Finance Committee on May 30th, 2006

[The Chair, Conservative, Brian Pallister]

Mr. Flaherty, a quick response.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

To speak of the scope and magnitude of the issue is to say that we are working on it and it is getting more focused. I give the previous government credit for the health care accord that was reached. It has largely removed that issue from the table, not completely but largely. In our budget this year there's massive spending for infrastructure over the course of the next four years. It's not a complete answer, but it's a major step forward in terms of the fiscal balance issue. There's very substantial spending in Budget 2006 on capital for infrastructure for post-secondary education. But there's more to talk about there, definitely, as we go forward.

For the first time in Canada we have a federal government that says yes, there's a fiscal imbalance issue and we need to work together to move toward fiscal balance. I don't want you to think that we do not remain committed to moving toward fiscal balance; we do, and we consider it a work in progress. We're already making some strides.

[The Chair, Conservative, Brian Pallister]

I'm sorry, sir, your time has elapsed.

Mr. Del Mastro, you may proceed.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

First, I would like to begin by congratulating the minister on this budget. I'd like to let him know that on the day following his tabling of the budget, a major newspaper in my riding featured the headline “Promises kept”. I think that's a very significant statement by the media with respect to this budget.

On a personal note, I would also like to thank him. As a person who lost his father to cancer, several uncles, an aunt, I appreciate his funding of the Canadian Cancer Society's cancer strategy, as well as the immense commitment demonstrated to the agricultural community, which will benefit people in my riding. The corporate securities transfer for charities is also something that has been receiving very positive play in my riding. A lot of charities have come to me and talked about its significance, including our new hospital project.

I was going to talk specifically about the GST and the reduction of the GST. There's been some suggestion that we have an economy with a lot of retail stimulus and so forth and it doesn't really need an additional retail stimulant. I'll tell you, as somebody who owns a retail establishment, specifically in the auto industry, we're not finding that at all.

Perhaps you could speak to the types of savings.... In fact, I did also talk to my local hospital and they indicated that every percentage cut in the GST will actually save them about $65,000 per point. That is enough to employ an additional nurse. There are benefits for each and every Canadian within that. Maybe you could speak to that a little bit.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Thank you for the question. I guess the newspaper you are referring to must be the legendary Peterborough Examiner.

The GST cut is important. I think what is most remarkable about the GST cut is that there is actually a government in Canada that has reduced the sales tax, a consumption tax. It's difficult to remember when that last happened, and people quite rightly become a bit cynical about government. Taxes either stay the same or go up, but they don't go down, particularly consumption taxes. So finally there's a tax break for everybody in Canada, not just the two-thirds who pay income tax, but the one-third also who don't, but who buy things and will have the benefit of a tax reduction.

I was happy that it was met with approval by the Canadian Federation of Independent Business and others. I don't mind saying there was some initial concern by some about how it might affect house sales, or car sales, or sales of boats and mobile homes and things like that, but I see already from newspaper advertisements that the entrepreneurial Canadian spirit seems to be triumphing and people are moving forward. The market seems to be dealing with that issue, as it had to deal with it when the GST was introduced some years ago. There's a period of adjustment.

On real estate transactions, I have written to the law associations across Canada to ensure that the lawyers who do real estate work are aware of the transition provisions and how to deal with real estate transactions to make sure consumers who are transferring houses—buying and selling houses, buying new houses, or whatever—in Canada, get the full benefit of the GST provisions in Budget 2006.

[Dean Del Mastro, Conservative, Peterborough, ON]

Can you just confirm for me that the expenses incurred by businesses for implementing the GST rate change will be deductible for income tax purposes?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Yes. That's with the revenuers, of course, but I'm assured that legitimate business expenses incurred for the purpose of doing business are deductible.

[The Chair, Conservative, Brian Pallister]

Madam Wasylycia-Leis, it's your question.

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

Thank you very much.

On the GST, for clarification on the question of the burden some small businesses feel they are dealing with as a result of making the transition, is there a plan at all to give some assistance to small businesses who feel they either have to hire extra help or need some extra time to make this a reality?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

There is no plan for any type of assistance for small business. We consulted with small business, medium-sized business, and large business in preparation for the budget. As I say, the Canadian Federation of Independent Business felt business owners had suitable time to adjust to the new rate, given that there was approximately two months' notice of the new rate, and that to the extent there are legitimate business expenses relating to the change, those are deductible in the normal way for business as business expenses.

