrow requires a more productive, innovative and sustainable economy today. Our tax system plays an important role in creating a stronger, more productive economy

An efficient tax structure can enhance incentives to work, save and invest. It can also support entrepreneurship and the emergence and growth of small businesses. In addition, a competitive tax system is critical in encouraging investment in Canada, which leads to greater economic growth and job creation.

That is why the government launched a five-year $100 billion tax reduction plan—the largest in our history—which has strengthened the foundation for economic growth and job creation in this country, and helped low and middle income Canadians at the same time.

Need I remind hon. members that, in the course of preparing the 2003 budget, the Minister of Finance was advised by Canadians that his budget must be more than the tallying of accounts. The budget must reflect the sum of our values as well.

The budget the minister presented to this House in February meets this challenge in three arenas of national life:

First, it builds the society Canadians value by making investments in individual Canadians, their families and their communities.

Second, it builds the economy Canadians need by promoting productivity and innovation while staying fiscally prudent.

Third, it builds the accountability Canadians deserve by making government spending more transparent and accountable.

Just as important, the government is able to meet these challenges and pursue significant new investments, but without risking a return to deficits, because of our continuing commitment to sound financial management.

Exactly as I just explained, Mr. Speaker, we cannot support this motion because of the many demands on scarce government resources and because of our commitment to sound financial management.

Our commitment to fiscal responsibility is real and rigid—not just rhetoric—as demonstrated by the fact that we have already delivered five consecutive surpluses, a $47 billion reduction in the federal debt, the $100 billion tax reduction plan, and in our latest budget a $34 billion investment in health care for Canadians.

In Budget 2000, the government introduced its five year $100 billion tax reduction plan, the largest tax cut in history. The 2003 budget builds on the plan to further improve the tax system and enhance incentives to work, save and invest.

The plan continues to deliver growing tax relief—about $24 billion this year, and $30 billion in 2003.

Let me expand on this a bit. For example, 75% of the tax reduction plan was focused primarily on personal income tax deductions. Federal personal income tax reductions under this plan are 21% on average and 27% for families with children.

Key elements of this plan include: full indexation of the personal income tax system as of January 1, 2000; lowering personal income tax rates for all taxpayers; eliminating the deficit-reduction surtax; and substantially increasing tax support for students in post-secondary education.

We have also created a Canadian advantage in the area of business taxation. The government legislation a 7 point reduction in the general rate of corporate tax from 28% to 21%. For this year, the rate has already been reduced to 23% and will fall to 21% in 2004.

Honourable members will recall that we recently debated Bill C-28, the Budget Implementation Act, 2003, here in this chamber. That bill contains several measures that improve the tax system, many of which are directed at helping families with children.

There is no more important investment that we can make than in the opportunities we create for our children. Through this bill, the 2003 budget strengthens our long-standing commitment to Canadian children and families in several key areas.

First, annual assistance for children in low-income families is increased through the Canada child tax benefit to $10 billion by 2007—with annual benefits increasing to $3,243 for the first child, $3,016 for the second child and $3,020 for each additional child.

Second, in recognition of the fact that caring for children with severe disabilities imposes a heavy burden on families, a new indexed $1,600 child disability benefit, effective July 2003, will provide additional assistance of up to $1,600 annually to low and modest income families with a disabled child.

Third, $80 million per year is provided to enhance tax assistance for persons with disabilities, drawing on an evaluation of the existing disability tax credit and the input of a technical advisory committee.

The budget also adds to—and builds on—tax measures introduced in previous budgets to provide support to persons with disabilities.

More infirm children or grandchildren will now be able to receive a tax-deferred rollover of a deceased parent's or grandparent's RRSP or RRIF proceeds, and the list of expenses eligible for the medical expense tax credit is expanded to include, for example, certain expenses for the incremental cost of gluten-free food products for individuals with celiac disease.

