Seeing no further speakers--
Evidence of meeting #70 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was hst.
A recording is available from Parliament.
Evidence of meeting #70 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was hst.
A recording is available from Parliament.
9:15 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
Mr. Chairman, I graciously accepted Mr. Wallace's request to make an intervention on this important subject. I had, of course, a great deal more to say about it, but--
9:15 p.m.
Conservative
9:15 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
Of course I would like you to do it. I think everything the Conservatives have done to the economy for the past four years should be on the public record.
9:15 p.m.
Conservative
The Chair Conservative James Rajotte
The debate continues until there are no further members who wish to speak.
Mr. Wallace, you wish to speak.
9:15 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Chair, let's start with the Fraser Institute and what they had to say about sales tax. I do appreciate Mr. Mulcair's staying on topic. I know in a previous Parliament, I was with a different committee, Mr. Chair, at which I spoke for four hours straight. Sometimes it's a little bit difficult to keep it up, but I think I can handle it.
So let me just read into the record, so that everybody knows about this, from the Fraser Forum, which is a magazine put out by the Fraser Institute, which comments on public policy issues across Canada, not just on taxes but on a number of issues from health care and so on. I'm sure we all get the magazine in our offices. But here is an article from September of this year. It's a very good article, and I'd like to make sure people understand what the article says. It is entitled “Smart Thinking on Sales Taxes: BC's new HST will provide significant benefits for the province”, and here's the article:
This summer, British Columbia’s Finance Minister Colin Hansen took a bold step in announcing that BC will harmonize its provincial sales tax...
They call it the PST in British Columbia; we call it the RST here in Ontario.
...with the federal goods and services tax (GST).
They're quoting and they have references from the British Columbia Ministry of Finance, 2009.
While sales tax harmonization is unlikely to produce warm fuzzy feelings for British Columbians...
—or NDPers—
...(or even most economists), it will make BC businesses more competitive, encourage investment, and provide significant and lasting economic benefits for the province. As of July 1, 2010, BC will replace its independent provincial sales tax with a single harmonized sales tax (HST) of 12%—a combination of the current 7% PST and 5% federal GST.
Like the GST, the new HST will be a “value-added” tax in that it will only apply to the final consumption of goods and services.
We heard earlier from witnesses what the difference is between an embedded PST—or, in the province of Ontario, RST—compared to a value-added tax, which is what the GST is and what the future HST will be.
Currently, the PST applies to both business inputs and final goods and services, meaning that BC businesses pay 7% more for business inputs than their competitors in provinces that have harmonized sales taxes or no sales tax at all.
So as they point out here, Alberta has no sales tax—and I know, Mr. Chairman, you're from that fine province of Alberta. We heard earlier that New Brunswick, Newfoundland, and Nova Scotia have already, about 12 years ago, harmonized their sales tax. The Quebec government harmonized to an extent; they changed their QST from an embedded sales tax to a value-added tax. It might be not completely harmonized in that the other provinces gave up the collection aspects.
I know in my own business, when I had my own business, you had to submit a PST report and a GST report. My business was small enough that I was involved with the day-to-day operation, and there would be a PST auditor from Ontario, and you could then get audited on the GST. It was two different groups doing basically the same function, making sure the company or the business had collected and submitted the appropriate amounts of PST and GST that they should have been charging. That was always nerve-wracking, even though the businesses I worked for always followed the law. You know, we're all human and sometimes you make mistakes and don't...and so on.
So it was something where the actual work of providing services or a product to customers basically got interrupted because of these audits. It took time away from what I would say is the value-add that a business provides its customers in trying to fill their needs.
That is why this is an important piece for business, as we heard earlier tonight.
“This difference is not insignificant”, this article goes on to say; “$1.9 billion (or approximately 40%) of annual provincial sales tax revenue in BC comes from taxing business inputs.” So that's tax on tax on tax. It adds up to about $1.9 billion.
Because the current provincial sales tax applies to business inputs, it significantly increases the cost of investing in machinery, equipment, and technology. Consider, for instance, a business that purchases a $1 million machine that improves the productivity and wages of its workers, and makes the business more competitive. Under the current system, the firm must pay provincial sales taxes on the purchase of this equipment. This additional cost raises the real cost of investment and makes business development more expensive in British Columbia than in other jurisdictions.
Of course, there are other jurisdictions that have an embedded sales tax. It's not quite the same, but for those who have the value-add pass-through system of sales tax, it is certainly a competitive advantage. This is why it is important, from a manufacturing point of view, from a services point of view, from a business point of view, that we support the provinces' decision to harmonize their taxes.
