Debates of May 30th, 1994

Canadian Film Development Corporation Act

[The Deputy Speaker]

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

[Some hon. members]

Agreed.

[Some hon. members]

On division.

(Motion agreed to, bill read the second time and referred to a committee.)

Excise Tax Act

[David Anderson, Liberal, for the Minister of Finance]

moved that Bill C-32, an act to amend the Excise Tax Act, the Excise Act and the Income Tax Act, be read the second time and referred to a committee.

[David Walker, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, I rise to move second reading of Bill C-32. This is an important bill which will give legislative effect to excise and income tax changes announced over the past four months.

The primary purpose of the bill is to implement a range of measures related to tobacco taxation that were developed to combat the very serious smuggling problem facing Canada. These measures were announced in the House of Commons by the Prime Minister on February 8, 1994 and form an integral part of the government's national action plan on smuggling.

The legislation includes, among other things, first a national reduction in the federal excise tax on tobacco products equal to $5 per carton of 200 cigarettes, $5 per 200 tobacco sticks and $5 per 200 grams of fine cut tobacco as well as a reduction in the ad valorem rate for cigars to 50 per cent.

Second, additional reductions in the federal excise tax on tobacco products marked for sale in a particular province where the province has reduced its provincial tobacco tax.

Third, an excise tax on tobacco products for export with exemptions for legitimate exports for consumption outside Canada.

Fourth, a health promotion surtax that would increase the rate of federal tax paid by tobacco corporations under tobacco manufacturing and processing profits.

The bill also contains changes to the air transportation tax and the goods and services tax that were announced in the budget of February 22, 1994. These changes are intended to improve the fairness and efficiency of the tax system and to raise revenues. The measures undertaken in this respect are:

First, changes in the structure of the air transportation tax to reduce the tax burden on short-haul domestic and transporter flights and to recover a greater proportion of the cost of air facilities and services provided by Transport Canada.

Second, a reduction in the goods and services input tax credit for eligible business meals and entertainment expenses to better reflect the personal consumption elements of these expenses.

I would like to turn specifically to measures to address tobacco smuggling. There was a dramatic increase in tobacco smuggling in 1992 and 1993. Strong evidence indicated that most Canadian tobacco products that were exported to the United States on a tax and duty free basis were smuggled back into Canada and sold illegally without payment of federal and provincial taxes.

By the end of 1993 these contraband products accounted for about 40 per cent of the total domestic tobacco market and represented a revenue loss to the federal government of more than $1 billion and an additional loss of $1 billion to the provincial governments.

The impact of tobacco smuggling goes far beyond the financial costs and the negative impact on the government's ability to deliver needed programs and services. Even more troubling are the social costs associated with the contraband trade. With up to 95 per cent of the contraband tobacco market controlled by organized criminal elements, law-abiding wholesalers and retailers were forced to watch as their legitimate business interests gave way to a climate of increased violence and lawlessness. The proceeds from tobacco smuggling were being used as the foundation for further criminal activity.

The social costs associated with tobacco smuggling are equally troubling from a health perspective. Increased market penetration of cheap contraband tobacco effectively reduced the average price paid for cigarettes and undermines the government's health policy objective of reducing tobacco consumption, particularly among youth.

To respond to these very serious problems the government announced a comprehensive anti-smuggling initiative on February 8, 1994. Within the framework of this national action plan both the RCMP and Canada customs have undertaken increased measures to disrupt the contraband trade in tobacco and other products.

These organizations have been assigned substantially increased resources in terms of both personnel and technical equipment and are deploying these resources to intensify surveillance and detection along the Canada-U.S. border and to more effectively target organized smuggling networks.

To facilitate the increased enforcement efforts the anti-smuggling initiative includes a national $5 reduction in federal excise taxes on tobacco products. This reduction narrows the price differential between contraband and legal tax paid on cigarettes across Canada, thereby weakening demand for contraband and reducing the incentive to smuggle in all provinces.

Recognizing that the smuggling problem is more pronounced in some parts of the country, the government has extended an offer to match any provincial tobacco tax reduction in excess of $5 up to a maximum total tax reduction of $10 per carton of 200 cigarettes. This bill implements the federal tax matching reductions in response to provincial tax reductions undertaken in Quebec, New Brunswick, Ontario, Prince Edward Island and Nova Scotia.

The government is very concerned that tobacco corporations not derive any benefit from the difficult decision to reduce tobacco taxes. Toward this end the bill imposes a new health promotion surtax that will increase by 40 per cent the corporate tax rate in respect of tobacco manufacturing and processing profits. This surtax will apply for a three-year period and will be used to fund the largest anti-smoking campaign in the history of the country.

In response to the role that export shipments have played in the contraband market, the bill reimposes an excise tax on exported tobacco products. An export tobacco tax equal to $8 per carton of 200 cigarettes is designed to more closely control export shipments and prevent any recurrence in the level of shipments that would effectively supply the contraband trade. At the same time the bill makes adequate provisions for manufacturers to undertake legitimate export shipments intended for bona fide consumption outside of Canada.

In addition to these direct changes to excise and income taxes, the bill also contains a number of related measures that are designed to complement the new tax measures and ensure their long term effectiveness. At the time the national $5 reduction in federal excise taxes was announced, the government wanted to ensure that the reduced rates of tax were immediately passed on to consumers at the retail level, complementing enforcement measures by weakening the demand for contraband tobacco products.

Consequently the government has undertaken to pay a full inventory rebate to all wholesalers and retailers in respect of their inventories of tobacco products on February 8, 1994. Where federal excise taxes are further reduced to match a provincial tobacco tax reduction, wholesalers and retailers are eligible for an additional inventory rebate to the extent that their inventories of cigarettes exceed a certain threshold amount.

The use of threshold levels is designed to protect the interest of those persons holding large inventories of cigarettes while limiting the government's total fiscal exposure.