Canada's high calibre workforce also deserves the support of a competitive tax system, a fact not overlooked by the tax reduction plan. The 2003 budget further improves the tax system through incentives to save and invest, to help small and medium sized enterprises and boost Canadian competitiveness.

For example, to promote savings by Canadians the budget increases registered retirement saving plan and registered pension plan limits to $18,000 over four years and indexes these new limits.

However, I urge my hon. colleagues to remember that any new tax measures must be done in concert with our commitment to sound financial management. We have to ask ourselves, what other commitment would we have to give up to pay for the proposal before us today? As the minister said in his budget speech, we will not go back into deficit.

I am unable to support this motion and I encourage other hon. members to follow suit.

Canada Elections Act

[Don Boudria, Liberal, Glengarry—Prescott—Russell, ON]

Mr. Speaker, I do not know who writes this stuff, but he or she would be fired right now if I were in the place of the hon. member.

The hon. member should know the legislative program of the government. We have dealt with everything from international agreements, aboriginal self-government in Bill C-7 and the budget implementation bill that transfers the funding to the provinces for the health accord to improve health in every way, and about which the hon. member has just talked.

What party voted against Bill C-28, the budget implementation and health transfers to the provinces to help in health? Hon. members across, who are asking me these preposterous questions, are the same people who voted against giving extra money to the provinces for health and all kinds of other things. They voted against the tax reduction measures and all those other things on which the government had been working so hard.

In terms of the Prime Minister's image, and I want to end on that note, the Prime Minister is at an historical high in his personal popularity. He has led Canadians in an absolutely magnificent way for all these years. In a year from now, or close to that, he will no longer be the Prime Minister, unfortunately in my view, but he will be remembered as being one of the great leaders the country has ever had.

National Children's Memorial Day

[Scott Reid, Canadian Alliance, Lanark—Carleton, ON]

Mr. Speaker, on February 20, I raised a question in question period expressing my concern with the federal government's unwillingness to respect provincial jurisdiction in its budget, which had been delivered a few days earlier. I noted that while there had been nationwide disappointment with the budget expressed by many provincial governments, opposition to the federal budget had been particularly clearly stated in the Quebec legislature.

The then minister of finance for Quebec, the leader of the ADQ and the finance critic for the Quebec Liberal Party, which was still at that point in opposition, all expressed their complete disapproval of the federal government's interference in provincial jurisdiction. At the time I wanted to know why the minister did not trust the provinces to administer programs for health, families, social housing and education.

The minister responsible for intergovernmental affairs gave a most unsatisfactory response to my question. I am here today to further question the federal government's infringement on the rights of the provinces to deliver social programs such as education.

Let me give a clear example of the kind of insensitivity to educational priorities that has been shown in this budget.

In Bill C-28, the budget implementation act, the federal government plans to retroactively amend the provisions of the Excise Tax Act relating to school bus transportation. This takes place after the federal government lost a test case in Quebec and was ordered by the courts to pay back GST paid by the schools for transportation. Astonishingly, the Liberal government's solution is not to simply pay the money that it owes to school boards, but instead the budget is pushing through a retroactive clause to justify a tax on local school funding that the courts have said is unlawful.

Technically speaking, the federal government may have a legal right to impose retroactive taxes on schools, but it goes without saying that there is no moral justification for this. Money that would have been used to educate our kids will now have to be diverted to the bottomless money pit known as the federal consolidated revenue fund.

This is not just a Quebec issue. In Eastern Ontario, the Upper Canada School Board will be particularly hard hit by this retroactive tax. This school board will be deprived of $2.59 million. That is $2.5 million that could have been used for school repairs, the hiring of more teachers, or for the replacement of infrastructure.

My fellow Ontario Alliance MP, the hon. member for Renfrew--Nipissing--Pembroke, has raised this issue in the House of Commons, poignantly stating the problem as well as the effects it will have on school districts in her riding. On May 12 she stated, and I quote:

The decision to grant only a partial GST exemption of 68% to school boards for the supply of transportation services has meant that school boards have had to pay millions of dollars in GST payments to the federal government instead of applying the funds to important educational requirements.

