House of Commons Hansard #54 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was troops.

Topics

Point Of Order

10 a.m.

Liberal

Eugène Bellemare Liberal Carleton—Gloucester, ON

Mr. Speaker, on Monday the Reform Party presented a motion to amend the Official Languages Act. As you know, I did not share the views expressed by Reform Party members, individually and collectively, as they spoke in this debate. Nor do I agree with the proposal of the Reform Party to split our official languages, in other words, that French should be the only official language in Quebec and English the only official language outside Quebec.

You can imagine I felt under attack, and as a member of the francophone minority outside Quebec, I found the Reform Party's comments insulting. Because of them, I felt as though I were becoming less and less a Canadian.

I intend to pursue the debate on official languages and stand up for the rights of French Canadians throughout Canada and for the rights of anglophones throughout Canada, whether we are talking about English- speaking minorities in Quebec or French-speaking minorities outside Quebec.

However, considering the great respect I have for this House, if I happened to offend this House-and I do mean this House-by my use of rather emotional terms, I withdraw anything I said that may have offended. However, with respect to minority languages, whether we are talking about French or English, I repeat that I will continue my efforts to defend these minorities.

Point Of Order

10 a.m.

The Speaker

I accept comments of the hon. member for Carleton-Gloucester.

Yesterday, I told the hon. member for Kindersley-Lloydminster that if he withdrew that would be the end of it. So I will consider the hon. member's comments-

-as having concluded this point of order. There was a withdrawal of the statement categorically and the Chair accepts this withdrawal.

We will now go on to a point of order by the member for Saskatoon-Clark's Crossing.

Point Of Order

10 a.m.

NDP

Chris Axworthy NDP Saskatoon—Clark's Crossing, SK

Mr. Speaker, I wonder when we might hear an apology from the Prime Minister, who last night criticized those on social assistance as doing nothing but sitting at home.

Point Of Order

10 a.m.

The Speaker

I am sure the hon. member realizes fully that would not be a point of order. Perhaps he would take another avenue to put his views forward.

Point Of Order

10 a.m.

Reform

Ian McClelland Reform Edmonton Southwest, AB

Mr. Speaker, while I accept the heartfelt apology on behalf of members on this side of the House offended by the hon. member from Carleton-Gloucester, I wish to put on record that the Reform Party in no way opposes bilingualism in the federal service.

Point Of Order

10 a.m.

The Speaker

From time to time in the course of debate we are emotional and aggressive. It is to be taken for granted in the House of Commons. The matter of the point of order which was raised is closed. I would like to leave that where it is.

Government Response To PetitionsRoutine Proceedings

10:10 a.m.

Ottawa Centre Ontario

Liberal

Mac Harb LiberalParliamentary Secretary to Minister for International Trade

Madam Speaker, pursuant to Standing Order 36(8), I have the honour to table, in both official languages, the government's response to three petitions, namely petitions Nos. 351-123, 351-131 and 351-134.

Business Of The HouseRoutine Proceedings

April 21st, 1994 / 10:10 a.m.

Liberal

Alfonso Gagliano Liberal Saint-Léonard, QC

Madam Speaker, there have been discussions and there is agreement that the

House shall not sit on Friday, May 13, 1994 provided that it shall be deemed to have met and adjourned on that day for the purpose of Standing Order 28(2).

(Motion agreed to.)

(Questions answered orally are indicated by an asterisk.)

Questions On The Order PaperRoutine Proceedings

10:10 a.m.

Ottawa Centre Ontario

Liberal

Mac Harb LiberalParliamentary Secretary to Minister for International Trade

Madam Speaker, question No. 9 will be answered today.

Question No. 9-

Questions On The Order PaperRoutine Proceedings

10:10 a.m.

Liberal

Roger Simmons Liberal Burin—St. George's, NL

Has any action been taken by the Department of Environment to address the concerns raised by the Auditor General in his 1992 Report to Parliament that "the capability to respond effectively to a marine spill of any significant magnitude does not presently exist anywhere in Canada", even though "each year, Canada can expect at least one major spill, and a catastrophic spill can be expected once every 15 years", and, if so, (a) what was such action ( b ) are any specific environmental protection measures being developed to deal with potential spills of hazardous materials in relation to the Hibernia project?

Questions On The Order PaperRoutine Proceedings

10:10 a.m.

