House of Commons Hansard #135 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was income.


Income Tax ActGovernment Orders

3:05 p.m.

Broadview—Greenwood Ontario


Dennis Mills LiberalParliamentary Secretary to Minister of Industry

Mr. Speaker, I am pleased to launch second reading of Bill C-59, an act to amend the Income Tax Act, which legislates measures contained in last February's budget.

Members will recall that the budget was based on widespread consultations with groups across Canada and these consulta-

tions revealed certain concerns among Canadians regarding Canada's personal and corporate tax systems.

As members know, Canadians wanted tax incentives to be better targeted. They wanted tax loopholes to be closed and complexity to be reduced. Overall they wanted a more equitable tax system.

The government shares these concerns and accordingly in the 1994 budget the Minister of Finance proposed measures to make the tax system more supportive of economic growth and more reflective of fiscal realities, simpler to comply with and more respectful of Canadians' ability to pay taxes. Bill C-59 will amend the Income Tax Act to implement several of the budget's tax measures. On behalf of the government, I would like to summarize these amendments.

First, I would like to review these amendments as a reminder to colleagues in the House and to Canadians. The capital gains exemption eliminates the $100,000 lifetime capital gains exemption and provides an election with respect to the gains accrued before the date of the budget.

The second amendment in the bill relates to employee benefits, extending the taxation of employer provided benefits to include the first $25,000 of life insurance.

The third is the age tax credit, which provides a reduction in the amount of the credit based on an individual's income level.

The fourth amendment is the homebuyers plan, which modifies the provisions of the homebuyers plan, extending it indefinitely for first time home buyers.

The fifth amendment is the charitable donations tax credit which lowers the threshold at which the tax credit is calculated at the highest individual marginal tax rate.

The sixth amendment is the business meals and entertainment expenses, which reduces the percentage of such expenses that may be recognized for tax purposes from 80 per cent to 50 per cent.

The seventh amendment is the tax shelter partnership interests. This amendment requires that limited and other passive partners report any negative adjusted cost base in their partnership interest as a capital gain.

The eighth amendment is the divisive corporate reorganizations, which curtails the tax avoidance technique that allowed capital gains on the disposition of corporate assets to be avoided in certain circumstances.

The ninth amendment is the investment tax credits. This reduces the rate at which the credit is calculated in respect of certain regions. It eliminates the regional component of the credit in respect of scientific research and experimental development and it discontinues the special investment tax credit.

The tenth amendment is the expenditure limit for scientific research and experimental development, which prorates the expenditure limit for a Canadian controlled private corporation based on the corporation's business limit for the year.

The eleventh amendment is the small business deduction which progressively reduces the small business deduction available to Canadian controlled private corporations having a taxable capital over $10 million employed in Canada, so the deduction is eliminated at the $15 million level.

Finally, the twelfth amendment is the mine reclamation fund, which permits a tax deduction for contributions into these funds in the year in which the contributions are made.

This represents a major list of amendments to the Income Tax Act. It will add approximately another 106 pages of rules and regulations to the act.

I support all of these amendments to Bill C-59, but I have to say this is yet another reminder that the the Income Tax Act continues to be complex. In spite of our best efforts I really do not believe we are heading in the right direction when it comes to income tax reform.

I hope all members of Parliament will support us as we put this series of amendments through the House of Commons because the basic principle behind these amendments is to increase economic activity.

We have targeted enhanced support for our small business community, which I know all members of the House support. We have made sure that the homebuyers plan is given added rejuvenation. We have been extremely sensitive to senior citizens at the lower part of the income threshold. These are all efforts to make sure there is fairness and equity, but I believe passionately it is not enough.

We are not going far enough in our income tax reform. In order to get our Income Tax Act on track we have to go back to 1948. Last week I asked one of the pages to get me a copy of the 1948 Income Tax Act of Canada from the Library of Parliament. This document worked very well in those days and is approximately 100 pages for the whole tax act of Canada. This was tax paradise.

Over the years the tax act of Canada has been used to run every sector of the economy, just as these 10 amendments we are talking about today are affecting certain sectors of the economy. They are put in to move and stimulate positively those sectors of the economy.

Over the years there have been so many amendments to the tax act, so many exceptions and exceptions to the exceptions that the tax act is now almost 1,500 pages. As this act has evolved the situation is that even Canada's best tax lawyers and best tax accountants are saying the act is no longer comprehensible. The exceptions to a particular amendment which lead to another

exception create so much confusion that an inefficient system is being created.

Did you know that right now before the courts of Canada there are 37,200-odd cases challenging the tax act of Canada? Just think of the cost to the judicial system. Talk about a make work program. This is a make work program in tax challenges alone for the lawyers, most of whom are subcontracted to the Department of Justice. A company which is assessed by the Department of National Revenue and wants to challenge it hires its own lawyer, but the Department of National Revenue calls up the Department of Justice. Justice in turn hires a lawyer to defend the crown.

Right now the taxpayers of Canada are funding 37,000 cases before the courts. Just think of what that does to our judicial system, all because of the lack of clarity and the lack of efficiency in our tax act.

Bill C-59 is a good bill. The specific amendments in it are designed to stimulate the economy and create jobs.

I would like to take this opportunity to say to my colleagues in the House of Commons that perhaps now is the time to look at comprehensive reform of our tax system. Perhaps now is the time to take up the challenge. We have taken up some great challenges in social security reform during the last few months and we will be doing so over the next two months. We have taken up incredible reform of our UI system and our retraining system. Why not take up the challenge of comprehensive tax reform?

Quite frankly when I was re-elected last year I hoped that the notion of comprehensive tax reform would hit the floor of the House of Commons quickly. I was hopeful for a couple of reasons.

The government in its red book said it would look at tax reform. Of course, the finance committee is in the process of listening to all kinds of ideas which are being brought forward. As we prepare for the budget this is a perfect time to look at some alternatives to the tax regime we have right now. That was the number one reason I was optimistic for a shot at real comprehensive tax reform.

The second reason I was optimistic was that I thought I would have some company in this whole notion of tax reform. That is because lo and behold over 50 members of Parliament were elected under the Reform Party flag and I can remember that one of its cornerstones of public policy during the campaign was comprehensive tax reform.

I can remember campaigning in my riding in downtown Toronto against the Reform Party candidate, a terrific candidate. It is awful when someone forgets a person's name. Where is my friend Nick Lamacchia when I need him? He would always help me remember someone's name.

Income Tax ActGovernment Orders

3:20 p.m.


Jim Silye Reform Calgary Centre, AB

If you do not get elected, you are a nobody; if you leave, you are a has been.

Income Tax ActGovernment Orders

3:20 p.m.


Dennis Mills Liberal Broadview—Greenwood, ON

Nick, where are you when I need you?

At any rate when we had public debates and it came to the issue of tax reform, the Reform Party candidate would stand up and say: "When it comes to tax reform we support Mr. Mills' idea of a single tax system. We call ours the proportional tax but generally speaking we think he is heading in the right direction". Actually the Reform Party member helped me get elected because some of the things that my constituents perhaps did not like about me were offset by the fact that the Reform Party candidate helped me push forward on the single tax.

Here we are one year later and we have not been able to spark an interest in comprehensive tax reform in this House of Commons. I want members to know that we are missing a great opportunity. You might ask: Why does the government not take it up on its own initiative? It does not work like that around here. As members know, the essence of a democracy is good solid debate. There has to be a to and fro. A good opposition has the ability to move an agenda item from the back burner to the front burner.

On the issue of tax reform the opposition has done a lousy job and that is in spite of my giving them a good push every now and again. At any rate, I want to say to the people of Canada that I passionately believe the single biggest thing we could do to spark economic activity in this country is to act on comprehensive tax reform.

I say that because we as a government are counting on the small and medium size businesses to recharge and reignite this economy. I hear constantly as I am sure other members do from those same small and medium size businesses that the paper burden relating to the income tax system, the complexity of it, and the unfairness of it on the corporate and personal side make it a disincentive to productivity. It is a disincentive to risk taking. It is a disincentive to taking that extra shot.

I believe that. In fact a lot of entrepreneurs who have achieved success are not only frustrated by the tax act of Canada but many of our superachiever entrepreneurs are currently being taxed at a rate of 58 per cent rate when the federal and provincial taxes are combined. Many of them are starting to do two things. Some of them are parking their resources, their investments and their cash offshore. The second thing is some are starting to move themselves offshore. They are not just moving their cash but some of them are actually taking their talent and walking into better tax regimes.