That applies to the Upper Canada School Board as well which is in my riding and it applies to school boards in many other parts of the country, particularly in Quebec where this test case took place.

Therefore I ask the parliamentary secretary this. How can she and her minister claim that the federal government is working, as he said in his response to my question in question period, cooperatively with provincial and local authorities when it refuses to even allow them to keep moneys that it owes to them under the law?

Budget Implementation Act, 2003

[The Speaker]

I declare the motion carried.

The House will therefore proceed to the vote on the third reading stage of Bill C-28.

[The Speaker]

The House will now proceed to the taking of the deferred recorded division on the previous question at the third reading stage of Bill C-28.

(The House divided on the motion, which was agreed to on the following division:)

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

Mr. Speaker, it is a pleasure for me to speak on Bill C-28, the Budget Implementation Act, 2003.

For the benefit of those listening, when we talk about adopting a budget, clearly, we expect to have a budget that contains measures to resolve obvious problems.

I am going to talk about one of these problems. I do not think there is a single Quebecker or Canadian who is unaware of the serious problem facing the Canadian airline industry. We all know that this situation is the result of the horrific events of September 11, 2001.

These events were in no way the fault of the airline industry, the men and women who are the brains behind this industry. It was the terrorists, who chose to use an airplane as a missile, who inevitably shook the airline industry worldwide.

Canada has suffered and is still suffering. Then came SARS, severe acute respiratory syndrome, which has been another blow to the airline industry.

All the industry stakeholders, not simply those in the aeronautics or aviation industry, but the entire travel and leisure industry has told the government, “Look, you are preparing a budget. You chose, in budget 2002, not to help the airline industry”. That is what happened. Despite requests at the time by Air Canada, which had immediately asked for $2 billion in assistance, the government chose to ignore this request and even withdrew the loan guarantees it had intended to announce, since Canada 3000 had declared bankruptcy. So, the government chose not to provide any assistance.

The only assistance the federal government provided was compensation to pay insurance premiums. Naturally, after September 11, the insurance premiums of airlines, particularly liability premiums, have practically quadrupled.

So, the government, like other governments around the world, decided to provide assistance as far as insurance was concerned. That is the only international initiative that the Canadian government decided to copy. The United States implemented an airline assistance program. The only thing Canada chose to copy was to compensate airlines for insurance rate increases.

Of course, the government thought that things would get back to normal. For those who are listening to us, this also gives us the opportunity to make a short analysis of the issue of Air Canada, which was asking for a $2 billion assistance right from the beginning. The federal government decided not to help it.

What the government realized was that Air Canada could dig into some cash flow, that is that the company decided to do some accounting, to sell its aircraft and to rent them, which allowed it to get more than $2 billion in cash flow.

Of course, once again, I believe this was the beginning of the end for the company. From the beginning, it had well targeted its $2 billion needs, considering the events of September 11 and the problems that it knew the industry would face during the following months. So it decided to dig into its own accounts. It sold its aircraft and rented them, getting some cash flow from the sales. In this way, it was able to survive for more than a year on its reserves.

Except that the airline industry did not recover. In the budget of 2002, which was adopted in December 2001, as members will remember, the government decided to impose an air security tax to be able, once again, to gain some revenues.

It did not help the industry, or not much; $180 million was set aside to compensate for higher insurance premiums; in addition, the industry was penalized with a supplementary tax of $24, which brought in nearly $400 million to the government.

When it was all added up, with the security tax, Canada's airline industry was paying nearly $280 million more after the events of September 11 than it was before. This problem is not limited to Canada. It is the worst disaster in any industry of any sort, across Canada. The result of the 2002 budget was that the government's revenues increased by nearly $280 million, leaving out the compensation paid to the airlines for insurance premiums. Thus, we are increasing our revenues on the backs of the airline industry. That is Canada.

