Debates of June 22nd, 1994

Excise Tax Act

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

Mr. Speaker, I rise again to talk on Bill C-32 and since it was yesterday that I was talking last on the bill perhaps I should give a little bit of a recap of what I was saying for the benefit of members opposite.

I was saying that a nation is not a nation if it cannot defend its borders and enforce its laws. What we saw this past winter was a situation in which this great and wonderful country of ours allowed its borders to be used illegally. They refused to defend them while in many situations there were millions, even billions of dollars being smuggled into this country.

The abuse of our borders and the unwillingness of this government to defend its own borders was a disgrace to Canada.

The smuggling was largely through certain reserves that straddled the border between Canada and the United States and that was what we called, as far as I understand, a no-go zone for the RCMP.

This government even refused to send in the police to bring under control and under the Canadian jurisdiction the laws of this land while they were being blatantly abused and ignored by people in that area.

We could watch on evening television-and this was not Bosnia or Belfast, it was right here at our own border-while skidoos and boats were crossing the St. Lawrence River, bringing smuggled contraband into this country. We could hear the bullets and the guns going off. You would think you were in a war zone.

We sometimes even heard the people on television saying that if the government sends in the RCMP it will be war on our very own borders. That is another shame on Canada. We had one here last night when democracy was denied in the House. Here we have in our country the RCMP not going in to defend the laws of the land or to defend the borders. Not only was that an insult to Canada but, to add insult to injury, these cigarettes were being exported legally by manufacturers in Canada. They were fully aware that 70 per cent of all cigarettes they were exporting were coming back across the border illegally. The government was fully aware of that. Yet it waited until the situation reached a crisis point before it did anything about it.

These manufacturers were willing co-conspirators in the smuggling situation. By exporting them they were not losing their market. They were fuelling their market. They were increasing their market. They knew the cigarettes that were being exported to the United States were coming back in here and were being sold here for less than half the regular price in a store because of the high taxation applied by this country.

As a result of the lower price more and more people were smoking. As I said they were willing co-conspirators in this game where Canada was being bilked of billions of dollars, where our laws were being ignored, and where our borders were being trampled on by people who had no thought, care or respect for our great country. The manufacturers, the exporters, the brokers and the truckers were all working legally but with full knowledge that the end product was illegal, denying tax revenues to the government and putting the jobs and well-being of the country at risk.

We have laws in this land to protect our society. Finally the government acted. It introduced the measures last February which we now know as Bill C-32. At that time it reduced the

federal taxes on cigarettes by $5. It said that for every dollar the provinces reduced the tax to a maximum of $5 it would match it, for a total $15 reduction. The province of Quebec where the smuggling was by far the worst went further and reduced the provincial sales tax even more.

In addition the government applied an $8 excise tax where cigarettes were being exported to places where no tax was being applied. This was to recognize that cigarettes exported to a foreign country and ending up on native reserves had no taxes. It was to make sure that the value of the cigarettes as we exported them would be higher and therefore reduce the differential and the smuggling back into this country.

In addition they applied a 40 per cent surtax on the profits of the Canadian manufacturers of cigarettes. It was a reasonable penalty, recognizing the fact these Canadian manufacturers had been willing co-conspirators in the smuggling problem, to say to them that they could not make profits in this country if they participated in this type of illegal activity. Therefore the government applied the 40 per cent surtax and said that it needed the money for education. It was to spend the money to teach young Canadians that there is a penalty for smoking; not only a financial penalty but a very serious health penalty as well.

My hon. colleague from Macleod, who is a medical doctor as we all know, gave vivid and graphic descriptions which really were not nice. It was nice to get the descriptions but the graphics of people who smoked were not very nice. We will leave it for the record to indicate exactly what he said. He described them far better than I could.

The health penalty for youngsters who start smoking is very serious. That ends up spilling over into health costs later on if these people contract various lung problems, emphysema and even cancer. That cost to us as a nation adds to the penalty we have as people continue to smoke. The government also introduced the measure to raise the age of purchasing cigarettes from 16 years to 18 years.

