Debates of June 21st, 1994

Questions On The Order Paper

[André Ouellet, Liberal, Minister of Foreign Affairs]

Mr. Speaker, the list of participants to the Canadian electoral observation mission to the South African elections is as follows:

Canadian electoral observation mission:

The Honourable Mrs. Christine Stewart, C.P.,

M.P., Secretary of State (Latin America and Africa);

Mrs. Maud Debien, M.P. Ms. Jean Augustine, M.P. Mr. Réginald Bélair, M.P. Mr. Ovid Jackson, M.P. Mr. Peter Milliken, M.P. Mr. Svend Robinson, M.P.

Mr. Robert McLaren Mrs. Michèle Falardeau-Ramsey Mrs. Martha Nelams Mrs. Christine Murphy

Canadian specialists on South Africa accompanying the mission:

Ms. Carolyn McMaster Mr. Grant Hawes Mr. Bryan Burton Mr. Douglas Fraser Mr. Michael Kaduck

The costs, which appear below, are still the budgeted costs. The actual expenditures have yet to be calculated since expense claims for all the participants have not yet been submitted and audited. Our preliminary assessment is that the actual costs will be for the most part below what was budgeted.

Parliamentarians (7 persons) $ 92,250 Experts for the observation (4 persons) $ 56,400 Experts on South Africa (5 persons) $ 77,300

Total budgeted costs for the Canadian electoral observation mission to the South African elections $ 225,950

[The Deputy Speaker]

The question enumerated by the parliamentary secretary has been answered.

Questions Passed As Orders For Returns

[Peter Milliken, Liberal, Parliamentary Secretary to Leader of the Government in the House of Commons]

Mr. Speaker, if Question No. 41 could be made an Order for Return, the return would be tabled immediately.

[The Deputy Speaker]

Is it the pleasure of the House that Question No. 41 be deemed to have been made an Order for Return?

[Some hon. Members]

Agreed.

Question No. 41-

[John Williams, Reform, St. Albert, AB]

What are the names of the Canadian citizens and the specific criteria utilized to select the participants as election observers for the South African election ( a ) in the 75 member bilateral mission, ( b ) in the Commonwealth Observer Group and ( c ) serving with Canadian and South African non-governmental organizations?

(Return tabled.)

[Peter Milliken, Liberal, Kingston and the Islands, ON]

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

[The Deputy Speaker]

Shall the remaining questions stand?

[Some hon. members]

Agreed.

Excise Tax Act

[Doug Peters, 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 third time and passed.

Mr. Speaker, Bill C-32 contains the legislative provisions to implement a number of excise and income tax changes announced over the past four months. Most of these proposals relate to the tobacco tax changes that were announced by the Prime Minister on February 8, 1994, as part of the national action plan on smuggling.

Other proposals concern the air transportation tax and the goods and services tax and were announced in the federal budget of February 22, 1994.

Hon. members are no doubt aware of the dramatic growth in tobacco smuggling over the past few years and the profound impact the trade in contraband tobacco products has had on Canadian society. As contraband tobacco products began to assume a rapidly increasingly share of the domestic tobacco market, the government suffered a sharp decline in tobacco tax revenues affecting its ability to deliver much needed programs.

Legitimate wholesalers and retailers also suffered a substantial decline in their ongoing business interests as sales of legal tax and duty paid tobacco products underwent a precipitous decline.

Equally troubling and of great concern to all Canadians was the climate of increased lawlessness as the organized criminal network dominated the contraband tobacco trade and funnelled its illegal profits into further criminal activity.

Finally, the availability of cheap contraband tobacco products was undermining the government's health policy objectives of reducing tobacco consumption, particularly among young people.

Without strong balanced action from the government the level of smuggling would have continued to increase and with the resulting costs accruing to government business and citizens alike. This concern was the basis for the national action plan on smuggling announced by the Prime Minister on February 8, 1994.

At the forefront of this plan, the government allocated significant additional resources to both the RCMP and Canada Customs to increase their enforcement efforts aimed at disrupting the contraband trade in tobacco and other products.

To facilitate this increased enforcement and reduce the demand for contraband tobacco products, the government also undertook reductions in the rate of excise tax applicable to tobacco products.

Some hon. members have questioned why the government chose to proceed further to reduce tobacco taxes rather than rely solely on increased enforcement measures. It should be remembered that significant new and enhanced enforcement measures were introduced in 1992 when the government of the day announced tighter controls on the distribution and sale of tax free tobacco products in Canada, significantly higher penalties for persons caught smuggling, new proceeds of crime provisions and the allocation of additional resources to RCMP and Canada Customs to strengthen their enforcement efforts.

While these measures assisted the government in its fight against tobacco smuggling, they were not sufficient to bring the problem under control. The price differential between Canadian tax paid tobacco products and contraband tobacco products was such that the profits from smuggling far outweighed the associated risks. As a result, smuggling continued to grow in 1992 and 1993, increasing its share of the Canadian tobacco market from about 15 per cent in 1991 to an astounding 40 per cent at the beginning of this year.

Given this climate of persistent and increased smuggling, the government considered it essential to introduce a comprehensive national action plan including not only new enforcement initiatives but also a reduction in tobacco taxes. To weaken demand for contraband tobacco products in all parts of the country, the government undertook a national $5 reduction in the rates of excise tax on tobacco products.

To allow greater tax reductions in areas where smuggling was more deeply rooted, the government also offered to match provincial tax reductions in excess of the $5 up to a maximum total federal tax reduction of $10.

At the same time, the government was also concerned that tobacco corporations not derive any benefit from the reduction in tobacco taxes thus a new health promotion surtax was imposed on corporate profits from tobacco manufacturing and processing with the funds generated by the surtax being used to

support the largest anti-smoking campaign in the history of Canada.

Finally, to address the role played by export shipments in the contraband tobacco trade, the government reimposed an excise tax on exported tobacco products. The excise tax is designed to ensure that exports of tobacco products will be subject to closer control while also providing manufacturers with certain limited exemptions in respect of legitimate export shipments intended for bona fide consumption outside Canada.

Taken together, these measures form a comprehensive plan to attack tobacco smuggling on all levels. Enforcement alone could never solve the problem. The profits to be made from smuggling and the savings to consumers purchasing contraband products would remain.

By attacking the problem on all fronts, the government has taken strong action toward eliminating tobacco smuggling as a significant national problem. In addition to these changes, the legislation also contains a number of related measures to ensure the effectiveness of a national action plan on smuggling.

Full inventory rebates will be provided to all wholesalers and retailers in respect of the national $5 tax reduction providing complete reimbursement for tax paid inventories of cigarettes, tobacco sticks and fine cut tobacco held as of midnight February 8, 1994.

The bill also authorizes the payment of partial inventory rebates where federal excise taxes are further reduced to match provincial tobacco tax reductions. Wholesalers and retailers can apply for the additional rebate in respect of their inventories of cigarettes in excess of a certain threshold amount held as of the effective date of matching a federal excise tax reduction.

Some hon. members have asked why the government is not providing wholesalers and retailers with complete coverage for their inventories of tobacco products. I would point out that the inventory rebate program represents a significant expenditure on the part of the government and is just one component of the total fiscal cost that will be borne by the government in confronting the smuggling problem and restoring the legal tax paid market for tobacco products.

The inventory rebate program is designed to provide wholesalers and retailers with a significant measure of financial compensation. It ensures that the tobacco tax reductions do not have too large an impact on any one person.

Wholesalers and retailers have been major beneficiaries of the government's national action plan on smuggling. They will continue to benefit from the restoration of the legal tax paid market. Before any amounts can be paid under the rebate system however this legislation must receive royal assent. This is one of the reasons we are attaching such a high priority to Bill C-32.

Finally, to assist federal enforcement agencies and provinces to control the potential for interprovincial diversion of tobacco products, Bill C-32 contains new liability and offence provisions. An additional federal excise tax will be imposed on a wholesaler or a retailer in respect of any sale of marked tobacco products to a person in another province.

The legislation also makes it an offence subject to a fine for any person who sells or offers for sale tobacco products marked for consumption in one province to a consumer located in another province. The basic design of these provisions is to ensure that tobacco products marked for sale in a particular province are restricted to personal consumption in that province and are not diverted to another province.

While the collection of the additional federal excise tax can be enforced immediately, the offences provision cannot come into force until such time as this bill receives royal assent.

In conclusion, I would like to emphasize the importance of the provisions contained in Bill C-32. The proposed excise and income tax changes are an integral part of the government's action plan to combat smuggling. Together with increased enforcement these measures will make a very significant contribution to halting the contraband tobacco trade.

I urge all my colleagues to give speedy passage to this bill.

[Michel Guimond, Bloc, Beauport—Montmorency—Orléans, QC]

Mr. Speaker, Bill C-32 has now reached third reading. As my colleagues have already mentioned, we are not in any hurry to see this bill passed. At first glance, this bill seems to have been prepared in order to allow the federal government to fight tobacco smuggling and do what Quebec did a long time ago: reimburse merchants with inventories of over 5,000 cartons of cigarettes when the reduction of taxes was passed by the federal government and certain provincial governments.