Hamilton East Ontario

Liberal

Sheila Copps LiberalDeputy Prime Minister and Minister of the Environment

(a) The activities being undertaken to address the concerns raised are primarily the responsibility of the Minister of Transport. The Canadian Coast Guard has taken a number of steps in co-operation with the Department of Environment and the Department of Fisheries and Oceans during the last three years to improve Canada's marine spill response capability.

Strategy: On June 26, 1991, the federal government announced a $100 million green plan marine environmental emergencies response strategy to implement the most urgent and high priority recommendations put forward by the public review panel on tanker safety and marine spills response capabilities.

Prevention measures: All foreign flag tankers are now inspected on their first visit each year to a Canadian port. Inspections of all foreign vessels entering Canada (including 100 per cent of foreign flag tankers) have increased from 9.2 per cent in 1989 to 38 per cent in 1992.

Preparedness measures: The Coast Guard has spent over $15 million since 1990 to acquire additional pollution countermeasures equipment.

Policy: The amendments to the Canada Shipping Act (Bill C-121) received royal assent June 23, 1993 and provide for tougher sentences for pollution offences, new shipping safety regulations and implementation of international conventions including OPRC 90 and salvage convention.

(b) The environmental protection measures to deal with potential spills from Hibernia are regulated by the federal government (lead is the Department of Natural Resources) through its participation in the Canada-Newfoundland Off-Shore Petroleum Board. The board ensures that appropriate contingency plans are in place to respond to any hazardous materials spills quickly and effectively.

Questions On The Order PaperRoutine Proceedings

10:10 a.m.

The Acting Speaker (Mrs. Maheu)

The question as enumerated by the parliamentary secretary has been answered.

Questions On The Order PaperRoutine Proceedings

10:10 a.m.

Liberal

Mac Harb Liberal Ottawa Centre, ON

I ask, Madam Speaker, that the remaining questions be allowed to stand.

Questions On The Order PaperRoutine Proceedings

10:10 a.m.

The Acting Speaker (Mrs. Maheu)

Shall the remaining questions stand?

Questions On The Order PaperRoutine Proceedings

10:10 a.m.

Some hon. members

Agreed.

Canada-Hungary Income Tax Convention Act, 1994Government Orders

10:10 a.m.

Western Arctic Northwest Territories

Liberal

Ethel Blondin-Andrew Liberalfor Minister of Finance

moved that Bill S-2, An Act to implement a convention between Canada and the Republic of Hungary, an agreement between Canada and the Federal Republic of Nigeria, an agreement between Canada and the Republic of Zimbabwe, a convention between Canada and the Argentine Republic and a protocol between Canada and the Kingdom of the Netherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to income taxes and to make related amendments to other acts, be read the second time and referred to a committee.

Canada-Hungary Income Tax Convention Act, 1994Government Orders

10:10 a.m.

The Acting Speaker (Mrs. Maheu)

Is it the pleasure of the House to adopt the motion?

Canada-Hungary Income Tax Convention Act, 1994Government Orders

10:10 a.m.

Some hon. members

Debate.

Canada-Hungary Income Tax Convention Act, 1994Government Orders

10:10 a.m.

Ottawa Centre Ontario

Liberal

Mac Harb LiberalParliamentary Secretary to Minister for International Trade

Madam Speaker, the purpose of Bill S-2 is to implement reciprocal tax treaties-or conventions-between Canada and Hungary, Nigeria, Argentina and Zimbabwe that will eliminate double taxation on income tax. As well, this bill implements a protocol to revise the current tax convention between Canada and the Kingdom of the Netherlands.

I would first like to comment on the desirability and the role of tax treaties. A tax treaty between countries is an important tool to provide the benefits of certainty and stability regarding

tax regimes-benefits that concretely promote and facilitate international trade and investment.

Such certainty and stability is achieved because such treaties enshrine the basis, as well as the rate, of applicable taxes. This means that a treaty rate of tax cannot be increased unless the treaty itself is modified or terminated.

In fact, termination is a rare event, while revision of such treaties is a lengthy process requiring the concurrence of both governments. And in either case, taxpayers will normally receive considerable advance notice of the impending changes.

Another benefit of such tax treaties is that they also reduce annoyance in the operation of the national tax systems involved in several ways. First, they eliminate the necessity of paying tax on business profits in the source country if there is no permanent establishment in that country. As well, they provide a mechanism to settle problems encountered by taxpayers.

More importantly, tax treaties eliminate or alleviate double taxation in instances where international transactions are involved that may give rise to the same income being taxed by more than one country.

