Debates of Dec. 2nd, 1994

House of Commons Hansard #136 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was income.

10 a.m.

The Speaker

My dear colleagues, this is a very sad day for us here in this House. One of our own is ill. I hope that our colleague, Lucien Bouchard, will be in your prayers today.

The House resumed from December 1 consideration of the motion that Bill C-59, an act to amend the Income Tax Act and the income tax application rules, be read the second time and referred to a committee.

Income Tax ActGovernment Orders

10 a.m.

Bloc

Maurice Dumas Bloc Argenteuil—Papineau, QC

Mr. Speaker, you will understand that having just learned of the sudden and dreadful illness that has afflicted our leader, we are all, and particularly those of us who are members of the Bloc Quebecois, deeply saddened, not to say in shock. I can only hope that the Leader of the Opposition will make a speedy recovery.

The Bloc Quebecois is opposed to Bill C-59, an act to amend the Income Tax Act and the Income Tax Application Rules, because of certain measures it introduces. We are not, however, opposed to the following provisions of Bill C-59. First, the permanent renewal of the provision under which money accumulated in an RRSP can be used to finance the purchase of a first home. Second, the measure increasing the value, in many cases, of the charitable donations tax credit. The Bloc Quebecois is in agreement with this last measure, as it recognizes the contribution made by charitable donations to the well-being of the community.

At the present time, taxpayers are entitled to a tax credit equivalent to 17 per cent of the first $250 of charitable donations and a tax credit equal to 29 per cent on charitable donations over $250. The bill before us increases the total value of the tax credit for charitable donations, while lowering the threshold from $250 to $200.

The third measure that we do not object to is the one that permits a tax deduction for contributions into mine reclamation funds by businesses in the mining industry in the year in which these contributions are made. Such funds are used to cover the costs incurred when mines are shut down.

However, as a spokesperson for seniors' associations and organizations in Canada, I have undertaken to ensure that the social programs review not be reduced to simply making cuts across the board in programs designed to protect the disadvantaged, and the aged in particular.

The Bloc Quebecois denounces the fact that, over the next three years, the federal government will take half a billion dollars from seniors with this reduction in the age tax credit.

The National Advisory Council on Aging reported the following regarding the personal disposable income of the elderly: in 1989, the average income of unattached senior citizens 65 and over was $16,316, as compared to $23,080 for their counterparts under 65. An unattached senior citizen is a person who lives alone or in a household in which he or she is related to no other member of the household.

In 1992, the average income in unattached senior citizen households was $18,434, whereas that for other unattached persons was $25,039. Nearly 21 per cent, or 625,000, of Canadian senior citizens are considered as low income. The percentage of low income elderly is always higher than in the general population.

On March 9, I rose in this House and asked the Minister of Human Resources Development this question:

By making alarming statements on the old age security system, is the minister preparing to hit seniors with a considerable cut in their old age security pensions?

By way of an answer, the Minister of Human Resources Development and Minister of Western Economic Diversification simply said that he wanted to "ensure that there will be a stable, effective, fair, honest system for seniors in the future and to make sure that this country can pay for it".

Allow me to wonder about the meaning of the word "stable" used in his reply in relation to seniors, as some tax provisions in Bill C-59 create a climate of insecurity for seniors.

On September 28, I asked the Minister of Human Resources Development another question concerning programs for seniors:

Does the minister still intend to slash programs for seniors in order to finance other federal government programs?

The minister's reply was this:

Mr. Speaker, it never was our intention, it will not be our intention, la réponse est non .

The next day, September 29, I rose again in the House of Commons to say this to the Minister of Finance:

The Minister of Finance turns a deaf ear to public opinion and is using current consultations to deflect any questions. Senior citizens have often saved for years to have a decent income in their old age-

The government wants to change the rules in the middle of the game. Although the minister has been stalling for several days, he will have to make a decision. Seniors hope he will select the only fair option: no taxation of RRSPs.

Bill C-59 clearly penalizes those most in need. Seniors have worked hard all their lives. We should be grateful to them for being pioneers.