While we agree with this reimbursement and want merchants to receive it as promptly as possible, there is no way we agree that the government should take that opportunity to insert into this bill two other measures that could be harmful to consumers. These measures, which are usually in fine print so that people pay no attention to them, are nonetheless of vital importance. The second measure in this bill has to do with reducing the input tax credit on the meals of executives and workers, who could claim it on business meal expenses and business entertainment

expenses. The credit was 80 per cent, and will now be reduced to 50 per cent.

What we have been calling for ever since we arrived in the House is justice for all categories of employers and workers. You will understand that, before making any pronouncements on these measures, we would like to have received a report from the finance committee that might have explained to us the detailed repercussions of this one. Perhaps it is a good idea; perhaps we should make some amendments to it; perhaps we would be surprised at certain tax evasions that some large companies will still be able to pull off by switching these expenses to other budget items.

Why does the present Liberal government always seem to be in a hurry to table bills without having the appropriate committee reports? Even at that, there are not many bills, while the number of problems to be solved is ever greater. Could there be a lack of synchronization in this government, which always seems to be governing by the seat of its pants?

So I cannot come down on the side of this measure today. I shall have to vote against it if the government refuses to give us a detailed report from the Finance Committee on its repercussions on all categories of employees and employers who will be affected by it.

Lastly, as Official Opposition critic for transportation, I was astounded to see a bill supposedly to reimburse taxes on cigarettes end up by amending air transportation taxes. Now then, for this particular measure, let me assure you that I do have all the information necessary to know that I am against this measure and I shall vote accordingly.

Firstly, I would like to point out to you that this is not the first air fare increase by the federal government. It started off, under the Conservatives, by increasing airport taxes. That $40 tax is added to all tickets, which means considerable percentage increases in some cases. Today, the federal government is at it again, with a tax that runs counter to all the requests and proposals made by the Association québécoise des transporteurs aériens.

That association made extremely serious recommendations to the present government, the first of which was to eliminate the minimum charge of $10 and set a taxation percentage of between 0 and 9 per cent. That method would have been much fairer and would have made it possible for higher taxes to be paid by people who often travel for pleasure, while people in the regions who travel because they have to would have paid less.

I am not a prophet, but I am going to try to look into the future for you. The present government is so sure that the airlines will accept this fare hike that in a few months it will also try to make them lower their fares. The government thinks that the airlines will not react and will absorb the increase. The government is wrong. The airlines already have trouble surviving. Most of our air carriers are running deficits. So, as a result of all this, the price of tickets for travellers in outlying regions will go up once again.

At first glance, the tax structure does not seem too worrisome. At present, the flat rate tax is $10, plus 7 per cent of the price of the ticket, to a maximum of $40. It is proposed that the flat rate tax be reduced to $6, and the same level of 7 per cent of the price of the ticket be maintained, up to a maximum of $50.

Government machinery costs the public a lot of money; to come up with a proposal like that takes real brainstorming, as we say where I come from. That I am sure of, since I have really suffered through several months of acute meeting mania, and particularly since the Association québécoise des transporteurs aériens had made the government a proposal that was much better thought-out and fairer to air transportation consumers in the regions.

Even the government's objectives in changing the tax structure have been laid out for us: firstly, to increase recovery of the costs of air facilities and services provided by Transport Canada and, secondly, to reduce the tax burden on short-haul domestic flights to smaller communities.

I find the first objective laudable and even desirable. If we want to reduce the deficit, we must do what it takes. We are told that this measure will increase revenues by $21 million in the first year and $14 million in subsequent years. If the government had been open, it would have mentioned the first objective and the desired results. It would not have tried to have us believe that this new tax structure would reduce the burden on short-haul domestic flights to smaller communities, because this statement, in my opinion, is far from the truth.

If this measure had been taken before deregulation, we could perhaps have believed in it; but not now.

The cost of transportation is now borne by people in outlying regions. The price of tickets to these destinations has gone up considerably in recent years.

For example: airfare between Montreal and Rimouski is currently $552 plus tax; Montreal-Saguenay, $466 plus tax; Montreal-Baie Comeau, $562 plus tax. There is not a great deal of traffic on these connections, and to turn a profit the airlines are forced to raise prices. On the other hand the Montreal-Toronto connection is heavily travelled, and the airfare is about $400.

The new rate structure is based on price and does not take into account the volume of traffic or the distances involved. The government says there is a perfect relationship between price and distance, which is not true. Price is a factor of both distance and volume. The government's policy of encouraging low ticket prices in the hope of increasing the number of airline passengers to remote areas is wrong. It is actually encouraging the heavily--

travelled short corridors like Montreal-Toronto, which are heavily used by business people, and chartered flights.

Moreover, Mr. Speaker, the government did not think to establish a rate structure that would distinguish between the domestic network and the external network. A vast majority of people on domestic flights are travelling because they have to, while those travelling outside the country are often doing so for pleasure.

Here is a striking example that I am personally very well acquainted with. As the member for Beauport-Montmorency-Orléans I travel regularly on Air Canada's economy class between Quebec City and Ottawa. The distance is approximately 916 ground kilometres return. The ticket costs $547. Under the new rate structure the tax is $50 plus GST, or approximately $88 in taxes, not counting airport taxes. I do not make these trips for fun but to carry out my duties as a member of this House.

Let us now look at a charter flight to Paris during the summer. Quebec City-Paris: about 6,000 ground kilometres, the ticket costs $499, the tax under the new rate structure is $50 plus GST, or approximately $85 in taxes. And I do not have to take that flight, Mr. Speaker, it would be a pleasure trip.

You can see from this example that an overseas flight of almost 6,000 kilometres costs me $2 less in taxes than a duty flight between Quebec City and Ottawa, and the government will tell us that the purpose of the new rate structure is to reduce the tax burden on short hops to the smallest municipalities. It is ludicrous! I would also like to point out that I cannot take a chartered flight between Quebec City and Ottawa, or between Ottawa and the regions. There are none.

The rate grid that has been put before us shows that the price of all tickets costing more than $500 will automatically go up with the new rates. This means that a number of transportation services to remote areas will be negatively affected by the new policy.

As I said at the start, Mr. Speaker, the government's number two objective in coming up with this new rate structure has not been achieved and is not transparent. On the contrary: the government is going to make things worse.

During the election campaign, the Liberal Party made great promises to the people. It was loud in its accusations that the Conservative Party showed an egregious lack of transparency. And yet today it is ready to make second-class citizens out of the residents of outlying regions. It would have been possible for the government to introduce a tax system capable of reflecting the special and often difficult situation posed by the problem of air transportation in remote regions. The government itself says that carriers have expressed concern about the excessive burden the air transportation tax imposes on short hops. So what does the government do to respond to these concerns? As we see: it wants to increase the regions' tax burden. There is Liberal logic for you! It is unacceptable to try to get us to endorse the bill as it stands.

We recognize the urgency of passing the provisions dealing with full rebates on cigarette inventories to reflect the national $5 reduction in the federal excise tax, partial rebates on inventories to reflect the corresponding reduced federal excise tax and adjustments in the fines for possessing or selling unstamped tobacco products.

On the other hand, we need more information about the portion of the bill that deals with the Goods and Services Tax, and we are entirely opposed to the new air transportation rate structure. Could the bill not be divided in three, so that we could make intelligent decisions? If the Liberal government rejects my suggestion it cannot then turn around and accuse the Bloc Quebecois of delaying rebate cheques to merchants who have been entitled to them for a long time.

The Quebec government found a much fairer way of handling this. It reimbursed all merchants, it did not try to make the small retailers shoulder the cost. We are ready to go ahead rapidly with passage of that portion of the bill, but we cannot give the government a blank cheque either on items for which we lack information or on a portion of the bill about which we have reservations we would like to make clear to our hon. colleagues from the other parties.

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

Mr. Speaker, on February 8 the government announced its national action campaign to combat smuggling. At that time Bill C-11 was introduced to address some of the enforcement measures and tax changes which were implemented, using a number of ways and means motions until Bill C-32 was introduced on May 27.

Members of the House may remember second reading debate on Bill C-11 on February 22 of this year. Reformers used that opportunity to consider and respond to all aspects of the action plan to combat smuggling and to express our opposition to the reduction in the tobacco tax. While our knowledge and understanding of the government's tax changes have improved, our opinion and opposition to the tax reduction on cigarettes and tobacco products have not changed.

As a little aside here, it has been an eye opener for me as a new parliamentarian to see the process the government uses in implementing these changes. Behind closed doors it implemented the ways and means motions and made these changes. Then it was brought to Parliament and we debated it, and it became official many months later. It was an interesting exercise. It is interesting to see how government operates. When it wants to

act it can act very quickly. If it wants to drag its feet it can drag them a long time.