Let me expand on how this works. For the purpose of eliminating double taxation, the tax treaties establish two categories of rules. Firstly, in the case of a number of specified items of income, an exclusive right to tax is conferred on only one of the contracting states. In this way, the other contracting country accepts that it cannot tax this income, and double taxation is thus absolutely avoided.

Secondly, for other items of income, the right to tax is not an exclusive one. These provisions confer on the source country (or situs) a full or limited right to tax. In turn, under the treaty, the country of residence of the taxpayer must allow relief for the tax paid in the other country. Ultimately, this again ensures there is no double taxation.

I should remind this House that the treaties enacted by this bill are the latest within a long-standing process. The major reform of Canada's income tax legislation in 1971 required Canada to expand its network of double taxation conventions (tax treaties) with other countries. Since that time negotiations for the conclusion of new treaties or the revision of existing ones have been entered into with almost 75 countries.

In this bill, the four tax conventions under review follow the general pattern of the conventions previously approved by Parliament. The number of Canadian tax treaties in force now stands at 52. I would now like to briefly highlight if I may, the main elements of these new tax treaties covered by this bill. I will deal with the Protocol to the Netherlands Convention at the end of my remarks.

These treaties provide generaly that dividends may be taxed in the source country at a maximum rate of 15 per cent.

However, in the case of company dividends, the rate is often reduced if the company receiving the dividends holds an equity interest in the company paying the dividends.

Such a reduced rate has been set at 10 per cent for the countries covered here (execpt for Nigeria, where it will be 12.5 per cent).

Regarding interest paid by a resident of one country to that of another country, the rates set out in this bill are 10 per cent in the case of Hungary, 12.5 per cent for Argentina and Nigeria; and 15 per cent in the case of Zimbabwe.

There are, however, a number of exceptions. Interest paid on a bond or similar obligation of the national government, a political subdivision or local authority will be exempt from tax in the country in which it arises.

Also, these treaties (except that with Zimbabwe) contain a provision that will allow interest paid on loans or credits extended, guaranteed or insured by certain state entities (in Canada, for example, by the Export Development Corporation-EDC) to be taxable only in the country where the recipient of the interest payment resides.

These treaties also address the taxation of royalty payments. They provide for a general rate of source taxation of 10 per cent in the case of Hungary and Zimbabwe, 12.5 per cent in the case of Nigeria, and from 3 to 15 per cent in the case of Argentina, depending on the nature of the royalty.

Copyright royalties are exempt under the treaty with Hungary.

There are also a number of other matters dealt with in these tax treaties, such as capital gains. The treaty provisions dealing with capital gains reflect the standard Canadian position enabling the source country to tax profits from the sale of real estate, business assets and shares in real estate companies.

Second, non-discrimination. Under the conventions, discrimination on the basis of nationality is prohibited. This ensures nationals of one country equal treatment with nationals of the other country in the same circumstances. However, this does not prevent a country from providing fiscal incentives (for example, Canada's small business deduction) on the basis of the residence of the taxpayer.

Third, pensions. Canada has preserved its right to tax pensions paid to residents of the countries covered by this bill. In the cases of Argentina, Zimbabwe and Hungary, the maximum rate of tax applicable in the source country to periodic pension and annuity payments is 15 per cent. In the case of Nigeria, there

is no stated maximum rate of tax applicable to periodic pension payments.

Finally, war veterans pensions are generally exempt from tax under the four treaties.

Fourth, double taxation relief. The treaties provide that in Canada, double taxation of foreign source income of Canadian residents is alleviated by way of a foreign tax credit, in accordance with the limitations provided for in the Canadian legislation.

In addition, devidends received by a company resident in Canada from the exempt surplus of foreign affiliates resident in a treaty country are exempt from tax in Canada. Reciprocally, relief from double taxation is granted in the other treaty country in accordance with the method recognized by that country.

Let me turn now to a final undertaking enacted by this legislation. Bill S-2 will implement a protocol to the tax convention signed by Canada and the Kingdom of the Netherlands in 1986. This protocal updates this existing treaty to take into consideration changes made to the respective laws and policies of the two countries.

For example, in Canada's 1992 federal budget, the government announced it was prepared, in tax treaty negotiations, to reciprocally reduce the withholding tax rate on direct dividends. This was seen as a valuable incentive to encourage direct international investment. And in the 1993 budget, the governement affirmed its desire to negotiate, on a bilateral basis, exemptions from withholding taxes on payments made for the use of computer software.