In 2003, the entire airline sector, all the workers in it, this concentration of brain power that works to design the airline industry, expected that the 2003 budget would correct this error. The industry expected that the airport security tax would be withdrawn. What happened was a decision to cut the tax by half and thus collect about $200 million. That will just about cover the government's spending of $180 million to compensate the airlines for increased insurance premiums.

Two years later, with the industry as unhealthy as ever and affected by other crises such as SARS, the government is still getting the same level of revenue from this industry as before the events of September 11, 2001. Now I know why we are getting close to using extraordinary measures. It is because of such measures that a company such as Air Canada has had to resort to bankruptcy protection. We can blame Air Canada for many things, for making bad decisions in 1997-98, but it is not the fault of Air Canada employees or those of any other airline that terrorists decided to use their aircraft as missiles on September 11.

This is what makes this budget difficult to swallow, and this is why the Bloc Quebecois will vote against it. Why? Because we had a real problem. It is one example, but there are others, and my colleagues told the House about some of the other problems with the 2003 budget.

There is a serious problem, which has been affecting the airline industry as well as the tourism and recreation industry because of the events of September 11, 2001, and also because of the severe acute respiratory syndrome, also known as atypical pneumonia.

The airline industry is going through a crisis because of all these events, and this budget will provide no help. As I was explaining earlier, in 2002, the industry was hit with a $220 million tax. This budget reduces the tax by 50% and brings the revenues from the airline industry back to where they were before September 11, 2001, and the industry is still going though a crisis.

Men and women with various skills who are internationally known for their qualities as workers in the airline industry have lost their jobs in the last few weeks or will lose them in the next few weeks. Why? Because the federal government has simply decided to keep its money and not to help the airline industry. This is probably one of the most serious problems in this budget, the fact that the government will keep collecting a security tax of $12 per passenger that is harmful to the industry.

[Alexa McDonough, NDP, Halifax, NS]

Mr. Speaker, I am very happy this afternoon to have an opportunity to address at third reading stage Bill C-28, the budget implementation act.

I am particularly delighted to have an opportunity to follow my colleague from Winnipeg Centre in addressing Bill C-28. I do so for two reasons. One is that it allows me to pay tribute to the member for Winnipeg Centre for the Herculean, heartfelt effort he has put forward in standing together with first nations people to oppose the insulting, disrespectful, so-called first nations governance bill that is being rammed through by the government. It has several connections with the misplaced budget priorities we are here debating at this moment.

Second, I am very pleased to follow the member for Winnipeg Centre to simply echo my total support for the two issues he has yet again brought to the floor of the House of Commons. Let me just repeat them, because it bears repeating until the government finally addresses both of these anomalies, the first being the absolute obscenity of the lowest income seniors in this country finding themselves in the highest tax bracket, the 76% tax bracket, because of absurdities in the tax act. This is a form of tax unfairness that exceeds almost any other obscenity or absurdity that the government has sponsored in its 10 years in office. Surely it is time to remedy this obscenity.

Second, and equally absurd, is the reality that it continues to be available for corporations in some instances to write off as legitimate business expenses fines that have been imposed upon them for breaking the law. Whether it has to do with environmental issues, with environmental irresponsibility for which they have been convicted, or whether it has to do with labour practices that are completely unacceptable for which they are fined, such as violations of health and safety provisions, for example, or other forms of irresponsible, anti-social behaviour, it remains the law of the land, laws continuing to be supported by the government, that such offences can in some instances be written off by corporations.

Surely members of the Liberal government can understand the connection between the obscenity and the absurdity of those continuing practices of the federal Liberal government. The fact is that the member for Winnipeg Centre speaks from his heart about the high incidence of poverty in his riding and still in far too many communities throughout this country, because there is a connection. It is what budgets are about. We are here debating the budget implementation act.

