Thank you very much.
Mr. Menzies.
Evidence of meeting #34 for Finance in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was system.
A recording is available from Parliament.
Evidence of meeting #34 for Finance in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was system.
A recording is available from Parliament.
4:55 p.m.
Conservative
Ted Menzies Conservative Macleod, AB
Thank you to our witnesses here with us today.
Thank goodness we have BlackBerries. I just got a note about the Manitoba budget, and I see that they have also cut their capital tax. That's encouraging. We're hoping to see that happen all across the country.
I have a couple of things. You have both talked about a fuel excise tax, a carbon tax, or an environmental tax. I just wonder, blue-skying here, how, if we ever decided that was going to take place, we would make it fair. My colleague across the table from Toronto, who seems to think it's a no-brainer, doesn't have quite the travel challenges, the distance challenges that many of our rural residents have in this country.
I'm not sure how we would do this to make it fair and equitable. It would drive up costs, if every item of food that is shipped to the city has this extra cost added to it as well. I think it's going to impact everybody. How on earth would we do it fairly would be my first question.
4:55 p.m.
Assistant Professor, Economics Department, University of British Columbia
Let me jump in briefly.
Can I start for a bit, Jack, and then I'll pass it over to you?
4:55 p.m.
Assistant Professor, Economics Department, University of British Columbia
In B.C. I can say that has been a concern of late. There have been some concerns raised by people around the Prince George area in northern B.C. for this exact reason. They're concerned about the fact that they have to drive around more than perhaps I do in Vancouver. It was not considered carefully enough.
What you saw in the B.C. budget was an offsetting change in the income tax system and also some other changes that tried to take into account exactly these kinds of concerns. One reason I'm glad the committee has a broad mandate is that you can perhaps trade off some of these things and adjust one part of the tax system for efficiency and another part to improve equity.
4:55 p.m.
Conservative
Ted Menzies Conservative Macleod, AB
If I can jump in here, I'd like to hear Jack comment on this as well. For the production of food, for example, there are huge amounts of investment in fuel--fuel into fertilizer, fuel into all of the products that go into providing food for this country. How do we deal with that as well?
4:55 p.m.
Professor, School of Policy Studies, University of Calgary
Well, first of all, I would endorse Kevin's comment. It's a question of what you do with the revenues in terms of some of the offsets. You are correct, also, to lay out that, as we've seen with ethanol, when you make major changes in policies, it could have impacts on prices and all sorts of things, and we need to understand that.
With respect to my comment about restructuring the federal fuel excise tax, it's already an existing tax, and you can restructure it in all sorts of different ways, including, for example, reducing the gas tax to let's say 5¢, and then bringing in a broad-based environmental tax that would apply to natural gas and coal products as well as other petroleum products that are not subject to the environmental tax.
I've calculated, in the case of a carbon tax, that if you have a 5¢ tax on gasoline--so you're cutting the gas tax by 5¢ and then applying the carbon equivalent--in effect the federal government would actually still raise about $2 billion to $3 billion. Of course it also means that you have a much smaller tax, and of course the ramifications of that in trying to deal with all the offsets and some of the issues are much less. It also gives you an opportunity to see how the tax operates, because I don't think any of these tax reform proposals should ever be brought in such that you have huge changes at one time. We have to see how they work, how they impact on the economy, including prices that are going to be affecting people.
4:55 p.m.
Conservative
Ted Menzies Conservative Macleod, AB
Well, I'm sure you know that I'm not going to be out promoting in the riding of Macleod, just south of Calgary, a carbon tax as of yet. I think we're a long, long way from that.
I have one quick question, if I could.
5 p.m.
Conservative
Ted Menzies Conservative Macleod, AB
That's why we have oil and gas, because it was the land of the dinosaurs.
We had a witness here on Monday who very strongly advocated an inheritance tax, and I still haven't quite got over it. I would like your comments on that.
5 p.m.
Professor, School of Policy Studies, University of Calgary
Kevin may have some comments.
First of all, we have deemed realization in capital gains at death in Canada, and of course if you have any RSP assets left over, that's going to be subject to tax as well, at death. A lot of people have to do estate planning around that.
I forget the current numbers that are being raised by that, but it's a very significant level of tax. If we brought in an inheritance tax, a transfer tax--and frankly I'm not really in favour of it myself, because I think the deemed realization does a lot of the trick--no country except for a couple will apply both deemed realization and inheritance taxes at the same point. Someone dies and then the government's going to come along with two different taxes. That would make very little sense. What you do with one hand you'll end up giving up with the other.