In the last budget, the federal government decided to reduce the age credit. All taxpayers aged 65 and up can apply for a tax credit equal to 17 per cent of $3,482 at the federal level and to 20 per cent of $2,200 in Quebec. This credit is non-refundable, that is, it applies to the tax payable and there can be no refund on the excess portion.

The credit reduces federal income tax by about $610 a year for all seniors who have to pay income tax. In most provinces, including Quebec, this credit also reduces provincial income tax. The combined reduction of federal and provincial income tax averages about $950; in Quebec, it is about $1,050: $610 in federal tax and $440 for Quebec.

The change made by the latest budget would reduce this credit for seniors whose net income exceeds $25,921, the current threshold for other income-dependent credits. This threshold will be indexed to the annual increase in consumer prices over 3 per cent. The credit will be reduced by 15 per cent of an individual's net income over $25,921 and will be completely eliminated when his or her income reaches $49,100.

This measure will be phased in over two years. In 1994, the reduction will be half the amount calculated and the total reduction will apply starting in 1995.

According to the finance department, this measure will affect 800,000 out of 2.6 million seniors, including 600,000 seniors whose income is between $25,921 and $49,134 and 200,000 whose income is over $49,134.

Although the finance department estimated that the credit cost the federal government $1.3 billion in 1991, the expected savings are as follows: $20 million in 1994-95, $170 million in 1995-96 and $300 million in 1996-97.

By tightening the program conditions for seniors, the government is just lowering their income and making them feel insecure.

Furthermore, the government still stubbornly insists on penalizing seniors by proposing to install voice mail systems to answer inquiries from seniors. On May 10, I asked the minister responsible for seniors about using voice mail to answer inquiries from seniors. The minister simply told us about how fast the proposed service was. I explained that many seniors were reluctant to use this type of service, as the representative of the seniors' federation said clearly on their behalf. At the beginning of the period when we present petitions, I will have several petitions to table on this subject.

On May 11, 1994, I raised the issue again by asking this question in the House:

-why does the federal government insists on attacking senior citizens, considering that most of them find it very difficult to deal with a system that is so impersonal?

The minister's response was both disarming and unacceptable. He said that the program would be more efficient and personalized, and that it would provide better service to seniors. The implementation of a centralized telephone answering system using voice mail to answer every request for information from seniors regarding government services will have a major impact on the quality of services provided to these people.

The Liberal Party was the first one to oppose cuts affecting programs for seniors. The government did not keep its promises. After targeting the age credit, cutting into old age pensions, scaring seniors with the announcement of a review of the Canada Pension Plan, the government now has the audacity to try to tax RRSPs. Every available source of income for seniors will be adversely affected and the federal government does not guarantee anything any more to people who saved money throughout their lives to have decent retirement incomes.

This fear among seniors is prevalent right across the country. I recently met with a delegation representing various associations for seniors, and I was told about their concerns regarding the government's proposed cuts to seniors' programs. I am referring more specifically to the old age pensioners' association, which was represented by its president, Mr. Grabke, its director of public relations, Mr. Ben Swankey, and its chairperson, Mrs. Marjory Kingsbury.

This association is the oldest organization in English Canada and has nearly 10,000 members in about 100 groups throughout British Columbia.

The position of the seniors in these groups was expressed as follows by their representatives.

"The position of seniors is that our generation made a lifelong contribution to building our country and we believe strongly that Canada should continue to provide a measure of security for seniors in their declining years".

On December 1, here on Parliament Hill, I also met representatives of the coalition of seniors for social equity. The association which has a membership of about 500,000 senior citizens, submitted a brief on the income of seniors: Myth or Reality. The coalition expressed the need for wide ranging consultations and planning, involving both government and seniors groups, before any changes were made in the old age security program.

Mr. André Lécuyer, a spokesman for francophone seniors, stressed that it was important to give people time to plan and adjust to changes in the system. According to Mr. Lécuyer, the public had been led to believe that the government could save more money than it does now, by cutting income security programs for seniors.

The spokesman for the coalition and president of the Federal Superannuates National Association, Mr. Claude Edwards, said during this press conference that they were not prepared to sit idle at a time when the very foundation of their superannuation plan was cracking. He said it was like buying insurance during one's working life and, upon retirement, being told by the insurance company that the policy had been cancelled and the money was no longer available. Why tax seniors?