Our concerns about the government's tax reduction on cigarettes were confirmed when the Parliamentary Secretary to the Minister of Health appeared before the Standing Committee on Finance on June 7 and advised that the government's goal was to reduce the demand for tobacco, the number one cause of preventable death in Canada. I will repeat. The government said that its aim or its goal was to reduce the demand for tobacco, the number one cause of preventable death in Canada.

The parliamentary secretary went on to say the government fully recognized that the action plan to combat smuggling and the tax measures associated with it would pose health risks. What a contradiction. On the one hand we have one of the highest risk factors in the nation being acknowledged. On the other hand the government introduces a bill which will be more of a threat to the health of Canadians than probably any other move it has made so far. How can the government continue to sit there and defend this move? I find that unconscionable.

Before we get into the reasons why we are opposed to the reduction in the tobacco tax, I would like to outline the measures announced by the government in Bill C-32 which Reformers support. There are some good things. If the government had listened to some of the amendments we proposed and some of the changes we would like to have made, we could have accepted this. However it was like a stone wall.

Reformers support the imposition of the new excise tax on exported tobacco products. Senior officials with the department informed us that before the tax changes were implemented between 30 per cent and 40 per cent of the total production of tobacco manufacturers in Canada was exported. Between 30 per cent and 40 per cent went outside the country, mainly to the United States. Tobacco companies agree that only 3 per cent of their exports were legally consumed and the rest was smuggled back into Canada. If that were the problem why did we not try to solve that problem before we took these measures?

It seems these figures show the extent of the smuggling problem as it existed prior to February 8. It confirms that Canadian tobacco manufacturers were benefiting directly from the smuggling of tobacco back into Canada. Bill C-32 will permit tobacco manufacturers to export 3 per cent of their tobacco production tax exempt. Under the bill, 3 per cent will be allowed and that is the same level as it was before.

The Canadian Cancer Society is concerned that a potential loophole exists in the legislation. Section 7(1) states: "The export tax will not apply when the national tax of the country of destination is paid". In this legislation the government included a loophole so that these companies would avoid paying the Canadian export tax.

For example, in the United States the national tax is only $2.40 U.S. per carton of 200 cigarettes. That is the tax going into the United States. The Canadian Cancer Society says that by paying this low federal tax in the U.S. the deterrence of the export value is reduced. They do not have to pay the Canadian export tax if they pay the American tax, and the American tax is much lower than the Canadian tax. It is common sense. Will they pay the Canadian tax? Of course not.

Reformers agree with the Canadian Cancer Society recommendation that this clause should be amended so that the export tax is reduced by the amount of foreign paid tax. The government fails to acknowledge the fact that needs to be amended or that loophole needs to be closed.

If the foreign tax paid is greater than $8 per 200 cigarettes then there would be no export tax payable. As I just illustrated it is only $2.40 in the United States where most of the tobacco is exported. If this change were made to Bill C-32 in the United States the industry would pay U.S. federal tax plus a partial Canadian export tax, the total of which would equal $8 per carton of 200 cigarettes. If that were done the loophole would be closed.

Reformers tried to propose an amendment to close the loophole but were told-again this is how government works-by the legislative counsel of the House that this amounted to a tax increase and that only the minister could move such an amendment. We were prevented from moving that amendment because it involved a tax increase. Reformers asked the minister to make such amendment as soon as possible. We ask that this be corrected and that it be done quickly.

The Reform Party also supports the health promotion surtax which will increase by 40 per cent the taxes paid on profits made by tobacco manufacturers. We support this surtax. We feel the surtax on profits of the tobacco companies is an excellent approach based on the principle that the tobacco companies should assume more responsibility for the health problems caused by their products. The surtax would do that. It is a surtax on their profits.

Unfortunately the tobacco companies have had a windfall of profits as a result of the increased sales of tobacco products. It is estimated that tobacco manufacturers will have earned enough

in increased profits in six months to more than pay the full three-year health promotion surtax obligation. That is interesting.

Reformers are confused about the rationale used by the government in only having the health promotion surtax apply for three years. In six months they will have made enough increase in their profits to pay it for three years. That surtax comes off in three years. It is built right into the legislation. It will only apply for a three-year term, while the tobacco tax reduction will be in effect and still cause increased consumption and increased health costs long after the surtax is taken off.

Reformers believe that the health promotion surtax should be in effect until the tobacco taxes return to their pre-February 8, 1994 levels. That is how long the surtax should remain in effect. That is common sense.

Reformers tried to propose an amendment to extend the health promotion surtax from three to six years. However again we have that problem. The legislative council advised us that the expansion of a tax could only be made or moved by the minister. The Reformers respectfully request the minister to do that as soon as possible, to make that change and to close the loopholes.

Reformers also support the increase in fines for illegal possession or sale of unstamped tobacco products: increase the fines and solve the problem where it exists.

Reformers believe that increased enforcement combined with the effective export tax should have been tried by the government before it reduced the taxes on cigarettes and tobacco products. If we knew there was a health risk here why did we not try some other avenues first?

We could have put an export tax on those cigarettes. We could have tried enforcement to see how effective it would have been. We knew where the problem existed. We knew where the smuggling was taking place. Reformers believe that if we had tried these things we may not have put the health of Canadians at such great risk.

The final part of Bill C-32 which the Reform Party supports is the immediate payment of tax rebates owing to retailers and distributors throughout Canada. Retailers and wholesalers are owed an estimated $150 million in rebates of excise tax paid on tobacco products held in inventory while the excise tax rates were reduced. That is legitimate. We support the government in that rebate.

The minister cannot issue the rebate cheques until Bill C-32 is passed. While we oppose the reduction in tobacco taxes retailers are likely to get upset if we delay the bill, and rightfully so, thereby delaying their rebate cheques even further. We do not want to hold them up.

Reformers proposed at committee stage to have a separate bill introduced dealing with the rebates so that it could be passed quickly. This would allow retailers to get their money quickly. It would allow Parliament the time necessary to debate the full health costs. We would not have to rush the legislation through. Implications resulting from the tax reduction on cigarettes and tobacco products could be more thoroughly examined. The finance committee refused to even consider our request.

Let us start to discuss the provisions of Bill C-32 which we oppose. We are opposed to the tax reduction on cigarettes and tobacco products because it will increase smoking particularly among young people, the most vulnerable sector of our society. As a result it will increase health costs. Increasing smoking will increase health costs. It is a logical conclusion. That is what will happen.

Reformers find it amazing that the government caved into the criminal element of society so quickly. This sent the wrong signal to those who chose to break the law. The Liberal government said that if you defy the law it will change the law rather than enforce it. That is the signal it sent out to the criminal element and I cannot accept that.

Reformers find it hard to believe the government did not take a more reasonable approach and impose an effective export tax and increase enforcement in the areas where the majority of the smuggling was occurring. Even the commissioner of the RCMP confirmed in February that 70 per cent of the contraband tobacco was coming through the three Mohawk reserves between Cornwall and Montreal. If that is where the problem was, why not have the courage to enforce the laws of Canada?

What will we do now when the criminal element redirects its smuggling to alcohol, drugs and guns? My understanding is that they are already looking at this. They are looking at where else they can turn to make some money.

When the government caved in and lowered tobacco taxes, all MPs received representation from Canadian distillers that we should also lower the taxes on alcohol and booze. That is the logical thing. If we can reduce taxes in this area, let us reduce it over here because the smuggling will now occur in a different area. Are we going to treat that in the same way? Are we going to reduce the taxes on that? Is that going to be our approach?

There are some segments of this society, law-abiding citizens who very much wish that their taxes were reduced as quickly as this government has chosen to reduce the taxes on tobacco. The problem will still exist, but it will only be transferred to other areas.

The further reduction of the excise tax on cigarettes negotiated in Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island has now created an interprovincial

smuggling problem. Now it is an east-west smuggling problem. The problem has simply been transferred to a different area.

The government responded to this problem by implementing excise tax and offence provisions to prevent interprovincial smuggling. While Reformers support these provisions, we must point out that these provisions would not have been necessary if the government had tried to increase enforcement and a new export tax on tobacco products in the first place rather than reduce the tax on tobacco products. Now we have to deal with the interprovincial smuggling.

Senior officials at finance say the four western provinces are satisfied that their anti-smuggling campaign is working and that their revenues are holding. They are not likely to reduce their tobacco taxes. Therefore the government's attempt to stop smuggling has created another smuggling problem as I have just explained.

The action on smoking and health group appeared before the Standing Committee on Finance. It told members of Parliament how a 12-year old called a 1-800 mail order number advertised by the fax network which goes right into private homes. The 12-year old ordered and received four cartons of cigarettes by mail, no questions asked. That was across provincial boundaries. That is how easy it is to contravene the regulations this government has put into effect. A 12-year old can simply order cigarettes by phone and get them by giving a credit card number.

These volunteers asked the finance committee to make improvements in the enforcement provisions and increase the fines for this activity. The finance committee approved Bill C-32 without discussion, without further change.