When we have a bill like C-59 with all of its pluses and advantages in moving and improving the tax act it gives us the opportunity to look at the big picture over the next eight to ten years.

If Canada does not have a globally competitive tax system we are going to see talent and capital fly out of this country at a rate we cannot imagine. When capital flies out interest rates go up. It is like any other commodity. A store that has only a few pieces of chicken or a few potatoes can demand a higher price. Capital is no different.

When capital is not in the marketplace or if there is restricted amounts of capital, interest rates go up. That causes a tremendous strain on our ability to service our deficit and our debt. It is a tremendous burden. It is tough for our entrepreneurs. When they go to the bankers and try to rent money from them, those rates are higher as well.

If Canada had a globally competitive tax regime, if we had something like the single tax system where-

Income Tax ActGovernment Orders

3:25 p.m.

The Acting Speaker (Mr. Kilger)

Order. I know that the member for Broadview-Greenwood, the Parliamentary Secretary to the Minister of Industry, is one who can express himself very well and certainly is not in any need of props or anything else to substantiate his arguments on any piece of legislation or debate. I would ask him to keep that in mind.

Income Tax ActGovernment Orders

3:25 p.m.


Dennis Mills Liberal Broadview—Greenwood, ON

Mr. Speaker, I thank you for your generous remarks but after five years of trying to advance the debate on tax reform in a comprehensive way sometimes I wonder what you have to do. It is not just props; I think you even have to go beyond props.

At any rate the point I wanted to make was about Canada having a single tax system. On both the personal and corporate sides the rate would be around 20 per cent. On the personal side there would be very generous deductions to make sure those people at the lower income spectrum were protected. If we had a progressive single tax system like that I believe capital would flow into this country in a way we could not imagine. Canada would be the home for capital from all over the world.

It is not unlike the grocery store: if there is a sudden glut of potatoes or of chicken the price goes down. It is not different with capital. If the capital were suddenly parked here in large amounts it would put downward pressure on interest rates. This would mean it would be much easier for us to service our deficit and debt. More important, it would provide capital at an inexpensive price for those one million small and medium size entrepreneurs, those men and women who need to be fired up to get the economy going.

I attended a townhall meeting with my colleague from Nepean last night at which we had a little session on small business and tax reform. One person in the crowd said: "I don't like this kind of a system. I would like a two-tier system. If you make up to $60,000 you pay 20 per cent but once you get over $60,000 you pay 40 per cent". I told him that I totally disagreed with that. I believe the harder we work the more we achieve, and the more we make the more we should have left in our pockets. We should and we have always rewarded productivity in Canada.

I do not believe for a second in a system where people who make millions of dollars get off with paying nothing. I believe in an airtight system and the single tax system is an airtight system. It does not matter whether one is making $100,000, $500,000 or a million, it is 20 per cent; it is airtight. It is airtight on the corporate side as well. If we had a system like that in Canada we would do much to stimulate economic activity.

There is something else we have to be concerned about. In the last three weeks our neighbours to the south have been talking about the issue nearly every day in Washington. There has been a change in the Congress of the United States. Most of the people who were elected three weeks ago in the United States are now starting to talk on almost a daily basis about a single tax system.

That concerns me. If the United States adopts a single tax system before we do we would have a problem. It may be difficult to move money to the islands, to move money to Switzerland or to move a business to another part of South America or some part of eastern Europe, but it will be very easy for Canadians to cross the 49th parallel.

I am standing here today in support of every one of the amendments in Bill C-59. They are targeted amendments. They are all related to generating economic activity. They are simplifying the tax system. I do not disagree with any part of the bill because it is taking us in a positive direction in a constructive way.

My challenge to all members of the House of Commons is that it is good but it is tinkering. It is time to go the whole nine yards, clean up the whole system and start from scratch. If we did that all Canadians would cheer the House. We would have rebuilt trust and respect. More important than all those things or equally as important, we would ignite the entrepreneurial spirit of the country. Our ability to cope and handle our deficit and our debt would be much more focused and much easier to address.

This will probably be one of the last days in this year that we have an opportunity to send out a message to all officials in the Department of Finance, to my colleague, the Minister of Finance, and to all my other colleagues.

Income Tax ActGovernment Orders

3:35 p.m.


Darrel Stinson Reform Okanagan—Shuswap, BC

He will not listen to you.

Income Tax ActGovernment Orders

3:35 p.m.


Dennis Mills Liberal Broadview—Greenwood, ON

No, that is not true. The Minister of Finance listens to us but he does not listen to just a few of us. He listens to all of us. In order to move an issue forward as comprehensive as this one it cannot be done by one, two, fifty or sixty members. We need one hundred and fifty members to move the issue forward.

Our team presented the idea of a single tax system to the finance committee looking for GST alternatives about two months ago. Opposition members started questioning at the end of our presentation and the finance critic from the Bloc said: "We have no criticism of what you are trying to do but we might not agree with some of your credits". He basically said: "When we become an independent country this is the type of tax system we will have. Why would we begrudge it to the rest of Canada?"

I felt that was a pretty straight comment from the Bloc. Obviously none of us in terms of the Reform and Liberals believe in wanting to destroy the country, but he was certainly direct about the type of tax system they would have. The Reform critic for finance was there and supportive, on side. However there is a missing factor in that equation.

Income Tax ActGovernment Orders

3:35 p.m.


Jim Silye Reform Calgary Centre, AB

Excessive spending.

Income Tax ActGovernment Orders

3:35 p.m.


Dennis Mills Liberal Broadview—Greenwood, ON

No. The problem with trying to achieve tax reform is not the men and women of the Chamber. I believe most men and women who sit in the Chamber hear from constituents about problems and complaints in the tax act.

The problem is Canadians complain day in and day out about the unfair, inefficient, complex tax system. I should not say never, because I have received about 100,000 letters from a community of about 12 million to 15 million taxpayers. I would say that 90 per cent of Canadians complain but they do not do enough. They do not get up to make phone calls or write letters to their MPs on whether they agree or disagree with the status quo or whether they have a better idea.

I believe part of the reason we have tax inertia is that Canadians have not pressed enough of us hard enough. In spite of all that, I personally and passionately believe that if we were to take up this challenge and have a single tax system we would have the most exciting economy on the planet. It would be the fastest way to deal with deficit and debt. In the next budget I hope we can get a reference for this system.

Income Tax ActGovernment Orders

3:35 p.m.


Pierre Brien Bloc Témiscamingue, QC

Mr. Speaker, before proceeding with my speech, allow me to express my scepticism regarding the remarks made by the parliamentary secretary who mentioned the openness of the finance minister and of his government vis-à-vis the consultation process. Supposedly, they are listening not only to MPs, but also to all citizens. This process is a farce; next week we are going to listen to witnesses, while the report has already been written. What kind of influence are these people going to have? The committee must return to Toronto, at the insistence of the Liberal members in the area, to hear more witnesses who did not, or will not, have any impact on the consultations. This is somewhat less than transparent.

Let us go back to Bill C-59, which could be described as one of the pieces of legislation resulting from the Liberal government's first budget. This bill includes 12 specific measures, which are only some of the legislative measures resulting from the last budget. Some are good, others much less so. Some will need to be clarified when the clauses of the bill are reviewed by the committee.

Indeed, this bill was, and still is, the first financial test for the Liberal government. Let us say that, in certain respects, it is very timid. Since coming to power, the Liberal Party may not have had that much time to influence the budget process, a reason which is often given to justify the fact that the budget does not reflect what the Liberals wanted. This is strange because they came to power in October. We were all elected then. They claim they did not have enough time, so they tried to postpone the pre-budget consultations which are supposed to end in mid-December. There is something wrong there.

Let us now move on quickly to the measures themselves. We will come back in more detail on some of them later. The Bloc Quebecois agrees with certain of them. Being more positive than negative by nature, I will start with the ones we agree with, although we will need clarification on some in committee. The first one, of course, is the cancellation of the capital gains exemption on the first $100,000. I will come back to this measure because it has to be put into context to see what happened with capital gains exemptions.

There is also the Home Buyers' Plan, which allows first-time home buyers to use their RRSPs for financing, which is made permanent. This is a good measure. There was much pressure on the Conservative Party at the time, and on the Liberal Party when it came to power, to make it permanent. This has now been done and it is a positive step.