And what about family trusts? According to some tax experts, wealthy Canadian families use family trusts as a special tax planning tool. Assets in trusts are not subject to capital gains tax for several decades, which means that these families are able to protect part of their family inheritance from one generation to the next. The family trust system introduced in 1972 by the Trudeau government, provided for the disposition of assets in trust after 21 years, which means in 1993, for instance, in the case of trusts created before 1973.

The Bloc Quebecois has nothing against the principle of family trusts but objects to their use as tax shelters. For instance, the Bloc Quebecois objects to the carrying forward of capital gains tax to the next generation. Furthermore, we want the government to reveal the figures on the value of assets and family trusts and the amount of tax revenue lost by deferring capital gains.

Why is the government so hard on the most vulnerable in our society who have worked all their lives and deserve a decent quality of life?

Bill C-59 is unacceptable in its present form because, as a result of certain measures introduced in this bill, the most vulnerable in our society will be penalized.

Income Tax ActGovernment Orders

10:15 a.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, today is a sad day for parliamentarians, a sad day for Quebec and a sad day for Canada. Our thoughts today are with our hon. colleague, the Leader of the Opposition who is courageously fighting a very serious personal battle. I wanted to begin my comments by letting him know that our prayers are with him, his family and his children. All Canadians are with him.

I am pleased to join in the debate and to support Bill C-59. There are several aspects of the legislation and how it relates to our overall tax system that deserve comment and clarification.

Let me emphasize that our government knows full well Canadians believe taxes are already too high and we agree with them. That is why our priority objectives are to stimulate economic growth while putting in place real fiscal discipline. It is this double-barrelled thrust that will ultimately allow us to reduce taxes in the years ahead.

Let us remember that the tax deficit relationship is a two-way street. Every dollar of deficit borrowing we accept today will axiomatically lead to higher taxes tomorrow. Every dollar we can trim from the deficit, preferably through spending cuts but also through tax measures if need be is a step on the road to keeping the tax burden down.

That is why our government's 1994 budget was in many ways a tax reform and a tax reduction budget. It included measures to eliminate loopholes and increase tax system fairness and equity. It also committed to direct action to bring down unemployment insurance premiums which is a payroll tax that acts as a real barrier to new job creation.

It was also a tax reduction budget because of the firm commitment made by the Minister of Finance to cut the deficit to 3 per cent of the economy in three years. Again, let me make this central point. Fiscal discipline is the key to long term tax reductions in two key ways.

Obviously the less we have to borrow the less we have to tax to repay the loan and its interest, but there is another important dimension to this process. Controlling government's appetite for debt is our fundamental tool for getting interest rates back down. Lower interest rates mean lower carrying costs on our $500 billion debt. Again that means fewer tax dollars we need to spend.

I understand the concern some Canadians may feel about measures that add to tax revenues today in order to let us cut taxes in the future. We know the tax fatigue felt by so many. That is why the 1994 budget undertook a program of net spending reduction over three years. That is the most significant of any budget in a decade.

Over 80 per cent of the net fiscal improvement delivered by the 1994 budget over three years comes from spending cuts. In other words there are $5 of spending cuts for every $1 of revenue increase.

There is another aspect of our approach I must highlight. The net savings of $17 billion we will achieve in spending cuts comes after paying for our new initiatives. Some $6.7 billion in current federal program spending was reallocated to encourage growth, create jobs and to fund new priorities.

So far I have touched on the broad budgetary context of Bill C-59. Now let me comment on some of the specific aspects of the legislation and how it relates to the tax system and to other issues.

Clearly the most contentious part of the legislation is the measure to subject the age credit to an income test. Let me remind hon. members how this will work. Under the existing tax system Canadian seniors 65 years and over are eligible for special tax relief in the form of an age credit. It results in a combined federal-provincial tax reduction of about $950 per year. It is critical to note that under Bill C-59 individuals with net incomes below $25,921 will retain their full credit. That represents three-quarters of all seniors; 2.6 million seniors will not be affected.