What budgets are about are priorities. What budgets are about are what kinds of spending priorities a government adopts and what kinds of spending priorities the government ignores, priorities that ought to come to the fore. It cannot be an accident that we see juxtaposed here the kind of absurd tax unfairness and tax write-offs about which the member for Winnipeg Centre has spoken yet again. It is not just the continuing incidence of poverty in this country, but the growing gap. We have the growing gap between the rich and the poor in this country and the increasing squeeze on middle income Canadians.

I know that one of the things already addressed by my colleagues in the NDP caucus is the new provisions for the Canada social transfer. I do not want to use up my short amount of time to talk about the unhappy history of how we got to this point where now we have the government scrambling to try to repair the damage done when this government made a decision to effectively tear up or, perhaps a more appropriate image, smash the Canada assistance plan, toss the established program funding out the window and replace it with the Canada health and social transfer.

We know what has happened as a result of that. The increase in poverty, especially among the poorest Canadians, has been alarming, because the reality is that before the government tore up and threw away the Canada assistance plan, there was at least in place in the country a protection literally encoded in our laws which said that “as a citizen you will not go hungry and homeless”. That was the purpose of the Canada assistance plan.

Yes, the level of support under the Canada assistance plan often fell short of real needs, and yes, the adequacy of housing supplied often fell short, partly because the funds were inadequate from the federal government and also in many cases because the funds from provincial governments in the cost sharing of that were inadequate. But at least there was an assurance that people had a remedy in law if they were refused the basic subsistence requirements to put food on the table and to have a roof over their heads.

Has that been a priority of the government? No. We have seen the damage. Now the government brings in what is supposed to fix up the mess it created. The government has removed health so that we have a separate health transfer. That is some progress, because at least there was more accountability and it was clearer what dollars were going where for Canadians to see, to understand and to try to influence if they wanted to see change. But we still have in a kind of unaccountable lump together the remaining aspects of post-secondary education, income support and early childhood education and child care.

Again the government has not really learned its lessons and has not begun to address what is needed here. Let me say that I think this is an occasion on which we should be willing to recognize that one of the really important elements of the Romanow commission, the Commission on the Future of Health Care in Canada, was that there was a broad process of consultation around future health priorities. Although I think the government has fallen far short, and this is another criticism of the budget, of giving the resources recommended by the Romanow commission to repair the damage to our health care system and extend it as it needs to be extended to deal with unmet needs, at least there was a broad public consultation. There is no assurance whatsoever that the same kind of consultation is going to go on around the desperate problems created by the government's lumping together in an unaccountable way health, social welfare, post-secondary education and child care, and I think it is one of the flawed aspects of the legislation that it fails to do that.

Finally, I just want to say that it is very important for us to learn from our history. For that reason, I say and acknowledge that museums are important. It is also absolutely beyond the comprehension of most thinking Canadians how the government reached the decision to spend close to $100 million to create what I think we all fear is a history of political thought in the Liberal tradition in a political history museum here in Ottawa.

Instead of fictionalizing the flawed legacy of this Prime Minister's government, surely what it should be doing is fixing the misplaced priorities. That starts with adequate funding for existing museums struggling to keep the roofs from leaking and struggling to protect their exhibits, instead of creating what is surely going to become the ugliest part of the Prime Minister's legacy of all and will stand out there for all to see as a monument to the misplaced priorities of the Prime Minister's era in this political history museum, one hundred million dollars' worth.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I will take this opportunity to say a few words about Bill C-28, the budget implementation act.

I do not know if it is common knowledge but my riding of Winnipeg Centre is the third poorest riding in the country by whatever economic measurement we use, either by the incidence of poverty per the percentage of people living in poverty or by the average family income. By either of those measurements I am not proud to say that my riding of Winnipeg Centre, the core area of the inner city of Winnipeg, ranks third in the country. In fact, 47% of all the families in my riding live below the poverty line and 52% of all the children in the core area of Winnipeg live below the poverty line. It is even more severe in using that family income measurement.

I do not say this to complain or file a grievance of any sort but only to emphasize that we watch the introduction of new budgets with great interest. When so many of the people in my riding are marginalized or live close to the margin, government spending becomes key and paramount in their quality of life issues.

