Mr. Speaker, I want to thank the Minister of Finance for this opportunity to outline our expectations with regard to the forthcoming budget, away from the media scrums we saw during the past month and certainly a change from Question Period, where the minister has made a habit of leaving questions unanswered.
In this debate, the Bloc Quebecois maintains that to carry out a tax reform that is fair, effective and sustainable and to avoid drastic cuts in public spending and, especially, in social programs, the Minister of Finance will have to do very shortly what we have been asking him to do all along, and that is set up a special parliamentary committee to examine federal spending and the federal tax system.
It is really too bad that so far, the minister has failed to respond to requests in this respect from the Bloc Quebecois. In this House, the words transparency, democracy, co-operation and responsibility are often mentioned, but acting according to these principles is another story altogether.
Everyone here is aware of the pitiful state of our public finances. Everyone is convinced that appropriate steps must be taken to turn the situation around.
The federal debt, as a number of colleagues mentioned earlier, recently rose to a record $507 billion.
The situation has deteriorated since the recession. The deficit has risen from $31 billion in 1991 to $45 billion in 1994. The Canadian government's operating deficit is now 6.2 per cent of GDP or, according to the OECD, twice that of the United States.
The government's performance in terms of the deficit and the state of its finances in general is mainly due to an unexpected drop in tax revenue.
This drop is very disturbing, because it occurred despite a measure of economic growth. There is necessarily a connection between lower tax revenues and the growth of the so-called underground economy.
The disastrous state of our public finances cannot be allowed to continue, because generally speaking, it restricts the government's ability to deal with the real problems, and especially unemployment. The deficit alone drains domestic savings and increases Canadian borrowing abroad. In fact, between 1983 and 1992, the proportion of the federal debt owed to non-residents more than doubled. Of all G-7 countries, Canada has the highest foreign debt. The state of its finances undermines Canada's credibility and is harmful to investment, because of the risk premium which is a factor in raising Canada's interest rates.
The prime cause of the disastrous state of our finances is the state of the economy. We are just coming out of a very long recession, one of the longest and worst since the depression in 1929. Economic recovery is slow to get off the ground and is in fact much slower than in 1982.
This recession which we all deplore is due, first and foremost, to the dogmatic policies of the Bank of Canada, which caused a substantial spread between short-term real interest rates in Canada and those prevailing in the United States at the time. Mr. Speaker, when will the members on the other side of this House understand that the real rate in Canada, the only one that matters to investors, has slipped by more than 6 per cent compared to the US rate. Under the circumstances, how are we supposed to
attract investors and keep our Canadian investors on the domestic market? The situation is unacceptable!
Because of this policy, and primarily because of the previous government's policy, we entered into the recession during the first quarter of 1990, that is before everyone else. The ensuing downturn in the world economy exacerbated the situation in Quebec and in Canada.
When we examine the situation, we note that since April 1992, Quebec has recovered a scant 25 per cent of the jobs lost during the recession, whereas in the rest of Canada, the figure is considerably higher, namely 60 per cent. The unemployment rate remains unacceptably high. It hovers at roughly 13 per cent, and at 11.2 per cent for Canada. These unacceptable levels hide the real tragedy faced by hundreds of thousands of Quebecers and Canadians.
We have been waiting a long time for the recovery, the one which according to economists' figures, has been under way for nearly two years now. The recession and the slow recovery, coupled with the underutilization of Canada's output potential, have contributed to a decline in government revenues. According to a study by the International Monetary Fund, of all G-7 countries, Canada's deficit is the most sensitive to the state of the economy. Furthermore, as the leader of the Opposition mentioned this morning in his excellent speech, still according to an International Monetary Fund study, even if the Canadian economy had achieved its full potential in 1993, we would still continue to rack up in the coming years deficits in the order of 3.5 per cent of GDP. Therefore, what we are also facing is a structural problem in Canada.
This problem is related to the nature of the federal system, and to its chronic, historic inability to adjust to new social and economic realities. I can give several examples of how the nature of the system is responsible for the anemic recovery. First, in view of the poor distribution of powers and federal encroachment upon provincial areas of jurisdiction, the system leads to program duplication and overlap, resulting in an inability to achieve the very aims for which the programs were created. It is estimated that duplication costs Quebec roughly $2 to 3 billion per year.
Here is a second example of how the system contributes to an anemic recovery. Because of the nature of the system and the natural tendency to centralize everything, the two levels of government compete with each other to see who can provide the most, not the best, services. We have seen this happen in many areas such as manpower training, regional development and transportation, a field with which I was associated in the past.
Under this system, the rule never changes. The federal government must have the highest profile, the Canadian flag must nudge out all provincial flags, including Quebec's. The result is inefficiency, duplication and encroachment on areas of provincial jurisdiction.
