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.