I am pleased to say that the Netherlands is the first country with which we have signed such an agreement.

Under this bill, in cases where a dividend recipient holds 25 per cent or more of the capital, or 10 per cent or more of the voting rights, of the dividend-paying corporation, the withholding tax will be reduced to 5 per cent from the current 10 per cent. This reduction will take place over a five-year period starting from 1993. As regards interest payments, the protocol reduces the rate to 10 per cent from the current 15 per cent.

As well, the agreement eliminates the withholding tax on royalties for computer software and on interest paid to pension funds.

To conclude, on balance, the terms of the four tax conventions and the protocol provide some equitable solutions to the various problems of double taxation existing between Canada and these countries. Each of these countries hopes to implement the bilateral convention as soon as possible. Consequently, I commend this bill to the House and urge its speedy passage.

Canada-Hungary Income Tax Convention Act, 1994Government Orders

10:25 a.m.

Bloc

Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC

I welcome this opportunity to speak on behalf of the Bloc Quebecois in this debate on Bill S-2, which, as the hon. member explained, proposes to implement income tax conventions between Canada and Hungary, Nigeria, Zimbabwe, Argentina and the Netherlands.

The purpose of tax treaties is to avoid double taxation of business profits in the case of companies that have branches or affiliated companies in the other country. These treaties are useful and may, in certain cases, apply to trips by Quebec and Canadian performers who go abroad-or even athletes, including hockey players.

It is clear that tax treaties are not something new. They have always existed, and I have the impression they always will, especially in a world that is undergoing globalization.

Tax treaties establish what is called reciprocal treatment between countries with respect to income tax. However, reciprocity is only possible when tax rates for Canadian businesses and businesses in the countries with which tax treaties are signed are more or less equivalent or at least comparable.

Madam Speaker, the first negative aspect I want to discuss today concerning tax treaties is that, because tax rates on business profits in Canada differ greatly from those in countries that are signatories to such treaties, the system has long been considered to be a standing invitation to tax avoidance by Canadian corporations with foreign affiliates.

In fact, countries considered tax havens, such as Barbados, Cyprus, Malta and Singapore, to name only a few, have signed tax treaties with Canada. The tax rate applied in these tax havens is much lower than in Canada. This means, as was pointed out by the Auditor General in his 1992 report, and I quote:

Income earned in countries that are tax havens-

-like the ones I just mentioned-

-and that are designated by order in council can enter Canada tax free, even if it was not taxed or only taxed at a very low rate.

Still according to the Auditor General, the Department of National Revenue is aware of a number of taxpayers who have used this scheme to be in a position to move $500 million into Canada tax free. Quite frankly, this is outrageous. Earlier, I was amazed when I heard the presentation on Bill S-2, in which everything was sweetness and light, and I sat there wondering whether the members opposite were completely oblivious to the real world of tax treaties.

Madam Speaker, another reason, and this concerns the second negative aspect, why the Bloc Quebecois has been asking for a review of all our tax treaties is to pinpoint cases where tax rates on business profits are comparable to those in Canada and preserve only those treaties. The point is that the foreign income of a Canadian corporation, which is tax exempt or taxed at a very low rate, when paid in the form of dividends to Canadian

shareholders, is eligible for the same federal tax credit as dividends paid by a Canadian company operating in Canada, whose income is taxed in Canada.

We have often raised the problem of tax inequities between individuals, Quebecers and Canadians, but here we are dealing with an unfair tax situation affecting corporations based in Canada who decide to invest in Canada, to create jobs in Canada, to generate profits and to be good corporate citizens. All the while, other corporations decide to set up foreign affiliates and, through their investments abroad, benefit from tax exemptions here in Canada. These exemptions are generous, if not more generous in fact, than those enjoyed by corporations striving to create and fuel economic growth.

These inequities clearly act as a disincentive to economic development here at home. There is no question that preferential treatment is given to foreign investments by Canadian residents.

If this is how we plan to develop the Quebec and Canadian economies and employment, then I think we have taken a wrong turn. This situation is clearly unacceptable.

The third aspect of the tax convention legislation that caught my eye is the fact that pursuant to this act, a Canadian-resident corporation can deduct interest on funds it borrows for the purpose of investing in a foreign affiliate. Here again, investments made in Quebec and in Canada are afforded unfair treatment, all because of tax conventions signed between Canada and various countries considered tax havens.