My hon. colleagues opposite persist in brandishing their red book each time we raise a concern or point to economic inertia. However, the facts speak for themselves. Our system is outmoded and in decline.
Third, the federal system results in a lack of cohesion and policy integration, thus impeding a healthy recovery with respect to jobs, economic growth and consequently, tax revenues. We cannot emphasize too strongly the problem of integrating the various components of income security, manpower training and labour market integration or the need to decentralize for the sake of efficiency and subsidiarity, needs which are very clearly understood in Europe, particularly with Maastricht.
Not only is this system inflexible and inadequate in terms of generating a steady economic recovery and adequate fiscal revenues, it has lost any sense of priority, thanks to those who have kept it running for decades, often the same people who today sit in this Liberal government. In a world in constant upheaval, certain priorities are inescapable.
The legacy of federalism in the area of R and D funding and training is one good example.
Canada spends the least on research and development, 1.4 per cent of GDP, compared to 3.1 per cent in Japan and 2.8 per cent in the United States. It is outrageous that we have not made a priority, historically, of such a key sector as research and development.
The federal R and D legacy for Quebec is even worse, since over the past 30 years Quebec has only received between 12 and 18 per cent of R and D spending, while Ontario got over 50 per cent. It is not surprising, then, that Quebec is not getting its share in the economic recovery. Historically, Quebec has been weakened because the structural benefits related to R and D have not taken place there, and the federal government has contributed to that problem.
At the same time, Canada has turned in a notably poor performance in training and business training. Nevertheless,R and D and manpower training are the keys to meeting the challenges of globalization, to a sustainable recovery, jobs, and adequate tax revenues. That is self-evident. It is not surprising, given the poor performance of the system, that in only two years Canada had slipped from fifth to eleventh place among industrialized countries on the competitiveness scale of the World Competitiveness Report in 1992.
It is not surprising either that according to the same report for 1993, Canada's future prospects ranked 20th out of 22. We see Quebecers and Canadians losing faith in political institutions. In a world of constant change, we cannot simply mark time indefinitely.
Faced with all that, this whole mess, and faced with a government that gives people no hope, except constitutional conferences, now economic conferences, conferences on human resources, conferences that will drag on and on with no solution, we have a better idea of why those who have been left behind and those who have been crushed and strangled by Canada's tax system, namely the middle-income people, are cynical about politicians.
We had better understand their feeling of revolt, their feeling of powerlessness and their frustration at not being able to make a real choice except once every four years and at having the wool pulled over their eyes in the meantime. We have a better understanding, even if we do not agree with them, of the reasons many of them are forced to turn to the underground economy, to the black market, thus cutting into government revenues and worsening the state of the government's finances.
The problem of contraband cigarettes is only an expression of a much more serious situation than those who claim to govern us would admit. It is simply an expression of a widespread disillusionment and even disregard felt by Quebecers and Canadians.
Quebecers will soon choose what they think will be a more promising way to the future than what the present system offers. When Quebec becomes sovereign, of course it will take charge of its destiny and Quebecers will be accountable to themselves and to History; it will also be an ideal opportunity for Canadians to redefine themselves, to create institutions that reflect who they are, with a strong central government if they so wish and wall-to-wall national standards if that is what they want. In short, Canadians will have every opportunity to develop on the basis of models that suit them and that we respect but no longer share as Quebecers.
Meanwhile, to get into the subject before us today, and so that I will have time to get my whole message across, I would like to tackle head-on the issue of public finances. Since the Minister of Finance began consultations, many have said that it is not possible to put the public finances back in order without cuts in social programs, because transfers to individuals and provinces account for more than half of program spending. The way the government's consultations, led by the Minister of Finance, are going, we are inclined to think that he and his colleague, the Minister of Human Resources, are tempted by that solution.
If not, how do you explain that in his department's own booklet on Canada's economic challenges, it is said that our social security and health systems are too generous? How do you explain that the member for Hull-Aylmer, who loves to travel by Challenger jet at $170,000 per speech, could talk about cutting the health budget by 20 per cent? How do you explain that every time I asked him in this House to deny the rumours about it, the Minister of Finance never did?
The statistics that were quoted in this House yesterday on underemployment and on the poverty of women and children should have convinced us and convinced this government that social programs must not be tampered with, that the less fortunate members of our society must not be targeted, as the previous government has been criticized for doing.
These figures should have convinced the government to stop hounding those who are hard up, as we would say, and to try instead to improve their well-being and prospects by putting into place adequate economic policies and taking corrective action such as restoring funding to social housing which was shamefully cut by the previous government.
The second option, one apparently favoured by the Minister of Finance, is to draw on middle-income taxpayers. We, from the Bloc Quebecois, do not think this is appropriate either. Sound management of public finances is required. The middle-income taxpayers, who have borne most the 68 per cent increase in federal taxes since 1984, are not able to contribute additional tax revenues. They are overburdened.
