House of Commons Hansard #62 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was taxes.


Order In Council AppointmentsRoutine Proceedings

10 a.m.

Kingston and the Islands Ontario


Peter Milliken LiberalParliamentary Secretary to Leader of the Government in the House of Commons

Madam Speaker, I have the honour to table, in both official languages, a number of order in council appointments made by the government.

Pursuant to Standing Order 110(1), these are deemed referred to the appropriate standing committees, a list of which is attached.

Financial Administration ActRoutine Proceedings

10 a.m.


Randy White Reform Fraser Valley West, BC

moved for leave to introduce Bill C-245, an act to amend the Financial Administration Act and the Auditor General Act (review of budget speech).

Madam Speaker, I am most pleased to rise and table this document with the House. It amends the Financial Administration Act and the Auditor General Act. Its intent is to review the revenue estimates provided to the people of this country and my colleagues through the budget process. In years gone by revenues have been largely inflated and we feel a more accurate assessment of whether they should be is necessary. This bill will take care of that.

(Motions deemed adopted, bill read the first time and printed.)

PetitionsRoutine Proceedings

10 a.m.


Pat O'Brien Liberal London—Middlesex, ON

Madam Speaker, it is my pleasure to present a petition today signed by some 250 residents of southwestern Ontario, including my riding of London-Middlesex.

These petitioners call on the government to amend the National Energy Board Act in order to provide intervener funding in the matter of interprovincial pipelines. With these petitions I would note that the total number of petitioners in southwestern Ontario is now at 1,000 calling on the government to take this action.

PetitionsRoutine Proceedings

May 3rd, 1994 / 10 a.m.


Jim Abbott Reform Kootenay East, BC

Madam Speaker, it is my privilege to present a petition signed by 50 of my constituents with respect to section 241 of the Criminal Code of Canada, which has to do with euthanasia.

In part the petition reads: "The Supreme Court of Canada recently upheld section 241 of the Criminal Code of Canada in the Rodriguez decision recognizing that section 241 was enacted to protect all individuals, including the disabled, the terminally ill, the depressed, the chronically ill, the elderly. If section 241 were to be struck down or amended such protection would no longer exist and our most vulnerable members of society would feel an implied pressure to end their lives".

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10:10 a.m.


Jim Silye Reform Calgary Centre, AB


That this House implore the government to initiate immediate consultations with Canadian taxpayers and provincial governments on the creation of a fair and integrated reform of the entire tax system which incorporates the principles of equity, efficiency and effectiveness, thereby reducing the tax burden on Canadians.

Madam Speaker, on behalf of the whip of the Reform Party I would like to advise the House that pursuant to Standing Order 43(2) our speakers on this motion will be dividing their time today.

Someone once said that you cannot get there from here. Nowhere is this saying more applicable than to the Canadian government's reliance on a confusing, complicated and convoluted system of tax and revenue collection. I rise on this opposition day as the first of many Reform speakers to call on the government for a complete overhaul of Canada's taxation system.

The Chair read the motion so I will not do the same.

Every year Canadians spend countless millions of dollars on accountants and lawyers to have their income tax prepared. The 2,091 page Income Tax Act is an unmitigated mess of rules and regulations and is screaming for reform, as are millions of Canadians.

This red book, which is not to be confused with the Liberal red ink book, has in the rules and regulations and various forms that make it so confusing that all the people who tried to do their own tax returns this year had a hard time coming up with the right answers, myself included.

The Liberal government with its red ink book promised to find ways to achieve tax fairness, simplicity and harmonization, implying some sort of reform to our tax system itself. Are Canadians truly getting the changes that they demanded and were promised? The answer is no.

After six months all we hear in answer to our questions is "jobs, jobs, jobs". All the Liberal government has done is pass old Tory bills, introduce no new bills of their own and we have not been able to question the government whatsoever on the direction that it wants to take this country.

What has happened is that the Liberals have dangled reform in front of the noses of Canadian taxpayers but they have not delivered.

In question period yesterday-I hear an hon. member talking who was not here, so he might listen to this-the Prime Minister stated that the only way to reduce taxes is to get Canadians back to work. This is a noble gesture, but has the Prime Minister not considered that it is the high tax burden that Canadians face which is stifling our economy and economic growth?

The fact is that revenue collected from personal income tax has more than doubled since the 1984-85 fiscal year. Tax collected from corporations has remained stagnant at approximately $10 billion because profits have been sluggish due to our recession.

Canada's overall tax burden has become the second highest of the G-7 countries in recent years and the taxpayers, as we all know, have moved to the underground economy that is valued anywhere from a low of $20 billion to a high of $120 billion.

The government has failed to address the problem. In its last budget it increased spending by $3.3 billion instead of holding the line or reducing the spending. This makes the private sector less productive which leads to greater unemployment. Will governments acknowledge that they are in fact part of the problem and not the solution?

The current high taxation rates serve as a temptation for government to keep spending at its current levels which will not solve our problems of high debt and high unemployment expeditiously. We must learn to live within our means like all Canadians and cannot look to the Canadian taxpayer before accomplishing this goal.

It is our belief that to stimulate the economy and to increase revenues for government, lenders, investors and consumers must possess a larger pool of disposable income. In this light, the Liberals should start by throwing this Income Tax Act out the window and replacing it with a completely new, entire tax system.

Why not reform the tax system? I would submit to the finance minister that less is more. Lower taxes will mean more revenue to the government. In this vein I would recommend the implementation of a flat tax on individual and corporate income. This model may work. We would suggest to start with a premise that would require input and consultation with Canadians, the provinces and individuals in the House, that the first $12,000 be tax free. One per cent of charitable donations would be deductible, but RRSPs would be limited to $5,000 to $6,000 for deductions so that the wealthy would not get the higher amount of deductions. There would be a spousal deduction and a child care deduction, and that would be it. We would draw a line, multiply it by 15 per cent or 20 per cent and send in our tax return.

Corporations would pay the same rate. The difference with corporations would be that their dividends would be deductible. We would not be taxing that and giving it out as after tax dollars. Dividends to individuals who invest would be deductible and taxable in the hands of the recipients. All investments in the future, all loopholes, exemptions and deductions defined here with rules, exceptions and counterexceptions would be gone. We would be investing as individuals with after tax dollars, and the corporations would be paying us based on their profits.

The objective of this tax would be threefold. It would simplify the current complicated tax forms so that all Canadians could understand them. It would restore equity in the tax system, eliminating the perception that one group of taxpayers is favoured over another and people with the same level of income would pay relatively the same amount of tax. The inequity right now is that there are people making $100,000 a year and one person pays $40,000 in taxes and the other person pays $20,000 because they might have better advice or they might have better borrowing power. That is not fair. Third, this tax would eliminate the triple hits that Canadians are taking in their pocketbooks with PSTs, GSTs and income taxes.

Under this system there would be no loopholes for anyone and we would be rid of the expensive bureaucracies now required to co-ordinate tax collection.

In National Revenue and Taxation, Customs and Excise, there are 44,000 employees at a cost of $2.2 billion. Savings to the Department of National Revenue in tax collection and the monitoring of all personal and corporate tax exemptions would be in the billions, not just the $36 million the government has proposed to save by the wonderful amalgamation of two deputy ministers, one of taxation revenue and the other of customs and

excise. We need more savings than just $36 million out of a $2.2 billion budget. That is ludicrous and the government should be embarrassed.

Introducing a simple, fair and integrated system of taxation would lower these costs substantially while checking the powers of the bureaucracy. If the bureaucracy in Canada is left unchecked it will continue to increase costs and taxes, continuing the country on its present downward spiral. Canadians will never have an opportunity to pay less taxes in a current year than they did the year before.

An example of the high cost of the bureaucratic action was brought to my attention by a CA firm in Calgary, Bogle, Duska, Robinson and Perry. Mr. George Duska did an analysis in a six-month period. The number of forms and taxation slips whether or not they were required that changed for him to do his job on a file, to make copies and do the necessary changes, was about an inch and a half thick over a period of a month and a half.

Witnessing the cost in changes in tax forms that had taken place over the past 10 years, Mr. Duska did an analysis of the revised tax forms over the six months to see if these changes were truly necessary. In his opinion 16 per cent of the revisions were required by the tax system, while 84 per cent "were useless and a waste of taxpayers' money". This indicates that as usual bureaucracy is out of control.