Administration of the rebate program is being conducted by Revenue Canada and is already well under way with retailers and wholesalers from across the country filing their inventory rebate claims and awaiting payment of the appropriate amounts.

Inventory rebates cannot be paid however until such time as this bill which provides the Minister of National Revenue with explicit legislative authority to issue amounts in payment of inventory rebate claims is approved by Parliament and receives royal assent.

Ensuring that retailers and wholesalers receive these amounts as soon as possible is one of the main reasons we are attaching such a high priority to the bill. In view of the variable federal tax reductions undertaken by the federal government in response to specific provincial tax reductions, the bill contains provisions that are designed to ensure payment of appropriate federal excise taxes and also to deter any interprovincial diversion of tobacco products.

First, the bill provides for the collection of federal excise tax differential where tobacco products marked for sale in one province are sold for any purpose other than personal consumption by a consumer in that province. Thus if a wholesaler or retailer sells products to a person in another province, the seller will be required to pay an amount equal to the additional federal excise tax that would apply if there had been no provincial tax reduction.

Second, the bill contains provisions making it an offence subject to a fine for any person to sell or offer for sale tobacco products marked for sale in one province to a consumer located in another province. The amount of the fine is set at no less than $1,000 and not more than three times the additional federal excise tax that would have applied to the tobacco products had there been no provincial tobacco tax reduction.

The combined effect of these two measures will be to substantially impair the potential for interprovincial diversion of tobacco products from low tax jurisdictions. While the collection of the additional federal excise tax can be enforced immediately, the offence provision cannot come into force until such time as the bill receives royal assent.

Also in response to provincial tax reductions, the bill contains provisions to deal with the sale of unmarked tobacco products on Indian reserves in Ontario and Nova Scotia. Both these provinces require that tobacco products sold on reserve free of provincial tobacco taxes not be marked. Matching federal tax reductions on the other hand are based on distinct provincial markings.

To reconcile these different marking requirements and to ensure that unmarked tobacco products sold on reserve to Indians in Ontario and Nova Scotia are taxed at the reduced federal rates that would otherwise apply to marked tobacco products in each province, the bill contains provisions that allow for the sale of unmarked tobacco products at the reduced rates of federal excise tax to specially licensed wholesalers and retailers in each province.

Finally, the bill amends the fines in the Excise Act for possession or sale of tobacco products on which federal taxes have not been paid. Because these fines were based on the previous rates of federal excise tax, this amendment is necessary to maintain the fines at their former minimum and maximum amounts.

These proposed legislative amendments are a very important part of the government's action plan to combat tobacco smuggling. Together with increased enforcement, these measures form an integrated approach that provides the foundation for a long term solution to the smuggling problem.

I would like to turn to other measures in the legislation, the air transportation tax. Bill C-32 also implements changes to the air transportation tax announced in the federal budget of February 22, 1994. The structure of the air transportation tax is being altered to reduce the tax burden for short haul, domestic and transporter flights and to recover a greater proportion of the cost of air facilities and services provided by Transport Canada.

To reduce the tax burden and short haul, domestic and transporter air travel, the current $10 flat tax component will be reduced to $6.

This measure addresses the concerns expressed in recent years by carriers providing short distance air transportation services to smaller communities that the tax places too heavy a burden on short distance travellers. To enhance the cost recovery with respect to air facilities and services the maximum air transportation tax on domestic and transborder air travel is to increase from $40 to $50. The tax on international travel is also increased from $40 to $50 where the transportation is purchased in Canada and from $19 to $25 where the transportation is purchased outside Canada for travel to Canada.

These new rates apply to tickets purchased outside Canada that include an international departure from Canada on or after May 1, 1994 except where the tax has been paid prior to that date and to tickets purchased in Canada on or after May 1, 1994.

A third measure relates to the goods and services tax. The bill also contains an amendment to the goods and services tax. As announced in the February 22 budget, the portion of the goods and services tax paid on business meals and entertainment expenses which may be recovered as an input tax credit is being reduced from 80 per cent to 50 per cent.

This change will better reflect the personal consumption element of these expenses and is consistent with the reduction in the income tax deduction for business meals and entertainment expenses from 80 per cent to 50 per cent. The reduced rate will apply to expenses in respect of meals and entertainment consumed or enjoyed after February 1994.

In conclusion, Bill C-32 is an important bill. It enacts a number of measures related to tobacco taxation that will make a very important contribution to eliminating smuggling as a significant national problem, as well as implementing other excise tax changes from the government's first budget.

While some of the tobacco related measures have been implemented on the basis of a ways and means motion, two very important measures, the ability to pay inventory rebates to wholesalers and retailers and the offence provisions in respect to interprovincial diversions, will not take effect until the bill receives royal assent. I would, therefore, urge my colleagues to give speedy passage to the bill.

[Pierre Brien, Bloc, Témiscamingue, QC]

Mr. Speaker, I will follow up on the last comment of the government's representative. It is obvious that people will receive no refund until the bill is passed. Let me explain.

Bill C-32 proposes legal measures resulting from the announced decrease in taxes on tobacco products. Some storekeepers had inventories for which they had paid the higher amount and most of them have had to absorb the cost of that decrease in taxes, except those who had 5,000 cartons of cigarettes or more for example. It is those people who would now receive inventory rebates.

This is what the parliamentary secretary was talking about when he said they would not receive any inventory rebate until the bill is passed. That being said, I do not think this is reason enough to rush this bill which contains many elements.

There is no need to remind you of the improvisation and confusion that surrounded the implementation of the action plan against smuggling. It was difficult to convince some provinces to join in; I am sure my colleagues from the other side remember it quite well. Toward the end of the process, many steps were taken just to please them and to ensure a greater consensus.