The main point I would like to make today is with regard to the government's disregard for the health of Canadians, particularly young people. When the government first introduced its national action campaign to combat smuggling in February, we asked the government to tell us what the increased health care costs would be.

How many people will start smoking as a result of the tax reduction? Because cigarettes cost less, how many people will begin this habit that they will later find very difficult to break?

How many Canadians will become addicted? If this is a temporary tax reduction, will we then have an addiction problem to deal with later? How many people will get lung cancer, emphysema, heart disease and strokes as a result of this plan? How many people will suffer or die as a direct result of the government's tax reduction? How much will this cost the Canadian taxpayer? This tax reduction will end up costing us a horrific amount of money.

The government has continued to push the implementation of this bill despite not having the answers to these very important questions. If we do not have the answers to these questions, how can we continue with this bill?

While the Parliamentary Secretary to the Minister of Health has made it clear that the tax reduction would pose increased health risks, these risks, the costs, the implications for government and the human suffering have not been quantified. Reformers find this appalling.

The Canadian Cancer Society asked the Standing Committee on Finance to complete a thorough evaluation of the health care costs and implications of smoking in Canada, because such an evaluation had not been done since 1986. The finance committee listened politely, but it completely ignored the dozens of recommendations and passed the clause by clause reading of Bill C-32.

Do you know how long it took the committee to pass all of those clauses in Bill C-32? It took 15 seconds. After all the representation we received and all the concerns that were expressed in 15 seconds the committee said: "Here they are, we approve them all". This clause by clause review of a 62 page bill was done in 15 seconds. That is democracy.

Is it any wonder that Reformers are advocating and pushing for a triple-E senate where legislation like this could be reviewed seriously and thoughtfully and amended reasonably. Amendments could be proposed and debated intelligently. Some sober second thought could be given to some of the things the government is doing. A triple-E senate would prevent some of the serious mistakes we are making in pushing legislation through so quickly.

I ask again: What will the increased health costs be? The Canadian Cancer Society provided the Standing Committee on Finance with some estimates prepared by Professor Robert Allen from the department of economics at Harvard University.

Using Professor Allen's most conservative estimates, he predicted that the national cigarette consumption would rise by 14 per cent among adults and it would rise by 35 per cent among young people. Those are the most conservative estimates.

Thus the tax reductions implemented by the Liberals will increase the total number of tobacco users in Canada by 840,000 and of these 175,000 will be teenagers. At this rate Professor Allen predicted health costs would rise in the long term by $1.33 billion-one thousand, three hundred and thirty millions of dollars-a horrific increase in costs. Those are conservative estimates; it could be higher.

This government will not be in power any more when the detrimental costs of the legislation it is implementing will have to be paid by the people of Canada. The government will not even be around to harvest its returns. As Professor Allen has said these are the most conservative estimates. It could be much higher. It could result in 1.89 million new smokers and if it was that high 245,000 of those would be young people.

If that happens it would result in increased health spending of an additional $3 billion every year. Still the government fails to tell Canadians what the impact will be. It has hidden that. It refuses to conduct its own evaluation of health costs and implications. It does not even look at it. That is ignoring the health of Canadians.

This is an example of a bill that has such serious health implications and risks it should have been debated jointly by the Standing Committee on Health and the Standing Committee on Finance. Both committees should have been involved. Only in this way could Canadians' concerns about the health risks be properly debated during committee stage.

Had this been done I believe many of the amendments proposed by the Canadian Cancer Society and action on smoking and health would have been made by the government rather than Reformers just talking about them today in the House of Commons. They would have had a chance to make the amendments.

For a government that claims to be listening to the people it does very little of it. Precious little listening is being done to the concerns of Canadians through the Canadian Cancer Society and action on smoking and health.

Another one of our major concerns is that the government has not provided Canadians with a timetable showing when the tobacco taxes will start going up again. Already the cost of cigarettes in three border states is higher than in Canada. Across the line you have to pay more for cigarettes than in Canada because of the action this government has taken.

The government acknowledges the dramatic effect high taxes have on tobacco consumption. It acknowledges that the health promotion surtax will end in three years, but it has not told Canadians what it plans to do at the end of three years. We proposed an amendment but as I said, it is out of order because the minister has to propose the amendment if it is a tax increase.

Will the government make a commitment to raise prices to what they were prior to February 8, 1994 when the health promotion surtax is removed at the end of three years? Will the government make that commitment? Reformers proposed it but legislative counsel advised us that only the minister can do that. Reformers respectfully request the minister to introduce a new bill to bring such an amendment into effect.

For the sake of the health of all Canadians, for the sake of all of those young people who will take up smoking as a direct result of the government's action, for those people, will the government tell Canadians today that this is not a permanent tax reduction? Will it come in with a plan to increase this again? Will this government tell Canadians that their health is of more concern than the interests of a few smugglers and a few tobacco manufacturers? It is very important that the government send a signal to Canadians that yes, it is concerned.

In closing, I have a list of recommendations for the government in regard to the whole subject of cigarettes and tobacco products.

First, we need an immediate evaluation of the health care costs and implications, particularly for young people. This government should begin to find out what is going to happen as a result of its action.

Second, we need to extend the health promotion surtax beyond three years. It should be in effect as long as tobacco taxes remain as low as they are. That is common sense. There should not be an end to one measure and a continuation of another.

Third, we need to make tobacco companies fully accountable for the increased health care costs. Accountability and responsibility must be laid at the feet of those that are profiting from the sale of this product.

Fourth, we need a clear timetable to increase taxes on cigarettes and tobacco products. That should be done. It should begin now. There should be an amendment put in place to make sure that these tobacco taxes are again increased. Co-operate with the Americans. Consult and discuss with them how we can jointly combat this problem.

Fifth, we need to close the loopholes in the export taxes. I have illustrated already, and I will not belabour the point, but let us close those loopholes. If the loophole is there, people will be going through it and profiting from it.

Sixth, we need a better enforcement strategy to stop the east-west smuggling problem. Mail order advertising has not been stopped. I gave the example of a 12-year old who was able to order cartons of cigarettes through the mail.

Seventh, the level of fines also needs to be increased to deter people.

Eighth, we need to ban small packages of smokeless tobacco products. I addressed this previously. I will not refer to it again other than to say that it is on the record.

The hon. member opposite acknowledged that the amendment I proposed should be implemented, but it was not done because of a technicality. Snuff and chewing tobacco designed for sale to young people should be discouraged.

Ninth, health warnings on cigarette packages are being obscured by manufacturers and government should put an immediate end to this practice. An example of that was given in committee, but the government has not addressed the problem.

Tenth, there is a need for a complete and total ban on tobacco advertising.

From what my constituents are telling me and from what I have been hearing from Canadians, it is clear that the government has once again passed a law that clearly the majority of Canadians do not support. The government continues to push things through, to railroad them through the House, when they are unacceptable to the majority of Canadians.

Reformers believe that the health of Canadians should be the government's first priority. The government has sacrificed the health of Canadians by lowering taxes on cigarettes and Canadians will have the opportunity some day to decide if it was the wisest thing for the government to do. But it may be too late.

Nothing much has changed since we began debating this. The government seems to have an agenda and no amount of common sense will cause it to ever amend the bill. I find that very regrettable. I hope government members are listening like they claim they are.

[Pierre Brien, Bloc, Témiscamingue, QC]

Mr. Speaker, it seems odd to be discussing a bill proposing a reduction in tobacco taxes and to find in it a completely unrelated measure on air transportation. The latter is certainly the measure we oppose the most in this bill. I am going to the bill in perspective a bit and speak about what led up to it, and then about what we support and what we do not.

First of all, we have to remember that there was a serious problem with cigarette smuggling, especially in Quebec but also very serious in Ontario and getting worse in the other provinces. It was a problem that was spreading from east to west. Of course smuggling was not bad yet in the western provinces, or at any rate had not assumed the same proportions.

To alleviate the problem, given that the situation had dragged on for several years, it was almost impossible to come up with a solution that did not involve reducing taxes, that is, using price-related incentives to bring buyers back to the legal market.

The price of cigarettes had gone up considerably over the last six or seven years and tobacco users were getting increasingly annoyed by the increasing tax burden, especially in conjunction with higher taxes of all kinds. Their annoyance pushed them toward the black market, the underground economy, where they bought with a clear conscience. It became a very common practice.

Various measures were tried to correct the situation, but nothing worked, for as we know there was very little real control in the field, even with all the resources of the RCMP, the Sûreté du Québec and everybody else. It would have been very difficult to solve the problem, because it was so wide-spread. It took so long to react that a contraband network had time to spring up, take over the market and provide excellent service, up to and including home deliveries.

That is why at the start of this session we strongly urged the government to take action, to move rapidly after all the pressure and especially after the "MATRAC" movement in Quebec, where merchants themselves decided to defy the law. The problem had clearly got out of hand and at that point the government decided to act. So as far as reducing the tax as such is concerned, there is no major problem.