I challenge the government and cabinet to give existing standing committees more authority to look at the expenditures and the budget estimates. They should let them come back to cabinet and recommend cuts, prioritize them and cut off the bottom two, to start the government toward a balanced budget. It is a small area relative to government expenditures, but it illustrates the fact that our present system is becoming a bureaucratic nightmare.

I would like to conclude by educating the Liberal government, which might be nearly impossible, on the reality of the private sector, not the perceived reality of the Liberal government. Government overspending results in the raising of tax dollars. Higher taxation means less capital available in the marketplace which leads to a drop in demand. When demand drops, consumption drops, businesses close their doors and the cycle continues.

This vicious circle is the main reason why over one million Canadians are unemployed. It takes money to create wealth. The government takes too much of it and then wonders why unemployment goes up. Business people in the House know this but politicians in the House do not understand this. They do not understand the difference between the spending of debt capital, borrowed money and equity capital, especially when the government has not paid back $1 of the money it has borrowed since 1968, the first years of Trudeau.

Is that not embarrassing? Who in the House borrows money from the bank and has never had to repay $1 of it over 23 years? I would venture to guess nobody. Why is the government being treated differently or why is it treating itself differently? The private sector understands the difference. It is time that politicians did as well.

It should not be beyond our means to create a more equitable system of taxation, one that inspires prosperity for Canadians and economic growth for the country. Let us work toward the restoration of public trust in taxation and create a tax system that reflects the principles of equity, efficiency and effectiveness, thereby reducing the tax burden on Canadians.

We must listen to the comments of all members in the House today and see if we come up with some solutions. The real problem is a balanced budget. It is important. No tax system in the world is good if it does not address the real problem. If we continue to spend $160 billion and do not raise $160 billion, we are contributing to the problem, not solving it.

SupplyGovernment Orders

10:20 a.m.

Broadview—Greenwood Ontario


Dennis Mills LiberalParliamentary Secretary to Minister of Industry

Madam Speaker, I begin by congratulating the Reform Party for initiating the debate on comprehensive tax reform. I also humbly correct the member because he made a statement that the government had failed to address this problem.

I would like to clear the record because we have started the process of addressing this problem. We started it in the finance committee. Just yesterday the Prime Minister reiterated our election commitment that the GST was going to be killed. I think that is what he said. It is important for Canadians to know this. They cannot think, because we campaigned for three years for tax reform, that we came here and did not begin the process. We have not solved it yet but we have started.

I remind the member that I had the privilege of appearing before the committee last week on the single tax which many of us on this side of the House have been working on for the past few years. It is a very difficult and complex issue. The member announced that.

I have a question for the member. When a single tax is designed, or a proportional tax, one basic principle is flushing out all corporate loopholes, all tax preferences. Some would call them grants. Will the Reform Party be consistent on that and agree, as those of us who support single tax agree, that when we flush out all those preferences we will flush out all preferences that pertain to the energy sector in the province of Alberta?

SupplyGovernment Orders

10:20 a.m.


Jim Silye Reform Calgary Centre, AB

Madam Speaker, I would like to respond to the hon. member for Broadview-Greenwood on the GST replacement and the work in the finance committee.

Although the intentions are honourable, we will really end up at the end of the day with a new tax that replaces an old tax. They will still try to collect $15 billion out of the pockets of taxpayers. They say that is a solution. We can simplify it and make it less expensive to collect but nevertheless it is still a tax. It is a band-aid approach to the problem. The real solution to the problem is an entire review of the tax system so that we do not have to worry about the GST replacement and we only have to tax the one time.

With respect to corporate profits, the whole concept is that currently the Income Tax Act and the income tax system are being used to drive social and economic policy. We have to design an income tax system solely for the collection of revenues to pay for the government programs people want. The responsibility of politicians is to find out what the people want and raise the money to do it.

If they come up with a program to support the oil and gas industry, to support the coal industry or to support manufacturing, fishing, forestry or whatever, then they should treat them all the same and not be selective with specific subsidies at a particular time that distorts the marketplace, that confuses the marketplace and that creates unfair competition within the industry. At that time they might be favouring a certain type of industry. Within that industry those who know how to make a profit will be making a profit and those who do not will be getting the subsidy. In a way that is rewarding failure.

The system of a flat tax, a proportional tax or a single tax-I do not care about the name-is an important concept. The principles are important. If we can get members of the House to accept certain principles and concepts, we will go a long way toward solving the problem. No company or industry, even if it is in the city of Calgary where I have worked for 23 years, would object to the fact of eliminating all complications, pretax and after tax. If we just deal with after tax dollars and we all had more disposable income, it would really purify and clean up the system.

SupplyGovernment Orders

10:25 a.m.


Ian McClelland Reform Edmonton Southwest, AB

Madam Speaker, I am particularly pleased to rise today to speak to the motion. It is near and dear to all our hearts, particularly at this time of the year when we have just gone to the well to pay our taxes.

The underlying consideration that must be part of a tax structure is the element of fairness. Members will know that all of us as Canadians do not mind doing our share, but we want to know with absolute certainty that we are doing our fair share and that there are no privileged persons and corporations in our society doing nothing and living off the sweat of others who contribute.

I will spend a few moments speaking to the issue of the corporate tax structure in Canada, particularly with a view to small and medium sized businesses. The question is: Does it do the job? Does our tax structure do what we want it to do or does it not?

Members will know many different types of taxes affect business in Canada. There are income tax, payroll tax, capital tax, sales tax and property taxes. Each of these affects business differently according to the firm's sector of activities and its size. The elemental question is: Is it fair and does it work? Does it do the job?

We know the tax structure is different for small and large firms. Why is it different? It is different because payroll and property taxes account for a larger part of the small business tax burden than they do for large firms. These taxes that small business bears are independent of profit. It does not matter how much profit a company makes. It has to pay payroll taxes, the municipal taxes, the taxes on water and sewer and all those sorts of things. These taxes weigh more heavily on a small business than they do on a large business.

Over the years governments have shifted the tax burden from corporate income tax to payroll and property taxes. All governments favour these forms of taxation because they provide a more stable revenue stream than income taxes which rely on profit.

The negative impact on the development of the economy, the fairness of the tax system and the structure of the tax system should be a cause for concern as we go away from corporate taxes which are a result of profit and payroll and other taxes which are not profit oriented.

For example, taxes related to profits account for a significant portion of the overall tax burden: about $36.5 billion in 1992 representing 73 per cent of the $50 billion of direct corporate taxes paid in 1992. Therefore 73 per cent of the corporate taxes paid in 1992 had nothing to do with income.

At this point I wish to acknowledge the source of much of my comments today. It is "Growing Small Business", a budget document presented by the Minister of Industry. Most of what I will speak to today is in the government's budget documents. I thank the Canadian Federation of Independent Business for also providing me with some information.

There is also indirect taxation of business inputs that are not related to profits. These taxes are levied by federal and provincial governments and are paid by businesses when they purchase goods and services. Examples of this type of tax are the excise tax on fuel and provincial retail sales taxes. About one-third of

provincial retail sales taxes is collected on business input. Input tax credits under the GST reduces this on a federal level.

The current tax scheme in Canada is a burden on existing small and medium sized business. Just as important, it is a disincentive for those who wish to start their own businesses. Therefore if the government is to realize its goal of creating more and more jobs, it makes sense that the government would also reduce the tax burden and subsequently reduce the tax disincentive for people to be entrepreneurs, to get into business and create their own jobs.

Although the government realizes that unfair taxation is a problem for business and this realization is acknowledged in the budget documents, it is reluctant to do anything to rectify the situation.

The government as a matter of fact went so far as to announce in the February budget that it is unable at this time to offer any tax assistance to small and medium sized business. Instead it has put the pressure on banks to allow easier access to loans.

I submit that the problem is not exclusively access to loans. The problem is to be able to retain cash in a small or medium sized business to employ more people, to expand the business, to get involved in other businesses. The government must realize that all the start-up capital in the world will not assist small business unless businesses are profitable and are able to retain cash in the business.

The problems facing businesses go deeper than just taxes. It is the result of a flawed philosophical approach to business. It is proven that small business creates up to 80 per cent of the jobs in Canada. Yet all governments continually put impediments in place that take away from business the ability to grow and prosper.

Government after government has used small and medium sized business as a cash cow to balance the books. The current Liberal government must become the exception to the rule if it is to realize on its promise to create jobs. Claiming to want to create jobs yet not making changes in the tax environment for small and medium sized business just will not wash.