We heard earlier, Mr. Chair, that this is just for business. I would challenge anybody to name one business in this country--or any country--that can run without employees, that has no employees. Name me one business. Businesses are people, Mr. Chair. It's about jobs. It's about wages. It's about benefits for the community. There is not one single business.
I had people in the pipe business in my office today who move oil or natural gas from the refinery to the marketplace across the country. It's basically a pipe that's buried under the ground. There are a lot more pipes buried under the ground than I knew of, but I know about it now. That business would not operate without people.
That's why the argument that this HST is just about savings for business.... It is about creating jobs. It's about supporting people who have invested in businesses to create wealth in this country and provide the standard of living that we all enjoy. It's a standard of living that generations past have tried to improve for the next generation and that I am trying to improve for my kids by supporting the HST in my province of Ontario.
The report goes on:
Fortunately, the new harmonized sales tax will exempt business inputs, thereby reducing costs and the tax penalty on new business investment. Thus, reducing taxes on new business investment will improve the incentives for [such investment].
Mr. Chair, the industry committee had a meeting today with the Canadian Chamber of Commerce. They were able to talk about a number of issues, including the importance of allowing the provinces to amalgamate their sales taxes so that there is a more competitive environment, not necessarily just among provinces, Mr. Chair, but across borders. It is not just across the U.S. border that we now need to compete. It's clear that we can't just rely on the U.S. customer as we may have in the past. We have to compete worldwide.
The Canadian chamber was there telling us two things. One was that we have to continue the process of improving our tax structure so that business can compete on that level. The other was to improve the incentives for investment, whether it is venture capital, or other direct investments from individuals, or from the stock market, or wherever businesses can get money. Our ability to be more competitive from a tax perspective will make a difference in those investments and support the creation of jobs here in Canada.
Past experience with sales tax harmonization in Canada provides evidence that harmonizing sales taxes can boost investment.
This is from a report from Smart in 2007. I think it was mentioned earlier by one of the people we had in front of us from the Canadian Manufacturers & Exporters. They talked about the Smart report. It was Michael Smart in 2007. Here it is.
If you want to look it up—I know my friend from the NDP will want to do that—it's called “Lessons in Harmony: What Experience in the Atlantic Provinces Shows About the Benefits of a Harmonized Sales Tax”, and it's on the C.D. Howe Institute website. It's another think tank.
I know Mr. Mulcair probably reads those reports every week. He gets them.
9:25 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Well at least you do something with them.
Mr. Smart is somebody you might want to look at. That was referenced earlier tonight.
9:25 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
I can start from the beginning if you wish, but I only have 15 more minutes.
9:25 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Oui. Some day I'd like to be able to do it in French, to be honest with you. I've been working on it, but I'm not very good so I'm not going to try tonight.
9:25 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
I'll continue:
In 1997 three Atlantic provinces (Newfoundland and Labrador, New Brunswick, and Nova Scotia) harmonized their previously independent provincial sales taxes with the federal GST. Professor Michael Smart of the University of Toronto...
—he wrote for C.D. Howe, but he is a professor at the University of Toronto, so you have to give him some credibility for that—
...examined the effects of the harmonization in Atlantic Canada and found that, after the 1997 reforms, per capita investment rose by more than 11% in the harmonized provinces compared to the non-harmonized provinces.
People have been asking us to prove that it works. Well, we have a report here showing that 12 years ago there was an 11% increase in investment. Investment in machinery increased by more than 12% above the level of investment that existed prior to the 1997 reforms. All that is included in Professor Smart's report.
Another report is quoted here. It says:
Harmonization will also reduce unproductive tax compliance costs for businesses.... Currently, the group of goods and services upon which BC’s PST is applied (the tax base) differs from the tax base used for the GST. Differing tax bases, along with a host of different rules, force businesses that collect sales taxes to operate with two sets of sales records and two sets of compliance and reporting requirements. By simplifying the recording and reporting processes, harmonization is estimated to save BC businesses approximately $150 million annually in tax compliance costs.
Unfortunately, British Columbians will likely be exposed to many faulty objections and misperceptions regarding the HST over the coming weeks and months by those seeking to derail this reform.
A common misperception is that harmonizing the provincial sales tax with the GST results in a shift of the tax burden from business to individuals. This stems from the fact that business inputs will be exempt from the HST while a whole host of goods and services will be added to the tax base. Indeed, the expansion of the tax base is the primary reason why harmonization can occur at the existing 7% PST rate in a revenue neutral fashion.