Tax credits for charitable donations. The first $250 used to be deductible at 17 per cent and any amount in excess, at 29 per cent. Now, the limit has been brought down to $200. That is to say that amounts in excess of $200 will be deductible at 29 per cent. There is now an extra $50 that is becoming deductible at 29 per cent. In itself, this is a positive measure. It is not the reform of the century, but we, from the Bloc, recognize the contribution of charitable organizations and other organizations that benefit from this funding. That is why we support this measure.

There are also a number of technical provisions to close certain fiscal loopholes. I am thinking about company reorganization, tax shelters in the form of partnership interests and the small business deduction in particular. Let us just say that there are three measures to close technical loopholes. I will not get into the detail, as this can be done in committee, but this is not the tax reform of the century. It is certainly not the reform the parliamentary secretary would like to see and he is seeking public support to improve on it. Having participated in the consultation process myself, I can tell the hon. parliamentary secretary that public support is a subject that was brought up very regularly by various people.

One of the reasons why we end up with outstanding accounts-if you add up the GST, accounts in dispute and outstanding accounts per se, as they appear on the books, it is in excess of $9 billion-is that somehow individuals do not abide by the applicable part of the social contract, in terms of how revenue is to be collected. So, the system will have to be changed, so that the public can get the right idea. In some cases, public perceptions are quite accurate, but in others, perhaps if we could clarify and simplify things, people could change their minds about certain commonly-held beliefs. But in order to do that, we must lay our cards on the table and not be afraid of being truly transparent.

Another measure dealing with mine reclamation funds permits a tax deduction for contributions to these funds in the year in which the contributions are made. This will benefit these businesses, particularly those which had trouble taking advantage of these measures when closing or confirming their operations.

This bill contains a number of positive measures. I will review two of them, which can be described as being positive but requiring closer scrutiny. One is the capital gains exemption. A few years ago, this exemption was set at $500,000. The first $500,000 in capital gains was not taxable. To help people understand capital gains, I will give an example: Someone could buy, not a principal residence which does not qualify, but a secondary residence, a cottage, for $20,000. When he sells it later for $50,000, he makes a $30,000 capital gain which becomes taxable income. However, the first $500,000 in capital gains is tax-free. At least, it used to be $500,000.

The first reform reduced this exemption to $100,000. Now they want to eliminate it, arguing that it only benefits the rich. This statement, however, requires careful scrutiny. If this measure benefits the rich, it also benefits the future. Some of those who used this capital gains exemption are not affected because they have already exceeded the limit. Many people benefited.

When we say that our financial situation is difficult and that the country is in debt because of our social programs, we should take an occasional look at the cost of tax expenditures. If this approach is not valid today, why was it in the past? Of course, we can say at some point that we must provide the tools needed to stimulate investment, to encourage people to invest in economic development, with appropriate tax incentives. Although investments are still needed today, we say: "No, this measure benefits the rich. It took us a while, but we have finally realized it". In reality, this penalizes young people like myself, people of my generation. Those who would have benefited in the future will be denied this advantage. This is a sacrifice we are willing to make in the fight against the deficit. Although we are willing to make this sacrifice, I find it very difficult to believe that it penalizes today's rich people.

We now must work on this in committee and I can say right now to Liberal Party members: Older people seem to have a problem with this measure this year. The finance minister's budget provides an election in respect of gains accrued before February 22, which authorizes tax-selling throughout the year. To go back to the example I gave earlier, suppose I now have a cottage worth $50,000, which I bought for $20,000. I could resell it to myself for $50,000. If I sell it for $80,000 in 15 years, the only taxable portion will not be $80,000 minus $20,000, or $60,000, but $80,000 minus $50,000, or $30,000, which is the increase in value between February 22, 1994 and the date of the sale. So this year everyone can sell their tax benefits to take advantage of the exemption for the last time. They must do so before the end of this fiscal year.

Take a senior who collects an old age pension or the income supplement. He must declare it on his tax return under capital gains so his net income which is used to calculate the amount of his pension is artificially increased this year, even though he did not collect it as income. As a result, he might lose some pension or income supplement. There is a problem, because some seniors are being penalized. We would have to know who is being penalized. We will need the information. How much money is involved and why was a mechanism not provided so that people are not discriminated against on the basis of age? Someone who is 64 is not affected, but someone who is 65 or older and makes a capital gain may find his pension or income security affected.

This needs to be looked at carefully. I say that some amendments should certainly be possible. I talked to some accounting offices and they told me that it happens in many cases. Sometimes people take a while to react and now, thanks to the vigilance of some people, we are starting to realize that things are not quite right and that something is not working as it should. We must ask the government whether it intends to penalize seniors or if it is ready to develop some way so that they can avoid being penalized.

I comment now on another measure, the tax credit for charitable organizations. Since the government wants to implement a social program reform which will hit hard, there is good reason to consider providing additional support, so that these groups

would somehow have the option of finding their own sources of income. Many officials representing community groups, agencies, charitable institutions and philanthropic organizations told us that this was an avenue to pursue, adding that an evaluation should be made of how much it costs the government to either give funding to organizations, or encourage them more strongly to raise funds. Then the government's participation, from a fiscal point of view, should be looked at.

This is an avenue which must be pursued thoroughly, and the minister should conduct such an analysis before going ahead with in a social program reform which will adversely affect these groups.

The few measures proposed to close some loopholes are symbolic of the will of this government to eliminate all existing loopholes in the taxation system. We keep raising the issue of family trusts, which is still being examined by a committee. More people than ever before feel that there is a lot of money involved. It is very difficult to get information. In fact, it is almost impossible. But the government does not seem interested in getting that information.

The government will consult on just about anything, but it cannot provide the required information to form an opinion on this issue. Eliminating family trusts might be much more profitable for the government than implementing the few proposed measures. These measures must be taken too, but there are initiatives which would help restore public confidence.

People say that there is a problem with family trusts. When it comes to RRSPs, the government says: What we want to do is take a chunk of your future income now, either by taxing RRSPs or by lowering the maximum to which you can contribute. It is essentially telling people that they will have to pay taxes immediately instead of when they cash in their RRSPs. However, the government does not follow the same reasoning when it comes to capital gains in family trusts. Indeed, it may take up to 80 years before such gains are taxed.

I do not see any logic there. The time has come to target the general public-and it is true that this is the most profitable move, because it affects the largest number of people-but the middle-class is tired of always being the scapegoat, while those who earn the most are left alone.

I watched the Minister of Finance last week, when he was the guest on Jean-Luc Mongrain's program. There was a pyramid of small blocks representing social classes. Mr. Mongrain asked the minister: Where are you going to cut? The minister was hesitant in choosing a block, thinking: I cannot really go for the middle one, because all the other blocks will fall and it would not look good. He was reluctant to take the block at the top. And when he realized what he had to do, Mr. Mongrain asked him: "Why not take the top one?" He took it without any hesitation and said: "I will take them first". Surprise, surprise! Everybody saw him hesitate when he went for the block in the middle, representing the middle class. That was an object lesson people will remember.

There is another aspect to this and I am referring to butterfly companies and tax shelters. This was partly addressed in the last budget. The government should listen a little more to the Auditor General instead of just paying him to publish his annual report!

The government has invested $50 million in the Auditor General's activities, so we might as well make sure this money is made more productive. I am not saying they are not doing a good job, but the government has to use the information they provide. There are still many so-called problem countries listed because of the opportunities they provide for tax evasion as a result of a lack of reciprocity between their tax systems and ours. There are still 16 countries on this list, and in some cases an investigation followed by corrective action would be necessary.

It gets very complicated when you want to go after the top blocks. When you want to get at the top of the pyramid, it is not easy, and the government never seems to have the best tax experts. They are all in the private sector, and they know how to use the tax system to make money. So I do not believe that is the answer.

We have resources here to be able to evaluate all this. People know that but of course there is a very strong lobby, and lobbying expenses are tax deductible, would you believe. They did not talk about that either. They may talk about cutting the amount you can deduct for charitable donations, things like that, but never a word about lobbyists. Perish the thought!

I was talking about the measures we support and that there is room for improvement. I will now talk about the measures we oppose, because we will vote against this bill since it contains measures that would not appear and, in fact, are not in order. Those of my colleagues who will speak on this bill will have a chance to come back to this issue, however, the government singled out the age credit and I will devote a small part of my speech to that.