Corporations that invest in tax havens avoid taxation in two ways: first, they can deduct some of the interest on funds borrowed and second, they can bring their profits, which were either not taxed at all or taxed only sparingly abroad, back into the country.

Mention is made of taxation rates that vary anywhere from 3 per cent to 10 per cent in some cases. These corporations are taxed little, if at all, abroad and enjoy tax-exempt status in Canada. The tax convention system is full of holes and has been for some time now.

According to the Auditor General, and I quote:

That deduction of interest reduces Canada's tax revenue and, at the same time, the related income.

It is precisely this related income which is tax exempt in Canada. Speaking of income related to this investment,

It may be received as a tax exempt dividend and may never appear in the Canadian tax base.

In times of serious financial crisis such as we are now facing in Canada, the government should not be encouraging corporations to invest their money abroad. Instead, it should be creating incentives to promote investment here at home, to develop employment and to fuel economic growth. In almost all instances, tax conventions clearly do not help us to achieve this objective.

Allow me to describe some of the other problems associated with tax havens. Some Canadian companies use stratagems to avoid paying their fair share of tax in Canada such as upstream loans or revenue stripping, as these methods are called in business jargon. Let me explain.

For one thing, these schemes enable Canadian companies to avoid tax by transferring the losses of foreign subsidiaries to the Canadian parent. In other words, if a Canadian company has a foreign subsidiary, the losses incurred abroad are brought home to Canada and included in calculating the Canadian company's tax.

Secondly, they allow Canadian companies to avoid tax by sending the income of Canadian corporations abroad, which works the other way. Some Canadian companies make profits in Canada, export these profits to countries where they have a subsidiary and with which a tax convention has been signed, thus avoiding paying tax in Canada.

Thirdly, these stratagems enable Canadian companies to avoid Canadian tax by making the income of Canadian corporations exempt.

The history of tax conventions between Canada and the signatory countries is full of horror stories which we are unused to reading about in the Auditor General's reports and which enrage us. Let me tell you a few of them, taken from the Auditor General's report for 1992.

A Netherlands Antilles subsidiary of a Canadian company had assets of $865 million and income of $92 million not subject to the foreign income rules. Although the income of the foreign subsidiary has not been taxed at a rate that approximates Canadian rates, it can be transferred to the Canadian parent as tax-free dividends. The offshore income is not taxed on entering Canada, but it carries with it federal tax credits on dividends paid out to Canadian shareholders. The Canadian parent incurred the financing costs for its investment-

-it was still on Dutch territory-

-in the subsidiary and reported a tax loss of $29 million.

With the huge financial problems we have, it is as if we suddenly decided to send $29 million abroad, as if we deliberately drove capital away, as if with all the loopholes in the tax conventions, we deliberately caused a revenue shortfall for the federal government, when the situation could be corrected quite quickly and easily.

Let me give you another of these horror stories, again taken from the Auditor General's report:

A Canadian company transferred $318 million in investments to its Barbados subsidiary. In six months this $318 million brought in revenues of $37 million exempt from foreign income regulations.

Even if the subsidiary's revenues were not taxed at a rate similar to the Canadian rate, namely 3 per cent, they can be transferred to the Canadian parent company as exempted dividends. Foreign income would then be tax-exempt on entering Canada, even if no, or practically no, taxes on this income were paid in Barbados. This net income is not subject to any taxes on entering Canada.

The Canadian parent company of this subsidiary also incurred financing charges for investing in its Barbadian subsidiary and reported-without generating any economic activity in Canada-fiscal losses in Canada. Again, we are losing millions of dollars in tax revenues when we do not need these tax losses. Everyone will agree that we really do not need them. With a $507 billion debt and a deficit that will exceed $40 billion, I think we should not hurt ourselves intentionally. Only masochists can present such tax convention proposals in a sentimental manner. As they say in my riding, no wonder things are not going well at the shop.

No exhaustive studies have been done on the 52 or 53 tax conventions now in effect between Canada and certain countries, but the Auditor General gave us a general idea of the tax losses they can result in. According to him, Canadian businesses that, in 1990, invested close to $92 billion in non-resident companies with which they have a non-arm's length relationship may have benefited a great deal-he does not give the proportion as there are no exhaustive studies on this-but it probably led to tax losses such as I mentioned earlier.

As the Auditor General pointed out, some investments are probably quite legitimate and totally above suspicion, but others are not. They may be legal but they are not legitimate given the federal government's financial position. In 1990, for instance, $5.2 billion was invested in businesses located in Barbados, a well-known tax haven. These investments in Barbados generated $400 million in tax-free dividends.

