First of all, Mr. Speaker, let me say that the subject we are debating today is one of great concern to me. The present state of Canadian public finances threatens certain established social programs and affects individuals as well as businesses.
One of the main reasons for this debate is the urgent need for action in that area. New policy directions must to be laid on the table. I would like to say that the decisions we will be making in the next couple of years will determine our future, especially for the people of my generation. In spite of the fact that, in some regards, we have enjoyed many services and a relatively comfortable life, what we have inherited has all the appearances of a heavy burden that does not make the future look very bright for us.
When you combine this cumbersome debt with a tight job market for young people, you can easily understand part of the reason for their despair.
I want the members of this House to know that it is through the eyes of the young generation that I will judge the actions of this government over the next few years. Its decisions will have to reflect a real concern for the long term.
Pre-budget consultations have often given Ministers of Finance an opportunity to put forward, concerning their forthcoming Budget, ideas about which they had already made up their minds. Take the idea of eliminating the $100,000 capital gains tax shelter. Several people were able to take advantage of this shelter and have already reached the limit. So, they will not be the ones affected in the future, but rather it will be the young generation. Either this shelter will not be available to them or they will not be able to take advantage of it in the future.
I simply want to make it clear who will in fact be affected by the proposed measures. We will be called upon to contribute significantly to solving the public finance problem in the future and we are prepared to do our share starting now, but there is a need to identify-and rightly so-who will be affected by the measures put forward.
Moving to the main thrust of my remarks, three approaches can be contemplated to solve the public finance problem: expenditure reduction, higher revenues or lower refinancing of the debt. Of course, the best course of action would be a combination of these approaches. I will only deal with revenues.
The Liberals, in their famous red book, and the Conservatives before them, based their deficit reduction estimates on the expectation that the economy would grow in the years to come. The Prime Minister referred to this during question period today.
We are all looking forward to a recovery in the not too distant future, but it is far from certain that governments will be able to raise as much money as they expected during this growth period. Let me explain.
In the past, a 1 per cent growth in the economy used to produce a 1.5 per cent increase in government revenues. Today, a 1 per cent growth in the economy or its leading indicator, the Gross Domestic Product, produces a mere .5 per cent increase in revenues.
We can clearly see a big problem looming on the horizon. Let us take the current year. The Minister of Finance estimates that the current year deficit will be $12.4 billion higher than was forecast in the March 1993 Budget. It must be noted that 72 per cent of this deficit is due to an unexpected shortfall in revenue. An analysis of the first seven months of the year provides valuable insight. During this period, government revenues fell 5.7 per cent, as compared to the same period last year. And there is cause for concern due to the fact that this drop occurred as the Canadian economy was recording a slight growth.
Also, the 1993 Budget forecast that the growth in revenues was going to keep pace with the increase in the Gross Domestic Product over the following five years. I guess I do not need to tell you that much will have to be done to readjust these forecasts.
How can such a situation be explained?
Obviously, the first explanation that comes to mind is the extent of the underground economy. The Minister of National Revenue himself said soon after the election that he estimated this underground economy at $56 billion, a conservative estimate according to some analysts. The underground economy accounts for close to 15 per cent of economic activity and comes a lot closer to $100 billion.
To illustrate how dramatic this is, last November Gallup asked Quebecers and Canadians whether they had participated in the underground economy in the last 12 months. In response, 33 per cent of Canadians and 42 per cent of Quebecers admitted having paid cash to avoid paying taxes. Two words explain this reaction: fairness and equity. People feel that the way the government collects revenues is unfair and inequitable.
Let us look at personal income tax: this year's receipts from personal income taxes are $1.1 to $1.5 billion lower than forecast in the 1993 Budget. People feel overtaxed. In the last few years, we have gone beyond tax effectiveness, especially for the middle class.
The GST was the last straw. It is clear that government revenues can only increase through higher income tax levels for the middle class, directly or indirectly.
The dissatisfaction of the middle class is understandable when we look at a few figures. In 1991, 368,000 people reported revenues of $60 billion, for an average personal income of $163,000, on which they only paid 18 per cent federal tax while the basic taxation level in this category is 29 per cent. On this point, the Bloc intends to press the government to eliminate tax shelters benefiting high-income taxpayers.