Small and medium sized business must be allowed to retain capital for reinvestment in the business to create the jobs that are so desperately required in our economy. Capital from small businesses should not be taxed until it is taken out of the business.

I would like to spend just a few moments if I may to speak to the equity position of taxation in business, small business versus large business or multinational business.

I have a list of many businesses in Canada that have from $26 million to $111 million in pre-tax profits which in the year 1992 paid no taxes whatsoever. A member of this very House some years ago coined the phrase "corporate welfare bums". Ladies and gentlemen, that phrase was apropos then and it is apropos now.

Canadians would be absolutely horrified to know of the tentacles large business has in this very House in Ottawa which is nothing but a siphon for business to get money from the government to promote whatever business has the tentacles and the ability to get into the House. I submit that individual Canadian taxpayers earning $7, $8, $10 an hour should not be subsidizing any corporations. If a business does not have the ability to compete on its own, it should not be in business.

As this debate unfolds and as we move along we have to understand that the basic element of fairness has to be part of our tax system. As the day progresses we will be speaking to the notion of a single tax or a flat tax. The premise behind this is so that everyone understands that the system is fair, that nobody gets away with anything, that we all contribute equally according to our means.

SupplyGovernment Orders

10:35 a.m.


Alex Shepherd Liberal Durham, ON

Madam Speaker, I would like to comment on some of the provisions the Reform members are making today.

One is that the system is complex and indeed it is complex. Our society over the years has become more complex and that is a fact of life.

One of my observations on the income tax system has been not so much that it is complex, but I think some of the things that the members have been drawing attention to is the fact that we keep changing it all the time. In fact 1972 was a major time of amendment and reform to the income tax system, as was the early eighties. Now members are proposing another change to the system. Every time we change the system it means we do not understand it any more. It takes us another 10 or 15 years to understand the system.

I would like to suggest to the member that possibly a more beneficial method is just to leave the system partially alone. We need to change some things where some are getting better benefits out of the system than others.

I would like the member to deal with another aspect which is the main part of my question. With the flat tax Reform Party members are proposing today, how can they justify the shift in tax burden from upper income groups to the middle class?

Essentially the mathematics are very simple. If we have to collect x number of dollars from the system we are going to have to collect it from various aspects of our tax system. Right now our tax system is progressive. By definition it has to follow that with the flat tax they are proposing today there is a reallocation of tax burden from the upper income group to the middle class. Could the hon. member explain that?

SupplyGovernment Orders

10:35 a.m.


Ian McClelland Reform Edmonton Southwest, AB

Madam Speaker, I thank the hon. member for the question and the opportunity to expand on a couple of aspects of this single tax.

I think the hon. member's point about changes is that we have not been changing the tax system; we have been tinkering with it. There is a saying in the manufacturing industry that we have lost the handle. That means when you have tinkered with something so often and so much you do not know where you started and you lose the handle.

We have lost the handle with our tax system. All the tinkering in the world is not going to change it. We have to go back to ground zero and reinvent it. We have to keep in mind the kiss principle: keep it simple stupid. It must be kept simple and direct. If a book three inches thick is needed to define the tax law and you have to be a Philadelphia lawyer to figure out how you are going to pay the taxes, then obviously people feel there are loopholes for some and not for others.

As far as equity in a single tax is concerned, who is going to get nailed? Obviously you are only going to nail the middle class. That is where the money is.

To presume the high income earners in our country are paying a fair portion now is to presume there are not such things as a capital gains exemption, that there are not all kinds of tax incentives to help people at the higher end of the income level. These are not available to people at the lower income level.

To presume that things are fair and equitable in the tax system now, I just do not concur with the hon. member's premise. I think it is not fair now and it needs to be fair. The tax system is only able to get resources from people who have them. We have to understand that.

SupplyGovernment Orders

10:35 a.m.

Winnipeg North Centre Manitoba


David Walker LiberalParliamentary Secretary to Minister of Finance

Madam Speaker, it gives me great pleasure to lead off the debate for the government side today and to thank the member for Calgary Centre for putting such an important issue in front of the House.

There is not a member in the Chamber who does not have to deal from time to time with the question of tax reform. I was interested in the interventions first from the member on our side, the hon. member for Broadview-Greenwood. He has been a great advocate of tax reform. The member for Durham just rose. He sits on the finance committee, as does the member for Niagara Falls. Since joining the House, all of them in their own way have been very active on the question of tax reform. I thank them for their contributions. I am sure all members will join me in wishing to hear more from them on questions of tax reform.

The motion itself at first glance has much to contribute to the debate. The first part reads:

That this House implore the government to initiate immediate consultations with Canadian taxpayers and provincial governments on the creation of a fair and integrated reform of the entire tax system-

After looking at the first part of the motion I would like to get the House to consider where we have come from on the question of tax reform and where we might be going.

The question of taking on the whole issue at one time at one level is quite attractive. It would be very nice to find a simple solution to the question of tax reform in this country, but the reality is that tax reform has been a very difficult process.

Post-World War II Canada usually uses the Carter commission with its after the fact cliché that a dollar is a dollar as the beginning of tax reform efforts which now stretch over 30 years. Successive governments including our own back in the 1960s and 1970s have done more than their fair share to instil a better sense of fairness in the tax system.

However, the job remains a daunting one. It is one in which we need the advice not only from members of our own caucus but also members from all parties in this House to find the best way to improve Canada's tax system.

I hope each member in the House is most conscious of the tax system since the period for filing income tax returns has just ended. It is not just an abstract issue to members; it is one each of us as individuals contribute to annually, as well as daily through the consumption taxes. To remind Canadians, when members of the House of Commons and the Senate speak about tax reform, they are not just speaking about something in someone else's life, they are also speaking about something in their own lives. Therefore they are very conscious of the need to make things fairer at all times.

As the member pointed out in the lead speech, the legacy of the last 10 years has been an increased shift to individual personal tax. This has caused a great deal of concern among Canadians on the question of fairness. At the same time in the business community the question of payroll taxes and the ever increasing burden of weekly and monthly remittances to provincial, local and federal governments drive small businesses to distraction and are a constant concern of big businesses in their investment decisions in Canada.

We on this side of the House join the opposition in seeking ways to improve the tax system. We probably would differ on the ability of a government to find one solution to the entire question of tax reform. One of the great frustrations in governing is of course that every solution requires biting off a chunk of the problem and dealing with it in a practical sense. Tax reform is an ever evolving process.

I would like to share with the House the ways in which we have begun to deal with the issue of tax reform at this time. There are three benchmarks for this government.

The first one is that in our platform before the election we set out tax reform as a major initiative. Part of the commitments we made to Canadians is to make progress on questions of taxes and tax reform during our first mandate.

Also, one of the first measures taken in this House was the approval of the work being done by the House of Commons finance committee, of which I am a member. There are at least four other members of the committee in the House of Commons today participating in this debate. The committee has sought to reform the GST.

To observe the rules of the House, I will not dwell on the work of the committee. However I will make it part of the public record that in view of the witnesses who have been heard, the experts who have come in to help the committee and the wisdom of the members themselves, we are very much convinced the committee will produce a report which will be used as a tool by the Minister of Finance in his efforts to deal with the provincial governments.

The second part of the motion deals with the negotiations with the provincial government. We would agree in the motion with the reality that we cannot sell the question of tax reform on our own.

Consumption taxes are perhaps the best example. There are 11 regimes in this country of which 10 are active in consumption taxes. Some provinces have differential rates. All 11 regimes tax different commodities and different services at different rates. It is very confusing for the consumer and we have set out as our highest priority in tax reform to bring some order out of the chaos and the GST/consumption taxes in this country.

Again, on behalf of the Minister of Finance I thank my colleagues in the House and in committee for their work. Like them, I look forward to seeing a report some time in the next month, on schedule, which then can be taken to the provincial ministers of finance and contribute to an ongoing national debate on tax reform.

The third initiative that we have taken and that I would like to spend some time on is our February budget. Our February budget considered a number of measures to eliminate tax loopholes and inequities in the system. This is why in the budget we also announced that we would be rolling back unemployment insurance premiums of 1993 to deal with the question of the high cost of payroll taxes.

Although the changes that we made to the UI system were minor, we consider that to be an important first step to indicate to Canadian businesses that we are conscious of the cost of payroll taxes. Often forgotten in this is that the worker bears a very high cost on a weekly basis for these premiums. Any initiatives that we can take to cut back on his or her weekly premiums is appreciated.