There are plenty of people who would say we should be cautious. We all know the negative effects of tobacco use, and it is certainly not our intention to encourage consumption. However, bringing people back to the legal market is one of our concerns, as is encouraging people to respect the law and the system that our society has set up.

Except that at the same time as these measures were introduced, the government said it would be bringing in a battle plan, a plan to encourage people not to consume tobacco products. There is supposed to be a vast education campaign on the harmful effects of tobacco use, focussing especially on young people.

So one of the measures in the bill, a surtax on tobacco manufacturing profits, is going to make the tobacco manufacturers finance the plan themselves. But here a first reservation must be voiced. The anti-smoking campaign is supposed to last three years, while the surtax apparently will last longer than that or be permanent.

So at the end of the three years, the revenue that is supposed to go toward discouraging tobacco use will be clearly reduced because the surtax will no longer be used for the campaign. It should have been stipulated that the money be used for this purpose. Besides, the surtax revenues are higher than the amount required for the plan announced by the Minister of Health, which involves spending $185 million over the next three years, while it is projected that the surtax revenues will be at least $210 million. So there is one thing to query, the fact that this money will not be allocated directly when that was what we were told would happen when the anti-smuggling campaign was announced.

There are measures, there is the surtax, which is also designed to penalize to a certain extent people who really collaborated with the smugglers-to punish the producers, in fact, when we know that they can easily get it back by raising the price to the consumer. So this may simply raise prices again somewhat.

Obviously there are people who think that lower prices will stimulate consumption, except that you have to bear in mind that the black-market price was extremely low, even ridiculously low. So the data that should be considered, the prices that should be compared, are the new price now with the black-market price, and not the price now with the old price, since in any event it may have been as little as one-third of the sales that were made on the legal market, mainly in Quebec and Ontario.

Mr. Speaker, these are measures that do not strike us as so bad overall, but the government has done something really crazy with respect to inventories. All the little vendors who suffered the harmful effects of smuggling over the past three or four years, who already have had to shoulder significant losses in most cases, will only get a partial rebate on the stocks they had at the time the announcement was made or the tax reduced.

Since those merchants paid the full amount of the tax, the government should logically reimburse them in full.

The government has said it will refund only $5 a carton, while in Quebec, for example, the reduced federal tax is equivalent to $10 a carton; so this is only a 50 per cent rebate.

Why only $5? Why make those merchants, who have already absorbed costs over the past few years, pay for a portion of the anti-smuggling campaign? And these are small vendors, convenience store owners, small shopkeepers, who are affected. Some would be spared; the ones with at least 5,000 cartons in stock would get a full rebate. Where is the logic in setting a limit of 5,000 cartons?

I will give you an example. In my riding there is a wholesaler with an inventory of 3,000 cartons. He paid $10 in tax on each of them, but he will get back only $5. This is an instant $15,000 loss. People like hin do not make astronomical profits. And it is a serious matter for him, $15,000. It may ultimately mean laying someone off. It might be argued that the market is recovering and this will enable them to get their money back, but that certainly will not be true in the short term.

When departmental officials appeared before the committee, they said that when the opposite occurred, when taxes were increased, retailers then had an advantage, because they had paid the old tax. So when they sold their products, they profited, if you will, from the difference. It is true, but never had tax increases been so drastic, and now the tax has been reduced.

We are strongly opposed to this. And for the same reasons as those mentioned by the hon. member from the Reform Party who spoke just before me-only the minister can table an amendment involving a tax increase. We tried to make many people aware of this point. Representatives of small businesses tried to bring pressure to bear on the minister, but without success.

This is very discouraging, and it is one reason why we cannot support this entire component, because this measure alone will be very harmful to small business.

I would now like to address another feature of the bill. One might ask why a measure concerning air transportation was included in a bill to reduce cigarette taxes.

When we take a closer look at this measure, the whys and wherefores become a little clearer. They wanted to hide it, so that no one would notice that it was going through. They knew there was good support for reducing cigarette taxes, so they put in a controversial measure involving air transportation that affects primarily the regions and the remote areas. A good way to avoid a more heated and more public debate on this particular point was to bury it in a bill whose primary objective has nothing to do with transportation.

The repercussions of this measure will be very serious in most outlying regions, which are already hard hit by the deregulation of air transportation. In the past few years, the price of tickets has gone up considerably. It costs more to travel from some regions in Quebec to Montreal than it does to travel from Montreal to Paris. That situation runs counter to all logic. We should help regions develop and take charge of their future. While, on the one hand, we are trying to do that, on the other hand, measures that will affect those regions are being imposed. I live in one of those regions; I represent the riding of Témiscamingue, which has Rouyn-Noranda as its major airport. We are very much affected.

What is really going to happen with the structure? The former tax structure had a flat rate tax, and then a graduated rate and a $40 maximum. That means that when we bought a $500 air ticket, we paid the maximum $40 tax.

Now we are told that the flat rate is going to be a little lower and is going to go up gradually, but that the maximum tax will now be $50 on all regional flights. And those are not necessarily long-haul flights. They are flights to the major urban centres. The amount of the tax will increase, because it is not often that a ticket costs less than $500, not often at all for a return ticket.

When you get into prices a little over $600, you reach the new $60 maximum. All air tickets costing $450 or more will be negatively affected; and that is true for all regions. I am not talking about Quebec, or the Maritimes, or the west, as a region in itself; I am talking about regions within Quebec, what we call regions here. The same thing will be true in northern Ontario. The ridings adjoining mine will be affected in the same way, and I am sure that when some Liberal MPs hear from the people in their ridings, they will see that this is certainly not a popular measure. But, since it is going pretty well unnoticed, people will not know exactly who to blame. Did the provincial government

or the federal government increase this tax? It will be hard to tell. People must be told.

The overall consequence of this restructuring of the tax on air transportation will bring in extra revenues of $24 million this year and $44 million next year. Mind you, the tax on short-haul flights, from Ottawa to Toronto or from Montreal to Toronto, for example, will go down. The tax on air tickets costing less than $450 will go down.

The regional flights will bear the brunt of that $24 million or $44 million and even more, since the tax on short-haul flights will generate less revenue. What we are talking about here is the 80 per cent of flights that are short-haul flights which will benefit, and the 20 per cent of flights that are regional flights which will be penalized. It is the 20 per cent of flights to outlying regions that will have to bear the brunt of the $24 million this year and $44 million next year. That is not acceptable, not at all.

A one dollar increase in the price of an air ticket in a region where the price is already exorbitant is completely unacceptable. A $10 tax increase is even less acceptable; it contradicts the logic of all those promises of more air transportation tax relief for the regions, and it contradicts other policies to support regional development and help the regions take charge of their future.

What we have to understand here is that many of those flights are used by people from federal or provincial government departments, travelling to the major urban centres and thus simply passing on higher expenses to the other level of government or within their own government, while penalizing consumers.

It would have been possible to look at international flights, as was recommended to the Finance Committee by the Baie-Comeau chamber of commerce, for example-which, by the way, has worked closely with the chambers of commerce in several regions of Quebec, including those in Val-d'Or and Rouyn-Noranda in my region. Would it not be possible, without necessarily losing any revenue, to look at taxation on those flights?

Through the transport committee and the finance committee, the government is being asked to look at why efforts at deregulation and competition are not bringing prices down. The frequency of flights has gone up in certain regions, but the cost of tickets has gone up, while it was anticipated that it would go down. Perhaps it would be appropriate to take a good hard look at the situation and see what could be done to support regional development.

Because of the fact that small merchants who had stocks of cartons of cigarettes will not be reimbursed and because, in a rather underhanded way, a tax is being introduced that will penalize the regions, we cannot support this bill, even though we find some aspects, such as reducing taxes to fight cigarette smuggling, quite positive.

Overall, the fact that some measures, especially the measure concerning transportation, are quite negative-although the measure concerning small businesses is very negative as well-, means that we shall vote against this bill.

I hope however that some of our colleagues from the Liberal Party-particularly those from northern Ontario-will wake up and pressure their government into eventually restructuring air transportation, allowing for regional development and giving regional authorities a better opportunity to plan their economic development than the present contradictory initiatives taken by different departments. These initiatives have left the regions extremely skeptical as to the federal government's capacity to manage economic development in more remote areas.

[Jim Silye, Reform, Calgary Centre, AB]

Mr. Speaker, I rise today to speak in favour of Bill C-32. Some of my colleagues today will be expressing many of the negative aspects surrounding this bill and a lot will be speaking against it.

This bill covers three areas, changes for meal allowance and also the air transportation tax and the tobacco tax. This bill is the last stage in the government action plan to combat smuggling. The first stage was Bill C-11 which was mainly concerned with enforcement. This bill brings into effect the proposed tax changes.

With respect to the changes to the meal allowance, the eligible business meals and entertainment expenses are reduced from 80 per cent to 50 per cent in accordance with the provisions outlined in the budget. We supported these changes when the budget came out on the basis that they amounted to business subsidy.