Although we did not estimate its impact precisely, we have some questions about the reduced deduction for meals and entertainment. We are not necessarily dead set against it, but we would like to evaluate its impact, and we will be able to do that in committee, since there is some time left before its implementation.

Then there are the investment tax credits. The notion of regional development seems to have been dropped. The region is Canada as a whole. I will come back to this to explain what happened. Technically speaking, it is rather complex, but things have happened. There again there is a lack of imagination. Revenue has to be raised but during election campaigns candi-

dates always say, and the Prime Minister was no exception: "We will not raise taxes, at least not in the first two years".

Yet, we tax employee benefits like employer-provided life insurance. Previously the first $25,000 of coverage were tax free, this will no longer be the case. Why is the government afraid of saying that it is a new way to get more money? Because it would not be able to claim that it did not raise taxes. However, taxpayers realize that as the years go by, there is less money left in their pockets.

They are told: "No, we did not raise taxes". They think: "This does not make sense! The government finds all kinds of tricks to come and take our money". Then, people start getting mistrustful, and they think: "It is my turn now to get even and find ways to avoid giving money to the government".

Therefore they deal under the table, they pay cash and avoid paying taxes. Merchants, too, get on the bandwagon, for they are also consumers. Many small merchants, who belong to the middle class, are just as frustrated as consumers; they understand their fellow consumers and they do the same thing. This is how the underground economy was created. The finance minister does not agree with his colleague, the revenue minister, on the size of the underground economy, nor do they agree on the importance of tightening the collection of unpaid taxes.

For his part, the finance minister claims that efforts are needed, that it does not make sense, whereas the revenue minister tries to minimize the situation regarding unpaid taxes. With a sudden change of heart, Mr. Martin realizes that there is a good deal of money there, but he admits that there are few solutions for improving the situation.

You know, we have seen it before. Year after year, it is the same thing. I recall especially the past three years, maybe because I am the youngest. I believe the next budget is going to be tough, it is going to hurt. This is what we see in the press every November or December. In January, the finance minister will say: "I will not comment on individual measures, wait for my budget". In February, we get a budget which is not all that tough and the deficit for the year is reasonable. The big deal this year is that the deficit is not higher.

It will probably be around $38 or $39 billion, but some expenses are not recurring. This year, for instance, the Unemployment Insurance Fund has a surplus so that the deficit is two to three billion dollars less than last year. But this is not a reason to rejoice. We have skipped a turn, there was a non-budget or rather a budget without any effect. They believe that economic growth will solve the problem but we will need much more than that.

I would now like to talk about the regional investment tax credit. I will try to be as simple as possible about all the technical aspects. There were three regional investment tax credits. There was the special investment tax credit; the investment tax credit in the Atlantic region and the investment tax credit for scientific research and experimental development, also in the Atlantic region. To tell you the truth, nothing is simple in the taxation system; there are numerous credits, and the fact that the federal government wants to take action of its own in regional development often results in that kind of situation.

The first one, the special investment tax credit of 30 per cent is abolished. It was mainly used for buildings, machines and equipment.

The second one, the investment tax credit in the Atlantic region, is reduced from 15 per cent to 10 per cent.

The other one, the investment tax credit for scientific research and experimental development, which was 30 per cent in the Atlantic region and 20 per cent elsewhere, is reduced to 20 per cent across the board.

We can see that regional investment tax credits are generally not considered as effective economic means to attract additional investments. After a while, we can see that they do not have the results expected.

The real question to be asked is: Why? Why did it not have the expected results? Because there must be a direct incentive somewhere. Maybe if there were not always the same problem with two governments, each in its own way, trying to stimulate experimental development, especially aimed at small and medium size enterprises-because it is the thing to do nowadays, when you are a finance minister, to talk about small and medium size enterprises. They talk about it but they do not necessarily act on it. It always sounds good in their speeches. They talk about measures especially for them.

When you look at the way things are, when you look at these people, who are born entrepreneurs, who came up with good ideas and were able to capitalize on it, you come to the same conclusion as many have, including the Standing Committee on Industry and other committees. These people have strong points, these are brave and enterprising people who are helping to build Canada and Quebec, but they also have some weaknesses, one of them is their lack of administrative expertise. This could explain why some projects have failed.

These people are good businessmen and women, with good ideas, but we provide them with such complicated tools; depending on where they are located and what they do, with this type of tax credit, there are three possibilities- They become so disheartened that they start to think that, with all the time they are going to lose on these tax breaks, they might as well go back

to their business and get some more work done. It would cost less and they would be able to save more money than they would have by using the tax credit.

They are not entirely wrong, since consultant services in this area, whether we are talking about lawyers, tax specialists, or others can be costly. This may be why they are not widely used.

With regard to regional development, here is what we say to the federal government: Instead of squandering your money, why not transfer these resources to the provinces which are probably in a better position to understand the specific needs of their regions. In turn, the provinces can allocate this money anyway they want to.

For example, transfer the tax points and assess how much these credits are costing you. Tell yourself: We still want to help businesses, because we know there are future entrepreneurs out there and we want to help them work on their weaknesses, like their lack of interest in research and development, so we will provide them with the means to do so. Transfer the resources where they are needed. We are not talking here about transferring dozens of tax points, these are not major expenditures, but we will see what will happen.

I am convinced, as many others are, that the closer a level of government is to people, the more it is able to understand the people's specific characteristics. We should stop managing everything from this level and we are certainly not doing so with this measure. What the government is doing once again is setting its own standards nation-wide, and it will continue. . . I am sure other tax credits will be created and soon the situation will be just as complex as what we have now.

This year, the Auditor General was harsh in his judgment, especially on the issue of money. Even if our country lags behind in the area of research and development, the little we spend, we spend inadequately. And this comment applies to all areas. In almost all fields of activity, people say we are spending too much and they are convinced there is a better way to spend whatever amounts we do spend. Better spending practices alone would improve our performance in the area of economic development. But it is hard for such changes to get to the top, all the way to this place. Whether we are talking about the tax system or the transmission of information, it is always a problem for changes to reach the highest levels. The message does not always get there, in spite of numerous consultations.

Another measure is the age tax credit. It certainly is striking. At one time, the present Minister of Human Resources Development was a member of the opposition. He was there during the Tory period. We all remember the Charlie Brown incident, when the Tories launched an attack on the old age pension. Just look at what he said in those days. He said this, about the budget, here in this House, on June 18, 1985: It is a fact that the government has reduced considerably, and in a backward way, the purchasing power of seniors. Not only are they being deprived of income assistance, but their purchasing power is also being reduced. And as if this was not enough, the government hits them again by cutting two billions-in dollars of 1985-in transfers to provinces, between now and 1990. Clearly, this budget is an attack on several fronts against seniors'incomes. Now, in their first budget, the Liberals reduce the age credit. Eight years later, they do exactly was they opposed back then.

We sometimes have this impression of déjà vu. At one time or another, we all feel as though we have already lived a particular experience. Since the beginning of this new Parliament, we often have this feeling of being back to 1985, under a Conservative government. The Liberals conduct the same consultation exercises that they criticized before, and they do so regarding the same issues. They deal with problems in the same way as the Conservatives did, something which they would never have dared mention during the election campaign.

Let me explain this age credit. People aged 65 and over can ask for a tax credit equivalent to 17 per cent of $3,500. This is a non refundable credit; in other words, it can only be applied to the tax payable. If there is excess tax to be paid, the credit cannot be refunded. That credit translates into a tax reduction of about $610 per year. From now on, seniors with a net income of over $25,921 will see this credit diminish progressively with every dollar over that amount. The credit will totally disappear when the income reaches $49,100. Is this the level to be found at the top of the pyramid the Minister of Finance was talking about during the TV interview he granted to Mr. Mongrain? Was that the top block, an income of $25,000 or $26,000 for the elderly?

In the meantime, a new level of Old Age Security benefits is being added. The government clawbacks the old age pension it pays to people with incomes over $52,000. This level includes income from about $52,000 to $80,000. Now the government is proposing a new level for incomes between $25,000 and $49,000. Is this the basis for a new scale or, where old age pension is concerned, is the government trying to add new levels to the existing scale in order to reduce benefits? I think we have good reasons to be concerned. Very often, this is the way things happen. Once you have an in, it is easy to do whatever you want. Here, the government has set this new level and in the future we will most probably see the government adjust or recover pensions paid to elderly Canadians with a net income of over $25,000.