But what about the 800,000 seniors who will feel an impact? Like our tax system itself, the effect will be progressive. For individuals with net incomes above the threshold, the age amount will be reduced at a rate of 15 per cent of their net incomes exceeding $25,921. The threshold will be indexed.

The bottom line is that most of those who will be affected will continue to receive partial benefits. In fact, only about 6 per cent of seniors, some 200,000, will no longer receive benefits because their incomes exceed $49,134, the threshold at which the benefits will be exhausted.

Let me just step aside for a second and give a context to that threshold. In 1992 only 10 per cent of all Canadians filing tax returns had incomes over $50,000. I should also point out that the reduction will be phased in over two years. For 1994 the reduction will be one-half of the amount otherwise determined. As well, the age credit will remain transferable to a spouse.

Let me now turn to the measures in Bill C-59 to eliminate the $100,000 lifetime capital gains exemption. As was said in the House yesterday, this exemption has been subject to much criticism. It distorts the tax system, totally exempting certain gains while taxing others. It also gives our tax system the real sense of being inequitable because it mostly benefits high income Canadians.

Let me highlight just one aspect of the dilemma. In 1992 there were some 12,000 Canadians out of the 19.4 million tax filers who earned $50,000 or more yet paid no income tax. A wide range of allowable tax deductions and credits made it possible for these people to eliminate their tax liability. Figures show that over 4,700 people in this group, some 40 per cent, used their lifetime capital gains deduction to reduce their tax payable.

I am not suggesting that those Canadians did anything wrong. But there is a real public policy problem, a philosophical wrong at work when millions of less affluent taxpayers see those well-off individuals escape taxation completely.

The bill will be an important step in helping to restore Canadians' faith in tax equity. It will help prevent some people from feeling any justification for their tax evasion, an important goal when the Auditor General reports billions of dollars of unpaid taxes.

The issue of tax system fairness and the ability to avoid taxes leads me directly to other measures of Bill C-59, those related to the corporate sector. There are many Canadians today who feel that the business sector receives preferential treatment compared to the individual taxpayer.

It is worth noting that people often focus on the corporate income tax and do not recognize the many other taxes that businesses must pay. They include provincial corporate income taxes, capital and insurance premium taxes, payroll levies such as UI premiums, Canada and Quebec pension plan contributions, workmen's compensation premiums, and municipal property taxes.

In fact in 1993 Canadian corporations paid some $51 billion in such taxes, about $21 billion to the federal government and $30 billion to the provincial and municipal governments. That being said, the perception of corporate welfare bums still remains in many minds. People still read of profitable corporations paying no tax. They believe there are still too many loopholes and deductions that are not justified given our serious national debt problem.

Bill C-59 takes new steps to reduce deductions and eliminate loopholes that were clearly violating the spirit of a fair tax system. For example, the bill will reduce the tax deduction for eligible business meals and entertainment expenses from 80 per cent to 50 per cent. This measure will make the tax system fairer by helping to ensure that all businesses, large and small, pay an appropriate share of tax. It also better reflects the element of personal consumption that we believe is inherent in such expenses.

I should reiterate a key point made by the government's opening speaker. This measure is consistent with recent reductions of business meals and entertainment expense deductions in Ontario, Quebec and the United States.

The legislation also proposes to restrict the use of certain tax shelters. These are ones where limited or passive investors in a partnership have been able to claim tax deductible losses and/or to receive cash distributions that actually exceed the cost of their investment.

Similarly Bill C-59 will also curtail the use of the tax avoidance technique known as a purchase butterfly. Let me remind members of how this flighty corporate provision has functioned.

Current federal tax rules permit corporate property to be divided pro rata among its shareholders on a tax deferred basis. This assists the splitting up of a corporation so that the shareholders can continue to carry on separately the corporation's business.

In recent years, unfortunately, the rules have been used to avoid or defer tax on the sale of corporate assets. In May 1993 the government introduced rules to curtail cross border purchase butterfly transactions. Bill C-59 proposes to modify these rules and extend them to all purchase butterflies.

The final measure I want to highlight is the proposal to make large private corporations ineligible for the small business deduction. In today's new economy small business is the major job creator. It is a sector that deserves effective targeted support.