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

The CFIB also recommended some kind of compensation. Have you ruled that entirely out of the question?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Yes. There is no intention of having any sort of compensation program. We're interested in growing the economy, and so is business in Canada. I think to reduce a fixed consumption tax such as the GST will help all businesses in selling their products and making more money and creating more jobs in Canada, which is good for our country.

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

If we hear of small businesses in trouble because they can't accommodate this change, would you be open to hearing those cases in any individual situations?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Of course I'd be open to listening. I would worry about the solvency of a business with respect to which that kind of change would imperil the business.

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

Those that are really small mom-and-pop shops might have that trouble.

I'd like to ask a couple of questions on the whole issue of white collar crime, given the Enron decision in the last few days.

Do you think it's time for a Canadian version of Sarbanes-Oxley?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I think we have to do more than we have been doing; I agree with that. I'm certainly open to your suggestions and those of the other opposition finance critics as to what we should be doing.

As you know, we're taking over the presidency of FATF in July, which deals with financing of terrorists, with counterfeiting, and with other issues. Canada intends to exercise that leadership role beginning in July.

There are significant concerns about the degree to which Canada effectively polices white collar crime and prosecutes it. I'm your ally when it comes to trying to do better.

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

Thanks.

Specifically on income trusts—I've been delving into this a fair amount, as you may imagine—there is a growing body of evidence to suggest that a good number of income trusts are not following general accounting principles and are overvaluing their trusts to a significant amount. Many are collapsing, and some seniors who invested pensions are losing their life savings.

Are you prepared to entertain any amendments to existing legislation to deal with this particular problem of white collar crime?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Certainly. I'm very open to whatever suggestions or recommendations you have on the subject. There is no monopoly on knowledge or good ideas in that area, and I'm happy to listen and learn.

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

One other suggestion in this area is the idea of a single regulator or a national securities commission. I know some of the provinces are of other minds, but it seems that it would be a logical idea to pursue in trying to deal with some of the issues around white collar crime. Are you prepared to consider moving on this issue of a single regulator?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Yes. I must say that this issue comes up frequently across Canada, and outside of Canada, with respect to private equity investment in Canada. We're trying to attract more and more private equity investment in Canada. It's good for our country; it's good for economic growth.

It also comes up in the context of law enforcement, of the enforcement of securities laws, and of waste–the plain and simple waste of running more than a dozen securities operations in a country of 34 million people. We're the only country in the western world that has multiple securities regulators, instead of a common regulator.

This doesn't mean that the federal government should seek to take over securities regulation in Canada. I think it means we have a role to play—in the interests of creating a better-functioning economic union—in encouraging the provinces to create a common securities regulator. If there's a role for the government of Canada in doing this, that's good too.

I've had discussions with some of the provincial ministers. Some of the ministers are getting together in a couple of weeks. They've done a great deal of work on this issue; it's important for Canadians. Our view is that to make the economic union function better, we should move toward a common securities regulator.

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

I have three more questions and only one minute.

The first question has to do with payday lenders and the request from Manitoba, B.C., and I think a growing number of provinces for the federal government to put the Criminal Code rate of interest aside, so that provincial regulator schemes could be put in place to deal with a growing and serious problem. Are you prepared to act quickly on that and make this a reality? Manitoba has already introduced its legislation.

Secondly, with respect to the issue of mortgage insurance, which we dealt with yesterday at great length, I'm wondering if you would be prepared to consider putting some safeguards in place to ensure that all communities are addressed and no one is left out—that high-risk clients are still able to access the system and that the fundamental principles regarding mortgage insurance under CMHC are not lost.

Thirdly, what is your thinking right now on bank mergers? Is there any shift at all? I know you've said in the past it's not on your agenda. I'm wondering where it's at.

Finally, have I got time for one more?

[The Chair, Conservative, Brian Pallister]

No.

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

Okay, I'll stop there and wait for the answers.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Thanks, Mr. Chair.

I'll answer quickly. Number one, on payday lenders, the Minister of Justice has done a fair amount on that issue. We've had discussions, and I look forward to his moving forward on that. I've also discussed it with the Minister of Finance in Manitoba. I agree with you with respect to the need to address the issue.

On mortgage insurance, we believe in competition. We think that the provisions in Bill C-13 will increase competition in this area, that it is adequately regulated, and that more competition is good for this part of our economy.

Thirdly, bank mergers are not a priority for our government.

[The Chair, Conservative, Brian Pallister]

We'll proceed.

Mr. McKay, five minutes, sir.