And now, as is often the case, the necessary measures are presented to the House in an omnibus bill. One of these measures deals with transportation. The government probably thought that this plan against smuggling would pass easily since it had been requested from the very beginning of the session. They thought that members of the Bloc Quebecois would support it, and that they could, discreetly, try to add something a bit more controversial, something dealing with air transportation.

I will come back to this measure which, at first glance and if we do not get satisfactory explanations in committee, might rankle somewhat the Official Opposition.

Let us come back a bit to the smuggling phenomenon. How did it happen? Everybody remembers how widespread it had become. There had been a relaxed attitude about it for years. To give you an example, in my riding of Témiscamingue, which is not in the Far North, but north of the main urban centres, it took a while before smuggling arrived. But last year it was amazing to see how easily smuggling networks had taken over. They provided a form of service which, up to a point, could be seen as a model of efficiency. They had home delivery. Customer service was exemplary, and the networks controlled two thirds of the tobacco market, which is enormous.

It took a long time before we could make the government do something. It was only after the federal government realized that it was maybe losing a billion dollars a year that it decided to act. It also took many demonstrations. You probably recall the MATRAC in Quebec which openly defied the government and the RCMP. It organized demonstrations, highly publicized and largely covered by the media, to sell cigarettes to the public at prices that even smugglers could not match. These small business people

Of course, there were winners. Everybody involved in smuggling made money out of it. We can even say that consumers who bought tobacco products on the black market benefited from it and the companies which manufacture these products have certainly not seen their sales drop.

In the last few years, cigarette prices were on the increase. Governments had decided to use price as a deterrent to curb the use of a product which had harmful effects on consumers' health. We were certainly not in favour of dropping cigarette prices in order to increase consumption. Far from it! That never was a motive of ours. On the contrary. We always maintained that such a measure had to be accompanied by an active education campaign on tobacco use-the effects of which were

known-but what was needed then was perhaps a more convincing anti-smoking campaign.

Thanks to smuggling, tobacco products had become very cheap and easily accessible to just about anyone due to the extent of the distribution network. In my riding, smuggled cigarettes could easily be found in high schools and CEGEPs. They were quite visible. You will remember that, at one point, the government had thought that, by having different packaging for export, it would solve the problem, and that people would be embarrassed to be seen with them, but such was not the case.

I remember that during the Christmas break, when I met with friends in public places, I would for the fun of it check the number of smuggled cigarette packs on the tables, as opposed to legal ones. Many people had bought cigarette cases in which they hid their smuggled cigarettes; I would say that every other package was smuggled.

It is estimated that cigarette smuggling accounted for 40 per cent of the market in the Atlantic provinces, over 60 per cent in Quebec; that is a lot. In Ontario, it was 35 per cent and 15 per cent in Western Canada. Those were the statistics just before the government took action. It means that the problem has spread from east to west, and that it is still relatively minor in western Canada where provincial governments have not had to take the same measures as Quebec, Ontario and three Atlantic provinces to curb this problem which has not yet taken hold there. I am not certain though that they will be immune from it much longer.

Ottawa is an important player in all this, because multiple jurisdictions were involved and things had to be done on protected territories; smugglers used tax-free zones to get their goods through. They even used some protected areas to establish warehouses. The federal government, which had jurisdiction over that, had to intervene. Originally, this was seen as a very local problem concentrated in the Montreal area. The problem grew and finally was seen as a provincial problem, but here in Ottawa, it was perceived as a regional problem. After the election, every weekend that I went to my riding, people spoke to me about the size of this phenomenon and I can tell you that I heard a lot about it during the election campaign.

My riding is close to Ontario, separated from it only by a lake. Because Ontario did not follow the federal plan, I can tell you that there was tremendous pressure on the Ontario side; many people crossed to our area to buy packs of cigarettes legally in our stores, since the tax where they lived was higher. A sort of negotiation went on before Quebec, Ontario and the other provinces came up with a joint plan, because clearly it would not be effective in the long run if everyone did not come on side or the provisions were not acceptable to all.

I told you that that market had become too big, Mr. Speaker; let us look at estimates of the contraband market from the departments of Finance and Revenue. In 1993, 2.1 million Canadians consumed 90 to 100 million cartons of smuggled cigarettes, with a retail value of $4.5 billion. That is awful. Of course you can tell me that this problem has been partly solved. Yes, partly; we must say that the plan has been very effective in some respects. Lower taxes strongly discouraged the whole market and the underground economy related to it. We must learn lessons from that. There are some things to keep in mind.

I was just telling you that price was used to deter or strongly discourage people from consuming that kind of product. It has to be done but we must also know the limits of such a system, in that we cannot enforce it or do the legal follow-up, due to all sorts of problems that we know very well.

In 1988, cigarettes were $25 a carton. From 1988 to 1993, in the matter of five years, during a period when, let us not forget, Canada had a strong anti-inflationary monetary policy-which it is still pursuing-and inflation was low, the price per carton went from $25 to $48, a $23 increase. That is a substantial, almost a 100 per cent increase. All the while, the price of cigarettes remained constant in the United States.

There were some exports, because Canadian companies do export to the American market, although not all that much. But all of the sudden, exports to the United States increased phenomenally. It took us some time to realize that these goods were making their way back into Canada to be resold here. Domestic sales were dropping, while exports were skyrocketing. That was proof, obvious proof, that something was wrong.

We dragged our feet and dragged them some more. We did not use the legal measures available to us at the time to exercise control over this situation, which eventually deteriorated to the point where we had no other choice but to cut taxes. Now, we end up with a less than positive product, in fact one which is harmful to your health, being easily accessible at a cut price on the market. You can change the colour of cigarette packs and change the packaging any old way, price remains the main disincentive. We must admit that prices, being as low as they are, if they are not a major incentive, are not much of a disincentive either. We must be well aware of that. This is not a product we want to promote.