Older Canadians are concerned and have trouble understanding why they are the first to be picked on in this budget. Over the next three years, the government will recover $500 million. In 1985, the Minister of Human Resources Development feared that the then government would clawback $2 billion over a period of five years. But now he is not concerned about the $500 million the government will recuperate over the next three years. The worst part is that what he was objecting to was partly implemented, therefore older people already lost money. He

thought that was indecent, but now that the government is asking for more he is in the Cabinet and he is going to do it.

My colleagues will have a chance to elaborate on the issues regarding seniors, but I must say that senior citizens are more and more concerned. This is somewhat ironic, because members opposite, to fight Quebec sovereignty, go to retirement homes and talk to seniors, trying to scare them. They tell them that Quebec separation would endanger their well-being and they use the vilest substantives they can find. They blackmail them with their pensions, because the cheques they receive bear the logo and flag of the federal government.

Yet, this same federal government is the first to pick here and there in their pockets. Yes, there is something to do collectively to fight the debt. While there might be some categories of senior citizens willing to do more, they do not want to be first because they do not seem themselves as different from other taxpayers. We should strike at the top of the pyramid, at those who benefitted from the capital gains exemption in the past. Today they are still alive, and probably rich. This is no coincidence.

When we draw the pyramid, we realize that the top gets higher, but that the middle is slumping. We have a pyramid with an ever bigger base and an ever higher and narrower peak. The gap between rich and poor is widening.

Of the 20 million taxpayers, 50 per cent have incomes of less than $20,000 and 60 per cent, below $25,000. At this level, there is not much hope of getting at the top of the pyramid, and by so doing perhaps make our society more equitable, high enough to dare demand that those who finance the major political parties do their share to solve the debt and deficit problem in general. It seems difficult to ask for such an effort.

In conclusion, all committee members will look at these legislative measures in detail and report back at third reading in this House. This is a relatively timid and cautious budget, probably because the government ran out of time. People have high expectations for 1995; they expect us not only to reduce the deficit but to do it in a fair and equitable manner. Successfully meeting the debt challenge requires that everyone co-operate by fighting the temptation to evade taxes. To achieve this goal, people must know what the government's intentions are and feel that it is acting fairly and equitably. They are willing to give the Minister of Finance a chance because he is new at this and because this will be his first real budget this year.

They may blame him for wasting a year. We lost two years because of the election; one year because after its leadership race, the Conservative Party did not dare table a budget. They decided to give some leeway to the new administration. Then the newcomers argued that they got there too late. As a result, we lost two more years in the fight against the deficit, two more years during which the debt grew by $40 billion. That is a lot of money. This additional $80 billion is costing us between $5 billion and $6 billion in interest charges alone.

That is a lot of money, and I cannot help talking about an impending threat with respect to the next budget. Rumours to the effect that RRSPs will be affected continue to circulate. And there is no truth to the allegation that the Official Opposition is keeping it alive, contrary to what the hon. Parliamentary Secretary to the Minister of Finance maintained three or four weeks ago and, realizing it was not credible, stopped saying so, but now, someone is playing the parrot, taking an old quote and circulating the same rumour again.

The Minister of Finance could very easily state, in any of the speeches he makes in his travels-because I am convinced that he gets media attention when he travels-that plans to put government finances in order, for next year, do not include taxing RRSPs. Because there is a problem. People who try to sell RRSPs, who are trying to get other people to contribute, are faced with the normal reaction of individuals telling them: "Sure, but there is much talk about RRSPs. Apparently, they are going to be taxed. We are going to have to pay tax on that money". It does not sell well. Potential customers are sceptical.

They may go for it, but it will probably be more difficult this year to sell RRSPs, and that constitutes saving. One of my colleagues, the hon. member for Rosemont, quoted statistics on consumer saving in Canada, showing the decline in saving. On one hand, we could be glad that people are consuming more and stimulating our economy, but on the other, we must be concerned because their ability to consume is increasingly limited.

There is a problem, because our recovery could level off, especially with what is happening to economic growth in the United States, which is operating close to capacity, raising fears of inflation and all that this involves. So we need savings. Hitting savings would send a very bad signal. Not only is our future being mortgaged and our debt burden very high but today they want to take a bite out of our future income as well.

I am very worried. I am trying to think what the situation will be for a finance minister in 15 or 20 years. He would be able to count on the income from retired people since they will be cashing in their RRSPs. Instead of collecting benefits, many will be taxpayers. If they are not encouraged to invest in their own retirement-and anyway, all they are doing is deferring income tax-what will happen in 15 or 20 years? Again, the room to manoeuvre will be limited.

Let us solve the government's financial problem without touching RRSPs and within 15 or 20 years, we will have a much greater pool of revenue. I am concerned, but it also makes me smile, that in the finance minister's grey paper, it is listed as a tax expenditure, with a very awkward calculation, but basically it is deferred income. If someone puts money in an RRSP, it will be taxed when he takes it out.

It is true that many taxpayers could find their RRSP taxed at a lower rate than it is today. That is the incentive for the government and that is a tax expenditure. The tax expenditure is not the amount which taxpayers can deduct this year: It is only the difference between what they would now pay in taxes and what they will pay when they cash in their RRSPs. This might be a sizable amount, but it is also the actual figure which the government should quote.

However, the government uses a different approach. It would rather come up with huge figures and say: "It costs us $15 billion". We are not only talking about RRSPs, but also about registered pension plans. The government says that it badly needs money and that it must get it somewhere. Then it is quick to add that it might be a good idea to look at this option, using the argument that rich people who put a lot of money in their RRSPs are benefitting more than others.

But that is not necessarily the case. Indeed, when these very rich people cash in their RRSPs, chances are they will still be in the same tax bracket. Consequently, in their case, it is strictly a tax deferral.

The government should tell it like it is. When it calculates tax expenditures, it should do so accurately.

In conclusion, I want to point out that there are measures such as the use of RRSPs for the purposes of the Home Buyers' Plan. RRSPs could be a more effective tool for economic development, based on the argument that, maybe, people should invest more at the local level. Whether or not this is a good idea could give rise to a long debate.

So, the government takes such measures but, at the same time, it is considering going after RRSPs. This is not good, and I hope that the Minister of Finance will have the courage to say: Enough is enough, RRSPs will not be touched this year. Just like he said he would not lower UI contributions.

The Bloc Quebecois opposes the bill as a whole because it targets seniors. Some measures will have to be clarified in committee and, in any case, we will discuss it again at third reading. The real budget will be tabled next year and people will not be as tolerant as they were this year. That budget will have to bring results.

Income Tax ActGovernment Orders

4:20 p.m.


Jim Silye Reform Calgary Centre, AB

Mr. Speaker, I rise today to address Bill C-59, an act to amend the Income Tax Act and the income tax application rules. This bill is nothing more than a 110-page sequel to the confusing, convoluted Income Tax Act which has become a 10,000 page script of income tax rules, regulations and subsections.

I am beginning to think that the Income Tax Act is some sort of secret government IQ test. Like most sequels, Bill C-59 serves up more of the same, showing no new ideas, no new twists and, for the most part, it would have been better if the writer had sat down and spent the time writing something new.

With Bill C-59 the federal government eliminates the $100,000 lifetime capital gains exemption which will seriously impede the build-up of capital in Canada. This is at a time when most wealthy people have already used up their exemption, whether it was the $500,000 or the $100,000. It is nothing more than a tax on the middle class who are the very people the Liberals purport to represent.

What the government should be doing is eliminating $5 billion in direct subsidies to businesses and start privatizing some of the 380 crown corporations. Like the Conservatives, the Liberals have continued to pick the pockets of taxpayers.

The biggest job that the Liberals are working on right now is figuring out how to get more money from the taxpayer without disturbing the voter. It boggles the mind to watch the government go after capital gains. It is considering taxing RRSPs and it is apparent that the Canada pension plan is in major trouble due to revenue shortfalls.

The questions that beg to be asked by Canadian taxpayers are: What is in it for me? Where are the incentives? What benefit do we get from government spending? Can someone give us a break? The answer is no.

The average benefit to taxpayers is about $20,000 per person while they are paying out about $22,000. In other words, they are getting less in benefits from the government than what they are paying in taxes. That is why people are very sensitive about paying taxes. We are at the high end of the tax scale. In fact, we are too far at the high end of the tax scale.