During the prebudget consultations, Canadians told us that payroll taxes like these are a major barrier to job creation. We heard that message and we acted. These prebudget consultations are also bottom line proof that our pursuit of a better tax system is firmly rooted in a commitment to consultation with taxpayers and with other levels of government.

As I noted at the beginning of my speech, the question of tax reform will take us several years. Next fall is the second stage in the work of the finance committee. The Minister of Finance is required by orders of the House to report for the first time in our history to the finance committee with an economic statement.

The finance committee will then proceed with several weeks of hearings in a more public prebudget consultation process. I personally take this as a benchmark of changes in the attitude of the Canadian government toward taxpayers in the organization of the budget, the expenditures and on the revenue side.

I ask those Canadians who are watching this debate and those members of the House who are participating in this debate not to consider it to be a sole opportunity to contribute toward tax reform but to proceed to prepare for the finance committee in the fall and to bring forward ideas for tax reform, to bring out ways that we can make the system fairer and to put those into the public realm for debate, discuss it with members of Parliament on the committee. Write a letter. For those members who have their own projects, bring it to the attention of the committee.

One of the most interesting aspects of the GST hearings was a number of members of Parliament who came forward to present their ideas on GST reform. Around 24 or 25 members participated in this debate. I thought it was a very healthy process. Although my memory in the House is not long, I think it has been a while since members felt it efficacious to go in front of a committee in that number and present their own ideas.

The fact is that officials from finance and other departments that deal with tax issues meet with their provincial counterparts year in and year out to discuss proposals for changes and improvements. The broad policy review process that the February budget outlined includes areas where tax concerns are being studied and Canadians are being consulted.

This reality that consultations are taking place on tax improvements is just one reason why today's motion, although it is a good start, may perhaps do discredit to the tax reform process inadvertently if it is not appreciated in the reading of the motion

that the complexity of the issue is respected. No one can bring to the debate a holier than thou attitude that one solution will solve all of that.

This is what I personally find disturbing inasmuch as the verbal game playing and intellectual cynicism in the motions, invocation of a triple-E solution of equity, efficiency and effectiveness goes together without creating other problems. Again, I want to assure Canadians that in developing tax policy these principles have been and will continue to be recognized as critically important by the government and the officials in finance and Revenue Canada.

Unfortunately, Canadians should recognize that these are not principles that always work well together. In fact sometimes just the opposite is the result. It is just this conflict that the opposition has chosen to ignore in its original motion.

A bit of common sense history and philosophy will make it clear why this motion could contribute more to solving the challenges of tax reform. As Canada's income tax law gradually evolved over the past 74 years it has been shaped by several key forces which I would like to review for the House.

The first is the use of the tax system to do more than just generate government revenues. It has also been a tool to carry out economic and social policies from child care assistance to research tax credits that play an important part in our national well-being. But each of these measures has needed specific and often intricate legislation on definitions, rules and procedures.

A second force in shaping our modern tax system is the increasingly sophisticated tax planning evolved by individuals and corporations seeking to reduce their tax liability. This perfectly legal and entirely understandable activity has a clear corollary. We have had to put in place correspondingly sophisticated tax law in order to preserve the government's tax base.

A third force is the evolution of the economy itself into one that has become more sophisticated and complex with every passing year and one more deeply tied to global currents and competition. Here again there is an unfortunate corollary. The fact is that it is becoming often impossible for a tax system to be truly simple, truly fair and truly effective given the extraordinary variety and complexity of commercial and other situations it must accommodate.

Let me give just one high tech example of what I am talking about. We would all agree in the House that the high tech industry is the cutting edge of the new economy and that research in these areas is something that the tax system should encourage. That is something virtually all the participants in our prebudget consultations agreed on. But what about the situation where a company, say Ottawa's Bell Northern Research, used equipment to make experimental microchips and yet uses the same equipment to produce proven commercial chips? Is this research equipment or manufacturing equipment? How do we determine the equipment's tax status? Especially, how do we determine its tax status without developing fairly detailed rules?

If we eliminate any tax benefits for research facilities all we are doing is inviting Canadian researchers and manufacturers to move to jurisdictions where those benefits are available. Those are the sorts of real world situations and issues that tax policy makers must not ignore and they must not be ignored in the consideration of a resolution such as the one we have in front of us.

A key element of a fair and equitable tax system is that it provides both taxpayer and government with all possible certainty. If you do not know what your obligations and entitlements are, you can never be sure you are not at a disadvantage. Only explicit law can be certain. To be explicit a law must be somewhat complex. It must cover all known eventualities and then be updated as new conditions warrant.

I suspect that many critics of the government might try and argue the fact that many tax measures require interpretation. There is evidence that current laws fail this goal of certainty. What they do not realize is that radical simplification which must use sweeping generalities would actually make the act more ambiguous and ultimately increase the amount of interpretation necessary.

I wish that reality was not so demanding on all of us. But wishful thinking and rose coloured spectacles are poor guides for policy and do Canadian citizens no favours. This is exactly the case when it comes to one form of tax simplification that some hon. members in this House have been known to espouse, what I call the seductive flat tax proposal. How much simpler, how much fairer it would be if there was just one rate of tax to be calculated on all income. Simpler perhaps, but perhaps not. Fairer? Well, that depends on your definition of fairness.

I suspect that many Canadians would not find a flat tax system less equitable and fairer than the current progressive system. After all, to be revenue neutral individuals in top income brackets would enjoy lower taxes while tax increases would be necessary for lower and middle income filers.

The fact is that high income Canadians pay a considerably larger share of the total tax bill than their size as a group in the population. The lowest income groups pay a relatively small share of the tax take. Is this equitable? Not in the sense of mathematical equality. Is it fair? I suggest that most Canadians agree that those facing economic hardship who must devote the bulk of their incomes to basic necessities do not deserve to have

their tax burden increased. This government is committed to avoiding tax increases among low income families.

I hold that justice without compassion is more tyranny than equity. By the same token, a tax system that places narrow numerical simplicity ahead of social conscience will be a betrayal of the values of mutual support and sharing that are a cherished part of our national Canadian fabric.

It is also worth pointing out that the complexity in our tax system is not so much the result of having more than one tax rate. Let me again remind the House that complexity stems from a wide variety of complex situations that arise in the real world. The current tax system takes into account the reality of differing individual and family circumstances.

For example, special measures such as the child care expense deduction provide relief to families which incur these expenses. Other measures such as the charitable donations credit encourage contributions to the voluntary sector. Under the 1994 budget we in fact made it easier for Canadians to contribute to voluntary associations.

Under the flat tax system such measures should not exist. If they are maintained then we are right back to the exemptions and credits in calculations that many of us wrestle with each year. The only difference would be in using one tax rate instead of the current three, hardly a dramatic improvement.

That leads me directly to another problem I have with today's motion. That is perhaps the intimation that is implied, that there is some silver bullet or some simple one-step solution to these problems. However, there is no national consensus as to exactly what that one simple solution might be.

At the start of my remarks I mentioned the series of cross country prebudget consultations that the Minister of Finance and myself engaged in. It might interest the member to know that while some participants wanted fewer rates and brackets, others took the opposite stance and urged us to increase the range of brackets and make the rates even more progressive. There was also real wisdom in the comments made by one Toronto participant who observed that one taxpayer's loophole was clearly another's entitlement.

Madam Speaker, I hope I have not, if you will, taxed the patience of the House too much by highlighting the real world conditions and obstacles that make a simple, fair and effective tax system such a challenge. It is a challenge that this government will continue to accept. I know that my colleagues here will have much to say on the action that we have taken and the activities underway to meet this goal.

The challenges that must be overcome cannot be overcome by pretending there are magic cure-alls. Progress is not made by glibly lumping together principles that undercut each other. Success will not be achieved by pretending that panic and haste can achieve more than patience and steady sensible progress.

In my speech I highlighted some of the problems that we have in developing proper tax regimes for corporations working in a very competitive international environment, with very difficult trade and tariff regimes. In the last few days I have had an opportunity to deal with people in the garment manufacturing industry, for example, whose whole world is being turned upside down by changing tax regimes and tariff regimes. We are all aware of just how difficult individual Canadian families are finding the tax system and how it leads members in this House to be impatient for a new system. I quote a famous American jurist, Oliver Wendell Holmes, who said: "Taxes are what we pay for a civilized society".