Unfortunately under the existing rules this support was also going to larger firms, companies that do not have a reasonable claim on the limited public and taxpayers' purse.

The small business deduction recognizes the special financing difficulties and higher capital costs faced by the vital small business sector. The deduction lowers the basic federal tax rate on the first $200,000 of active business income of Canadian controlled private corporations from 28 per cent to 12 per cent, a reduction of 16 percentage points.

This lower tax rate provides small corporations with more after tax income for reinvestment and expansion. Regrettably under the current rules, some very large corporations are also obtaining this benefit. The proposed rule changes will make large corporations, those with taxable capital of $15 million or more, ineligible for the small business deduction. As well, the rule changes will reduce the deduction for corporations having taxable capital between $10 million and $15 million.

Let me acknowledge that Bill C-59 will not in itself resolve Canada's fiscal problems nor restore equity throughout the tax system. Those are the goals that will only be met by consistent, continuous effort, effort our government is committed to delivering.

Bill C-59 does take valuable steps in both directions, measures to broaden the tax base for fiscal renewal and even more important, measures to improve the fairness and efficiency of the tax system itself. On both counts it deserves the full support of the House.

As I said, Bill C-59 in itself is not going to change or fix all our problems. We do need a continuous and consistent effort to deal with the deficit and the debt.

I want to spend the remaining moments of my time to review very briefly some of the initiatives that the government and the finance minister have brought forward in preparation for our next budget.

On October 17, 1994, the finance minister came before the finance committee of the House of Commons and outlined the framework for economic policy. I want to remind hon. members of the first principles that the finance minister articulated for all members.

"First, we have one overriding goal as a government, that is jobs and economic growth. Second, good economic policy and good social policy are one and the same. Third, a country that is to continue to care for its citizens must be a country that can pay its bills, and, fourth, we need to create a new infrastructure for a Canada of ideas and innovation". Finally he said that government itself must change. A government cannot or should not do everything. Responsibility should lie with those who are best able to do the job.

We have had changes in the world economy. We are now in a strong economic recovery. Jobs are being created. The job crisis is not just about a recession or a cycle. It is a global epidemic. The world economy is truly integrated. Trade barriers are now gone. Communications are instant. Transportation is efficient. Markets never close and of course information technology is exploding. All this spells competition and opportunity. To be successful we need to upgrade our skills to fit a knowledge based economy. In addition we must reform our social and income support programs upon which so many Canadians have become dependent.

The fiscal track we have been on is unsustainable, not because of ideology but because of its mathematical reality. The only answer to our job dilemma is sustained substantial economic growth. That growth requires improved productivity in terms of ingenuity, better management and paying attention to the common sense workers.

High productivity increases incomes and contributes to a higher standard of living for all Canadians. To improve our productivity we must also improve our skills.

During the social program review and in the budget review it has become clear that we will and we are reviewing all programs. Rather than trying to fix everything by ourselves we are also trying to facilitate solutions in partnerships with business, industry, and Canadians at large.

We must also continue to clean up federal regulations which cost businesses billions of dollars. We must create a healthy fiscal and monetary climate. We must restore our fiscal health and deal with the deficit and the debt. As we know the debt is growing faster than the economy and that is unsustainable. As the finance minister and the Prime Minister have told us on so many occasions, our goal is to balance the budget.

As an interim target the government is committed to reduce the deficit to 3 per cent of GDP by the 1996-97 year. We are going to hit that target.

Finally let me highlight the principles guiding our choices in the 1995 budget as represented to the finance committee on October 18. He said that deficit reduction is an integral part of jobs and growth strategy. Fairness, and I stress fairness, is paramount so the most vulnerable in our society will not be left behind. Deficit reduction must be selective and strategic, reflecting clear priorities and not simply a mathematical across the board approach.

Budgetary action should weigh on the side of cuts and expenditures and not increased taxes. Economic assumptions must be prudent to stimulate confidence that deficit targets will be achieved.

We have $120 billion that the government spends on programs, one-third of which went to individuals in the form of elderly or UI benefits, transfers to Indians or to the Inuit. Twenty-five per cent of transfers were to other levels of government, ten per cent to business subsidies, international assistance, et cetera, and nine per cent to defence. All aspects of our program spending will be reviewed.