5 p.m.
Assistant Professor, Economics Department, University of British Columbia
I'll just reiterate that. Taxing estates is something legitimate to discuss. People are going to have different opinions on that, but that discussion should be made in the context of realizing that we have deemed realization at death, which, as Jack said, goes part of the way there.
5 p.m.
Conservative
The Chair Conservative Rob Merrifield
That's very good. I encourage the NDP to bring that up in the next platform again.
Mr. McKay.
5 p.m.
NDP
David Christopherson NDP Hamilton Centre, ON
Yes, for all the working people worrying about losing their millions.
5 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Alberta clearly is the land of the dinosaurs.
Going back to this notion that in the real world we still will have to price carbon, regardless of the MPs from Alberta, Professor Mintz, you seem to have gone from pricing carbon by way of an excise tax on gasoline, then to spreading it on forms of fuel, and now you seem to be on to other forms of carbon sequestration, whether it's in a manufactured good or something of that nature. Is that correct in terms of the transitions of your thinking?
5 p.m.
Professor, School of Policy Studies, University of Calgary
What I'm suggesting is first of all that the value of doing a tax, as opposed to let's say the cap and trade system or a regulation that says “You must reduce emissions by a certain amount”, is that it gives certainty to businesses about what the price is and allows them, if you've not put the price too high and it will still give them incentive, to look at new technologies that could be adopted to reduce carbon.
You then have the value of using the revenues—to the extent it raises revenue, which I'm suggesting, in terms of this restructuring of the federal fuel excise tax—in part to help fund tax credits for many businesses that are going to take on costly technologies in order to reduce carbon, of which carbon storage and capture is certainly going to be one.
5 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I think you're right. I think, actually, business is simply saying to itself, “Let's just get on with this.” In talking to other economists and business people, they're simply saying, “We're ready for carbon to be priced; just give us certainty about the system.”
One other question comes from an unusual suggestion, but one that was made to me. Economists generally say payroll tax is bad and consumption tax is good. That's rather crude, for economists, but it's as much certainty as you ever get out of economists. The suggestion to me was that we completely eliminate premiums for EI and fund that revenue loss by an increase in GST.
Can I have a quick reaction on that?
5 p.m.
Assistant Professor, Economics Department, University of British Columbia
I'll start with a quick reaction. I like the approach that's been followed recently of taking EI off-budget and making it a self-funded program, which would be harder to do if it were funded through the GST.
5 p.m.
Professor, School of Policy Studies, University of Calgary
I agree with that as well. I wouldn't like to use the GST for that purpose.
5 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
All right, but in general terms most economists seem to think that payroll taxes are a bad thing, so if in fact you were looking to simplify the system to take tax away from labour, if you will, you'd have to fund it from something. It may not be the linkage between the GST and EI, but would the elimination of payroll taxes be a good thing, as a point of economic principle?
5:05 p.m.
Professor, School of Policy Studies, University of Calgary
I wouldn't want to see the EI payroll tax being eliminated, because I think it really is tied to what's being provided—unless you change the benefits of the EI system so that it then goes beyond what workers receive.
There are payroll taxes that I think should be eliminated, such as provincial payroll taxes that are general ones. But then you would have to find a replacement revenue for that.
You might want to look, potentially, at some changes in other areas of the tax system where payroll taxes are used to make sure they're done appropriately.
Most of the payroll taxes we have in Canada are funding benefits that go to workers, and I think that tie between the two is very important. What I would like not to see is payroll taxes that are really not tied to benefits, because that's when I think you end up getting distortions in labour markets induced by that means.
5:05 p.m.
Assistant Professor, Economics Department, University of British Columbia
I'd echo that. When payroll taxes are really tied closely to the benefit that's received through them, that tie can make a big difference in how the benefit affects people's behaviour. When I have Canada Pension Plan premiums deducted from my paycheque, I realize that I'll get a benefit from that later in life.
Also, if that weren't there, I might have to pay a bigger pension plan premium to my employer. So in a certain sense I'm buying something with it. It's not just going into a pot to Ottawa; I'm buying a pension with it. The greater is that tie from premium to service, the more efficient the payroll tax can be.
5:05 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Mr. Chair, could I ask that we instruct the clerk to obtain Professor Mintz's paper and speech?