I can remember the Prime Minister saying these measures would only be temporary. The bill says very little on the subject, and I cannot blame its authors for not wanting to make their intentions known just now, but it might be interesting just the same to know a little more about the cigarette price increases planned for the next few years.

That is why this bill, because of some aspects I will address in a little more detail, raises questions we have the right to ask in committee and to examine with experts in the field and with the people involved. It is not true that, because we waited two months for the bill to be tabled, it will go through quickly because we are told we must now quickly repay the retailers who had large inventories.

Why are they concerned about it now? They were not at the time. They wanted one month and then two months. Why all of a sudden, just as they are introducing a transportation measure that may be controversial? Let us look at this plan which was announced in this House by the Prime Minister. His plan had several elements. The first dealt with law enforcement, which would clearly have been insufficient by itself, but it was a global plan to increase the number of customs and RCMP officers. They were supposed to hire 350 extra customs and Revenue Canada employees. Increasing control measures was one element of the plan.

The second element was to reduce tobacco taxes. The federal government reduced federal taxes by $5 plus an extra dollar depending on what the provincial governments did. In the case of Quebec, for instance, this allowed for a $11 cut. The Quebec government reduced taxes by $11 and the federal government by $10. Federal taxes were limited to $10 per carton.

We also implemented measures concerning tobacco-product manufacturers. Under pressure from the Government of Ontario, towards the end when it seemed very reluctant to get involved in this process, an export tax of $8 per carton was introduced. This tax or this kind of tax had been tried a few years before and turned out to be so inefficient that we had to retreat a few months later because of the powerful lobby of the manufacturing companies that threatened to move their operations abroad.

They now seem to be telling us that this measure could be implemented. Whenever they talk to us about it, they always talk about a tax of $8 per carton. What they forget to tell us is that, in fact, it will apply very rarely since estimated production before smuggling, that is the first 3 per cent of production sold abroad, including on the U.S. market, will not be subject to this tax. Its only purpose will be to prevent exports from coming back into the country.

It would be interesting to make a more in-depth review of this bill in committee, to look at its merits and to see if it is merely a show-off to comfort some who thought that this measure alone would be sufficient to eliminate smuggling. A promotion surtax was also included, a surtax on profits made by tobacco companies which was to be invested in a campaign for the promotion of health. I will come back to this, which was the original intention. However, these measures are not part of the proposed legislation today.

There were also measures against tobacco consumption, including regulations to limit access to vending machines and other similar measures designed to deter people from smoking. This was the initial plan. Now, we have this bill. The first part of the legislation, which specifically concerns the fight against smuggling, contains a series of measures. As I recall, there are eight of them.

As I said earlier, there is also a reduction in the excise tax, which means a reduction in the price, since the GST applies to the excise tax and the amount of GST on that tax is reduced. This is one aspect. There is a further reduction for provinces willing to go beyond a certain amount, as is the case for Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island. As far as I know, this is an option which remains open to other interested provinces. This is the type of issue for which we would like to get answers when the Standing Committee on Finance will look at this legislation.

There is also the imposition of an excise tax and offence provisions that apply where tobacco products taxed at a reduced federal excise tax rate in one province are diverted to another province.

We are trying to put an end to some illegal activities carried out this time by well known and registered retailers, who make up another kind of smuggling ring.

Another provision in this bill ensures that unmarked tobacco products sold to Indians on reserves in Ontario and Nova Scotia are taxed at the same reduced federal excise tax rates as marked tobacco products sold to other consumers in those provinces. There is nothing wrong with this provision.

There are also provisions for rebates of excise tax paid on tobacco products in stock when federal excise tax rates were reduced. I want to lay emphasis on this last issue, because it means that the government will compensate retailers who had tobacco products in stock at that time, who had bought the products at the old price and now have to sell them legally at the new price.

Since the new price is lower than the old one, storekeepers must sell at a loss. Now the government tells them that it is going to compensate them. What it does not say is that it will only compensate retailers with an inventory of 5,000 cartons or more.

In my own riding, I have small retailers, corner store owners, small grocers, and even a distributor who does not have 5,000 cartons in stock. For them, the losses are significant. In Quebec, there has been a $10 federal tax reduction. That means that a carton now sells for $10 less.

A corner store owner who has 50 or 60 cartons in stock stands to directly lose $500 to $600. It may not seem like much to you. But these people who have been fighting against smuggling rings for three, four or five years have suffered heavy losses already. And they will suffer even more. They will also be the ones to pay for the plan. Nobody will say it out loud but this is the price they have to pay for the fight against smuggling. Some retailers pay more than others. For an inventory of 1,000 or 1,500 cartons in Quebec, you have only to multiply by ten to know what the losses are. And they are substantial.

We received a great many calls in the days following the announcement of the anti-smuggling plan, especially since the Quebec government chose to compensate all the retailers, whatever their inventory, via its forms and a method it considers rather simple. Thus, the information is available. The information is not impossible to find. It exists and it is available, and we could have agreed to use the information that the Quebec government has on the inventories of all Quebec retailers to determine the compensation.

We could have had an agreement. These people who speak almost daily about reducing overlapping almost never act on it. Here they had an opportunity to easily compensate retailers, using the list already established by the Quebec government. But they did not do it.

Since that plan to fight smuggling costs about $300 million- which would have been higher if we had decided to compensate small retailers also-we ask them to bear a significant part of those costs. I am sure that Liberal members also received complaints from retailers in their ridings. Of course, business went up for many retailers in the days after the plan took effect. Higher tobacco sales helped make them accept a measure they never liked.

But nevertheless, it is a blatant injustice for them. Of course, we could say that they sometimes win when there are small tax increases, but they never get such a break all at once. Although many retailers had reduced their inventory because of lower sales due to smuggling, many of them still had a large number of cartons in stock and they had to pay the price. However, the government is not in a hurry to give them a refund. Only those retailers who had 5,000 cartons or more in stock will be compensated. And now the government says: "We have to pass this bill quickly because it is one of our highest priorities".