Here is another example: $10.9 billion was invested in businesses in Cyprus, Ireland, Liberia, the Netherlands and Switzerland, which are also considered tax havens. These investments brought in over $200 million in tax-free dividends, so that Canadian shareholders could benefit from the tax exemption on dividends paid to Canadian residents.

We must realize that much if not most of these so-called investments in these tax havens are made so that Canadian parent companies can avoid Canadian taxes and contribute to the deterioration of public finances already damaged by several years of budget carelessness on the part of successive governments here in Ottawa.

We can reasonably conclude that, as the Auditor General pointed out, the Canadian government-again, they are proving us right by presenting Bill S-2, which renews and introduces similar tax conventions-intentionally deprives itself of hundreds of millions of dollars in annual tax revenues.

The problems related to tax conventions have been known for a long time, mostly by the people opposite. And I would like to point out how long this kind of inconsistency, how long the problem of tax avoidance under tax conventions has been known. You should not laugh because public finance management is far from rosy, as is the way you treat Canadians by maintaining such a shameless system and by cutting social programs by $7.5 billion over the next three years.

The problem of tax avoidance under conventions has been well-known for a long time. For example, in 1987, the Department of Finance announced that it would review the taxation of affiliated foreign corporations. These studies were never carried out.

In 1989, the public accounts committee stated that the Department of Finance should ensure that tax avoidance under tax agreements be closely monitored and that solutions be proposed. Again, that was in 1989 and we are still waiting.

In 1992, in his comments on the Auditor General's report, the Minister of Finance clearly indicated that he had no intention of tackling the problem, even though he was aware of it.

In December of the same year-and the hon. members opposite should listen carefully to this-Jean-Robert Gauthier, a veteran Liberal member of Parliament, who was then chairman of the public accounts committee, said that what really concerned the committee was that the Department of Finance had taken no steps to eliminate, where possible, the tax avoidance schemes used by foreign subsidiaries. Mr. Gauthier, who is still a member of the Liberal Party of Canada, added that, in his opinion, the problem was not a new one; it had simply resurfaced.

Not only does Bill S-2 renew such conventions without an appropriate review of the opportunities for tax avoidance in countries considered to be tax havens but, on top of that, nothing was done by the government since it came to office to try somehow to save even a part of the hundreds of millions of dollars which are lost because of tax avoidance schemes linked to these agreements.

The Minister of Finance was quite pleased with himself when he tabled his first budget-a budget which has since been disavowed by the Prime Minister of Canada. The finance minister then said that his budget included amendments which would enable the government to alleviate the problem related to tax conventions.

However, this was just another performance put on by the stand-up comic that the Minister of Finance is when it comes to our economic policy.

Sure, some changes were made, but not to avoid the loss of hundreds of millions annually, and not to avoid problems which exist and which we have been aware of since 1982.

The measures taken will definitely not solve the problem and I urge the government to review all of the 52 or 53 tax conventions signed with other countries. These countries are not all tax havens, but many are and they deliberately deprive us of tax revenues.

It is a thorough disgrace to maintain such a system without an adequate review, especially when you consider that the system has been criticized for a long time by the Auditor General, by the Liberals when they were in office, and even by the various finance ministers, who pledged to do something but never did. It is unacceptable and it is even a disgrace to tolerate such a flawed system, especially when you consider that the recent budget puts a heavier burden on people who should not have to bear that burden. Indeed, the unemployed will contribute $5.5 billion through reduced benefits and fewer insurable weeks.

The government puts the burden on those who should not have to pay, since these people are already living in poverty because their government is unable to give them jobs to support their families and get their dignity back.

Neither was it necessary to take this other shameful measure, which consists in reducing by $2.5 billion, over the next few years, established programs financing. Again, this is not where the government should have looked to find the money it needs.

Nor should it reduce, cut and even eliminate the tax credit for seniors. These people do not deserve such treatment. They should not have to pay for the financial problems of the Canadian government, considering that they have already contribution so much throughout their lives and that the government persists in tolerating tax avoidance through these tax conventions.

The government also did not have the right to shift the burden of the deficit or to demonstrate such a lack of control and imagination in getting a handle on public finances. There was no need to make the provinces pay for the deficit by capping or freezing equalization payments, for instance. Canadian provinces have already lost $ 1.5 billion.