If you look at what happened in other provinces that harmonized—and I think it was mentioned by speakers earlier tonight—in Newfoundland and Labrador, if there had been a complete amalgamation of the rates it would have been 18%, but it's actually 15%. That's because the province decided to reduce the number at the time of the amalgamation of the GST with their provincial sales tax. So there are options, but those options are provincial decisions.
Since the last amalgamation of GST and PST we've reduced the GST from 7% to 5%. I think we've done our share in reducing the sales tax burden that exists on our value-added tax. There is an option for provinces that are looking at amalgamating, if that's a choice they would like to make. I think it's still a choice, because the implementation of the new HST won't occur until the summer of next year.
I've encouraged my local folks to talk to their provincial counterparts, who are going to be able to make the decision, to look at what exemptions they're offering. In my view, a better system would be to look at reducing the actual portion of the HST that the province is collecting. So reduce from the 8% that's there now to maybe 7% or even 6% in Ontario. I'm not sure that's going to happen. But that's my suggestion on the approach for people who are not excited about the HST.
It's a provincial decision. What we're doing is putting in a framework, treating all provinces equally. Twelve years ago provinces were able to amalgamate their sales taxes. There's no reason we wouldn't allow additional provinces to continue that process. It's their choice, and that's exactly what this bill does: it provides choice for those provinces to do so. We're hearing from Ontario and British Columbia, of course. Manitoba has thus far indicated it's not that interested. I haven't heard from Saskatchewan, but maybe it's decided. I think for them to be competitive they will all have to look at it eventually.
Fortunately, if you live in Alberta, there is no provincial sales tax, so it's very difficult for it to amalgamate something it doesn't have--we'll see what happens in the future.
The article goes on:
However, the tax shift argument ignores the fact that the provincial sales tax is embedded in the price of many of the goods and services that are currently exempt from the PST. Since business inputs (goods and services) are taxed, consumers pay higher prices, even if the final good or service is not taxed. In his study of the Atlantic provinces Professor Smart found that...consumer prices in the harmonizing provinces...fell after the 1997 reforms...
--which somewhat offset the imposition of the sales tax.
We heard that from officials and people from the Chamber of Commerce. They couldn't put their fingers on exact numbers, of course. There was a reference to the experience that Canadians on the east coast had. Professor Smart at the University of Toronto, on behalf of the C.D. Howe Institute, has indicated that savings were passed on, and “As a result, overall consumer prices in the harmonizing provinces actually fell after the 1997 reforms. In addition, the tax shift argument fails to recognize that the burden of all taxes ultimately falls on people”--which is true. Eventually most companies or all companies, whatever taxes they're paying, add it to the price of their goods and they pass it on to the next individual, whether it's an input to the next company or to their final consumer, “in the form of higher prices, lower wages, and/or reduced rates of return on investments”.
BC's harmonized plan does have one critical flaw, however:
This is B.C. I think it's fair. I want to read you what Mr. Smart has to say. He feels its date should have been sooner:
Delaying implementation until mid-2010 may cause some businesses to hold off on major capital purchases--the opposite of what is needed in the current economic environment.
I'd remind you that this article was published this past September, obviously when things were not great. This was probably written before that, it's a middle-of-the-recession piece. His comment was that the province should have moved on it more quickly and not waited.
In reality, when there's this kind of change, giving businesses an opportunity to adjust is probably the correct thing. The author does make the point that it's possible businesses would have waited to make their capital purchases. The argument could be made the other way, that some things may be taxed in the future, which has got people to purchase in advance or move things up--home purchases, those kinds of things. So I think there's a balance there.
He goes on:
While it could be moving more quickly, the BC government should be commended for its decision to implement a harmonized sales tax. Improving the investment climate, increasing the competitiveness of BC-made products, and reducing tax compliance costs with little or no effect on consumer prices is wise economic policy. And that wise policy will ultimately benefit British Columbians through higher rates of economic growth, more opportunities, and a higher standard of living.
Mr. Chair, that's the end of that particular article.
There are quite a few references and notes, but I have others that I would like to talk to you about. In the meantime, I would like to thank the Library of Parliament for the work and reporting they've done. There is an excellent chart at the back of their report. It talks about the RST versus the value-added tax. I wanted to point that piece out.
One group that I thought was interesting and that provided us with some valuable information was the Tax Executives Institute. We heard from this group during the review of our pre-budget consultations. Who are the tax executives? I think it's an important group. These are the people in relatively large companies who actually calculate the taxes, the tax experts within these organizations.