But what about small retailers? Are they not a priority for this government? That is a question we have a right to ask. I will not elaborate any further on the sixth measure because I am certain that, at committee stage, some people will come to explain to government members the impact that this measure had on their businesses and to tell them what $1,000, $2,000 or $5,000 can mean in a year to a small convenience store. God knows we have many of them, and all kinds of other stores where cigarettes are sold, like drug stores, and food stores that have somewhat larger inventories and that suffered substantial losses.

In that regard, it would take much more specific reasons to justify the arbitrary figure of 5,000 and the fact that the federal government is not acting like the Quebec government which, while wanting to fight against smuggling, chose to reimburse everybody. It did not choose to make small retailers pay the cost of it.

The seventh measure is an adjustment to the fines applicable for illegal possession or sale of unstamped tobacco products. Or course, these measures are good, if they are applied.

The eighth measure is the imposition of a surtax on tobacco manufacturing profits. That surtax looks good. It looks like it affects the companies themselves. But we must understand that, with the price reduction, it will be very easy for manufacturers to pass the cost of that surtax on to consumers. That is not to say that we should necessarily be against that measure, but the government should be honest and say that this is an indirect way to admit that it has not reduced prices as much as it seems. It looks good to say that manufacturers will pay for part of it, whereas in fact it will be very easy for them to pass this burden on to consumers, especially since no mechanism is provided to prevent that.

The government wanted to look good saying: "See, those who profited from it, the manufacturers, will have to pay their share of the cost of the fight against smuggling". Except that, ultimately, the manufacturers will have the last word in being able to easily pass it on to consumers.

I would like to come back to another point. I remember taking part in a few discussions or open-line programs where people would say things like: "We oppose that measure because it will be costly, and will have a terrible impact on public health". I could understand their concerns but, at the same time, I thought and many people thought that the black market had taken on such huge proportions and was undermining public trust in the whole tax system to such an extent that even this measure would not be enough to restore that trust. Tough action was needed to regain control because the distribution networks were very well established. Apparently, those networks are now being used more and more to sell liquor. And the black market racketeers will find other products to sell. Had we left them one more product, because it was a sure market and for all kinds of good reasons, consumers would have felt justified to take advantage of the bargain. A frightening variety of products could have been smuggled through this network.

Those were a few of the arguments served up, that it made sense for economic reasons, but the government understood their point of view and told them that it would clearly define a policy or a prevention campaign in conjunction with that. The government and the Prime Minister himself said that they would invest-the money raised with the surtax-directly in a health promotion campaign against tobacco use. And the Minis-

ter of Health said the same thing. It pleased her to reassure people by saying the same thing.

In concrete terms, and I am referring to a surtax which could generate around $200 million in revenue, I am not sure-far from it-that we have seen the effects of such a promotion campaign. If so, I would be interested to know what they are. The best way to assess the effectiveness of something is to ask whether people are aware of it. I am rather close to everything that is going on in government, but I do not really feel the concrete effects of that. People are saying very little to me about it. Professionals from the health field, from regional health offices in my area have asked me: "When will this campaign start? What form will it take?" Their input has not been sought, and they are still waiting.

But we too are still waiting to see which direction the government is going and what the minister of health will do to make sure that she gets the amounts that she has been told she would receive from the surtax. "Directly", Mr. Speaker, it seems to me that it cannot be clearer. These amounts should be linked to that. Well, it is simple for her, because she has a source of revenue. Now, we would like to know how she will use it.

I want to quote from the speech that the Prime Minister made in this House: "The amounts thus collected will allow the funding of the most important campaign against tobacco ever seen in Canada". We are waiting. It will certainly be one of the things that are yet to come.

There are two other measures in that bill. The first one, probably the less controversial one, was announced in the budget. The government has reduced the income tax deduction for business meals expenses that was claimed by business executives or independent workers. That deduction is reduced from 80 per cent to 50 per cent. The GST will be adjusted accordingly. The GST rebate that was claimed by those people for meals expenses has also been adjusted in the same proportions. It is a minor adjustment. We can argue whether the rate should be 80 per cent or 50 per cent, which was a difficult decision. There are many aspects involved in the budget.

A very interesting study indicated who would be directly concerned by that measure, how they would be and what category of meals would be affected. I am convinced that the authors of the study would be very happy to give explanations to the committee and to examine the impact of the measure in a more detailed fashion in order to see who is affected, who was anticipated to be affected and who will be, because the measure is now in effect and we are able to know a little bit more. That would be an interesting thing to do.

We are told that we must act quickly, that time is running out and that we must repay retailers who have stocks of 5,000 or more. Some say that the opposition is ungrateful, that it wants to delay the passage of the bill and that it wants to prevent the government from paying retailers back. The question might have been put on the table much earlier if their concern really was as we were told.

The third measure contained in the bill, which comes out of the blues, deals with the tax on air travel.

These objectives were announced: the review of the air transportation tax in order to reduce the tax burden on short haul domestic and transborder flights, as well as to recover a greater proportion of the cost of facilities and services provided by Transport Canada.

Worse, they have the nerve to include short haul flights to smaller communities. Coming from the regions, we are going to examine thoroughly what this means. Right now there is a flat tax. It works like this: you pay a flat tax of $10 for an airline ticket on the domestic market. Add to this a tax of 7 per cent on the ticket value, up to a maximum of $40.

Now, they say that they will lower the flat tax to $6, but that they will maintain the tax of 7 per cent. However, the maximum is raised to $50. Take the case of a region like Abitibi-Témiscamingue. An airline ticket from Rouyn-Noranda to Ottawa costs about $525, $530. Before, the maximum tax was $40. Today, with the new cost structure, we are talking of $41.

