Madam Speaker, I must rise today to oppose Motion No. 288 before us. While I appreciate the concern for Canadian health that motivates the hon. member, I cannot agree this is the time for the backward steps he is proposing. It is quite the opposite.
I feel there are very good reasons why the federal government should maintain the current level of federal tobacco taxes. Just as important, the government should also adhere to the general practice of avoiding earmarked taxes. Let me explain why I believe this to be true.
Hon. members will recall that just nine months ago we were besieged by the black market sale of tax free exports of Canadian cigarettes which were being smuggled back into Canada. Indeed, contraband tobacco products which often sold for less than half the price of legal sales were accounting for an estimated 40 per cent share of Canada's $12.4 billion tobacco
market. The country was confronted with a very serious problem.
Tobacco smuggling was fostering disrespect for our laws and creating serious law enforcement problems. Organized crime networks controlled 95 per cent of the tobacco smuggling. Their tobacco profits helped to fund other illegal activities, including drugs, alcohol and firearms smuggling. Cheap contraband cigarettes were readily available to young Canadians and the problems of smuggling and the attitude of too many Canadians that avoiding tobacco taxes was a sort of game may well have added to the tobacco's appeal to impressionable youngsters.
The consequences were serious. It was undermining the government's health policy objective to reduce tobacco consumption, particularly among youth. As well, many law-abiding merchants were being pushed out of business by the underground sales.
I want to inform the House that the federal and provincial governments were also being deprived of the tobacco tax revenues, $1 billion for each level of government in 1993, that helped to pay for government services and programs that Canadians expect.
To combat this illegal activity, on February 8, 1994 the Prime Minister introduced the action plan on smuggling. That plan includes an enforcement crackdown, reduced taxes on tobacco products, measures affecting tobacco manufacturers and a health promotion surtax on tobacco manufacturers' profits to provide significant funding for health related anti-smoking initiatives.
The enforcement crackdown entails increased RCMP and customs personnel and equipment dedicated to fighting smuggling. Their efforts are particularly aimed at stopping the flow of contraband at key spots along the Canada-U.S. border.
Federal excise taxes have also been reduced by $5 per carton. Up to a maximum federal reduction of $10 we offered to match on a dollar for dollar basis provincial reductions above $5. Most provinces east of Manitoba have reduced their tobacco taxes.
The action plan also imposed an export tax of $8 per carton on Canadian tobacco exports. This reflected the fact that 80 per cent of the cigarettes sold on the black market were Canadian cigarettes manufactured for export.
In addition, the federal tax rate on corporate profits for manufacturing and processing tobacco products was increased by 40 per cent. The revenue generated by this surtax will fund Canada's largest ever anti-smoking campaign.
The government has also undertaken to ban the manufacture of kiddie packs which were targeted at young buyers. It also moved to increase the legal age for purchasing cigarettes, increased fines for selling tobacco to minors, restricted vending machine locations and made health warnings on tobacco packaging more effective.
A majority of Canadians believe the action plan is the right approach to address tobacco smuggling. Their belief is well-founded. Our integrated approach is definitely working.
By seriously reducing profit margins it is eradicating both the supply of and demand for contraband tobacco products. It has particularly caused serious disruption to the operation of organized smuggling networks. It has substantially restored the domestic tax paid market for tobacco products.
However, I want the House to know that this initial success does not provide unconditional support for a tax increase that will bring back previous levels. The fact is some amount of tobacco smuggling continues in central and eastern Canada. Moreover the RCMP reports that smugglers have developed new supply and distribution lines to the western provinces where governments have not reduced tobacco taxes.
I too would like to see tobacco taxes increased but first we must win the battle against smuggling. To that end, tax measures support enforcement efforts and enforcement efforts take time to achieve maximum effectiveness. That is why this government remains committed to strong action to address smuggling on a comprehensive national basis, strong action which includes maintaining federal tobacco taxes at current levels.
Motion No. 288 also calls for the redirection of tax revenues to specifically fund health care costs. The government is not in favour of such action. All members will know that tobacco tax revenues are an important part of government tax collections. In keeping with our general practice of avoiding earmarked taxes, these revenues are used to fund programs and services across many areas of responsibility. This ensures that the government's flexibility to respond to changing needs and conditions is not constrained. It also protects over or underfunding of the selected area.
I should note however that the use of proceeds from the health promotion surtax is an exception to this general rule. In particular this targeted approach was undertaken on the basis of the measure's temporary nature and specific intent to ensure that manufacturers do not derive any benefit from the tobacco tax reductions.
I share the concerns of all members with respect to low tobacco taxes. I know our government has no interest or intent in encouraging tobacco use. Nevertheless, this is not the appropri-
ate time to reintroduce higher tobacco taxes, nor should tobacco taxes be directed solely to health care. Hence, I urge this House to dismiss Motion No. 288.