For the Liberals it is the same old story. The answer to these questions and problems are very complex. They must be studied. They will need committees, subcommittees, task forces and of course, to quote the finance minister, input for effective output and we must square the circle to solve the problems facing Canadians.

A planned economy is what the Liberals are targeting with infrastructure, a $2 billion expense; CIDA, Canadian Interna-

tional Development Agency, $2.2 billion, let us develop the other countries, let us help them not Canada; direct grants and subsidies to businesses, $2 billion. Yes, a planned economy. That is when the politicians make the plans and the people make the economies.

We have seen this movie before under directors Trudeau and Mulroney. Now we are going to add director Chrétien to the list. The only solution the current finance minister can come up with is to blame, first, the previous government for the inherited debt of $480 billion, as the Liberal government conveniently forgets that close to $200 billion of that was left by them when it left the House in 1983-84.

Second, the finance minister blames the Bloc Quebecois, the separatist official opposition, which he claims is negatively influencing the investment community.

Third and most recently, after a year in power he blames small and medium size businesses for not increasing productivity in the marketplace. It is their fault the economy went into a recession, according to the finance minister a couple of days ago in an interview with the Financial Post .

What will be the fourth excuse? I do not know but it will not be addressing the real issue. I would like to tell Canadians that Reformers and the Reform Party are currently working on a different script, a new story that will have a better ending for all Canadians.

If there is anything this bill proves it is the need for true tax reform. Listen to the 12 items the finance minister is trying to deal with: capital gains exemptions; employee benefits; age tax credits; homebuyers plan; charitable donations tax credit; business meals and entertainment expenses; tax shelters; partnership interests; divisive corporate reorganizations; investment tax credits; expenditure limit for scientific research and experimental development; small business deduction and mine reclamation funds.

Income Tax ActGovernment Orders

4:25 p.m.


Werner Schmidt Reform Okanagan Centre, BC

Mind boggling.

Income Tax ActGovernment Orders

4:25 p.m.


Jim Silye Reform Calgary Centre, AB

Yes, mind boggling.

Although we support all of these measures with the exception of the capital gains elimination, it represents a whole bunch of tinkering with little gain for Canadian taxpayers and the government. It has spent a year doing nothing but politics as usual, as did the Conservatives. Canadians voted for change. They thought the Liberals would change the way we conduct business and they have changed very little.

We need a new set of principles to set a new direction for federal taxation. The need for reform in matters of taxation is widely recognized. The federal government under Brian Mulroney raised taxes 33 times and implemented the GST plan in the face of widespread opposition.

The Liberal government is now considering revisions that will inevitably prove to be even more unsatisfactory, a combination of the son of GST, called the NATVAT, or a surtax on income or both. Consumption taxes on top of income taxes are not the answer.

Five fundamental principles should be applied to the Canadian system of taxation: first, all taxation programs of whatever kind should be for the exclusive purpose of raising revenue to fund authorized government spending and should not be for the purpose directly or indirectly to shape economic or social activity.

Second, all taxation programs should be consistent with the governmental role of creating a framework. It can be square or round, whichever-we do not have to mess around, whether we square it or round it, or round it or square it-just do what is right so it widens people's choice and wherever possible leaves power and responsibility in the hands of the people.

Third, tax legislation should be simple and easily understood by taxpayers, permitting most taxpayers to file their own returns.

Fourth, taxation should be visible, that is, no hidden taxes.

Fifth, rates of taxation should be limited and not punitive for both individuals and corporations. The incentive should be to reward production and leave more dollars in the hands of taxpayers and wage earners than the government. The only purpose of taxation should be to raise funds.

However, we have become accustomed to a multiplicity of objectives in our taxation system. It tries to encourage domestic production, investment in certain industries, charitable donations and further education. It tries to discourage smoking, drinking, imports and pollution. Unfortunately it also ends up discouraging taxpayers.

There will always be convincing arguments for making the taxation system more responsive to some other government initiative. Examples are taxes on petroleum products to protect the environment; taxes on alcohol or smoking to reinforce moral standards and healthier living.

Once we give in to one of these arguments we leave ourselves open to making judgments based upon personalities, effectiveness of lobby pressure, political expediency and other human frailties.

I believe the only purpose of taxation should be to raise funds needed to pay for government programs approved by the Canadian voters. I believe a proportional tax is the answer to creating a simpler, more efficient and more effective system of taxation.

The idea of a proportional tax is an attempt to improve upon the flat tax models that have circulated for many years to improve upon the single tax as proposed many years ago by the member for Broadview-Greenwood who is presently working on the single tax and trying to refine it, improve it and make it understandable to the government. Now that he is on the government side it would be hoped that members of the government would pay more attention to the proposal because it has a lot of advantages. There are a lot more advantages than disadvantages.

Of course it has that one big weakness that governments do not like and that government bureaucracies do not like. It is too simple and because it is too simple it will not work. It has to be complicated, convoluted and confusing before governments will support it.

Income Tax ActGovernment Orders

4:30 p.m.

An hon. member

Isn't that a shame?

Income Tax ActGovernment Orders

4:30 p.m.


Jim Silye Reform Calgary Centre, AB

That is a shame. Much has been made of simplifying the tax system. Successive governments have succeeded only in adding dramatic complications while explaining at the same time that they are simplifying it.

The member for Broadview-Greenwood as he spoke to the bill today found himself saying-and it was the only part of the speech I did not like-that he supported the 12 measures and that it did improve the Income Tax Act. While it laid out a more level playing field in 11 areas, it distorted the capital gains area. It is easy to fall into that trap.

We defend a bill by explaining that it simplifies things, yet we are adding to the problem. I do not know the cost in millions of dollars for this one bill alone, but it probably involved modifying different regulations, sections and subsections to get the 12 items changed in the Income Tax Act.

Income Tax ActGovernment Orders

4:30 p.m.


Werner Schmidt Reform Okanagan Centre, BC

It is 110 pages.

Income Tax ActGovernment Orders

4:30 p.m.


Jim Silye Reform Calgary Centre, AB

No, the Income Tax Act is more than 110 pages.

Income Tax ActGovernment Orders

4:30 p.m.


Werner Schmidt Reform Okanagan Centre, BC

No, no. That is the addition.

Income Tax ActGovernment Orders

4:30 p.m.


Jim Silye Reform Calgary Centre, AB

The addition is 110 pages. It is amazing. The vast majority of individual Canadians should be able to confidently prepare and file their personal income tax returns without the services of tax consultants. Tax consultants should be busy calculating taxes on profits, not companies going into receivership.

Requirements of a simple and fair income tax system are one flat rate of tax, one personal exemption amount per individual, the same deductions for all individuals and corporations, and a clear understanding of the definition of income. A simplified tax system also allows lower income individuals to claim a personal exemption to avoid taxes on a basic living income. An individual's income is much easier to track than an individual's expenditures.

I would suggest that a proportional tax on income is the most acceptable tax model for Canada. It is a flat tax model that would be ideal for provincial and municipal governments, although I am aware that the federal government cannot and should not force provinces and municipalities to adopt any particular tax policies.

What I mean is that the government determines where it should spend the money, what programs Canadians want and need and how much is required to deliver services. In the process it has to be evaluated which government can better deliver a service. As some of the services are pushed down to lower levels of government and are within provincial jurisdiction, they are given the same points in taxation to raise the money for services because the federal government will no longer need them.

That is how the system would work. That is how we could clean up the current Income Tax Act. That is what I mean by taking out income taxes as the driving vehicle for economic and social development and social policy.

I call our version of the flat tax a proportional tax versus a flat tax or a single tax because it would be calculated in proportion to family size, income and therefore according to the ability to pay. I will explain that a little further on when I get into a sample of a single page tax return that I know members would look forward to filling out one day in the near future.

There is considerable logic to adopting a taxation system that can be efficiently administered. The calculation of income would utilize generally accepted accounting principles without special rules specified by government.

This proposal defines income to be productive income from employment, business and investments, including interest income, capital gains, pensions and dividends. It also allows immediate deduction of capital acquisitions in the year of purchase but would not tax capital gains on an individual's primary personal residence due to many economic variables over a long period of time.