Bill S-2 has nothing to do with the tax agreement reform we have been calling for since the beginning of the election campaign which saw us become the Official Opposition in this House.

Before endorsing any new tax agreements or renewing any existing ones, I call on my colleagues and on the government to embark on a complete, total, in-depth review of such agreements and of the countries which are party to them.

My colleagues and I have nothing against Hungary, Nigeria, Zimbabwe, Argentina or the Netherlands, but in view of the financial burden Canadians and Quebecers must shoulder, one should not waste money on purpose or create a situation where we lose several hundred million dollars a year in tax revenue. What we need is to develop a sense of responsibility which has been totally lacking since this government came into power on October 25.

These people do not act responsibly. Not only do they shift the burden of the debt onto the shoulders of those who should not have to carry any more but, due to their incompetence, they cause Quebecers and Canadians to lose billions of dollars because of the uncertainty they create on financial markets. As we saw recently, not only did they take money away from people who did not deserve it, they did not even manage to please financial community, which found nothing in this government's first budget that would allow it to put its financial house in order and give some credibility to a government that is completely out of it.

As one of my colleagues said, not only has it failed to close the tax loopholes provided by these agreements, even though it is doing an about-face, having itself condemned this form of tax avoidance in the past, but it is doing nothing to get rid of shameful schemes such as family trusts.

As we said before, it is becoming increasingly clear that this government is starting to behave like the previous one, favouring its friends, and the businesses which pour thousands of dollars every year into the Liberal coffers. As long as the issues of party financing by the public and lobbying are not settled, in a true democratic manner, that is, we will keep on having this kind of inconsistency and tomfoolery which causes us to lose money when we are in no position to do so.

Therefore, Madam Speaker, we will vote against Bill S-2 not, as I said earlier, because we have something against these countries, but because we want the government to review tax agreements as a whole.

Canada-Hungary Income Tax Convention Act, 1994Government Orders

10:50 a.m.

Reform

Jim Silye Reform Calgary Centre, AB

Madam Speaker, I rise today on behalf of the Reform Party to address Bill S-2 which in essence establishes conventions between Canada and a number of other countries so as to prevent income tax evasion and double taxation of workers from Canada, Hungary, Nigeria, Zimbabwe, Argentina and the Netherlands while working abroad in these countries.

After listening to the hon. member for the Bloc Quebecois who just delivered his comments, perhaps a lot of us will be looking at how to enter into an arrangement with the Barbados and making a deal there since its taxation system is so favourable.

My party supports Bill S-2 but would like to point out to members in both Houses, this House and the other place, that there are millions of Canadians who do not work abroad who could surely use a break from the high taxes they are forced to pay at the federal, provincial and municipal levels. Implementing tax conventions between Canada and countries like Hungary is noble, but what about implementing similar conventions between federal, provincial and municipal levels of government within our own borders, ensuring that the Canadian taxpayer is not overburdened with double taxation?

For instance, the agreement between Hungary and Canada is 20 pages thick. I read it because my parents are Hungarian, I speak Hungarian, and I have a bit of a vested interest in Hungary and what happens there. If the principles in this agreement between Canada and Hungary were looked at and reviewed by this Liberal government, and it tried to negotiate and apply some of these principles with the provincial governments, what it would gain from that are the principles that would lead to removal of some of the interprovincial barriers to trade. That could save the country, our country, our economy and our taxpayers. The cost of doing business could be reduced by $4 billion to $5 billion.

One of the most common complaints about the goods and services tax that has been raised in finance meetings is the fact that when people purchase goods they are hit with a provincial sales tax of between 8 and 12 per cent and a GST of 7 per cent. In the eyes of most Canadians, this is seen as a double hit on their pocketbooks and has encouraged them to take billions of dollars in taxable revenue underground.

At a meeting in Vancouver either yesterday or today there is a presentation on the underground economy and the value of it. Why does one exist? It exists because this House and this government is continuing the practices of tax and spend and has not addressed the real issue of reduced spending, spending cuts, putting the money back into the taxpayers' hands so people would be willing to pay taxes on an equitable and fair basis and not go into the underground economy. It is becoming too expensive to be honest in this country. Even the finance minister has acknowledged that fact.

In the eyes of most Canadians the double taxation system with sales taxes, hidden taxes and income taxes is more than a double hit on their pocketbooks. It is a triple, quadruple whammy and it has encouraged them, as I said earlier, to deal in ways that they can save money.

According to Canadian Business magazine: ``Canada now enjoys the dubious distinction of imposing one of the highest taxation rates among the group of seven industrialized countries''.