We have tax experts here from the ministry, and we appreciate the work they do. We work around here, but the vast majority of government work is done by its bureaucracy, and I want to thank them for that. They're here at 9:45 listening to politicians talking about stuff they already know. It's not quite there yet. I appreciate every time we have an opportunity to have you in front of us. I appreciate the answers. I may not always agree, but I'm sure they're factual. I have been wrong in the past and will be wrong again. But there is so much to know. Members of the committee can't know everything. Having you and your expertise and experience should give us comfort that there are people of talent looking after things for us.
9:35 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
They are still working, unfortunately.
But here's what the Tax Executives Institute had to say:
Harmonization of Federal and Provincial Tax Bases and Administrative Systems
The federal government has undertaken several initiatives to encourage the provinces...
—and I want to underline it's “to encourage the provinces”. It's not forcing the provinces to do anything; it's “encouraging the provinces”, and that's what this act is about, right, John?
...to adopt tax policies that promote Canada's competitiveness and to approve the administrative efficiency of the provincial systems.
They don't say “of the federal system” but “of the provincial systems”. That applies to all provinces, including Quebec.
We commend the government for providing financial incentives to the provinces to eliminate their capital taxes.... We urge the Standing Committee to consider additional incentives to the provinces in order to accelerate elimination of...provincial capital taxes and to promote additional investment in Canada.
They are clear in their submission—and I'm going to read a little more of it—that the role of government isn't to pick winners and losers, but to have a tax structure system to make us more competitive from a tax perspective compared to not only our internal competitors from province to province but internationally. And I think that's really where their focus was: to make sure that we can be the areas with the lowest taxes in North America, to encourage investment to come into Canada, not to go out of Canada, and to allow us to be competitive on a much more global stage.
As we know, there are other markets--including India or China, which the Prime Minister recently visited--that can be a double-edged sword if we're not ready for them. So from a tax perspective, we need to have our companies in a position to be competitive with those marketplaces so that we can take advantage of that new and growing middle class that's happening in both of those marketplaces and so that we can be competitive.
Now, we can't be competitive on everything, but the value that Canada can add in terms of the quality of companies that we have here and the types of services and products we provide, whether financial services or other types of development, health care and all those other areas, will be in high demand in those jurisdictions, and we need to be ready for those.
We also commend the federal agreement with Ontario whereby Ontario will conform its corporate income tax base to the federal corporate tax base and the federal government will assume administration of Ontario's corporate income tax system.
So they're saying in this that it's not just about sales tax—and I'll get there in a second—but it's also about the corporate tax system that we have been advocating for and improving. They're thanking us, but we should be thanking the provinces, which have moved to improve their corporate income tax system to try to be as competitive as possible.
Similar moves by other provinces would improve the overall efficiency of Canada's business tax structure.
We also recommend that the Standing Committee encourage the provincial governments to...review...their corporate income and sales tax policies and [effect] rate reductions and tax base changes to [enhance Canada's tax] competitiveness.
Mr. Chair, this is exactly what I was referring to earlier. When they talk about encouraging the province to review their sales tax policies and effect rate reductions, that is why I think we should be encouraging, through this bill that we have in front of us, and allowing provinces to amalgamate, absolutely, but, in addition to that, we should look at the results and the benefits that have happened in the Atlantic provinces. I like to use Newfoundland as an example, where they have made some changes to their rates on the sales tax side, which has made a difference.
I was at an annual meeting, as I said earlier, this past weekend. The speaker—
9:40 p.m.
Conservative
The Chair Conservative James Rajotte
Okay.
Just for the benefit of the committee, I'm going to read the order of the House, because the Order of the House is very specific. As members know, the committee must follow the Order of the House as worded:
not more than four hours following the adoption of the second reading motion,...
—which was at 5:43 p.m., and it's now 9:43 p.m.—
...any proceedings before the Committee to which the bill stands referred shall be interrupted,...
—as I'm doing now—
...if required for the purpose of this Order, and in turn every question necessary for the disposal of the committee stage of the bill shall be put forthwith and successively without further debate or amendment; a representative of the Committee may report the bill to the House by depositing the said report with the Clerk of the House, whereupon it shall be deemed to have been duly presented to the House, provided that if the bill is not reported from the Committee by 11:00 p.m. on the day of the adoption of the second reading motion, the bill shall immediately be deemed to have been reported from the Committee without amendment.
This means that, as the chair, I have to go immediately to put every question successively and without further debate or amendment. Therefore, shall clause 2 to—