While I recognize that these expenses are legitimate business expenses for some, the reality of the tax break was that it was being used to escape tax and subsidize the recreation activity of business. In addition, some tax relief is still available, albeit at a reduced rate. My colleagues and I are in favour of this aspect of this bill.

With respect to the air transportation tax, this bill reduces the tax burden on short haul, domestic and transporter flights by decreasing the flat charge per ticket and increasing the maximum fee. The flat fee is decreased to $6 and the maximum is increased to $50. The changes will bring additional revenue to the government of $24 million projected in 1994 and $41 million in 1995.

I support this change as it makes the air transportation tax move toward a full cost recovery basis. I believe the majority of my caucus colleagues also favour that.

The most important issue is the tobacco tax. Although the majority of our caucus is opposed to the reduction of the excise tax on tobacco products, I disagree with it. Our caucus, though, has some legitimate reasons for being opposed to the reduction. It feels it will encourage more people to smoke, particularly young people. Long term health costs for Canadians have not been calculated. Aggressive enforcement should have been tried first and the new export taxes on tobacco should have been tried first.

I agree with all of those but nevertheless the government failed to approach the problem with that attitude and now we are left with this particular bill in its present form.

My riding is basically split 50:50 on this issue. Fifty per cent are against this bill only because of the impact upon the increase in health costs. Therefore I am looking at this issue not only as a representative of Calgary Centre. I am looking at it as a representative of all of Canada, from the country's point of view.

In order to solve a problem we must first of all identify what that problem is, decide on what courses of action are available that will help solve that problem, pick the one that will solve the problem the best and the fastest, implement the decision and examine the results. If it is working, stick with it and if it is not go back to some of the other options.

The main problem we are addressing today is one of organized crime, the underground economy and in particular the problem of cigarette smuggling into Canada. I sympathize with the Prime Minister and the problem that he had with this issue in trying to come up with a solution. It is not an easy one.

With his four point plan he looked at all the factors involved and made a tough decision. It is one of the few he has made. Although we are critical of him it is meant to be constructive and in that area where I feel we can support him I would like to do that.

This issue certainly has cost the government a lot of money and has driven a lot of legal people into the illegal underground economy. Because this addresses that and solves that problem I feel it certainly deserves my support and so I will be talking about that.

The truth of the matter is some people want to smoke. Some people want to drink alcoholic beverages. All people need to eat. Our health care costs are directly linked to our diet and our exercise or lack thereof and not just to cigarettes and booze. To specifically target one item, although undoubtedly a killer-there is no question that one in three to one in four people dies of cancer because of cigarette smoking-do these same people who advocate raising a tax on cigarettes advocate raising a tax on all food that is bad for us? No, they do not. They allow us to have a choice as it should be with cigarettes and booze.

No matter how high we drive sin taxes, no matter how much we try to discourage the public from doing something through legislation, through the Income Tax Act, if people want to do it and if it is still legal they will do it.

I find it somewhat hypocritical that we say it is legal to smoke and it is legal to drink after a certain age, but then we try to price it out of the market because it is bad for our health. Either this government wants to allow people to do freely what they like to do or it does not, instead of trying to mix the two together.

With respect to the health issue, there have been many concerns expressed by health organizations and individual Canadians who believe that by reducing the cost of cigarettes more people, especially young people, children, will begin to smoke. In my opinion by raising the legal age to smoke, eliminating kiddie packs, limiting vending machines to bars, the government has taken a step in the right direction toward the reduction of smoking in young people.

This fact combined with the increased fines for retailers who sell to minors will help mitigate the problem. I also have a further suggestion in this area and it was well received in the finance committee by the Parliamentary Secretary to the Minister of Health. Patrol the high schools and when the police catch the under age people smoking, they could issue them a summons that also gets mailed to the home. The parents then would be made aware of the fact that their children are smoking. The summons would say basically the next time we catch your child you will also get a summons but that one will cost you $50 and each and every time we catch your child smoking it will cost you $50. This perhaps is a way of curtailing young people from smoking.

That is a separate issue from what this bill is trying to resolve. It is trying to resolve the issue of smuggling, not the issue of encouraging young people to smoke.

The federal government is currently losing a guestimate of $60 billion to $80 billion per year to the underground economy. This loss of revenue has a direct negative effect on the ability of small, law-abiding businesses to compete in the private sector. In the end it is the Canadian taxpayers who pay for the loss of revenue and the increased costs associated with the lucrative practice of smuggling.

I ask non-smoking Canadians who do not feel that the problem of smuggling affects them to think again. The number of people who have been charged by RCMP Customs and Excise has increased from 414 in 1990 to 3,389 to date. The number of seizures within this same time frame has increased from 303 in 1990 to 5,044 to date. Increased enforcement and prosecution

combined with the loss of government revenues costs the government over a billion dollars a year.

In the end it is every Canadian taxpayer, not just those who drink and smoke, who ends up paying these costs in the form of higher taxes.

The only way to truly eliminate the problem is to reduce the profitability to smugglers, take the profit out of smuggling. In order to do that we have to reduce the cost and the taxes. By reducing the cost differential between smuggled and retailed cigarettes, ordinary cigarette smokers will have less incentive to seek out and purchase illegal cigarettes and, on a larger scale, organized crime will be no longer able to profit from it.

Only when the profit is removed will smuggling be reduced. Law enforcement alone without the removal of profit margin will not be enough to solve this major problem.

We must not lose sight of the fact that this bill is primarily targeted at the multi-billion dollar smuggling market. Federal and provincial governments tax cigarettes and liquor not just to reduce consumption but to generate extra revenue for other programs. These so-called sin taxes combined with health awareness campaigns will not eliminate in its entirety the use and abuse of these substances.

If we go back to before this act, what were the facts? The facts were that people were smoking and people were drinking, except that the purchase of cigarettes went into an underground economy. This is an attempt to bring it to the surface. It is up to all Canadians to deal with this problem at home, in schools and in their communities. If further measures are needed to be taken by the government, then we should vigorously examine all of our options. The bill addresses organized crime, the tobacco companies and respect for the law.

The critics of the bill, including some of my caucus members, have focused on health care costs, more young people smoking and the loss of revenue at a time when government can least afford it.

There are other means available to deter smokers without relying on taxation only. For instance, we could have variable insurance premiums for smokers and non-smokers. The same with alcohol and non-alcohol drinkers, like we do with automobiles. We do it somewhat with physicals but we could even make it more onerous, more specific and more related to being able to identify potential costs to health care by a person who has certain habits, although they are legal, which may cost the taxpayers more money. Therefore their premiums should be higher.

Furthermore, the advertising and education programs about the effects of smoking should be recognized as an influencing factor, although not an end in itself. Despite the many lectures of parents to their children, despite the many TV commercials, despite the many educational programs that are out there for children and people of all ages, people still smoke.

I personally would cancel the TV commercials because they are ineffective. The young people of this society just laugh at them. They think it is a joke. The government should concentrate on a direct communications piece with each taxpayer to create awareness of the dangers of smoking. That money spent that way would be much more effective. It is a direct message to families and to individuals, done in a professional manner and intended to make people aware of the problems of drinking and smoking. That message would be received by everybody, not just on a hit or miss affair by television where only the TV companies benefit with the extra revenue for their commercials.

There are a few other things I would like to address on this bill. There is an organization called action on smoking and health. Where my colleagues have talked about the impact and effects of this bill on more people smoking and the cost to health care, I suggest they are co-mingling. To argue that lower priced cigarettes will increase smoking, I do not buy that. As my colleague said, 97 per cent of the cigarettes that were manufactured and exported to the United States were coming back into this country in the underground economy. Whatever percentage that was of the manufactured cigarettes, that is exactly the percentage of how much smoking will increase by any survey that is released today or tomorrow or next year because it is now out in the public, it is out on the surface and it is out in the open.

To use that statistic and say that cigarette smoking is increasing because of the lower price is not entirely accurate. I realize that people are smoking. I realize the lower the price is of something then people can afford it and they will buy it but we have to solve the underground economy problem. We have to lower taxes. We have to encourage the government to recognize the benefits of lower taxes.

As my colleague asked, if we lower taxes on cigarettes should we lower it on alcohol? The answer is yes. Should we lower it on jewellery and clothing imported from the United States? The answer is yes. Should we lower overall taxes? Should we lower the GST? The answer is yes. How do we pay for it all? We eliminate the dumb wasteful spending of this government that has increased spending by $3 billion this year.

It will not look at the programs of each of the ministries and reduce spending. It will not go through it line by line. It gave a billion dollars to companies that do not want it. It gives grants and subsidies to people who abuse it, misuse it, and come out with ridiculous reports. That is where we could save a lot. With lower taxes and more money in the hands of ordinary Canadian

taxpayers, it would then increase disposable income and the economy would start to generate and work.

It is economy No. 1. I took it in university in 1968. I have not forgotten it. It seems like the members in this House and the ministers especially will not even go back to economy No. 1 and implement some of the basics of that.

I got off on a slight tangent, let me get back on track.