That I guess is the message that I would like to leave with this House, that as we deal with taxes we also deal with the legitimacy of this country in the way that taxes provide us with the resources to do things together. Trying to change the tax system and to make it fairer also implies that we remember the usefulness of these taxes for everyone. I thank you for this opportunity to contribute.

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11 a.m.


Benoît Tremblay Bloc Rosemont, QC

Madam Speaker, the motion before the House today asks for more consultations, and today we may hear quite a few statements full of good resolutions in this respect.

I think we heard this in what was said by the hon. member for Winnipeg North Centre who is also a member of the finance committee and who said he wants more equity in the tax treatment of individuals and more equity among the provinces.

I would like to give two examples: one concerning individuals and one which concerns the provinces. Although the hon. member must be familiar with these examples, he did not mention them at all in his speech. However, it is now time to act.

As far as individuals are concerned, during the election campaign it was made clear that family trusts were a tax benefit that was unacceptable to most Canadians. However, there was nothing about this in the last budget. Maybe next fall the finance committee will consider the issue. We are still waiting for information from the Minister of Finance, and they tell us they will have the information but we are still waiting. If the committee starts considering the issue of family trusts next fall, this means there will be nothing in the next budget.

We must not forget that this measure was introduced by a Liberal government and extended by the Conservative govern-

ment at the end of its mandate, and now they are trying to play for time instead of dealing with this obvious injustice.

As far as provinces are concerned, the last example which contradicts what the hon. member for Winnipeg North Centre just told us, refers to how the federal government treats Quebec tax credits for research and development. Quebec has introduced a tax system that benefits research and development, researchers and universities.

The system is simple: companies are allowed a tax credit of 20 per cent on research expenditures if they do the research alone and 40 per cent if they do the research in co-operation with a university. This is a very successful program. However, the federal government decided that the tax credit allowed by Quebec was to be considered as a subsidy, which was contrary to common practice. And it still is.

This means that the federal government imposes a 39 per cent tax on tax credits allowed companies and universities by the Government of Quebec. But not a word about this, although for years, the Quebec Minister of Finance has been asking for a review of this unacceptable tax treatment by the federal government.

Has anybody heard of any changes in this respect? Not at all, Madam Speaker. So if they want to be fair to the people and fair to the provinces, I wish the hon. member, who is a member of the finance committee, would respond to these two specific issues. It is time to act.

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11 a.m.


David Walker Liberal Winnipeg North Centre, MB

Madam Speaker, I will talk first about the family trusts issue. The government announced in the budget that this issue would be referrred to the finance committee but, at the present time, the committee is very busy with the GST issue, the budget issue, Bill C-17 and other bills. I think that, in the fall, the committee will start examining the family trusts issue. But at this time, it is too busy with the other bills.

The second issue is very important for all the nation, because research matters and tax matters in the research field are very difficult to settle. Within the government, the Departments of Industry and Finance are currently examining our research policy directions. I hope to see changes before the next budget and also, I say to the hon. member that it is possible that changes will be made to the family trusts issue if the finance committee thinks that might be a major problem for the next budgets.

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11:05 a.m.


Jim Silye Reform Calgary Centre, AB

Madam Speaker, I would like to make a comment and ask a question of the hon. member for Winnipeg North Centre.

I am disappointed to hear that he is against the exploration of an integrated flat tax system or single tax. I am also challenged to see here that he says it is seductive. It is unfortunate that when suggestions are made that seem to have a lot of encouraging inducements to looking at them they are labelled as too simple.

Why do people in politics feel that the problems are so complex and that tax reform is a difficult process? I believe the parliamentary secretary has already listened to the Department of Finance too long. That is an incorrect and false premise. He should think for himself. He should look at the problems and try to use some common sense and he will see that this is where that will lead him. Not that I am that intelligent but that is where my nose led me and Lord knows it is long enough.

The other comment I have is that we in the Standing Committee on Finance are looking at a replacement for the GST, but that is a band-aid approach to the real problem. Why not cure the entire illness with a surgical overhaul of the entire tax system?

We have a year and a half to do it; a year and a half to just come up with a band-aid and the illness will have grown worse, and then our problem will become even greater.

The hon. member also took credit for the wonderful consultative process that this great Liberal government has now introduced to the principles of democracy. Taking credit for consultations is nothing new. If that is all the credit it wants to take, it can have all of it.

What would be new is after we consult with provinces and individuals the government actually listens and implements their suggestions. I hope this is something that will happen.

He also criticizes flat tax. This is where I am leading to my question. He states that as the current system is progressive, it would eliminate progressivity. It would introduce regressivity because it is a flat tax and we are taxing the poor.

Lower income earners would be tax exempt. Upper income earners would lose their tax loopholes. They would not get these wonderful deductions that they are getting now and they would pay tax on every dollar earned. For instance, higher income people can lower their tax rates from a 50 per cent rate down to a 30 per cent rate and this I know from personal experience. That would be eliminated and they would be paying tax on everything.

Therefore, collectively from individuals and more significantly in terms of corporations this is where we get more tax out of corporations. After my comments here and specifically to his questions, would the parliamentary secretary apply some common sense and would he be willing to request the Department of Finance and the department of revenue and taxation to crunch some numbers to illustrate or highlight the difficulties to this House of a system like this with no exemptions?

Why not put the Departments of Finance and National Revenue to work instead of listening to them saying that it is too complex and it will not work? Put them to work and make them

prove to this House that a system like this does not deserve more consideration.

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11:05 a.m.


David Walker Liberal Winnipeg North Centre, MB

Madam Speaker, the member for Calgary Centre has put me on the horns of a dilemma: do I think for myself or do I listen to the department?

t That is not necessarily two different issues, but I like to think that I can still keep my own counsel when I listen to other professionals giving me advice.

The last point is a very serious point. In this case I am not speaking for the department. I have some doubts about the flat tax. It does not mean that I think there should not be an open discussion. I have listened to my colleague from Broadview-Greenwood bring this up several times. I really do hope the finance committee takes a look at these ideas in the fall as part of the deliberations for the upcoming budget.

If it will help the committee to have a presentation on some of the data and some of the intricacies, either publicly or with the hon. member individually, I would be more than happy to take that request to the department and we can arrange something. I do not think the resources of the government should be, if you will, cornered by the government and I do not have any intention of doing that.

If I appear to be critical of a different way of approaching taxation, it does not mean that I am not willing to open up the doors and make sure that is fully explored in the coming months. The member has given this a lot of thought. We have our disagreements but that does not mean that it should not be looked at properly and thoroughly.

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11:10 a.m.


Pierre Brien Bloc Témiscamingue, QC

Madam Speaker, I am extremely happy to participate in today's debate on a subject very close to my heart. When I decided to run for political office, I had two major goals in mind: the first, of course, was to bring about full sovereignty for Quebec, and the second was to create a fairer, more equitable tax system, since it accounts for a large part of the social contract between individuals and the government and is presently the cause of much of the dissatisfaction people feel for their elected representatives.

Today's debate is also, in my view, very timely. Yesterday was the deadline for filing income tax returns. Many people likely spent the weekend working feverishly at the last minute to properly complete their tax returns. Just yesterday, I was completing a tax return for a friend. I enjoy this task, but I know that many people find the process quite difficult and quite complex. There must not be many people who are totally familiar with the ins and outs of the Income Tax Act, given its complexity. Year after year, new amendments are made. The end result is an extremely complex piece of legislation.

The same could be said of the Goods and Services Tax to which some Liberal members made reference a while ago. This tax is also extremely difficult to understand and fraught with complexities and regulations. The GST legislation is almost as voluminous as the Income Tax Act.

In moving his motion, the hon. member for Calgary Centre touched on one alternative that he would like to discuss. While I do not necessarily agree with the aims or technical aspects of his proposal for a single tax rate, I do think that all options deserve to be weighed. This is a serious proposal, one that should be given due consideration.

Having said this, I do have some reservations, although I am not an expert on this single tax. First, I am not convinced that this would really be a more progressive, more equitable tax. Of course, a single tax rate that would apply to all incomes may seem rather simple, but would it really result in a system that was fairer and less regressive than the current one? I somehow doubt it, because there are many ways to avoid declaring income. This option would have to be carefully considered.

On the other hand, it does not leave us any leeway in using taxation as a social and economic development tool. I know this is one of the arguments of those in favour: taxation must not be a social and economic development tool; alternatives must be found.

