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.