There were four basic measures. It dropped the excise tax. It added an export tax. It added an income surtax to the manufacturers and increased the age of people allowed to buy cigarettes.

Let us take a look at these four items. I can agree with the $8 excise tax. I can agree with the surtax applied to the manufacturers because they were the willing co-conspirators. However I cannot agree with the reduction in the taxes applied to cigarettes because we know from statistics that the cheaper cigarettes are the greater the likelihood that young people will start to smoke.

For youngsters with peer pressure affordability is one of the major factors in making them decide whether they will or will not start to smoke. If we can increase the price beyond their financial resources or so that they would rather apply the money elsewhere, we are doing them a favour by encouraging them not to smoke. Therefore I cannot endorse the reduction of the tax that was part of Bill C-32.

Not only that. The smuggling was primarily in the provinces of Quebec and Ontario. I understand it was largely in the province of Quebec. It was not out west and I represent a riding in the province of Alberta. The problem was not serious out there even though there was a large differential between the price of cigarettes in the province of Alberta and across the border in the United States. We did not have any reserves straddling the border that could claim some kind of national jurisdiction and could say that Canadian laws did not apply to them. Of course they apply to them. They apply to all Canadians. That was where I left off yesterday when I talked about Bill C-33 and Bill C-34. I wanted to get into that because the government refuses to talk about these important issues as we saw last night.

The point is that now we have dropped the price of cigarettes in eastern Canada we find that they are substantially more expensive in the west where we are still trying to discourage Canadians from smoking. Now we will have a smuggling problem east-west between provinces rather than north-south between Canada and the United States. I cannot support the idea that we drop the price of cigarettes dramatically by reducing the excise tax.

Another point I would like to speak on is that we have raised the age whereby it is now legal for youngsters to buy cigarettes from 16 years to 18 years. I started my speech by saying that a nation is not a nation if it cannot defend its borders and enforce its laws. Although the government introduced this law, I wonder if it intends to enforce it. It has paid lip service by applying the law to people under the age of 16 years buying cigarettes. Now it is changing the law to 18 years of age. Do members think it is going to go out there and enforce the law? Is it going to have the RCMP outside every grocery store and corner store? I doubt it.

The problem is that we are not only encouraging children and young folk to smoke. We are also telling them that they can thumb their noses at the law and get away with it because we do not care. We write laws that we do not intend to enforce. We have members standing in the House, Canadians elected to represent the people of the country and to write laws for the betterment of society.

I do not think we have shown any leadership, direction or responsibility in this matter. In conclusion I have to say I cannot endorse Bill C-32. A couple of points are okay. However, with respect to the fundamentals of trying to reduce the amount of

smoking in this country, that is why the high taxes were introduced in the first place. I cannot endorse the removal of these taxes, telling kids that it is okay to smoke and okay to break the law. I will be voting against the bill.

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

Mr. Speaker, I was quite interested in the hon. member's statement. The sense I get from across the way is that one person wrote the same speech for everybody. Much of the same misinformation seems to be passed along from one member of the Reform Party to the next.

The hon. member stated that this was an eastern Canadian problem. I am wondering where he gets that information. The hon. member knows this was a major problem in Alberta. There have been a number of complaints by people from all over the country. Smuggling was a problem in every single province.

Other hon. members on the other side suggested that we failed in this matter. The hon. member said yesterday that smoking had gone up because of this. I found that quite interesting so I called Statistics Canada. Statistics Canada reported that Canadians smoked approximately 3.6 billion cigarettes in the year ending April 1994 compared to approximately 4.3 billion smoked in the year ending April 1993. That seems to suggest that smoking has gone down dramatically. A lot of it has had to do with the policies brought in by this government, especially the hard work done by the Minister of Health in this area.

These hon. members seem to always suggest that this is just a native problem, that somehow we have two systems of laws in this country, one for native Canadians and one for other Canadians. From people who obviously have not spent a lot of time with natives in this country, I find it quite distressing hon. members would even suggest that. There is no two tier system of laws in Canada. We have one set of laws for all Canadians.