Personally, I think it can be a very useful tool. Let me give you an example. In 1987, in my region, the economy was going full steam. We came very close to full employment, with 6 per cent employment rate, and we were doing very well. One of the main reasons for this success was mining exploration, an activity strongly encouraged by way of deductions for flow-through shares.

Toward the end of that expansion period, the governments attacked this deduction, and you should have seen the tremendous impact this had on our region. Today, research does not even ensure availability of sufficient reserves any more. Trouble lies ahead ten years down the road, maybe less, because we are not discovering enough mineral reserves. Problems are already starting to show up in our region, and that is a serious situation.

But we used to have a tax incentive, a tool that allowed and encouraged people to make investments. You know how risky it is to invest in a mining exploration company. The taxpayer would put money into shares, but in recognition of the risk factor, the government shared the risk via tax incentives.

Interestingly enough, this is not a direct subsidy by which the government gives money to people and tells them: "Go and do research". Instead, the government is supporting investments made by individuals in the private sector. So, the risk is shared. I think this is the sort of interesting tools afforded by the tax system. Let us not be mistaken in thinking that only high-income taxpayers took advantage of this; many middle-income

people in our region were attracted by all the spin-off benefits their investments could have. The nice thing was that when you picked a company that struck an interesting deposit, then, it was almost like winning the lottery.

How can we encourage these businesses? I would like those who support this kind of tax to explain how they will promote economic development, especially in higher-risk areas. The government has a duty to intervene when investments may be insufficient due to various factors. That is what I wanted to say regarding this tax.

Now, if we look at the current tax system as a whole, I think that, to resolve any problem, we must follow a certain procedure. First, we must analyze the situation carefully; make a diagnosis; identify alternatives and make a choice. But there is also a subsequent step that the government often forgets: following-up on the choices that were made. The Auditor General often talks about it. Many government programs are not assessed properly after their implementation. The same goes for tax measures. That is why we think it would be interesting to look at overall expenditures-not only budget but also tax spending-to examine, assess and follow up on them and to study their impact in the last few years.

Of course, the Liberals were full of good intentions when they were in opposition. It led them to write the red book that I will not quote because I sent it to recycling when I realized it was only wishful thinking. Very little is put forward in this House. I would like the Liberal government to be a little more serious. They cannot always fall back on the argument that their four-year mandate gives them enough time to act. There are always things that need to be done. We cannot wait for four years. They can rest easy, they will not run out of things to do. And we can start right away.

Earlier, the Parliamentary Secretary to the Minister of Finance talked about the committee's heavy workload due to the GST and Bill C-17. However, when the GST report is tabled on June 1, the committee will then be free to deal with family trusts in June. Parliamentarians will be available in June as Parliament will still be sitting. Yes, there will be other minor bills but given how long we worked on the Goods and Services Tax, we could examine family trusts.

However, the government should give out information and put figures on the table. But they prefer to wait until the fall to gain time, to stall for another year; other issues will be raised and they will find other reasons to prevaricate. Playing for time is the best way to avoid dealing with a problem. And that is what they are doing. And they ease their conscience by saying that it is in the latest budget and that they will start to do something. Hold on there-we shall see; I have my doubts.

In the past, some people dealt with taxation. There were important commissions, the Carter commission, the Rowell-Sirois commission; at that time principles were expressed that are still current today. We should deal with them instead of starting all over. The public feels frustrated and their frustration is rather justified. Often, committees and commissions of inquiry are set up to analyze problems. They identify the problems very well and produce very fine three- or four-volume reports; a huge number are printed and copies are available everywhere, but often these recommendations remain on the shelf. Although the problem must be restated for today's conditions, these reports often contain some very worthwhile things.

As I said in my introduction, the tax system is an important part of the social contract; it is how revenue is collected from taxpayers to pay for the government's expenses. Individuals now have a terrible feeling of unfairness which puts a very strong pressure on them to somehow right the balance. What do they do? They encourage the underground economy because they feel that it is the right thing to do for themselves. And you must understand where they are coming from, given some data from the 1980s.

For example, look at the wealthiest 1 per cent of the population. I have some reservations about the figures that I will give, but I heard them from the member for Gatineau-La Lièvre. Even if they are not totally accurate, they certainly are indicative of the trend.

In 1980, the highest percentile, the richest 1 per cent, owned 16 per cent of Canada's total wealth. Ten years later, with the recession in the early 1980s and the economic slowdown in the late 1980s, this top percentile held 26 per cent of the wealth, an increase of 10 per cent in the 1980s.

It is not surprising to hear middle-class people say that they feel they were strangled in the last decade, that they felt a lot of pressure. People live with it every day and resent it and that is what spurs on our underground economy.

Let me give some other figures, Madam Speaker. Let us look at government revenue, starting with 1981, so that we can better see what happened. In 1981, federal and provincial governments together collected $34 billion in personal income taxes. In 1991, that amount had reached $100 billion.

Let us now take a look at corporate income taxes. In 1981, $11.7 billion were collected in such taxes, compared to $18.3 billion in 1991. Obviously, the progression is far from being the same, which explains why a small percentage of Canadians were able to get richer. If you look at the breakdown for each province

and the federal government, you can see that the pattern is the same everywhere.

I want to say a word on personal income tax, because last Friday we learned something which nearly went unnoticed and which is almost outrageous. Revenue Canada employees complain about political interference when auditing corporations. Last Friday, I raised this issue in the House. The Parliamentary Secretary to the Minister of Revenue said that there was no concrete evidence justifying an inquiry. I am sorry, but 300 persons filled out a questionnaire.

As you know, when a survey is conducted by sending out a questionnaire, there is always a space for comments at the end. People usually do not fill out that part. They just quickly answer the multiple-choice questions. However, in that case, 300 people out of 4,000 filled out that part of the questionnaire. Three hundred people bothered to make comments. More than that in fact, but 300 complained about political interference when auditing some company files. This is really serious.

Of course, you may think this was the case only under the previous Conservative government. But how do you know it is not also occurring under the government opposite? After all, once the Liberals and the Conservatives find themselves on the other side of the House, their policies are pretty similar. In fact, they are quite similar, and that is a real concern.

We also referred to the GST. I was not going to discuss this tax, but I have to do it. I am not sure that Canadians and Quebecers fully understand the commitment made by the Liberal Party during the election campaign. The Liberals said they would eliminate the GST, but they also whispered that they would replace it with something else. That was mentioned in the following paragraph. I am not sure how people reacted. However, I can honestly tell you that residents in my riding did not believe the Liberal Party. They felt that the Liberals would somehow take the same amount of money from their pockets. Whether the Liberals were going to change the name or the structure of that tax, people were reluctant to trust them.

I will not get in to what is being done in committee. I am a member of the committee, so I know perfectly well what is happening there, but I must say I am concerned. We get the impression that the expanding underground economy is connected only with the coming into effect of the GST, but it is far more complicated than that, and just reforming the tax is not going to restore confidence, especially since the objective is quite clear. The instructions of the Minister of Finance are to find an alternative that will produce as much revenue: $15 billion. The rates may be different on certain products but on the whole, the objective is still to take another $15 billion out of taxpayers' pockets. How do you expect the consumer to perceive this as a major and effective reform? I agree that in the case of businesses, there are a lot of things that can be done to simplify the system, which would bring costs down, and consumers would benefit to some extent.

However, they are certainly not going to reduce operating costs by $15 billion. That does not make sense. The cost of administering the tax, which is very high, is around $600 million.

A number of Liberal members tend to confuse the issue when they talk about GST administration costs. Now, I do not necessarily want to defend this tax, but I would like to explain what we are talking about here. The total revenue is around $29 billion, but businesses are entitled to claim an input tax credit, which is quite common in the case of a value-added tax. If we take away the cost of input tax credits for businesses, not a tax that must be paid but a refund, and we subtract as well the tax credits for low income individuals, we have $15 billion left.

It is simple mathematics. A number of government members are saying it costs 50 per cent to run the system and to get a dollar you have to spend 50 cents, but that is just not true. It costs $600 million to run the system, and their calculations are all wrong.

It is still too much, of course. However, with this political rhetoric, they are just spreading rumours. This is irresponsible, and they should take the trouble to check their facts.

So what is the answer? I see I have only five minutes left, but I could talk all day about taxation and tax reform.

We must start with a comprehensive evaluation of all tax expenditures. Consider what they were used for and what the objectives were. Were those objectives met? The department publishes information on tax expenditures connected with individual and corporate income tax. When we read this information, we see that a number of data are not available. In the report published this year, the latest year available is 1991, and a number of data are still not available. Is it because they were not calculated or evaluated? I agree in some cases it is very difficult, but in other cases, it is definitely quite feasible.