We looked forward to a return to social spending within the last budget with some optimism. As my colleague from Winnipeg North Centre, the riding next to mine, pointed out very capably and passionately, the budget was a great disappointment in many respects if we were looking for a return to social spending, but I am not going to dwell on that.

With the limited amount of time I have, I would like to point out two anomalies in the income tax system that could have been addressed and should have been addressed in the budget. Both are outrageous and both are unfair, especially to lower income, marginalized people such as those living in poverty in my riding.

First, surely Parliament never intended that breaking the law should be tax deductible when the Income Tax Act was crafted. Because of a 1999 Supreme Court ruling, businesses incredibly can deduct fines, penalties or levies from their taxes as a business expense provided the penalty was incurred in the course of earning income. Most Canadians would find that absurd. I find it outrageous. It is not only bad public policy to reward bad behaviour but it undermines the deterrent value of a fine, surely, if the guilty parties can have their fines automatically reduced by writing them off on their income taxes. It is crazy.

I have been badgering the government for years to plug that outrageous tax loophole. The whole issue could be resolved with a simple amendment to the Income Tax Act to make it clear that any fine or levy imposed by law on a taxpayer is not to be considered a tax deductible expense.

That is what the United States did 35 years ago and we have failed to do it. As a result, it is open season for anyone who incurs a fine, and that fine can be quite broad. In fact, chartered accountants across the country are advertising this on their web pages. Fully 36 chartered accountant firms we have found are advertising this on their websites. “Penalties, fines, we can help”, it says, “it should be noted that the Supreme Court is very clear that this case is not limited to the situation that it originally ruled on”. They say that other penalties incurred for the purpose of earning income, including GST penalties, provincial sales tax penalties, parking fines and it goes beyond that to workplace safety and health violations, environmental pollution, environmental degradation fines are tax deductible. They should not be.

I asked the revenue minister to address this issue back in 2002 as soon as I learned about it. It was actually the attorney general of Manitoba who wrote me and said “Can this be true? Can this be for real? Are you telling me that fines are tax deductible?”

I could not believe it, so I investigated it and sure enough, it was true. I asked a question of the revenue minister back in 2002. I cannot find the question now but I said that I could not deduct my parking tickets, so why could a business deduct its fines? At the time the revenue minister, to her credit, agreed and was reasonable about it. She virtually agreed with me that this had to be looked into because it did not sound right.

Six months passed and the government did nothing about it, so I asked her again. This time she hedged the question and said that it was really a matter for the Minister of Finance. I asked the Minister of Finance when he was going to correct this outrageous tax loophole. He said that we would be pleased with this year's budget, that the answer to my question would be found in this year's budget. Well, it was not there. The government decided not to plug that outrageous tax loophole.

Here is an example. Last November the courts penalized Canada Steamship Lines with the largest fine ever issued for ship source pollution, but the deterrence value of this fine clearly is undermined because our income tax laws allow CSL to write off the penalty as a business expense. We do not know if it will because that is private tax information and we do not have access to that information, but it could and many others do.

I can see why the former finance minister was loath to plug this outrageous tax loophole, but what about the current finance minister? What excuse does he have to not plug this outrageous loophole? That offends me and I raise it now and serve notice to members on the government side that I am not going to let this issue die.

I tried to introduce a private member's bill to this effect. The House leader blocked it, saying that to deny this tax loophole to criminal behaviour was tantamount to raising taxes and therefore it was a money matter, and therefore a ways and means motion was needed to precede the private member's bill. What an absurd argument, but it was upheld by the Speaker, I regret to say. That is the first issue that should have been addressed in the budget.

The second thing, with the little time I have left, is that many people would be surprised to learn that the highest taxed Canadians are not millionaires, nor are they people who make over $100,000 a year. People who make over $100,000 a year are in the highest category at 46%. We should know that, as that is the bracket in which MPs find themselves. The highest taxed Canadians are actually low income seniors whose earnings are so low that they qualify for the guaranteed income supplement.