There was a problem before we became the government. The RCMP was having problems dealing with specific situations on certain reserves. I wish hon. members on the other side would visit some of these places. It is not so easy to send in a whole bunch of RCMP officers and expect them to solve a situation. These people are good people. They are Canadians and the majority of them on these reserves respect the laws. The people on the reserves want all Canadians to know they are law-abiding citizens. Yes there are certain problems on the reserves. Certain individuals on the reserves do not follow the law.

We as a government made a commitment when we brought in this bill to make sure the RCMP went into these areas and dealt with the problems. To suggest, like the other side is suggesting, that we somehow militarize these places, send in the forces, knock them all around and that somehow we will stop the smuggling is all wrong.

What that would do is create animosity, create mistrust and it would not be a good way to set a good standard for all Canadians to live by.

I want to ask the hon. member if he really believes there are different levels of laws in this country for certain Canadians or is it just the rhetoric of the Reform Party that he is being pressed into saying this. Does he really believe that there are Canadians-

[Chuck Strahl, Reform, Fraser Valley East, BC]

Do you really believe your question?

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

Yes I do really believe my question. Does the member really believe that there are different levels of laws in this country for Canadians? If he does, how does he propose to solve some of the problems that he has outlined here?

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

Mr. Speaker, after all of that I should be allowed another 15 minutes for sure.

I will respond to the hon. member. He talked about disinformation but I think all the disinformation comes from that side of the House. We were talking about it and the way it actually is. He brought out some stats from Stats Canada. If you listen to the dates, Mr. Speaker, he was comparing the numbers before the introduction of Bill C-32, before the government reduced the excise taxes.

I have no doubt in my mind whatsoever that cigarette smoking will go up because the price has come down dramatically. Stats Canada said that there is a direct relationship. There is no doubt in my mind that smoking will go up especially among young people and we now find especially among young women.

He is talking about more than one set of laws in this country. Yesterday we were trying to point that out to the members over there and they invoked closure so we could not get our point across.

However, the Minister of Indian Affairs and Northern Development introduced a law that says natives in this country, in Yukon and so on, under the agreements in Bills C-33 and C-34 are exempt from the charter of rights, yet everybody else in this country is under the charter of rights. Therefore, obviously there are two sets of laws in this country for two different groups. That addresses the wider range and also the narrow situation regarding the reserves that straddle the border.

I remember the Minister of National Defence sitting in this House when there was discussion and debate about some shooting at a helicopter that was flying over the reserve to monitor or do something regarding the smuggling problem. They were so afraid to take any action. He said that it was okay to shoot at the helicopter as long as you did not hit it.

The Minister of National Defence, who has all the resources at his disposal, said that it is okay to shoot at us as long as you do not hit us because we do not want to retaliate. Anyone else in this country who takes a potshot at government property and government personnel, you can bet your boots that they are going to answer for it in court. Yet the minister says as long as they were not hit it did not matter.

In answer to the hon. member's question, the disinformation is coming from over there. Look at the facts. This is a serious situation.

I will finish up by saying a nation must defend its borders and enforce its laws and that is the basic, fundamental principle that has been abused. This government should ensure that these things are looked after or make sure that the laws that are not enforceable are not applied or not introduced.

[The Acting Speaker (Mr. Kilger)]

Before resuming debate I do want to indicate to the House that we will now move to the next stage of debate. Members will be entitled to a maximum of 10 minutes intervention with no questions or comments.

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

Mr. Speaker, I was looking forward to the questions and comments.

We will have a special audience outside after.

Mr. Speaker, thank you very much for the opportunity to participate in this debate. As you know, Bill C-32 represents a very important part of the budget which was first presented on February 22, 1994.

I would like to spend part of my time going over the major features of this legislation, but I would also like to take some time to respond to some comments made by members during yesterday's debate. In the haste of debate we often do not take time to seriously read each other's material and to think about the consequences of what other members might be saying.

The first issue I would like to address is on page 5626 of yesterday's Hansard . A member raises the question: Why does the present Liberal government always seem to be in a hurry to table bills without having the appropriate committee reports prepared?

I would like to leave Canadians assured that the government does not rush through important legislation. We began this debate openly, not in February but back in December, and continued it through January and February, ending up with the presentation by the Minister of Finance.

