Finance Committee on May 16th, 2007

[Garth Turner, Conservative, Halton, ON]

All right. But the fact remains that the basic tax rate went up. If I have it wrong, maybe one of your officials can correct me. But Canadians were paying 15%. It was then raised to 15.25% in the next taxation year.

If I'm wrong, correct me. If I'm not, stay silent.

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

You're wrong.

[Garth Turner, Conservative, Halton, ON]

Am I wrong?

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

You're wrong. It never became law.

Do you want to go through it again?

[Garth Turner, Conservative, Halton, ON]

There is the form that taxpayers had to fill out for the 2005 taxation year.

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

All right. I'll say it one more time.

When a ways and means motion passes in the House of Commons, as you know, it is not a bill that becomes law. The CRA will begin administering a tax change in a ways and means motion as soon as the ways and means motion is passed. But the bill has to ultimately pass for the change to become law. It did not happen in the matter to which you refer.

[Garth Turner, Conservative, Halton, ON]

I understand that, Minister. But it's a moot point when you're already paying one tax rate and you then have to start paying another tax rate. Whether we erudite individuals have passed it or not, it is still the law of the land.

I'd now like to move on to income trusts for a moment, please.

We obviously have concerns and many seniors who are income trust investors have concerns about the credibility of the government, because of the promise that was made during the election campaign and the one that was then changed.

I guess many of my constituents have asked me this question, and I'd like to ask you this.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Turner, thank you. Your time is up. I have to keep the rounds to six minutes.

But perhaps the minister hasn't seen the forms. If you can table them with the clerk, we can send them over.

[Garth Turner, Conservative, Halton, ON]

Hasn't he seen the tax forms?

[The Vice-Chair, Liberal, Massimo Pacetti]

I have no idea.

Mr. Crête, for six minutes, and then Ms. Wasylycia-Leis.

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

Thank you, Mr. Chair.

Thanks to the support for the budget provided by Bloc Québécois members of Parliament, we are here today to discuss Bill C-52. This budget allowed a significant part of the fiscal imbalance to be corrected.

Three or four years ago, only Bloc Québécois members were talking about this matter in Parliament. Today, at least one financial aspect is resolved, but the true problem of fiscal imbalance, which is real and which requires the transfer of tax points, or some other kind of permanent transfer, still exists. If we keep this model, we will be depending on the government's financial health for years to come.

Bill C-52 is not perfect, but it will allow a budget to go into effect that provides more money to Quebec. This is what the Bloc Québécois members wanted.

Are you prepared to keep working so that the fiscal imbalance is really corrected, or will things just be as you mentioned in your introductory notes?

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

I thank the member for his question.

On the subject of fiscal imbalance, it is our view that we've worked pretty hard at this over the course of many months.

We had the benefit of the report by Mr. O'Brien and his committee and other reports. Mr. O'Brien was the former deputy treasurer of the Province of Alberta who was appointed by the previous Liberal government here in Ottawa. We took the advice of the expert panel, and we consulted broadly.

I must say the result has been widely accepted in Quebec, I believe, as being a principle-based way of assessing appropriate payments for equalization and transfer payments to the other governments in Canada as we go forward. This is a big change because the provinces and territories will know from year to year, through a principled-based formula, what they're entitled to receive, rather than the kinds of changes and ad hoc situations that had developed in previous years.

I know, Mr. Crête, the argument that is advanced with respect to the transfer of tax points and tax room. I understand the argument. Obviously, it is not a path we chose to follow.

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

In fact, in Conservative party advertising, the message was that if the Liberals were elected, they could do an about-face on this matter. Is this not in itself an admission by the Conservative party that the measures in the budget have no permanent effect and that a permanent solution will have to be found, whether it is a transfer of tax points or some other way of transferring federal revenue to the provinces? Should we not be making a real change rather than just paying out money? Should we not be changing our way of doing business?

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

I think if you want to change the way of doing equalization in Canada, other than in bills like Bill C-52, other than by laws passed by Parliament, then you're into a constitutional amendment. As you know, equalization is constitutionally mandated in Canada, and we're not engaging in a constitutional debate here. We're engaging in making sure that there's a principle-based way of transferring important amounts of money for health, education, and social services to the provinces, and also, as you know, under equalization, making sure that there are reasonably comparable fiscal capacities to provide those types of services throughout the country.