The objective is to reduce the tax burden imposed on domestic flights, particularly on short-distance flights to smaller towns. We can also go from Ottawa to Rouyn-Noranda. I am told that my tax burden has been reduced with this increase from $40 to $41. At the same time, I am told that this measure will give rise to a recovery of $21 million this year and of $44 million next year. I am also told that this is supposed to benefit small towns and people living in those towns. I think that the members opposite do not really understand what regional development is all about. I think they did not look at that provision for very long.

The costs are higher in some areas. Sometimes, it costs $600 or $700, and it is often more expensive to go from Montreal, Quebec or Ottawa to some areas, in Quebec, than to fly from Montreal to Paris. The upper tax limit on those tickets, which was $40 before, will now be $48 or $50. One might say that it is only an $8 or $10 difference. However, it is a lot of money.

As if deregulation had not hurt enough. It was supposed to have no impact on airfares, but the contrary is now obvious. It is more expensive for me to return to my riding than to go to Paris. It does not make any sense.

It is far from certain that we will let that be passed rapidly. The Minister of Transport is in the House. He should take good note that he will have to explain to us what he really intends to do about this rate structure.

Only flights between $100 and $400 will benefit from this measure, that is the Montreal-Toronto and Montreal-Quebec runs or other popular short distance flights. Only those flights will benefit from it.

Do not try to tell me that with the structure I have in front of me-unless my information is erroneous, but it comes from the Department of Finance-travellers to the regions and to smaller communities, as it is said here, will benefit from it. Maybe for some, going from Toronto to Montreal is travelling to a smaller community. However, in our region, travelling to small communities would mean going to Rouyn-Noranda, Val-d'Or, Chicoutimi and the like, which we consider major centres. Plane tickets to those places already cost $600 or $700 and they will increase by $8 to $10, though only by one dollar in my region. I am lucky, the price of my flight to Rouyn will only be raised by one dollar. To go to the neighbouring riding, that of my colleague for Val-d'Or, perhaps I would have to pay $8 more. Some might say that we do not have to worry much, since the House pays some of our travel and other costs.

Our business people travel, they get around, they have to go and represent their companies. Besides, people often travel for Quebec government departments and go from our region to Quebec City. This will increase operating costs for the other government. All individuals who want to travel by air will have to pay for these costs. As if by chance, this comes in an innocent-looking bill to fight smuggling, we are told. In very small writing, in the second to last measure, not the last one-often we look at the beginning and at the end-we see that there will be changes. The explanatory note in the bill says: "The amendments to the air transportation tax reduce the tax burden on short-haul domestic and transborder flights and shift the tax burden to long-haul flights".

They forget to make the connection with the price and the tax is related to the price. I could even discuss how this compares to the former system and how it penalizes the regions as well. I think that they were afraid to open this debate for fear that we would show the government members the impact of deregulating air transport on the regions. I am sure that some Liberal members, when they see this, will have trouble explaining it to their constituents. I am thinking of my colleagues from northern Ontario. How come they put up with such a thing?

We will not let this be rushed through. It will go to committee and we will take a thorough look at it in committee. We can work quickly but thoroughly, that is what we will do, but at this stage, with no major amendments, there is no question of the Bloc Quebecois supporting this bill.

[Ray Speaker, Reform, Lethbridge]

Mr. Speaker, I very much appreciate the opportunity to say a few words on Bill C-32. One of my colleagues will deal with the excise tax in the area of tobacco. I intend to cover air transportation and the goods and services tax. I certainly will do that in the next seven minutes.

What I would like to say first deals with air transportation tax. We have to deal with the principle that we should pay as we go. We should look at crown corporations and the aviation industry. If we believe there is a sound principle that we should pay as we go and as customers of the service, we should support the tax and the formula that are in place. We should support the fact that the ceiling has now been raised to $50. We are going to bring in some $20 million more in the current fiscal year and another $40 million in the next fiscal year and try to reduce the deficit in the transportation system.

I understand that currently it costs around $780 million to run the aviation section of the Department of Transport and we take in some $600 million. There is a deficit. Through this change of policy the minister is attempting to move the program to a point where it is on the basis of pay as we go. We in the Reform Party support that. We feel very strongly about that.

I listened to the Bloc Quebecois member who has just taken his seat make the case that we have to worry about the increased cost of tickets. That is certainly a matter we could worry about but if we believe in the principle that we pay as we go, the sort of welfare dependent attitude portrayed by the Bloc Quebecois member just does not hold water.

As Canadians we must start to change our principles and to change our attitudes. It is changing in the nineties. We must move from the attitude of the seventies and eighties where we believed government had to do everything for us. We became dependent on government. We believed government had to subsidize a variety of services that we were using as private individuals, as businesses and as companies.

We have to move away from the 1970 and 1980 mentality of the welfare state and start to move toward a more conservative attitude where people must be responsible for looking after their own welfare. People must be prepared to pay their bills, whether travelling on Air Canada, Canadian Air or any other charter airline in our country. People who wish to travel must make that part of the cost of our lives on a private basis and part of the cost of our business. If we as members of government have to travel

or if members of the public service have to travel then it is a budgeting cost in this assembly.

The bill is more than a change in policy with regard to increasing the revenue available to the Minister of Transport. We are moving over the threshold in the attitude we have as Canadian governments. I hear it in the House sometimes. I would like to hear it more. We talk about governments being independent, being able to run on their own and being able to pay their way. We are starting to move away from agencies, particularly large corporations or companies that get grants from government and become dependent on government, to a point at which people are more independent in the way they behave, in the way they act and in the way they respect public funds.

That primary principle is starting to expose itself and to become more obvious in this piece of legislation. I certainly commend the minister for supporting it in this piece of legislation. I highly recommend to the government that as we are planning for the 1995-96 budget we should look at ways and means the government can move away from creating dependent circumstance or agencies of government that are very dependent on public funds, to a point where the agencies or in many circumstances the private elements of our society look after themselves.