Let me review two tax forms that I believe would improve our international competitive advantage if we adopted them within two years. I am borrowing some of these points from the member for Broadview-Greenwood, but it is very critical at this point to get a handle on excessive spending by governments, have more efficient and effective spending by governments, determine which levels of government should be raising and spending that money for delivery of services to the people, determine which crown corporations should be privatized and which ones are better administered and run by the private sector versus the public sector. I cannot be told that all 380-plus crown corporations are better in the hands of government bureaucracy.

I recommend that over 90 per cent of them are better off in the hands of the private sector.

Yes, there are some businesses and corporations that should be administered by the crown and we should retain them, but we should have a review of which crown corporations should stay in government hands and which ones should go to the private sector.

By deciding which level of government should deliver a service we have removed the need to raise x amount of funds for the federal government. By privatizing we eliminate the need of direct subsidies to crown corporations and businesses of $2.2 billion. That is another saving.

Another aspect is the process of doing a government review of government programs. No standing committee that I know of reviewing the prior year's spendings on the main estimates talked about a sunset clause. We do not have a habit of doing that in the House.

Very few programs expire on a certain date; they go on ad infinitum. In many cases cabinet ministers, ministers of the crown who are currently trying to do the job that they were elected to do a year ago, are in no way, shape or form in control of the purse strings. Money is being spent by administration, by the departments, that they only find out about if it hits the newspapers or if opposition parties point out the misspending of moneys. That just proves my point that we hold cabinet ministers accountable but in effect they are not the ones who are spending the money.

This has to be fixed and we are trying to tell the government how to fix it. We are trying to point it out to the government, yet somehow it refuses to listen to us and ends up embarrassing itself. It knows full well that it is not in charge of these funds in all cases.

Let us get back to the proportional tax system and what a flat tax would be like. It would be one page in length. It would be one side only. The other side would be blank so it could be folded and mailed like that. It would have employment income; investment income which includes interest, dividends, capital gains and rental income; and any other income which includes UI benefits, pensions, old age security payments, alimony, child support payments and foreign income. That would be all the areas of income that would be defined. The key principle under income is that a buck is a buck. All personal income generated in any form should be taxed with no special treatment for various forms of income.

From this income would be deducted, for example, the personal exemption. Everybody would have a personal exemption of $12,000 to generate income; a spousal income of $6,000 less the spouse's income; a child care deduction of $5,000 up to age 7 and $3,000 between ages 7 and 14. RRSP contributions would be deductible but the maximum would be $6,000, not the current $13,500. That would tax higher income people. They would not be able to find loopholes to reduce their taxable income.

This tax form is geared toward the middle income which comprises the majority of Canadians. This taxation system would help them. It is a taxation system geared to help people who make between $45,000 and $65,000 per year so they can raise families, look after their homes, look after their spouses and look after themselves.

There would be an age deduction of about $2,000 for 65 years of age and over. If foreign income is declared, any foreign tax paid would be offset. Other mandatory deductions would be UIC premiums, CPP contributions and any alimony or child support payments.

The deductions I have gone through on a personal tax form are at levels the middle class can afford. It would result in more tax being extracted from the wealthy than is now the case and would leave more disposable income in the hands of taxpayers.

Income Tax ActGovernment Orders

4:40 p.m.


Dennis Mills Liberal Broadview—Greenwood, ON

What is your rate?

Income Tax ActGovernment Orders

December 1st, 1994 / 4:40 p.m.


Jim Silye Reform Calgary Centre, AB

I will get to my rate in a minute. Lower income earners would be basically exempted from paying tax and families would be granted a generous deduction to help them get by on one income.

Leaving the dollars in the hands of the people who make them in the first place eliminates the need for the government to collect and redistribute the funds. There are handling costs both ways and the net result is that the person who is dishing it out and is making $18,000 a year and qualifies for some social assistance gets less back than what he or she had in the first place. Why not leave it there? That would help relieve some of the strain, stress and pressure on our welfare program. It would be a form of savings for the government as well.

The purpose of the RRSP contribution being reduced to $6,000 from $13,500 would be to gear the program more toward middle income earners, thus not appearing to favour the wealthy. Spousal income up to $6,000 would be filed on one return. However any spousal income exceeding $6,000 would require a separate return with a $12,000 exemption allowance. It might be a little difficult for two people to fill out two forms but I do not think that is as difficult as the current tax form.

Let me refer to the advantage of the deductions I have described. The child care deduction would help solve two of the biggest problems in our society today. We have the Suzanne Thibaudeau case wherein the recipient of child support payments said they were not enough money and she does not wish to pay tax on them, whereas the payer of the child support payments has a deduction. If we do not allow the deduction for the payer and do not tax the recipient, we will find that settlements will be less and the whole single family syndrome will be distorted.

To help solve the problem, we would allow a reasonable amount for child care to be given to all families, to all wage earners, of $5,000 up to age 7 and $3,000 between ages 7 and 14. If there is a divorce, and it happens in 50 per cent of the marriages these day, the recipient of child support payments would be allowed to offset that income. The deductibility would be back to normal. It would help solve a big headache for the finance minister.

Members of the government have private members' bills that conflict with what the finance minister knows to be valid and true in terms of the taxation and deduction system. They are at odds and have a problem on their hands. I am offering them a constructive solution.

That is what a proportional tax form would look like. Some people have asked me outside the House: "How are we going to make investments? It is going to hurt the economy". The rate charged in the proportional tax would be between a low of 15 per cent and a maximum of 20 per cent. It would be somewhere in that rage. It is a range right now because we have to determine what services the federal government will keep. What services is it going to look after? How much money is required for those programs? To raise that amount of money it can look at the gross incomes, look at the GDP and establish the rate.

A corporate tax return would be just as simple. It would be one side of one page. The gross income would include GST or NATVAT or a combination, and all corporate income. The deductions from this would include GST or NATVAT paid and the cost of operations: goods, services and materials; wages, salaries and benefits; interest payments; and pension contributions. Another deduction would be dividends paid out for domestic shareholders only. This eliminates the current problem of double taxation on dividends.

Another deduction would be capital investments at cost, no depreciation. That might surprise some people because a company might be generating $2 million in sales and qualifies for a loan at the bank and qualifies for a $4 million land and building. That would be deductible against the $2 million income and would create a loss. That loss would be carried forward until the profits chewed it up. I believe we should only tax income once and the recipient of that $4 million would be paying the income tax.

The total deductions would be subtracted from the income and the answer multiplied by the rate of 15 per cent or 20 per cent. I recommend not to go higher than 20 per cent and not to go lower than 15 per cent. A system like this is simple. It is understandable. It is equitable and would be a lot more efficient.

The fundamental approach to corporate income is to ensure that income is only taxed once, as I mentioned before. If we apply this principle to the current GDP of $750 billion this could generate a 15 per cent tax rate. Assuming that income is only taxed once that goes through the economy and would generate $112 billion. At a 20 per cent tax rate it would generate $150 billion.

We could almost have a balanced budget. If the government spends around $160 billion including the interest on the debt to raise $150 billion out of a taxation system at a 20 per cent rate and leaves disposable income in the hands of those earning it, the corporations and individuals, they would be making their investments with after tax dollars.

There would be no need to have tax driven deals and tax driven models. Accountants and tax lawyers would not be figuring out ways to create loopholes for the following two years which have to be shut off. That cycle would end.

People who take care of their basic needs, their food, shelter and clothing and make over, say it is $25,000 or $45,000 whatever the amount is, might have a few thousand dollars to invest. They would invest after tax dollars. They would give it to a corporation. It could be a mining company trying to raise money, an oil or gas company trying to raise money, or a manufacturing company trying to raise money.

That company would invest the seed capital, generate its product or services and would make a profit. The company would pay out dividends to the shareholders. The company would get a deduction and the recipients would pay the tax. It all works. You do not need tax driven investment in this society.

If we just get our mindset into an acceptable mode for a paradigm shift then we could make progress. The problem is that not enough people in this country are ready for the change. I will echo what I heard earlier from a government member on this issue. Until people say they want change, until Canadians recognize that change is attainable and there is an alternate solution to this dreaded Income Tax Act and the income tax that continues to rise and confuse people, until they accept the need and demand change, nothing will happen.

I encourage all those who hear this debate to write their members of Parliament or the finance minister with a copy to their members of Parliament. Demand a response to the question: Mr. Finance Minister, why will a flat tax not work? If he has no answer, then ask him to check with the member for Calgary Centre. I will provide him with some talking points.

I want to speak about the provinces again for a second. The current provincial tax rate would apply on the federal tax payable as it is now.