This is also to show that the two issues are separate. If you want to cure problems in health care then solve the health care problems. If you want to cure the smuggling problem then we have to support bills and issues and ways and means to do that. I believe this does.

However, my colleagues are concerned about the health aspect of smoking and interprovincial smuggling because now that has created a problem. Some westerners are writing letters and saying they feel like second class citizens because of what Ontario and the eastern provinces have done by accepting the lower tax. That is a provincial decision. If the western premiers do not wish to do that that is their decision.

There is a group called action on smoking and health which has made a representation to the finance minister. I would like to touch on some of this and get it into the record because I believe it is important.

Action on smoking and health is western Canada's leading tobacco control agency. It is very concerned with the federal tax differentials contained within Bill C-32. It fully supports the recommendations of western finance ministers to restore a uniform federal tax regime on tobacco products. It believes that the proposed fines for interprovincial smuggling are inadequate and need to be adjusted. I concur.

Based on its calculations, a proposed tax penalty of three times the excise tax avoided barely accounts for the potential profit margin earned by smugglers who ship Quebec and Ontario cigarettes to western Canada.

While there is a $1,000 additional penalty in Bill C-32 for smuggling violations, a Quebec smuggler would only have to ship two cases of cigarettes to Alberta to cover this loss based on current profit margin. It recommends a more meaningful penalty similar to the new Alberta legislation, and once again that great province is a leader, which provides for fines up to $10,000 and a six month prison sentence for first time violations.

That is called punishment. That is what our law should be designed to do in the criminal justice system, not rehabilitation all the time. Maybe the two combined, but punishment first.

In its presentation to the finance committee it also pointed out that the current federal duty strip obstructs the health warning on cigarette packages. If the Minister of Health does not get her plain packaging on cigarettes then perhaps the recommendation that duty strips be positioned horizontally along the package so as not to interfere with the health warning might be a useful recommendation.

I found a quotation in a book written by some intelligent economists which reads: "In summation, what we need is an immediate tax cut for low and middle income groups in order to increase demand and purchasing power". That is the lesson of economics that I wish to pass along to this government, the vice-chairman of the Standing Committee on Finance, the Minister of Finance, the Minister of Industry and the Minister of National Revenue and taxation. What this country needs is an immediate tax cut for low and middle income groups in order to increase demand and purchasing power. What we have in this country is a spending problem, not a revenue problem.

[Harold Culbert, Liberal, Carleton—Charlotte, NB]

Mr. Speaker, we certainly appreciated the hon. member's lesson in economics as he calls it.

Coming from one of the ridings along the 49th parallel between Canada and our good friends to the south, I can give a bit of a history lesson on the smuggling of tobacco products, what it meant to my constituency and the businesses and more so the criminal element that it initiated that crept in.

I appreciated the hon. member's comments. I believe that the majority if not all members in this House would indeed support an action that would reduce or eliminate smoking by our youth and indeed by every citizen in this country. I am sure that would be the case.

Whether it is through reduced taxation to be competitive or through smuggling those same tobacco and cigarette products which are and have been available over the past number of years, this whole scenario has created an opportunity for the criminal element to make quick profits at the expense of not only Canadian citizens but the revenue of government through taxation and certainly certainly our youth.

It is not only the criminal element. Because of the wide variation and differential between prices due to taxation, we also saw tobacco products being brought across the border that were very legal.

Would the hon. member agree that the actions taken by the government in this bill to eliminate tobacco smuggling across our borders was not only the correct option but the option that has in fact worked as we have seen over the last two or three months? Since that action was taken the criminal element has been reduced at our border crossings and, as he has indicated,

many arrests have been made. This action taken by the government has indeed worked. I would like to hear his comments.

[Jim Silye, Reform, Calgary Centre, AB]

Mr. Speaker, I would like to approach it in two ways. When the Prime Minister addressed this problem early on in the House when we first arrived here, veterans and rookies alike, this started to develop into a bigger and bigger problem.

Our frustration was that the smuggling was occurring in two major areas. We knew where they were. The problem was that they were on reserve lands. The RCMP was reluctant to go on those lands and make arrests. That led us to believe that this government was shortsighted and lacked the political will to enforce the laws of this country. Two sets of laws started to appear, one for native Indians and their borders and one for the rest of Canada. Therefore, we encouraged the government to enforce the law.

I believe the Prime Minister heard that message and in consultation with the head of the RCMP and the Solicitor General he tried to solve the problem.

The Prime Minister heard that message and in consultation with the head of the RCMP and the Solicitor General he tried to solve the problem. His final conclusion was a four-point plan to resolve the issue, to build respect for the law and to prevent the smuggling which is costing taxpayers a lot of money, smokers and non-smokers alike.

I supported his four-point plan. I thought it was well thought out. It was a tough decision. He made a political decision. He made a reasoned decision in the best interests of solving the problem. For that I commend him, for that I respect him and I think he did the right thing. In answer to that, I do support what he did.

As some of my colleagues have mentioned, other steps could have been tried first. Having said that about the Prime Minister, I feel it has worked.

Now that I took so long to answer that part of the question, I forget the second part. I cannot answer it, I apologize.

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

Mr. Speaker, I want to make a few comments about the process taking place here today.

It makes it a bit awkward when we have an omnibus bill, one that contains something about airport taxes, tobacco taxes and other measures. It is difficult to support such a bill when it contains something to which you are completely opposed. You may support two of the three measures but have to vote against the bill because of something in it that is unacceptable. I have an objection to that kind of thing happening. The issues should be separated out so we can discuss them and vote on them separately.

There is a second thing I would like to comment on. My colleague may wish to respond even though he does not have to. We have the freedom to speak up in the House. We may not agree with even our colleagues within the same party but the government should encourage free discussion and debate.

Like my colleague said, we should identify the problem. We should determine our options. We should decide what would be a reasonable course of action to take and it should be debated. The legislation that flows from the discussion should reflect the feelings of every member in the House.

Very seldom do I hear people sitting on the backbenches of the government expressing an opinion that is contrary to the cabinet. That is a shame. It is unacceptable. In a free and democratic society, we should be allowed to express dissent. That is what should be happening. Debate should be taking place.

I wonder why more people do not speak up and express their concerns in regard to this. Surely members of the Reform Party are not the only ones who are concerned about health. There must be Liberals who also have those kinds of concerns.

My colleague has brought up some legitimate health concerns other than tobacco. They could be debated. It might be a related issue but we should be talking about it.

We need to have that kind of open discussion here. We have begun the process. We have allowed for it. It has happened on occasion but I would like to see more of it. If my hon. colleague would like to comment on any of that, I would welcome him to do so.

[Jim Silye, Reform, Calgary Centre, AB]

Mr. Speaker, I feel like I have been put on the spot. Our party believes we should be representing our constituencies and by so doing, because we come from so many varied ridings, both urban and rural, both sides of the mountains, both ends of the country, Ontario to B.C., we will have differing opinions. We will have different views on the same issue.

In trying to determine how to vote on a bill, on an issue, I think it is important first of all to bounce ideas, the thrust of the bill, against your party's principles and platform. The Liberals do it with their red book. We had a blue book which we call now the blue sheet. If it is consistent with that then there are no doubts on which way to go.

Then other issues become involved and problems start to surface, it becomes bigger, it becomes a multibillion dollar problem if you include alcohol, hand guns and everything else that gets smuggled into the country. Smuggling is a major problem. I do not believe it is in any red book or blue book.

I believe it is the responsibility of MPs to look at the issue from a Canadian perspective and make a decision in the best interests of the country. Bounce the ideas off constituents so they can have input. There are a lot of mechanisms and ways

and means by which they can communicate with their MP. We then have a balanced approach.

I am not so sure my colleague intended we should debate an issue first and then draft the legislation or that legislation should be drafted first and then we react to it. I prefer the latter. However if there are amendments such as those we have tried to make to this bill, they should be listened to instead of throwing them out as this current government likes to do.

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

Mr. Speaker, it is a pleasure for me to discuss this bill at third reading. I want to comment on a couple of remarks made by my colleagues across the way regarding this issue.

Comments have been made that this problem somehow started in October, some time shortly after we came to government. Our response to the problem was bringing in this legislation but we did not take into consideration the health question.

I do not have to remind hon. members where I come from. In my riding I represent a large number of tobacco producers but also the largest native reserve in the country. I used the term reserve in a somewhat limited way because I understand its negative connotations.

I first came to the House of Commons some six years ago, shortly after this problem started. In fact I have discussed it for a number of years. The smoke huts on the Six Nations are a long way from Akwesasne, a long way from where a lot of the so-called smuggling takes place. This started some four or five years ago. People started to use the tax system to their benefit.

This material did not just appear at one single point. It has been coming across the Canadian border for a number of years at a number of points in the east and in the west. It was always a major problem and it has significantly increased over the last two to three years.

Mr. Speaker, you come from an area where a lot of this problem is taking place, therefore you can attest to the fact that this has been going on in a serious manner for at least two to three years.