Let us move on to the taxes on corporate profits. Revenues from corporate taxes are very sensitive to economic activity since corporate profits are less stable than personal incomes. This year's corporate tax revenues are about $850 million lower than forecast in the 1993 Budget. The Finance Minister told us during today's question period that the next few years will not be easy in this regard, since many businesses will be allowed to carry forward the losses incurred in the last few years.
Individuals often complain that many companies in Quebec and Canada do not pay taxes on their profits. Let us look at 1987, a year of strong economic growth, when 90,000 Canadian and Quebec businesses made $27 billion in profits without paying a single cent in tax. That is one reason why Canadians are unhappy.
To prevent such unfairness in the future, the government should impose a minimum tax on corporations. It would then be able to collect a minimum level of taxes from profitable businesses even if they try to avoid paying taxes through tax shelter strategies. A global solution to the debt problem calls for involving businesses in this collective effort.
A few words on auditing. Auditing is one element of revenue collection that should be improved. A significant part of the economy avoids taxes because of fraud or of errors made by taxpayers in their tax returns. In fact, in a 1990 study the Department of National Revenue estimates at $1.2 billion the potential supplementary contributions. Additional audit measures taken in the past produced promising results. We should think about doing more in this respect in the future. We must not only reinforce auditing but also simplify taxation, which has become so complex that its effectiveness is affected.
In conclusion, Mr. Speaker, to help the government avoid losing significant revenues due to incorrect or fraudulent returns, the Bloc Quebecois thinks that the Department of National Revenue should have better resources available to audit returns, as the Auditor General has been proposing in his reports for the last few years.
I would like to say a few words on the infamous GST. The revenues from this source will be almost $1 billion lower than forecast in the 1993 Budget. Moreover, this tax is so complex that arrears will amount to between $800 and $900 million in 1994 according to the data in the Auditor General's last report.
The GST replaced another tax. Its advantage is that it is a value added tax. From an economic standpoint, this type of tax is more efficient as it does not affect the relative costs of resources to the same extent. Nevertheless, administering it is very complex, both for the government and for businesses, especially small ones. The fact that 576,000 registered GST collectors have not produced all their returns illustrates this point well.
The Prime Minister promised to replace it with another tax by 1996, but that target date is too far off. We must start to work now to replace it much sooner. People are expecting results on it quickly and we will have to act much more speedily. People are expecting results soon and the whole administrative aspect of this goods and services tax will have to be improved. We definitely intend to press the government to keep its election commitments and to keep them sooner.
One final point on sources of revenue, namely excise taxes other than energy taxes. Of course, this means taxes on tobacco, alcoholic beverages and jewels. Everyone now knows the extent of smuggling. Although taxes on products which affect health are justified, cigarettes taxes and the whole tax system have contributed to creating a monster in our society today.
A fast way to end smuggling must be put forward and this solution must involve lower taxes. Control must also be tightened and the same standard of justice must apply to all. Nothing prevents the government from pursuing a plan to fight tobacco consumption and to discourage tobacco use especially among young people and even including this plan in its strategy. We must realize that the smuggling problem is very serious and does much to undermine the confidence people have in our institutions.
In conclusion, the recovery will not do as much as believed to improve the government's finances. The reason is simple: the underground economy and people's lack of confidence in the whole system, the whole Canadian tax system. This underground economy is growing out of this lack of confidence and especially because of two words that I mentioned previously: justice and equity, on which a lot of work needs to be done in the future.
The balance between individual and corporate taxation and between the middle and wealthier classes must be restored by abolishing unfair tax shelters which are often unproductive. Audit controls must be increased and tax returns simplified. The administrative difficulties with the GST must also be resolved quickly. Finally, the problem of cigarette smuggling must be ended once and for all.
Our future and our social contract are at stake in the way the government collects revenue. Much of the mistrust of institutions, parliamentarians and people in authority and power is due to the unjust, unfair tax system. It is time to move and the government must improve efficiency in the management of public funds.