With corporations paying for tax this could mean more revenue. We always hear from the Bloc members and some government members that corporations do not pay their fair share, that we have to tax corporations more, individuals at their maximum, but we have to go after corporations.

Corporations would be glad to pay 15 to 20 per cent. Individuals would not be glad but they would be willing to pay 15 to 20 per cent. Then we would get rid of a good portion of that underground economy which people know can vary from as low as $18 billion to $100 billion depending on the economists and their mood for that day. If we brought this income out into the open we would make gains.

The GST or the NATVAT, or a combination of the GST and NATVAT, and a surtax on income, whatever the finance minister finally does in a year, I am sure it will be the NATVAT. If it is not the Deputy Prime Minister will have to resign. She made a commitment during the election campaign to resign if the government did not scrap the GST. I am going to hold her to that. I will remind her of that as we get closer and closer to January 1, 1996 which according to the red book is the date by which it will have eliminated or scrapped the GST.

With a combination of solid revenues and reduction in government operations and expenses the result would be an impressive surplus to go toward debt retirement. Then we could lower taxes further if we wanted to. We could go to 10 per cent or 12 per cent. The Japanese currently have a single rate of 17 per cent.

This system would be simple, understandable, equitable and efficient. It would eliminate the need for convoluted tax bills like Bill C-59. The government would not have to tinker with all these social programs, the economic and business driven programs. It would supply programs to the Canadian public, determine the cost and raise the money to pay for them. It is done and they are not tax driven.

Tax reform of this magnitude cannot take place without a renewed commitment by the federal government to cut spending and balance the budget. There are two sides to this issue. As the song goes, you can't have one without the other. Thank goodness that at least now after a year of our harassing the Liberal government is listening to Reform and the finance minister is planning cuts of $9.5 billion over the next two years.

I am pleased we are making some progress. I am pleased our pressure is working because it is important. It is not important for us to make political gains. It is important for us in terms of being Canadian citizens that we are doing something in this House for the good of all Canadians.

Canadians have been unequivocal in expressing their opposition to further tax increases. Here is a solution that lowers taxes. We in the Reform Party have heard the message.

The bottom line for the Reform Party is that the next federal budget must not increase the total tax burden on Canadians. However I have a hunch the finance minister will be forced to find ways and means by tinkering around and probing, a little thing here, a little thing there and will increase the overall tax burden on Canadians.

The Reform Party does not object to the principle of eliminating inequities in the existing tax system. That is why we support 11 out of the 12 elements of this bill. It does level the playing field. It does make necessary modifications. With the exception of the elimination of the $100,000 capital gains, we would be in favour of the other items.

We believe the solution to our structural deficit problem must be found on the expenditure side rather than the revenue side. Elimination of the deficit in three years requires substantial measures. It is not the reduction of the deficit to 3 per cent of GDP, it is the elimination of the deficit that will help us out of this mess.

The Liberal government did a good study. It found that in Europe the Maastricht treaty recommended that those economies should target themselves to 3 per cent of GDP. What it did not tell the Canadian public I am going to tell them right now. In the economies in Europe the 3 per cent of GDP in the Maastricht treaty applies to all levels of government.

Here in Canada if the Liberal government's intention was to copy what is being done in Europe, then we would have to look at the size of the provincial debts. They add another $250 billion collectively. The reduction and the target for the deficit as a ratio to GDP should be 4.5 per cent.

That is why we say that 3 per cent is not enough and not fast enough. It is the elimination of the deficit that is important so that this wonderful country, this beautiful home we live in can finally have a mortgage. We could finally take that debt, equate it to a mortgage on a home and remortgage our home over a 30 year period. We could start to pay off the principle and not just borrow money to pay the interest.

Assuming a deficit of approximately $40 billion based on the finance department's total 1994-95 deficit forecast and revenue growth in the range of $14 billion to $18 billion based on the finance minister's grey book scenario, it becomes apparent that government expenditures must be reduced by $22 billion to $26 billion over a three year period.

Deficit cutting is an exercise in setting priorities. We have pointed these out. Many members in the Liberal Party laugh at us and mock us, but we are serious. I stand before the Liberal Party today in all seriousness and suggest that the people at the top of government must be the first to make significant and visible sacrifices before introducing cuts to government spending.

Many members of the Reform Party have done so and many members of this party will continue to do so. It is not to belittle nor to embarrass any member in this House. All members should be free to do what they want to do, but I am of the position that we are going to show leadership by example. If we expect the Canadian public to recognize that cuts are necessary, then we as politicians should be prepared to make sacrifices as well.

Duplication and overlap between federal and provincial governments must be reduced. That is why we have to decentralize and evaluate both levels of government. Based on these principles for instance if we applied this decentralization theory and eliminated the duplication of services, $3.5 billion to $6 billion could be saved, if the interprovincial barriers to trade were also addressed. These are serious numbers and they are worth considering.

The overhead costs of government could be reduced as a part of a comprehensive restraint program. A 15 per cent reduction would save $1 billion. At home if we had to reduce our budget by 8 per cent we could do it. That is all the Reform Party is suggesting, 8 per cent in one year. With the increased disposable income that this new proportional tax would present, more money would be in the taxpayers' hands. That money in the hands of the wage earners is more productive than in the hands of a politician or a bureaucrat.

The federal government should not subsidize business or special interest groups. There is a savings there of $2 billion.

Social policy review is important. After all the studies are done it will get back in this House and we will look at it seriously. This area is 67 per cent of the current federal budget. Over a three year period there have to be cuts in the neighbourhood of $12 billion to $18 billion or the Liberal government will not reach its deficit targets.

The advantage of deficit elimination includes lower taxes for Canadians which leaves them with more disposable income. That will continue to fuel the economy. We would be able to remortgage our debt over a 30 year period. We could introduce a new taxation system as outlined in the proportional tax or work with the Liberal government on a single tax system if we were forced to. One way or another, I believe that together we could come up with a tax system that would put us ahead and on the leading edge of economic development and growth. We would be ahead of rather than always following the United States.

In conclusion, Canadian taxpayers have already made it clear that they want politicians with the guts and the vision to lead the way with changes that will benefit them and their children, no matter how difficult those changes may be. We have the guts on this side of the House to recommend where we should cut excessive spending. We also have the guts to put forth some tax reform ideas.

It is a shame that government members are nothing more than Conservatives in red clothing. It is a shame they have only succeeded in adopting Conservative bills for a year. It is a shame that in one year they have spent $40 billion more than they have generated, just like the Tories. They host $1,000 a plate fundraising dinners for their Prime Minister, just like the Tories. They make patronage appointments, just like the Tories. In three years I predict that if the Liberal government does not listen to this party, the Liberal government will fall, just like the Tories.

Income Tax ActGovernment Orders

5 p.m.

The Acting Speaker (Mr. Kilger)

It is my duty, pursuant to Standing Order 38, to inform the House that the question to be raised tonight at the time of adjournment is as follows: the hon. member for Jonquière-Native Peoples.

I have received notice from the hon. member for Glengarry-Prescott-Russell that he is unable to move his motion during private members' hour on Friday, December 2, 1994.

Since it was not possible to arrange an exchange of positions in the order of precedence pursuant to Standing Order 9(2)( a ), I will ask the clerk to drop this order to the bottom of the order of precedence.

Pursuant to Standing Order 94(2)(b), private members' hour will thus be suspended and the House will continue with the business before it prior to private members' hour.

Income Tax ActGovernment Orders

5 p.m.


Don Boudria Liberal Glengarry—Prescott—Russell, ON

Mr. Speaker, I cannot move that private members' ballot item tomorrow. It has something to do with Safe Driving Week, and I will leave it at that.

Pursuant to Standing Order 43(2), I wish to indicate that the Liberal members will be sharing their time for the rest of this day's debate.

Income Tax ActGovernment Orders

5 p.m.


Brenda Chamberlain Liberal Guelph—Wellington, ON

Mr. Speaker, I have listened to the Reform Party speak. I would like some clarification. The hon. member has talked a lot about support, that the Reform Party is collectively supporting a flat tax idea. I would like him to explain the rationale for that briefly if he could.

Income Tax ActGovernment Orders

5 p.m.

The Acting Speaker (Mr. Kilger)

I want to remind the member that we have now gone from the first three interventions of 40-minute debate without questions or comments to a new stage. Resuming debate.