When the government brought in this legislation it wanted to also look at what many call the negative health effects of smoking. It looked at this issue in a very serious way. It saw that on every street corner in Toronto, Calgary, Vancouver and all across the country young Canadians had access to cheap cigarettes. That access was right on the corner at the school yard. Quite frankly over the last couple of years the smuggling networks got so sophisticated that it became a very good distribution system that was cheap and easy. Young Canadians had access to cigarettes and tobacco like they never had in the past.

This legislation tried to cut off that access to young Canadians. As a government, along with the provincial governments, we tried to make sure that the penalties imposed on the people who were selling tobacco to minors were greatly increased so that the risk of them being caught was also greatly increased.

By doing that we addressed the concerns of Canadians toward health and the easy access to cigarettes young Canadians were getting. By bringing in this legislation we have proven we have totally shut down the distribution system. We have made a system whereby they do not have access to cigarettes.

I agree with the hon. member who spoke previously that this has become a greater problem than just a tobacco problem, that it has moved into other areas. You know, coming from the area, Mr. Speaker, it has moved to alcohol, to guns.

If the hon. member would admit that a lot of what we have done in this legislation, a lot of what we have committed to do in other areas of enforcement, will take a big chunk out of the underground economy also.

What we have tried to do in this legislation is twofold. We have looked at the health of young Canadians. We have made sure that access to tobacco for young Canadians is cut off. We have addressed that health question. We have also made sure that the smuggling situation which has ramifications far beyond Canadians getting cheap cigarettes but has a lot to do with how native Canadians view themselves.

As I have said in the House before, I have had a lot more complaints from native Canadians, people of the Six Nations in my riding, about the smuggling situation than I did from non-natives. They recognized that the values being instilled by the people running the smoke shops and running the smuggling rings were not the values that their fathers and their forefathers had tried to instil in them.

I want to say that I have had a large number of people within the native community come to me and thank me for this bill and thank the government for bringing in this legislation.

I wanted to address the issue that somehow we had all of a sudden just reacted to the fact that we were not going to enforce legislation on native reserves. I do not think that is true. To suggest that smuggling was only taking place on Akwesasne is to ignore the fact that cigarettes were coming through all kinds of points across the country, including points in western Canada.

We have a very large open border. Unfortunately it is very easy to drive truckloads of this stuff across at any given point. We just do not have the sophistication or the numbers of people to check every single truckload of stuff that comes across the border. These smuggled cigarettes were coming in from every-

where. To suggest that it was just a native problem is misleading. It is suggesting something that is not the fact.

I will leave it at that. Mr. Speaker, I know that you have worked very hard on this issue and I want to thank you for your input. It was people who were dealing with it on the front lines, like yourself, that helped shape this legislation and helped create the solution to the problem that we solved.

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

Mr. Speaker, I listened with interest to the remarks that were made by my hon. colleague across the floor.

I want to clarify something. We do not suggest that this has all just begun. This problem has been building up. It would be foolish to say it was only here since October 25. That is not what we are saying. We are not saying that this plan will not combat smuggling. Of course if you reduce the price and there is no profit in it, there will not be any more smuggling. That is common sense.

The hon. member made a statement that I would like him to comment on. He said that the access to young Canadians is cut off. I doubt whether that is so. I still see young people with cigarettes in their mouths. I wonder how this plan is going to effectively control the use of tobacco by young people. I do not see anything here that is going to in any way guarantee that they will not have free access to tobacco products and will not be using them. If that access were limited we would not see many of the young people at the present time smoking. I would like to know what the hon. member sees as being positive in that regard. I still do not see the problem of health being directly addressed.

What about the alcohol and guns that are now being smuggled? What will the government do to address that problem? The smuggling element is still there. They have simply turned to another product to smuggle.

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

Mr. Speaker, I thank the hon. member for the questions. I will deal with the health question and with the second question as well. I do not think, as is being espoused by the Reform Party, that we have to militarize the Canada-U.S. border and send tanks into Akwesasne to deal with the situation. I do not think that is the solution.

I have always supported the idea that when we as a government move into certain areas we consult with the local communities involved. That is one thing we have done. We are committed to consulting Canadians to try to resolve the problem that way.

In terms of the health question access to illegal cigarettes was far easier prior to the bill-before we dropped the taxes and before we got rid of the smuggling-than it is today. Kids could buy them in every school yard. Right now because of the commitment of the government and the legislation the penalties for those in corner stores who might consider doing it is a lot greater. That is why the health question is addressed.

Young Canadians had access at any age. They did not have to show an age or majority card to a smuggler to buy cigarettes. They had that easy access in the school yard. They had it in every city across the country. It was not just in Toronto. It was not just in Montreal. It was also in downtown Calgary. Many parents came to us from those areas and suggested that something needed to be done. There was a problem. We took action on it and we did something about it. It may not please everybody but we saw a problem and we dealt with it.

In terms of dealing with the smuggling problem I agree, but the guns and alcohol smuggling problem is not a problem directly related to just reserves. It is a problem across the country. We made commitments to deal with some of gun control problems. The Minister of Justice said that we were committed to putting more resources toward stopping the smuggling of alcohol and guns. A lot of the problems in the country in terms of gun control is the fact that many of these guns are being used in crimes in major cities. They are not bought legally but are smuggled across the border.

We have seen the problem. The government has committed more resources, more time and more energy to resolving the problem and bringing in solutions. That is the sensible approach to dealing with the issue.

[Jack Ramsay, Reform, Crowfoot, AB]

Mr. Speaker, I have listened to the debate and to the hon. member's comments. I would like to make a short statement and ask him to respond to it. If reducing or eliminating smuggling is simply the job of passing laws and enforcing those laws, why was that not done to stop the smuggling of cigarettes?

I asked the hon. justice minister during a meeting with him if he would introduce stricter laws to prevent the smuggling of guns into the country and how he was making out with the cocaine and the drug problem. That is illegal in Canada as well. Yet we can buy it anywhere in any of the major cities across the country.

The smuggling problem is be eliminated by reducing taxes. The children in the schools will now have the money to buy cheaper cigarettes. We are creating an internal smuggling problem. There will be people supplying cigarettes to kids in the school yard.

I would like him to comment on the principle that underlies the whole area of smuggling and people seeking products that the law has prohibited.

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

Mr. Speaker, that is a very good question. It is a question that I continually asked the previous government. Frankly it did not do a heck of a lot to solve it. However we have taken the bull by the horns and are starting to address these

issues. It is not simple. We cannot just bring in legislation and all of a sudden think it will solve the problem.

As a government we have gone beyond the legislative process. First and foremost we must work with Canadians on the matter. We must work with local communities that are having specific problems in terms of smuggling. We have increased the enforcement aspect of it. We have put more police on it. We have a large border. We have the largest undefended border in the world. We have a particular problem in Canada to deal with. One of the ways to deal with it is through enforcement.

Another way is to make sure that when laws are brought in and criminals are convicted they get the punishment they deserve and we do not bargain off their penalties for other things. That is the commitment made by the government. We are not only bringing in tougher laws. We will make sure the penalties for people breaking those laws are in force, that they serve their time and the penalties are not bargained off somehow.

That is not easy to do. Changes to our criminal justice system cannot happen overnight. We are working on it. We will make sure the criminals are told they should not be involved in this type of activity.

[Dick Harris, Reform, Prince George—Bulkley Valley, BC]

Mr. Speaker, I am pleased to rise in the House today to address Bill C-32.

The bill introduces amendments to the Excise Act, the Excise Tax Act and the Income Tax Act for the purpose of combating cigarette smuggling in Canada. The phrase combating cigarette smuggling in Canada is a bit facetious. When we talk about combating smuggling, an illegal act that involves breaking the law, we would automatically assume we are talking about law enforcement.

As we have clearly seen in this session of Parliament the government opposite is not interested in talking about real law enforcement. I would like to talk for 20 minutes on ways to enforce the laws of the country, but unfortunately it would fall on deaf ears on the other side of the House. Instead of talking about law enforcement, which should have been the thrust of combating the smuggling, I want to talk reluctantly about the health crisis the bill will create.

As I look across the floor and hear the truce from this side of the House it reminds me of a verse I learned in Sunday school. I am not a biblical scholar, but it was something to the effect that the devil shall flee from the truth. When I see the benches opposite emptying as Reform Party members on this side speak the truth about the bill, I am wondering whether my teacher did not have some application in mind for today.

I am going to talk about the health consequences of the bill. I would like to address my remarks to some specific areas of the

bill which I believe display the government's sheer callousness when it concerns the health of Canadians. Specifically the bill reduces federal tax on cigarettes. It makes cigarettes cheaper. There is no doubt in my mind and in the minds of right thinking Canadians that lower prices on cigarettes creates more smokers. That is undeniable no matter what the government opposite says. In particular it encourages smoking.

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

Mr. Speaker, I rise on a point of order. The hon. member suggested our benches were empty on this side of the House. He might look at his side of the House.