They should not be the ones affected by the broadening of the tax base this government is considering because, as I said, the 68 per cent increase in federal taxes was borne mostly by those taxpayers. Again, the Minister of Finance is tempted to adopt this course of action.
On January 28, the headline in La Presse read-and I will have to use the name of the minister-``Martin has his eye on seniors and social programs''. The article went on to say that the minister intended to tax health care and insurance plans that employers contribute to and was contemplating measures affecting certain exemptions benefiting middle-income seniors as well as the capital gains exemption and the limit on RRSPs. The Bloc Quebecois believes that the middle-income taxpayers deserve a break.
As part of the public finance review process, it was suggested that, to put finances back on a healthy footing, transfer payments to the provinces should be cut. The solution does not lay there either. In the end, the same people end up footing the bill, except that the provinces, Quebec in particular, bear the brunt of the cuts and the fiscal restraints, while the federal government is washing its hands of the matter.
The provinces have done more than enough in that respect since 1984. Let us just say that, from 1984 to 1993, the rate of federal transfer payments to Quebec-I am taking the case of Quebec because it is the one I am most familiar with, but this probably applies throughout Canada-has dropped from 29 to 18 per cent.
During the same period, the federal government share in the financing of health and post-secondary education programs fell from 45 per cent to 32 per cent.
These drops in federal contributions to Quebec resulted from several measures taken by the federal government to pass on its public finance management problem to the provinces.
Just for established programs financing, the Quebec Minister of Finance estimated that, for fiscal year 1992-93 alone, federal cuts cost the Government of Quebec nearly $2 billion in lost revenues. Who paid for that? The taxpayers, the same taxpayers on whom the former Minister of Finance levied a special tax.
That is not where the money should come from. The tax base needs to be broadened, but by eliminating tax loopholes benefitting high-income taxpayers and big corporations. I see that I have only two minutes left. So, I will just quote a few more facts.
In preparing his Budget, the Minister of Finance should think of the richer Canadian taxpayers. According to Yves Séguin, an eminent Quebec tax specialist and former Quebec Minister of Revenue, in 1991, 368,000 of them reported $68 billion in income on which they were taxed at an actual rate of 18 per cent, while the basic tax rate was 29 per cent.
By adding just three percentage points to their actual tax rate, the government would have recovered $2 billion in new tax revenue that year, but chose not to.
I would suggest that the Deputy Minister of Finance get money from the thousands of corporations that did not pay a single penny in taxes. It is obvious that all the numbers are not out in the open. The Department of Finance has been compiling data since 1987, but according to Léopold Lauzon, another well-known Quebec tax accountant, 90,000 companies made $27 billion in profits that same year without paying any taxes.
A minimum tax of say 10 per cent on these profits would have allowed us to collect almost $3 billion more in new tax revenues. Why are we not doing it? The Bloc Quebecois is urging the Minister of Finance to impose on corporations a minimum tax of up to 10 per cent for instance. That is where we must look for the billions of dollars missing from the federal coffers.
It is the same for family trusts. We have talked about it but there are not enough truly comprehensive studies in this regard. A figure of $350 million in annual tax losses was put forward by Claude Picher of La Presse and confirmed by other analysts elsewhere. But we know that there is probably more money in these family trusts. In 1982, the most recent year on record, total assets in trust amounted to $87.7 billion although this amount includes other things besides family trusts. We do not know the true extent but we do know that we can add hundreds of millions of dollars to the federal Treasury by putting our foot down.
So we are reiterating another request of the Bloc Quebecois: to set up a parliamentary committee. I heard the Finance Minister say this morning that we had to wait until 1995 and follow the process leading to the preparation of the 1995-96 budget. We cannot wait until 1995-96. The Minister must immediately set up this special parliamentary committee to fully review the federal government's overall budget and fiscal spending in order to implement a lasting and equitable reform and especially to close loopholes and eliminate tax inequities I pointed out to you earlier, Mr. Speaker.
My colleague, the hon. member for Joliette, will speak further about the Auditor General's new revelations as there are hundreds of millions of dollars to be collected there. In conclusion, I would like to convey through you to the finance minister the following message: I hoped before the holiday season that the finance minister would not renew the Canadian monetary policy pursued by the former Governor of the Bank of Canada.
Instead, he appointed the right-hand man of the former Governor of the Bank of Canada with essentially the same mandate, namely monetary and price stability regardless of economic growth. I am asking him through you to review this monetary policy to strike a balance, as many economists, and not only the 90 per cent of economists here in Ottawa but people such as Pierre Fortin, are asking him to strike a new balance between his objective of long-term price stability on the one hand with short-term employment growth and economic development on the other.