This is the commitment of the government. This is the direction established by the 1994 budget. This is the direction supported by Bill C-59.

Income Tax ActGovernment Orders

10:40 a.m.

Reform

Leon Benoit Reform Vegreville, AB

Mr. Speaker, I am pleased today to rise for debate on Bill C-59, an act to amend the Income Tax Act and the income tax application rules.

Before getting into my speech, I want to say that I am deeply concerned for the health and welfare of the Leader of the Opposition as I know all my colleagues are. I want him and his family to know that our thoughts and prayers are with him through this ordeal. We sincerely wish him the very best.

I am going to speak against the bill today for reasons I will talk about later. I would like to first summarize the bill. As I do that I will point out the positive and negative aspects as I see them. I will outline why I will not support the legislation. Then I will briefly talk about what the government should have done instead of putting these changes in place.

To summarize, the bill has 12 main points. First is the elimination of the $100,000 lifetime capital gains exemption. I believe this is the most significant change in the bill. I will discuss it later.

Second, it extends employee benefits to include the first $25,000 of life insurance. Reform supports this measure. I support this measure because it harmonizes employer funded plans with private plans.

The third aspect dealt with in the bill is the age tax credit. It reduces the amount of credit based on an individual's income level. It provides for income testing which I believe is something we need in this tough financial crisis we are facing right now. It provides a clawback of credits that begins at $26,000 and ends at $50,000 when the credit is fully clawed back. We support this measure because it moves away from universality, benefiting those most in need. This is something we have to move to in the times we are in.

The fourth aspect is extending the homebuyers plan indefinitely for first time buyers. While I support this to some extent I do have some concern with it. It is discriminating against second and third time buyers and so on. One thing I do not like to see in the income tax system is measures that encourage and give special preference to one group and not to others. While I support the idea and think it will be productive, I do have some concerns for these reasons.

Fifth is the area of charitable donation tax credits. It lowers the threshold at which the tax credit is calculated. The amount is now 17 per cent of the first $250 donated and 29 per cent for anything over $250. The change lowers the threshold for the 29 per cent benefit to $200. This is an acceptable change.

The sixth change is a reduction in the business meals and entertainment expense allowance from 80 per cent to 50 per cent. I support the elimination of this measure which I believe has been a subsidy to business to some extent. I believe the meal allowance is due to some extent at least a double-up on an expense that would normally be there in the life of other individuals who are not carrying out business. I agree with the lowering of this level to 50 per cent from 80 per cent.

Seventh, in terms of tax shelters and partnership interests, it requires limiting the amount to passive partners. It really deals with the issue of using partnership interests for tax shelters. I believe this change will correct a loophole that Reform has seen and we support it for that reason.

Eighth, the device of corporate recognition closes tax loopholes. This loophole has allowed capital gains on disposition of corporate assets to be avoided in certain circumstances. Because it is being removed we support it.

The ninth measure, the investment in research and development tax credit, reduces regional disparity in certain credit schemes and distortions in the tax regime. Because it removes these disparities in the distortion we support it as well.

The tenth amendment is the expenditure limit on scientific research and development. It prorates the expenditure limit for a Canadian controlled private corporation and is based on the corporation's business limit for the year. It seems that it would make sense although we have some concern about that as well.

The eleventh measure reduces the small business deduction available to Canadian controlled private corporations with taxable capital over $10 million but under $15 million. These changes ensure that only small businesses can avail themselves of this deduction which was intended for small business in the first place. At least it is moving the deduction toward the more common or more accepted definition of small business. We support the measure for that reason.

The final change is to the mine reclamation fund. This results in lower taxes and provides for environmental clean-up. It is something that Reform expects in any business venture. Part of the business analysis before start-up should involve environmental reclamation in the case of mines or should involve figuring the cost of putting the environment in as near to the original condition as possible. Reform supports that.

Why does the Reform Party not support the legislation? The main reason is that the $100,000 capital gains tax exemption is being removed. This is a serious impediment to the build-up of wealth in Canada. To me that is a large concern.