A primary item the government must look at for the upcoming budget is the Canadian Broadcasting Corporation and the same principle. We subsidize that corporation by $1.1 billion a year. It is asking in another piece of legislation-and I know I am walking close to the edge of the rules by referencing another piece of legislation-for $25 million of borrowing power to support its organization. Whether it borrows more money or receives it as a grant from government, the public purse is supporting that agency. It is creating a dependency within our Canadian community and it is wrong.

I highlight that my support and the support of the Reform Party for the section on air transportation tax in Bill C-32 changes a direction and makes the industry more independent and self-sufficient. If we want to move a number of our airports into private management components, I believe this is a start. If we can show-

[The Deputy Speaker]

If the hon. member would excuse the Chair, there was a misunderstanding. The debate goes on until 6.30, not until 6.15. He is entitled to go on until 6.30 or he might wish to yield the floor to somebody else.

[Ray Speaker, Reform, Lethbridge]

Mr. Speaker, I certainly appreciate the extra time which is available to me in this debate.

The second principle in the bill I want to talk about concerns the GST changes for meal allowances. It reduces the amount from 80 per cent to 50 per cent that can be calculated as entertainment or meal allowances for those persons wishing to use it in their tax calculations.

We have supported that change on the basis we felt this was a business subsidy. The Reform Party is very concerned that government should get out of business. Government is too far into the lives of the business community. For those people who wish to entertain potential clients with meals or other types of entertainment expenses then that should be their responsibility. It should not be the responsibility of the state to subsidize them indirectly with a tax concession. On that basis we support that type of change with regard to the goods and services input tax credit.

Those were the two areas I wanted to speak on. The Reform Party supports each of them. First, we support the transportation tax changes which make the industry more self sufficient and not so reliant on the subsidy of the public purse. Second, we support the reduction or changes in the GST allowance tax credit from 80 per cent to 50 per cent. It is a good move in that government is less involved and the private sector looks after itself.

[Bob Speller, Liberal, Haldimand—Norfolk, ON]

Mr. Speaker, I will just take a couple of minutes to talk about that. I cannot let a bill like this get passed in this House without first telling the House about the effects it has on my riding. When I talked about this bill before I explained to the House how important legislation like this is to my riding of Haldimand-Norfolk.

I represent somewhere in the neighbourhood of 800 tobacco producers and I have represented them on this issue over the past few years. Over a number of years I and indeed a number of members in this House have been calling for the government to reduce taxes on tobacco. We felt, as do most of my constituents, that tobacco taxes and the way they have been applied in this country have been to the detriment of many of my constituents certainly the tobacco farmers and the area communities which support them.

I also represent the people of the Six Nations which is the largest Indian reserve in the country. It was dramatically impacted on by this legislation and the lowering of the taxes we brought in earlier this year, in February.

One thing we have seen in Haldimand-Norfolk and in the area surrounding the Six Nations is a great reduction in the number of smoke huts. Prior to the dropping of the taxes there were in the neighbourhood of 150 tobacco huts. Today it is very difficult to find one or two on the reserves. Some of them are now dealing in commodities other than tobacco, more than likely spirits of some sort, but it certainly has had a dramatic impact in that area.

It was the elders, the senior people of the Six Nations who came to me most often and said: "You have to deal with this situation. We don't like what it is doing to our children. We don't like the money aspect it has instilled in our children of going out and trying to make a quick buck". A lot of the time these elders felt that the children were moving away from the old ways and the old teachings by getting into this money grabbing exercise. They certainly were very pleased by what this government has done.

In the past I have talked about how taxation policy has been to the detriment of the tobacco industry. It has been that way because governments have not been able to give the industry-when I talk about the industry, I talk about the tobacco farmers-an idea of their taxation needs over the years.

Even though there is a marketing system for tobacco, when the numbers came out as to what the tobacco requirements would be for a year the government would come in later and all of a sudden apply a high tax on tobacco which would completely throw the market into an upheaval. That is why over the years I have been calling for the reduction in taxation on tobacco.

There is a major relief for the people in the tobacco growing areas. It has helped the spirit in those areas. They are good people who had been encouraged by past governments to get into tobacco. These people really do not have a number of other commodities to move into. These are good Canadians who in the past have supported good government. Over the past few months when I have been down there visiting with them they have praised the government for what it has been doing.

Constituents have not been happy with other areas of the bill. The export tax is one they see as not only against any provisions in GATT but also something that would hurt their legitimate export interests. They have called on me to tell the government, as I have in the past, that an export tax only hurts Canadian jobs and Canadian farmers. It does nothing to solve the problem.

We have gone beyond that. Because of the dramatic drop in taxation we have gone on to solve the problem. It was a tough problem. I listened earlier to the member from the Bloc saying: "Gee, why didn't you do something about it?" I remember when his leader was in the previous government which kept raising the taxes on tobacco. Why was it that his leader did nothing to deal with this situation?

We came in and there was a major problem. Maybe some people in the Reform Party and in the west did not agree with some of the things we did. It was not an easy problem but one which I suppose past governments had decided it best to just let go. Our leader decided to take it upon himself to solve this problem. From all I have seen, it has solved the problem in my area.

Some will complain that right after we brought in the new taxation the sales of tobacco went up, but that was just the situation of people resupplying. If members went into cornerstores in their ridings they could see people were moving out of tobacco sales because they were not making any money on it. People were buying their tobacco outside their normal channels.

We saw in the paper a couple of weeks ago when the numbers came out that those numbers have dropped dramatically. In fact, we are now seeing there really is not a dramatic drop. It is pretty much staying the same in terms of tobacco sales. There has not been the dramatic increase some claimed would happen and all in all, it is levelling off.

