Mr. Speaker, I welcome the opportunity to participate in the debate. I would like to thank the hon. member for Mississauga South for raising these issues through Bill C-256.
While I appreciate the intent of the bill I have some serious concerns with the proposal. I would like to bring to the attention of the House and the very many members who are interested in this three concerns.
First, I believe it would reduce tax revenues at a time when our fiscal position precludes any erosion of the tax base. Second, I do not think the proposed amendments to the Income Tax Act will deliver the anticipated benefits. Third, this bill could have negative consequences that may not have been anticipated by its sponsor.
Parents among us will know that raising young children entails unique expense. I personally fit into one of those families where one parent works and we have two young children at home. Expenses can put significant pressure on a family's income. Fortunately these expenses are recognized by the Income Tax Act. For example the child tax benefit provides financial assistance for low and middle income families with children. A supplement of $213 is provided for each dependent child under seven.
This measure is directed particularly to those families where one spouse stays at home to care for preschool children. Tax relief is also provided to working families through the child care expense deduction which helps to offset day care costs. Recognizing that the cost of child care is higher for preschool children the limits on the deduction are higher for children below age seven.
This bill proposes additional measures to assist families with preschool children. Under the proposed bill families could reduce their tax burdens by transferring $25,000 from a working spouse to a spouse who is managing the family home and is caring for at least one preschool child.
The bill is intended to provide several benefits for families with young children. As I understand it the intent of the bill is that many spouses with low incomes could then afford to quit their jobs, stay at home and care for their children. This would reduce the family's child care expenses, free up day care spaces, and create additional employment. The hon. member suggests that all this would happen at no material cost to the government.
Let me suggest some revenue losses. The revenue losses associated with this proposed measure would actually be substantial for both levels of government. In fact the Department of Finance estimates that the revenue losses for federal and provincial government could approach $1 billion annually.
Here let me remind all members of Canada's fiscal challenge. On a per capita basis we are one of the most indebted nations in the industrial world. That national debt built up by governments spending more than they earned limits our ability to create new jobs and sustain economic growth. It pushes up interest rates, hampering investment, and hindering our ability to succeed and grow in a world that grows more competitive with every passing day.
In short, any measure before us must be evaluated in terms of whether it adds to our deficit and the tax burden it imposes on all Canadians. Unfortunately the proposal would likely do just that. To implement Bill C-256 without affecting our financial position, we would either have to increase other taxes or find corresponding expenditure reductions elsewhere. Ironically, these revenue losses would occur because the proposed measures would not solely benefit those families to which they are directed.
In particular tax benefits would flow to families not currently saddled with day care costs. Instead thousands of families where one spouse already stays at home to provide care for young children would automatically receive the tax savings. In these cases no additional day care spaces and no additional jobs would be freed up.
In addition, revenue losses could occur if Bill C-256 increases the tax benefits to working couples without actually changing their working status. For example, consider what would happen if proposed tax savings were greater than the value of the child care expense deduction they currently claim. Some two-earner families might then forgo claiming the child care expense deduction to remain eligible for the measure proposed in Bill C-256.
There are other unintended consequences that passing this bill could impose. Among them is the fact that eventually families which benefited from the proposed measure would suffer a significant drop in disposable income.
The income drop would occur when their children began full time attendance at school. At that point these families would no longer be eligible to split the income of the higher earning spouse. The resulting tax increase would reduce their disposable income.
Significantly, the income drop would arrive when the family could least afford it. Again, as parents among us will know the costs of raising children increases as the children grow older.
Of course one could argue that to cover these increased expenses the stay at home spouse could merely go out and find a job. Unfortunately as the 1.5 million-plus unemployed will tell you it is not all that easy to rejoin the labour force, particularly for someone re-entering the workforce after a protracted absence during which skills have either been diminished or become obsolete.
In conclusion, the issue of support for families and especially for children is one that the Minister of Human Resource Development is considering as part of his wide-ranging proposals for renewal of our social safety net. We should not undertake this process with legislation that could well miss the mark.
While the intent of Bill C-256 is admirable, I believe its flaws severely outweigh its benefits.