Yesterday and the day before I attended a conference in Toronto. It was called Hitting the Wall and was sponsored by the Fraser Institute. There were speakers from several countries who were seized very much with the situation in countries like Canada that had refused to deal with the situation until it became a crisis.

One of the things that was talked about at the conference was the fact that it is very important to have savings in a country, especially a country like Canada that is seriously facing the very real possibility, in fact probability according to these speakers who had lived through this in other countries, of Canada being cut off in terms of bond issues to other countries.

It is a very real possibility. I will talk a little later about how the different speakers dealt with this issue and their thoughts on it. If there comes a time, and I believe there will come a time, that Canada issues a bond and there are no takers, we have a crisis. Our savings in Canada have been declining. It used to be that the United States had the lowest percentage of savings in the OECD countries. Now Canada has surpassed the United States in having the lowest savings level in the OECD. The United States which is notorious for having low savings now has been outstripped by Canada in winning that honour.

When the time comes that we have no takers on our bonds from outside the country, we will then we have to rely solely on Canadians to finance any additional debt and to finance payments on our present debt. What does it mean if savings are decreasing? It means there is that much less money available to finance the new debt and the new money that Canada has to borrow just to continue to keep the country operating. Therefore there is less money available.

Speakers at the conference made it known that it gives us less margin to react come the time when our bonds will no longer be accepted. There were speakers at the conference who deal in offering and buying Canadian bonds. One individual worked for a Japanese corporation. When asked he said that his corporation probably would continue to fund Canada's debt through bonds, but not because Canada is a good risk. In fact this gentleman said very clearly that Canada is a very bad risk. But his corporation will continue to buy bonds because Canada will pay the risk premium that is necessary for its investors to be willing to buy them.

Another reason is that the proportion of Canadian bonds held by this huge bonding company, of which this gentleman is the chief economist, is 3 per cent of its portfolio. Because of the high risk premium, in other words the high interest rates Canada must pay to maintain this foreign debt, this company will continue to finance these bonds for now.

However this gentleman said there could well come a time when the financial situation will be so bad that Canada will not be able to fund our debt from without. It could be very soon. That is why it is extremely important we have savings in the country to at least tide us over until we can make some kind of an arrangement with the International Monetary Fund to deal with the crisis, get some intermediate funding and work out an arrangement to work through the crisis which is caused by debt that is out of hand and government spending which is out of hand.

At this conference several things came across very clearly. First, most of the speakers at the conference said that Canada is in a very serious situation right now. Two of the speakers said they thought government would not deal with the problem. In other words they said Canada will hit the wall. It means that our economy and this country will go into a crisis situation. We will not be able to obtain financing from outside the country.

Both of these speakers were very clear in saying that it does not have to be like that, but that history has shown that is what happens. The history of Argentina, Brazil, Italy, Chile, Mexico and New Zealand among other countries has shown this. These are countries that had well developed economies, much like

Canada's. However history has shown that governments in well developed countries will not deal with the problem.

Two speakers said we are going to hit the wall, our economy is going to collapse. Most speakers said we do not have to. The telltale time will be the finance minister's next budget. If he comes out with a budget that cuts spending, that will lead to a balanced budget in a very short time, then we will avoid this crisis.

These speakers were not confident that will happen. They said we certainly can avoid it. But this next budget is the last chance. They made that very clear.

One speaker told a story about our finance minister. He said our finance minister had gone to the doctor because he had a serious hearing problem. The doctor said: "Your hearing problem is directly related to the fact that you are drinking a little too much. You have to cut your drinking down and that will fix the hearing problem". The finance minister went away and came back several months later. The doctor asked: "Have you quit drinking?" The finance minister said: "Yes, I have. I did quit drinking but I found that what I was drinking was much better than what I was hearing, so I started drinking again".

I hope sincerely that is not the case, that is not the way the finance minister will react to this crisis and that he will come down with the budget we need next February. It is our last chance to avoid this crisis.

Increases in taxation will not solve the problem. A decrease in government spending will. This is our last chance. Let there be no doubt about it.

Income Tax ActGovernment Orders

Debates of Dec. 2nd, 1994

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