It has brought to people's attention that serious problem of how tobacco was illegally getting into the hands of young people in schoolyards. This bill makes sure that if people buy tobacco products they will do it legitimately in legitimate areas. If someone decides to sell to minors they will face the stiffest penalties there have ever been in this country in that regard.

That is good government. It is a good piece of legislation which deals with a problem Canadians wanted dealt with. It bodes well for not only the Prime Minister but also for the Minister of Health and the Minister of National Revenue who solved the problem together.

I will give the Reform Party a chance for five minutes on this. I thank the Prime Minister on behalf of my constituents in Haldimand-Norfolk for dealing with the problem.

[Garry Breitkreuz, Reform, Yorkton—Melville, SK]

Mr. Speaker, I have only a few minutes but I want to make several points. I was going to take the opportunity to go through Bill C-32 point by point, but time does not allow that. I will simply summarize what our position is and then make a few supplementary remarks.

Reformers are going to come out opposed to this bill basically because we did not want the tobacco tax to be reduced in the way it was. You may find it rather surprising that Reformers would oppose a tax reduction. One of the reasons we were elected was to reduce government spending so that taxes could be reduced but in this case, we cannot agree with what has been done for the following reasons.

My constituents have told me this as well. They did not like the way the government responded to the criminal element by reducing taxes very quickly. They would have preferred that the government look at the enforcement problem first and address some of the other issues, maybe apply an excise tax on the exported tobacco products.

More and more people will be encouraged to smoke. We already see this happening among our young people. For this reason we cannot support this reduction in the tax.

Because of this increase in smoking we will have long term health costs for Canadians which have not been factored in. The government should have done some planning in this regard, some investigation as to how this would affect our health care system. That is a priority with people. They have told us that above all else we should preserve our health care system. We should not cut back on costs and this will probably increase the costs rather than reduce them.

We should also have tried more aggressive enforcement measures. Seventy per cent of the cigarettes were brought in through the reserves. Maybe there was a way to address that problem.

We would have liked to have seen a new export tax on tobacco products tried before the lowering of taxes took place. We could probably have worked together with Americans in this regard but now they look at us and say: "The Canadians have reduced their taxes, so we don't have to increase ours. It doesn't work".

There will also be a problem between provinces. There is a smuggling problem between Canada and the United States and now we are going to have a smuggling problem among various provinces. How will that be addressed? What will happen in that regard? I realize some measures have been taken here to try to control that, but it could be a problem.

In February when Bill C-11 was introduced we pointed out that when the criminal element sees that the profit is no longer there for tobacco they will turn to other things. As my colleague has already admitted, they will probably begin importing alcohol and other things.

We support the imposition of the new excise tax on exported tobacco products. Senior officials informed us that before the tax changes were implemented, between 30 and 40 per cent of the total production of tobacco manufacturing in Canada was exported. The tobacco companies now agree that only 3 per cent was legally consumed in the United States. This shows the extent of the smuggling problem. It could have been controlled at this end before it even went to the states.

This law now allows tobacco manufacturers to export 3 per cent of their production tax exempt. Reformers believe that this new export tax should have been tried before lowering the tax.

The legislation implements measures to ensure that unmarked tobacco products sold to Indians on reserves in Ontario and Nova Scotia are taxed at the same rate as marked tobacco products sold in the two provinces.

Also retailers and wholesalers are owed an estimated $150 million in rebates on excise taxes on tobacco products held in inventory when the excise tax was reduced. The minister cannot issue the rebate cheques until this legislation is passed. While we oppose the reduction in tobacco taxes, retailers are likely to get upset if we delay the bill. We do not want to hold it up for that reason.

Finally, Reformers support the adjustment to the fines for illegal possession or sale of unstamped tobacco products. We believe that those who are breaking our laws should be punished. We also support the health promotion surtax, an increase of 40 per cent of taxes paid on profits by the tobacco manufacturers. We feel this is a positive measure. On most of these measures we support the government. However, on the reduction of the tobacco tax we cannot support it.

[The Deputy Speaker]

Is the House ready for the question?

[Some hon. members]

Question.

[The Deputy Speaker]

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

[Some hon. members]

Agreed.

[Some hon. members]

On division.

(Motion agreed to, bill read the second time and referred to a committee.)

[The Deputy Speaker]

It being 6.30 p.m., pursuant to Standing Order 45(5)( a ), the House will now proceed to the taking of the deferred divisions on the motions at report stage of Bill C-17, an act to amend certain statutes to implement certain provisions of the budget tabled in Parliament on February 22, 1994.

The House resumed consideration of Bill C-17, an act to amend certain statutes to implement certain provisions of the budget tabled in Parliament on February 22, 1994, as reported (without amendment) from the committee.

Budget Implementation Act

[The Deputy Speaker]

Call in the members.

And the bells having rung:

[The Deputy Speaker]

The first vote is on Motion No. 1. A vote on this motion also applies to Motions Nos. 2, 3, 5, 6, 7, 8, 9, 10 and 11. An affirmative vote on Motion No. 1 obviates the necessity of putting the question on Motion No. 4. If Motion No. 1 is negatived Motion No. 4 will be voted on.

The question is on Motion No. 1.

(The House divided on the motion, which was negatived on the following division:)

[The Deputy Speaker]

I declare Motion No. 1 negatived.

Therefore Motions Nos. 2, 3, 5, 6, 7, 8, 9, 10 and 11 are also negatived.

The next question will be on Motion No. 4.

(The House divided on the motion, which was negatived on the following division:)

[The Deputy Chairman]

I declare Motion No. 4 negatived.

[Alfonso Gagliano, Liberal, Saint-Léonard, QC]

Mr. Speaker, I believe you will find unanimous consent to apply the result of Motion No. 4 to Motion No. 12 and to apply the result of Motion No. 1 to Motion No. 13.

[The Deputy Speaker]

Is there unanimous consent?

[Some hon. members]

Agreed.