Is it because they don't want to reveal this information? Is that what the Liberal government and the Minister of Finance mean when they talk about transparency and profess to be very staunch advocates of government transparency? I am not certain, but I hope not. I hope they plan to produce reports that are far more serious. We can give them the benefit of the doubt, since they had only recently been elected. Perhaps this reflects a tendency on the part of this government, but in any case, we will no longer accept publications such as this one.

There are two sides to a balance sheet, the revenue side and the expenditure side. Regardless of the measures taken to improve the fairness of the tax system and the way in which revenues are collected, we cannot forget that there is a serious problem on the expenditure side. Revenues are collected to cover expenditures, but these expenditures are exorbitant. Consumers, who are also voters, view a number of these expenditures as wasteful, and rightly so. The first step toward significantly reducing government spending is to eliminate this waste.

The Prime Minister has told us that it is the responsibility of committees to review spending item by item. The members on this side of the House are not afraid of this task and are ready to take a go at it. I am happy to see that Reform members are also willing to take on this task. However, when we introduced a motion calling on committees to have the responsible ministers testify, only two of the fourteen committees agreed to the motion. Two out of fourteen! Another shining example of the Liberal's brand of transparency!

There is the Minister of Finance, although this is not the biggest operating budget, and there is also the Minister of Human Resources Development who manages a fairly large budget. But does he intend to testify? It is almost scandalous.

Before concluding, I would like to mention a number of areas on which we are prepared to concentrate our efforts. Mention was made of family trusts. I know that one of my colleagues will be speaking about this issue later and that my colleague from Rosemont spoke about it earlier. There is also the matter of a minimum corporate tax. We currently have a capital tax which is a form of minimum tax. However, since it is possible to reduce the tax level to zero, this is not a real minimum tax.

The year 1987 is notorious for a figure now making the rounds in Canada. That year, a number of corporations earned $27 billion in profits without paying a penny in taxes. That is a shocking statistic. The public is hard-pressed to believe that the tax system is fair when it hears statistics like these.

Also scandalous are tax havens, the tax treaties signed with other countries that allow people to evade the tax system to some extent. These were repeatedly denounced by the Auditor General. We will be looking into it shortly at the Finance Committee and I hope the minister will give us clear indications on what he intends to do.

The measures announced in the budget are clearly insufficient and will not solve the problem. We have to review all tax treaties and put into place a truly operative minimum income tax system. One such system was introduced in the United States by Ronald Reagan, who is hardly the greatest socialist in the history of mankind. Why could we not do the same thing here? In terms of corporate tax, the situation is much better in Canada than in other countries.

So, there is food for serious thought here and I would like to draw this parallel with the GST before closing, Madam Speaker. When the tax on business inputs was removed, who gained from the introduction of the GST? The businesses with inputs on which the tax was removed.

Since my time has run out, Madam Speaker, I will simply tell you that we have been in favour of a tax system reform for a long time and are prepared to work at that. The government should act responsibly and, in the year to come, the days to come, it will have to put something on the table so that we can start real discussions and find real solutions to a problem perceived as very serious by consumers and voters.

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11:30 a.m.


Jim Silye Reform Calgary Centre, AB

Madam Speaker, I would like to compliment the hon. member for Témiscamingue for a very good presentation. I feel he has made some very good points, especially his suggestion-the most important of all and I implore the government to listen to it-which is to look at all the options.

On his point of progressivity, he was worried and concerned, as previous members have expressed, that a flat tax might enter into that territory and make it regressive. As an economist I would think he has read about Albert Laffer, an American economist, and the Laffer curve-not like a joke. The answer to progressivity is that currently within our system we have all these loopholes. We have different segments of taxation at the high end, different incentives, various rates and the graduated taxes. Therefore our tax rates have to be high to get the same amount of money.

Where lower in the curve, by having no tax loopholes and no exemptions, the kind that you need down here-I am not talking about personal deductions-you generate the same amount of money. As the hon. member for Témiscamingue would like to have fairness and equity, that is where the equity would come back in. It eliminates a lot of the rules, addressing his specific point on flow-through shares and how the lack of deductibility or the lack of incentive to invest would impact negatively in his riding.

An individual currently at the high end who makes these investments, who is obviously in the upper middle or upper income, is taxed at the 50 per cent rate. If their taxes were reduced to 15 per cent of income and they had 85 per cent of disposable income they could still make that investment in their ridings. The corporation, after it made its profit, could give a return on investment to that individual through dividends taxable to the individual. With the change you would have to make, the corporation would be able to deduct that dividend. The key to it all is with the corporation. The high marginal tax rate for corporations after they use up the first $200,000 of taxable

income which is tax free or taxed at a lower rate is 50 per cent. You could lower that tax rate for a corporation from 50 per cent down to 15 per cent as well.

The principle of our taxation system is that if you give a deduction that somebody has to pay the tax on it is eliminated. It takes it out of the Laffer curve and brings you back down and now you are treating dollars with more respect. You are treating real dollars and governments can then focus on just generating the revenue they need to pay for the social and economic programs that they have, subsidies, whatever it may be because you do need those. You are dealing with true dollars, after tax dollars, instead of this complicated, confusing abomination.

Basically my intervention here is to make a comment on what the hon. member had questioned about this system of a single or flat tax.


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11:30 a.m.


Pierre Brien Bloc Témiscamingue, QC

Madam Speaker, I understand the point made by the hon. member for Calgary Centre on progressivity. Just to reassure him, when one studies economics, one cannot help but hear about such a well-known economist as Mr. Laffer.

We also study his curve, which looks a lot like decreasing performance curves based on the same principle. That being said, it is still possible to make the system progressive with different tax rates.

Certainly, an individual with a 50 per cent tax rate can use a number of deductions to bring his actual rate down to 30 per cent. Except that if the 20 per cent deduction is a productive investment in the economy made jointly by the private sector and the government, in my opinion, it would be even more efficient than if the government did it directly, because it would be a private initiative. I would feel reassured by such a system; it would be much better than leaving everything up to the private sector.

One philosophy is fundamentally different, namely the role of government in society. I am one of those who believe that the government has a duty to intervene. And the tax system enables it to pick its targets. In the system favoured by the hon. member for Calgary Centre, all sectors are treated equally. His rationale is this: Competition will be very healthy because every type of business in every sector will face the same competition, will not have the advantage of tax incentives, but will be served by the government. Which may sound positive.

However, as a society, when we want or would like to help certain sectors because they are going through temporary difficulties, because we want to promote them, or because we think they have potential, the tax system does not give us much room to manoeuvre. We would need direct subsidies.

I am not sure it would really be more efficient than a shared-risk formula. But I must say that the current system has become so complex, so bogged down, that even the objective of coming up with a shared-risk formula between the government and the private sector loses some of its efficiency because of that very complexity.

So I want to reassure the hon. member that I understand his point of view. But we may have different philosophies on the role of government in society. Since he quoted an economist, I can quote him another who may be recognized one day as a major success or failure; there is Mr. Keynes, who was in favour of major government intervention, and the Keynesian state. It may have been too much, but government intervention also had a multiplier effect.

So for every economist who says one thing we can find another who often says the opposite. It is somewhat unfortunate as this often gives economists a bad reputation, but economics is not an exact science, it is a human science and it is up to us to decide which theory we want to favour.

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11:35 a.m.


Alex Shepherd Liberal Durham, ON

Madam Speaker, I would like to thank the hon. member for his comments.

We are discussing tax policy today and some of that gets fairly dry after a while. I would like to focus on the aspect of what tax policy means in a country like Canada. As the member suggested, I was preparing my tax return just yesterday as well, unfortunately having waited to the last minute.

When I was preparing my return, I was focusing on the fact that everybody else in this country was doing the same thing, that people who have problems with child care expenses and so forth were the same people in Newfoundland and in British Columbia.

It is very important for a country to have a focus. It may not be a happy one that we have on filing our tax return but still it is a focus on what unites us as a nation.

I am interested in some of the comments by the member. One thing was on some of his statistics on wealth creation and concentration in Canada. I heard those very same figures just yesterday and I do not believe them either.

I wonder if the member could focus on why he would not believe in the figures and then build a whole argument based on them.

He was concerned about simplification in the system and I agree that this is one thing we have to do. I do not necessarily believe in a flat rate system but I do think we can make it a little simpler.