The measures in this legislation were clearly explained in the original budget documents and enable the government on a technical basis to carry out these measures which are important to the success of the budget.

We gave the opposition parties an opportunity to call witnesses, and of course our own members too, and some witnesses did appear to discuss Bill C-32. The fact is the coalition made not one but two presentations concerning the tobacco tax portions of this legislation.

It is important, therefore, that members of the opposition do not play too loosely with the activities of the government and leave Canadians with the impression that we have been in a hurry and that they have not had an opportunity to speak. I would like to assure the House that anybody who approached the House of Commons finance committee to speak on this legislation was given an opportunity and that in future cases we would give the opposition parties and our own members every opportunity to invite people to speak about legislation that was presented.

As an extension of that, members of the opposition are invited to present amendments both in committee and at report stage so that we can consider ways of improving the legislation.

This legislation deals primarily with tobacco smuggling. As members have discussed in the last few days and previously, there has been a rapid growth in tobacco smuggling in Canada. The contraband tobacco trade has had serious consequences for government, business and citizens of our country. The increasing market penetration of contraband tobacco products has caused a serious decline in government revenues. These revenues are an important part of the government's tax collection and are used to provide funding for programs and services across many areas of responsibility.

Based on these concerns, the government announced a comprehensive anti-smuggling initiative on February 8, 1994 designed to eliminate smuggling as a significant national problem. Leading this national action plan was an increase in enforcement, with greater resources assigned to both the RCMP and Canada Customs to intensify their efforts along the Canada-U.S. border and to target organized criminal networks dealing in contraband tobacco and other products.

In addition to specific excise and income tax changes, Bill C-32 also contains a number of measures that are important to the long-term success of a national action plan on smuggling. This legislation contains provisions for full inventory rebates to be provided in respect of the national $5 excise tax reduction.

All wholesalers and retailers are eligible for complete reimbursement for tax paid inventories of cigarettes, tobacco sticks and fine cut tobacco held as of midnight, February 8, 1994.

Administration of the inventory rebate program is the responsibility of Revenue Canada. This bill will provide the Minister of National Revenue with the authority to pay out inventory rebate amounts once it receives royal assent.

There have been a number of questions raised and I would like to assure the House that we have been listening very carefully to these. Dealing with the question of the reductions, the question

that we hear most often is why does the national action plan on smuggling include tobacco tax reductions?

In 1992 the government announced a wide range of enforcement measures to respond to the substantial rise in tobacco smuggling triggered by federal and provincial tobacco tax increases.

These measures included much tighter controls on the distribution and sale of tax free tobacco products, significantly higher penalties for persons caught smuggling, new proceeds of criminal provisions and the allocation of substantial new resources to customs and the RCMP to strengthen their enforcement efforts and the border and within Canada.

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 products were such that the profits from smuggling far outweighed the associated risk. As a result, despite these measures, smuggling continued to grow, representing about 15 per cent in about 1991, 25 per cent in 1992 and 40 per cent in 1993 of the total Canadian market for tobacco products.

The government's national action plan on smuggling is a comprehensive plan that includes new enforcement initiatives, tobacco tax reductions, measures affecting tobacco manufacturers and measures to reduce smoking. There is also an export tax. The tax on exported tobacco products is designed to more closely control export shipments and to prevent any recurrence of the level of shipments that would effectively supply the contraband trade.

At the same time Bill C-32 makes provision for certain limited exemptions to allow tobacco manufacturers to satisfy demand for legitimate exports for bona fide consumption outside Canada. These exemptions apply in respect of the historical level of exports which was in the range of 2 to 4 per cent of total domestic production during the period before tobacco smuggling became a problem. As well exports where the manufacturer provides satisfactory evidence that the national taxes of the country of destination have been paid are also exempt on the grounds that tax paid tobacco products are not used to supply the contraband tobacco market.

The tax is only imposed on manufacturers of tobacco products because only manufacturers can export tobacco products free of domestic taxes and duties.