Here is what happens to low income seniors. Anything they earn above the basic deduction is taxed at 26%, but dollar for dollar they lose their guaranteed income supplement at a rate of 50%. We are talking low, low income here. If seniors are lucky enough to enjoy some dividends from small investments they may have made during their lives which supplement their retirement incomes, but they are receiving some guaranteed income supplement, they are losing that at 50%, plus they are being taxed at 26%, for a total of a 76% tax bracket.

Low income seniors are in the highest tax bracket in the country and that is wrong. They are arguably the poorest people in society. Anybody who is poor enough to qualify for the guaranteed income supplement is very poor. However, because of an anomaly in the Income Tax Act, they are paying taxes at 76% on any dollars they make above the basic tax exemption. That is absurd. That is as outrageous as the tax write-off for business corporate fines.

Both of those things could have been and should have been addressed in the budget. We made the government aware of both of those issues and it consciously chose not to address them.

[Roger Gaudet, Bloc, Berthier—Montcalm, QC]

My colleague tells me it has been done. If anyone does not have a copy, I am prepared to provide one.

The bar associations of Quebec and Canada have spoken out against the federal government in connection with this bill. On April 30, 2003, the Trois-Rivières newspaper Le Nouvelliste ran an article reporting that “The Quebec and Canadian bar associations are opposed to a legislative amendment relating to the reimbursement of the GST for transportation services provided by Quebec and Ontario school boards”.

It went on to say:

The Barreau du Québec, and the Canadian Bar Association, have come out very strongly against Ottawa's intention to thumb its nose at a court decision and to legislate retroactively, somethingthey describe as a “dangerous attitude liable to undermine public confidence in the courts”.

The two associations have written the Minister of Finance... and the Minister of Justice to express their opposition to a legislative change outlined in the February budget.

This letter was sent on April 30, 2003. It goes on:

This measure, which involved the reimbursement of GST for transportation services provided by Quebec and Ontario school boards would have the effect of retroactively invalidating court decisions in favour of the school boards, not to mention reneging on certain previous commitments by the federal government.

With this attitude, the federal government “Is showing no respect whatsoever for these judgments and these commitments, which from our point of view represents a serious attack on the principle of the authority of a final judgment, and is contrary to the proper administration of justice. This is what the President of the Quebec bar association, Claude G. Leduc, wrote to the two ministers. Legislating in this way discredits the judiciary process and is liable to undermine the taxpayers' confidence in the courts”.

His Canadian Bar Association counterpart, Simon Potter, was equally critical. “We are convinced that the policy behind any retroactivity is totally unfounded and dangerous as well”, he wrote.

In October 2001, 29 Quebec school boards won their case in Federal Court, when it recognized that school transportation was a commercial activity and thus entitled them to full reimbursement of the GST paid. By virtue of the court decision, Ottawa was to reimburse GST overpayments totalling some $8 million.

After numerous technical wranglings, the case ended up before the Tax Court of Canada this past January. Here the federal government accepted a ruling that it would comply with the judgment at first instance, provided the school boards withdrew their appeal to the Federal Appeal Court. The federal government consented to apply the judgment to the Ontario school boards, whose case was still pending.

The budget presented a few weeks later totally altered this promise by the federal government . The amendment is currently being considered in committee, and school board representatives will present their points of view before the committee.

According to... the Bloc Quebecois MP, the government is going too far with this. We are entitled to expect the government to amend its legislation to reflect court judgments, in order to remedy shortcomings for the future. The retroactivity proposed by the federal government is problematic. “This may represent an extremely negative precedent... It will greatly weaken one of the pillars of democracy, which is the authority of a final judgment”, according to the Bloc Quebecois finance critic.

I wish to inform the House that I will be voting against the budget because of this clause concerning the school boards, clause 64 of Bill C-28.