I note that yesterday people in the province of Quebec had to file two tax returns, not just one. I wonder if he would reflect on the fact that it is making things complicated for the people of Quebec to have to file two tax returns.

I would like to ask him a question on harmonization. I note that with the GST the province of Quebec attempted to harmonize with the GST but not very effectively. I wonder if he could focus on his commitment to harmonize the GST in Quebec.

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11:40 a.m.

The Acting Speaker (Mrs. Maheu)

I give the floor to the hon. member for Témiscamingue, who unfortunately has only one minute to speak.

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11:40 a.m.


Pierre Brien Bloc Témiscamingue, QC

Madam Speaker, I will answer within one minute. First, I did not say that I did not believe the figures on which I based my argument on the distribution of wealth. On the contrary, I believe that they are indicative of the trend. I am not sure that they are accurate, but they are indicative of the trend.

Now, as for simplification, he mentioned that in Quebec we have to complete two income tax returns and pay two taxes. He talked about harmonization. On that, I will simply answer him that it is the reason we members of the Bloc are here. The way we want to simplify is to have only one tax. We do not want to have just a federal tax return; on the contrary, we want to have just a Quebec tax return. That is the reason we are here; we want Quebec to take over and become sovereign. We want Quebec to control all these revenues and all these taxes. It is political independence and that is the essential role of the Bloc Quebecois. So in that sense I think we are very consistent.

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11:40 a.m.


David Walker Liberal Winnipeg North Centre, MB

On a point of order, Madam Speaker. I do not interrupt the House too frequently but the member suggests that the department is not doing work when in fact it is. I would like to bring to the attention of the House that the studies referred to have been done, and there are several studies on tax expenditures.

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11:40 a.m.

Lethbridge Alberta


Ray Speaker ReformLethbridge

Madam Speaker, thank you very much for the opportunity to second the motion of my hon. colleague from Calgary Centre. The motion before us is very straightforward. It asks for a major tax review under the current circumstances that we face as Canadians.

As has been mentioned by the hon. member for Durham, all of us have just faced the rigorous task of doing and redoing our income tax for 1993 so we know the problems that are there. They are very fresh in our minds as well as in the minds of all Canadians. It is very appropriate that we have this motion before us today in which we are looking at better ways of utilizing the income tax system, better ways to apply excise tax, a better way to apply consumption taxes. The review today is very appropriate.

There is no way that all of us in the House are going to agree on the fact that there may be only one way to do it. There are a variety of ways of approaching tax review and tax revisions.

What I want to do today in my few moments is look at it under the criteria of whether taxation is fair, whether there is simplicity, efficiency and effectiveness. In his earlier remarks the Parliamentary Secretary to the Minister of Finance mentioned that the government accepts those principles in evaluating the tax system. I would have to accept him and the government at their word that they have a criteria and that if there are to be revisions, the revisions or the changes in the tax policy would be based on those very basic principles.

When we look at the taxation system we have to recognize that there is no real consensus as to what the problem is. I do not believe we have a consensus in Canada nor will we have in this assembly here today as to what the solution is. I think we must look first of all at what the problem may be.

I believe that the problem stems from the overspending of governments. That is the first major problem that we must deal with. No matter how we collect the taxes, it is very frustrating when Canadians say that we as legislators and leaders waste the money that they give to us. We have to deal first with the problem of overspending. The major question before this assembly is how it should be done.

Canadians are certainly overtaxed. They believe they are no longer receiving value for their tax dollars, and Canadians are certainly correct on that premise. It is very obvious when we look at the current circumstances and the finances of this country. For every dollar that Canadians send to Ottawa, and this is on the downscale rather than the upscale, 65 cents is applied to government program spending, programs for Canadians.

Why is that happening? We have a $500 billion plus debt facing us.

Second, in the current budget $41 billion is being applied to interest payments which do nothing in terms of productivity or helping people in Canada with regard to health programs, social programs, transportation programs or whatever they may be. The interest payment takes away access to the positive use of a tax dollar.

In terms of the government's plan we also face another $100 billion of debt in the next two to three fiscal years being added to the current $500 billion debt. This means that of the tax dollar, the $1 that comes to Ottawa, the amount available for programs

will certainly be less than 65 cents. It will most likely approach a 60-cent dollar to run our country. That is not good enough.

The point I want to make is that there cannot be effective tax reform without effective expenditure reform and dealing with the debt and the deficit of the country. This is not to say that GST and tax reform are not necessary. I only wish to point out the futility in trying to fix the tax system without reigning in the spending of governments.

Let me deal with defining a fair tax system. That will be the thrust of my remarks today. How do we put together a fair tax system? I will list six points which I feel are relevant.

The first is equity. A fair tax system implies equity. Equity implies that Canadians feel that all taxpayers are sharing equally in the tax burden. Any redesign of a tax system must distribute the burden of tax equality among Canadians.

The second is punishing success. A fair tax system does not punish success. Equity demands that Canadians be allowed to keep the rewards for working harder, for working smarter and for being successful. This component of tax reform is often overlooked. It is often an area wherein those putting together tax policy say that a person is earning a lot and let us take it away from him or her. It is not fair. By overtaxing the monetary rewards of success the incentive for Canadians to invest in a future for Canada is removed. We rob ourselves by punishing success through the taxation system in this land of ours.

The third is dealing with the less fortunate. What should a tax policy do there? A fair tax system does not punish the unfortunate in our society. A tax system that overtaxes those who cannot defend themselves is a double hit on the less fortunate in our society.

The fourth is a point that is often made. I know it has been made many times in this assembly. There is only one taxpayer. On that basis I make two points. First, we must recognize that taxation of businesses eventually falls on individuals. It does so through lower wages, higher prices, reduced dividends and an internationally uncompetitive industrial base. While I am not advocating the elimination of taxes on all businesses, we should recognize that a corporation of any size does not bear the burden of these taxes as is often assumed. These taxes are borne by one taxpayer or individual Canadians.

The second way our tax system must recognize that there is only one taxpayer is with respect to provincial and federal powers of taxation. The current overlap of consumption taxation means that Canadians face 10 different sales taxes. This increases the cost of doing business and overly complicates the tax system.

Last I want to deal with what I call economic choices. A fair tax system does not bias the economic choices of taxpayers. Through special cases and exceptions the current tax system discriminates against certain activities and promotes others. Canadians more than ever before are recognizing their activities to avoid tax. This is what we mean when we talk about a tax revolt.

The tax system should not be a mechanism for a large range of public policy initiatives. My hon. colleague from Calgary Centre covered this point earlier.

These public policies are often designed with all the best intentions. They often result in the reorganization of economic activity in a way in which they were not intended in the first place. When this is done, the true cost of policy is difficult to determine and the reorganization of economic activity creates negative and unintended consequences.

In the last few moments I have I want to raise the following question. How does our current system stack up? Let us look at equity first of all. Canadians do not feel that everybody is paying their share. Second, in punishing success, our current system punishes success. Third, we now have a tax system with a marginal tax rate that at many points exceeds 50 per cent, the percentage believed to have a disincentive effect to earn more. The economic effect of this damaging policy is nearly impossible to measure as it must measure what Canadians are not doing but could be doing under a better and fairer tax system. The fourth point is punishing the less fortunate. Today many people are paying taxes with incomes of $7,000. Last I would make the point with regard to complication. It is clear that a current tax system is complicated with the many forms of tax that are before Canadians. What is the solution?

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11:50 a.m.

The Acting Speaker (Mrs. Maheu)

I am sorry but the hon. member's time has expired.

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11:50 a.m.


Alex Shepherd Liberal Durham, ON

Madam Speaker, I thank the member for his comments. I will comment on possibly two aspects.

First he talked about punishing success. I note the income tax system currently has approximately three rates: for those incomes under $25,000, $65,000 and over $65,000. Over $65,000 it hits roughly 45 per cent. Depending on what provinces do it could get up to 51 per cent.

That system has been in existence in Canada for 10 or 15 years. The rates on higher incomes have been higher in the past than they are today. I have not seen a whole outflow of people leaving the country because of this policy. Could the member comment on that aspect?

The second one is the comment about the delivery system. We are using the income tax system to deliver social policy or whatever. Could the member comment on what is a successful system to deliver social benefits? I think of child care expenses, GST rebates and so forth. It seems to me that if we want to simplify government maybe we should be focusing on the

income tax system as a method of delivery. Could the member talk about that aspect?