There is also a health promotion surtax which applies for a three-year period and this has raised the question; why not make it permanent? The health promotion surtax is one part of the government's national action plan on smuggling. It was designed to respond to the potential for increased consumption associated with tobacco tax reductions, providing the funds necessary to undertake an extensive anti-smoking campaign to help prevent any increase in smoking. The government does not expect that tobacco taxes will remain at the reduced levels indefinitely. As such it was not considered appropriate to make the surtax a permanent feature of the income tax system.

Yesterday a member from one of the opposition parties quite accurately pointed out that I raised this point in testimony before the finance committee and it is part of their record that we are very concerned, as is every member of the House, about the levels of smoking and that the actions of the government do not contribute to increased consumption.

To assist the 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 retailer in respect of any sale of marked tobacco products to a person in another province. The legislation also makes the offence subject to a fine for any person to sell or offer for sale tobacco products marked for consumption in one province to a consumer located in another province.

I can assure the House that the people in Manitoba are very concerned about this issue. This particular provision was to address the western provinces.

As I started my speech I wanted to bring to the attention of the Chair that sometimes members react perhaps too strongly to particular measures. I want to quote one member yesterday who said, and I quote from page 5649 of Hansard :

This reduction in taxes to cigarettes is the single most disastrous act of sabotage to the health of Canadian people which has ever been enacted by any government in the history of this country.

That is a pretty strong statement. A representative from the same party on page 5629 said:

This party supports the immediate payment of tax rebates owing to retailers and distributors throughout Canada.

[Some hon. members]

Oh, oh.

[David Walker, Liberal, Winnipeg North Centre, MB]

Let us go back over this again in case members were not paying attention. We have first a reduction in taxes on cigarettes, the single most disastrous act of sabotage to the health of the Canadian people. This party supports the immediate payment of tax rebates owing to retailers and distributors throughout Canada. Heaven forbid if something serious should happen in this country.

There are other elements of this that I want to bring to the attention of the House. There seems to be some confusion among opposition members on the air transportation tax. I want

to point out that the purpose of the new air transportation tax regime is to reduce the cost of short haul flights.

This was brought to our attention by a witness from the province of Quebec and also raised in the House during debate yesterday by members from Quebec. I want to reiterate that in most cases those flights will see a reduction in the cost of the air transportation tax because they qualify as short haul flights.

It is very important that there be flexibility of the government to respond to the needs of businessmen and local markets. The member opposite raised this and I agree with him 100 per cent. For small businesses the cost of these flights is very important. It slows down their business in the province. It slows down the business across western Canada. We have made efforts through this to reduce the cost of the airport tax on short haul flights and to increase it on long haul flights. We feel that brings a greater degree of fairness.

Mr. Speaker, I could go on for a while about other comments made in the House but I welcome the debate, as do you, and I urge all members to support Bill C-32 as soon as possible.

[The Acting Speaker (Mr. Kilger)]

It being 5.30 p.m. the House will now proceed to the consideration of Private Members' Business as listed on today's Order Paper.

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

Point of order, Mr. Speaker. I think you might find there is unanimous consent of the House to suspend the operation of private members' hour for the time being to permit completion of the debate on Bill C-32.

[The Acting Speaker (Mr. Kilger)]

The House has heard the terms of the motion. Is there unanimous consent?

[Some hon. members]

Agreed.

[The Acting Speaker (Mr. Kilger)]

Agreed. Resuming debate on Bill C-32.

[Dale Johnston, Reform, Wetaskiwin, AB]

Mr. Speaker, I am pleased to rise in the House today to speak on Bill C-32 on behalf of the Reform Party. Other members of my party had planned and prepared to make presentations on this as well but unfortunately they will not have the same opportunity as I have.

Last night we witnessed a Liberal interpretation of open democracy when they invoked closure on this and every other critical piece of legislation before this House.

Here we have another omnibus bill that tackles issues as varied as airport tax, meal allowance changes and the anti-smuggling initiatives. Today I will concentrate my remarks on the cigarette smuggling and taxation component of this bill. I believe that this is a step in the right direction. We should be educating the public about the hazard of smoking tobacco. I agree with the export tax on tobacco products.