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

I recall that tax points were already transferred in Canada, for example, when Mr. Lesage was Premier of Quebec in the 1960s. Could this kind of change not be made quite easily, if there was a real political will to do it?

At the moment, it seems that the Prime Minister wants to respect the commitment he made to put money on the table, but not completely. We are fortunate in that Canada's financial situation is strong, and that it allows this kind of transfer. Conversely, if the financial situation had been more difficult, you would not have been able to do what you are doing at the moment. But the needs in the provinces still exist.

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

I respectfully disagree.

The whole purpose of the exercise was to arrive at a formula that would be fixed, and we have arrived at that. The provinces could not agree among themselves, so it was necessary for the federal government to follow on the recommendations of Mr. O'Brien and modify that modestly. For example, there's no cap on the Atlantic accord, which Mr. O'Brien's committee had recommended. This is not something that changes from year to year. The formula stays the same. The numbers will change, because fiscal capacities will change in the provinces and territories in Canada, but this is a formula that is fixed, and it will continue that way.

Yes, tax points were transferred some years ago. I know about that. But again, that was done by government and is not constitutionally enshrined, so the next government could change it, of course. It's the power of Parliament.

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

So are you saying that you are shutting the door on the transfer of tax points or the GST? Are you shutting it completely?

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

[Inaudible]

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

So you are not going to keep to the commitment you made to the people of Quebec during the last election campaign. The Prime Minister committed to correcting the fiscal imbalance, and not simply to hand over money.

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

We may have a debate about how one fixes the fiscal imbalance and--

[The Vice-Chair, Liberal, Massimo Pacetti]

His time is up, so I'll have to cut you off and pass the time over to Judy.

I'd like to stick to the time. I know your time is limited, so I'd like to get as many members in as I can.

We'll go to Ms. Wasylycia-Leis and then to Mr. Dykstra.

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

Thank you, Mr. Chairperson.

Thank you, Minister, and the finance officials. I'm glad you're here.

Minister, I want to raise with you the pattern that I see emerging that is rather disturbing, and that is your tendency to flip-flop on key issues on which you've made promises to Canadians and to Parliament.

When we raised the ATM issue and the fact that Canadians are paying so much money to access their own money, you said it was a serious issue and that you would stand up to the banks and do something about it. Then you said later, in your budget address.... Although we had serious problems with your budget overall, we were encouraged by the fact that you said you would deal with the fact that taxpayers are subsidizing companies to expand foreign plants, and even more, move Canadian jobs overseas.

From what I can tell, on ATMs, you seem to have accepted what the banks have said. You got a few little, tiny steps from them and then gave up. On interest deductibility, it seems to me that you've done a complete cave-in.

I'd like to know from you how Bay Street got to you. Are there any issues you think you could work with us on in Parliament? Is there any common ground between where you're coming from and New Democrats? I know we're miles apart on most issues, but I'm hoping that when it comes to the prosperity gap and trying to redress some of the most egregious things done by Liberals, we could find some common ground. I'm beginning to be a bit doubtful and skeptical about that.

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

I think we have lots of common ground. Your party and you support the workers income tax benefit that was recommended to the previous government, but as usual they did nothing. I'm sure you support the registered disabilities savings plan that was introduced in budget 2007. These are matters with respect to which we agree. I think we also agreed—

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

Small steps, we agree. What about the interest deductibility? Why the flip-flop?

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

I think we also agreed that the banks ought to do something in terms of consumers with respect to ATMs. You would have them go much further than they did. I'm comfortable with the fact that they were responsive with respect to seniors, students, and persons with disabilities, which were the specific issues that I raised with the banks.

On the issue of tax havens, the party that's defending tax havens in the House of Commons is the one to your right, the far right, the Liberal Party. As you know, they were doing that in the House of Commons this week. Their position is to defend tax avoidance loopholes by the use of low-tax foreign jurisdictions. Our position is that everybody should pay their fair share in Canada, so that we can reduce taxes overall.

Now, I know that you would go further than we did. But we are taking the step of eliminating double deductions in Canada, which is a major step with respect to tax havens. As you saw, the response to that has been vociferous in certain corporate quarters in Canada, but we're going ahead with it.