I hope the government does not follow the practices of the previous Conservative government of always quoting the group of seven nations and how the United Nations said that this country is number one. We are no longer number one in anything except high spending on a per capita basis.

When will the government wake up and realize that the present system of tax and spend will no longer be tolerated by investors, lenders and consumers?

One of my constituents wrote in reply to a questionnaire that I sent out: "Only the federal government could find ways to make people pay for the privilege of living more simply and moderately".

For too long governments have forced people to live within their means and exercise fiscal restraint while politicians have lived in the world of guaranteed pensions and expensive junkets. While many Canadians are sitting around the kitchen table planning a budget, deciding what they need versus what they want, members of Parliament have travelled the globe, costing taxpayers millions of dollars. Parliamentary committees travel the country, justified on the basis that they are consulting with the people.

The cost of all these committee travels, combined with the junkets, is not in the millions of dollars, it is over a billion dollars. Yet the government will not look at ways and means of saving the taxpayers' money and getting input from taxpayers through householders or through visiting their constituencies every once in a while and finding out what they want.

It takes the Clerk of the House to look at ways and means of saving money for committees. It is a noble effort on the Clerk's part and the government should be looking and encouraging more effort on that basis.

How many trips have there been by members of Parliament, their spouses and their aides to Hungary, Nigeria, the Netherlands, Argentina, or Zimbabwe to hammer out the particulars of S-2?

I was invited to go to Hungary as a parliamentarian. I speak Hungarian. It would have been a wonderful opportunity to visit the country where I was born, but I turned it down. I turned it down because there was nothing to be gained there. There is more to be gained here. If they want to do a deal with us they can come here.

By doing that I hope I have sent the message that we will co-operate with other countries but we have problems to solve at home without trying to solve other people's problems for them. They have a responsibility to work on that themselves, including Hungarians.

Bill S-2 is largely a housekeeping bill. The federal government should consider housekeeping measures in our income tax system. It should stop dusting around the edges. I encourage

government members to take their gloves off and start throwing things out, such as unnecessary programs.

The Liberals should start by throwing out the Income Tax Act with its over 2,500 pages. They should develop a new proportional simple tax based on equity and understanding. It should be geared to family size, the amount of income and the family's ability to pay taxes on that income.

It is our high taxation level that is responsible for people fleeing to countries like those mentioned in Bill S-2. That is why the government is forced to draw up these conventions.

We have a system of overseas tax credits. People who work outside Canada for extended periods it is believed ought not to pay full taxes since they do not consume their full share of government services. That virtually eliminates tax on 80 per cent of their total income if they have been out of the country for six months.

On that basis an engineer making $70,000 would barely pay $7,000 whereas that engineer working at home would pay $23,000. When I questioned a certified accountant in my riding of Calgary Centre he told me about this and that it is a huge incentive. It makes it worthwhile for people to leave their families and work in Russia or Hungary for half the year to make this extra income.

The nature of this bill is technical and serves to provide a better understanding between Canada and foreign countries. Let me leave the government with some constructive questions that arise out of reviewing this bill, which I hope will lead to some improvements for Canada.

Bill S-2 is a good first step. But why are we only signing on with the countries mentioned in the bill and not some of the emerging markets we will be trading with in the future?

The reason for these conventions is that tax evasion exists in Canada due to our comparatively high level of taxation. Is the government willing to prevent this problem from occurring by bringing our tax level in line with other countries?

Is it realistic to expect these conventions to be workable when Canada's tax system is considerably more complicated than the countries we are signing conventions with?

Is our high taxation level responsible for people fleeing to these countries and is that why we need these conventions? My answer to that is yes.

In conclusion, it is Canada's high tax burden which must be addressed in order to attract investment in Canada and have a positive net cash flow of foreign investments to add to our gross national product.

Canada-Hungary Income Tax Convention Act, 1994Government Orders

11 a.m.

The Acting Speaker (Mrs. Maheu)

Is the House ready for the question?

Canada-Hungary Income Tax Convention Act, 1994Government Orders

11 a.m.

Some hon. members

Question.

Canada-Hungary Income Tax Convention Act, 1994Government Orders

11:05 a.m.

The Acting Speaker (Mrs. Maheu)

Is it the pleasure of the House to adopt the motion?

Canada-Hungary Income Tax Convention Act, 1994Government Orders

11:05 a.m.

Some hon. members

Agreed.