We in this party are in favour of stronger enforcement of the laws against smuggling. We have a police force in Canada that is one of the best in the world. We have laws. Why this situation is so different from any other law breaker is really difficult for me to understand. Take speeders for example. Because people do not comply with the speeding laws is no reason to change the laws to do away with the speed limit so that people can drive at any rate they like. Instead we come up with different ways to apprehend these speeders and we penalize them for having no respect for our laws.

When we talk about compliance we have a problem now with smuggling east and west in Canada. It occurs to me that we are all too ready to enforce our smuggling laws east and west but we are very hesitant to do the same as far as other smuggling is concerned.

How much money do you suppose this government is foregoing with this new policy of the reduction of taxation?

The government's policy is to broaden the tax base. It has voluntarily given up hundreds of millions of dollars of revenue. If one reduces taxes on cigarettes across this country and foregoes those hundreds of millions of dollars worth of revenue, it would seem to me that in order for the Liberal government to reach its target of 3 per cent deficit of the GDP in three years' time, it will be compelled to make up this revenue somewhere else since it seems reticent to reduce its spending by any substantial amount.

I suspect that there have been many debates in this House and in the provincial legislatures that increasing taxes would not only bring in additional revenue from the so-called sin taxes but it would also be a financial deterrent against smoking. This reduction in the taxation on cigarettes seems to be a complete departure from that rationale.

This bill also increases the legal age limit to buy tobacco which I suppose is commendable but at the same time the government is making tobacco and cigarettes more affordable. Now that we are making it financially easier for people to purchase cigarettes, will we see an increase in the usage of an already overburdened health care system? Some members have quoted facts and figures on both sides, whether there is an increase in smoking or whether there has actually been a decrease in smoking.

It makes me wonder when we are quoting facts from Statistics Canada if they have taken into consideration the amount of cigarettes that have been smuggled into this country and consumed that do not show up on StatsCan's statistics.

I will take a slightly different tack. In my view, a very clear precedent has been set here. We have established that in order to deter smuggling, we must take the profit out of smuggling by reducing the taxation on whatever.

There is also a significant problem with the smuggling of alcohol and spirits into Canada. It is very easy to draw a parallel between the smuggling of tobacco and the smuggling of spirits. The price of a bottle of spirits in Canada is approximately double what it is in the United States. Eighty-seven per cent of the cost of a bottle of spirits in Canada is taxation. The manufacturer must produce, bottle, advertise, transport, pay all capital building costs and employees and take its profit out of the 13 per cent that is left.

Is it any wonder then that we have the smuggling of spirits north and south across our border. It seems to me that we are encouraging a new generation of runners here. The statistics that I have indicate that of the 17 million cases of alcohol or spirits that is sold in Canada today per year, four million of those cases are contraband. They reached Canada illegally. They were shipped out of Canada and smuggled back across the border.

We arrive at four million cases by communicating with provincial liquor boards, comparisons of per capita consumption between Canada and the United States and consumer surveys on consumption habits and Revenue Canada customs law enforcement agencies.

There has been quite a lot of discussion about what the law should be and the two tier system. Is there a law for one group and another law for another group? Perhaps that is a debatable point. There is no question that it is debatable. There is definitely a difference in how the law is enforced.

What we are looking at here is an enforcement problem. We should have gone to a more stringent enforcement. We have the laws. We have the police force. We simply need to apply it.

I believe that if we follow the rationale that the reduction in taxation is the route to go as far as discouraging smuggling of cigarettes, then exactly the same thing has to be done with alcohol. We have to improve the enforcement profile, as I have said, and we must increase the penalties for smuggling. I do not believe that reduction of taxation should enter into it at all.

I find it extremely difficult to support this bill in its present form. I do not have any intention of doing that at this time.

[The Acting Speaker (Mr. Kilger)]

Is the House ready for the question?

[Some hon. members]

Question.

[The Acting Speaker (Mr. Kilger)]

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

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Acting Speaker (Mr. Kilger)]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Acting Speaker (Mr. Kilger)]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Acting Speaker (Mr. Kilger)]

In my opinion the yeas have it.

And more than five members having risen: