Mr. Speaker, I am pleased to enter the debate on Bill C-90.
Some members have suggested that Bill C-90 is part of the other side of our budgetary commitments. Our budget in 1995 stated it would reduce spending by $7 for every $1 of revenue increase. Unfortunately, this bill deals with the revenue increase side of that. Needless to say, most people do not like the idea of tax increases. I do not think anybody does.
One aspect of the bill reports a 1.5 cent per litre tax on the cost of gasoline. I think we are mature enough to admit that it will hurt people, small and medium-sized businesses that use gasoline in their business, commissioned salesmen and so on. We also realize that Canada has one of the lowest retail prices for fuel in the world. We are still very much the recipients of a very cheap fuel program in Canada.
I would like to address other aspects and areas that some of my Reform colleagues talked about today when they asked when we are going to get our spending under control. I do not know where the Reform Party has been for the last two years, but I have seen some tremendous changes in cost reductions of the federal government in the area of the civil service in particular, with 45,000 civil servants being cut from expenditure programs. I have watched the Department of Natural Resources be cut in half. There have been the bills to privatize CN Railway. There have been bills that deal with the government's commitment to its shareholding of Petro--
Canada. It goes on and on. There has been all kinds of evidence of cutting.
The trick about cutting, of course, is that it has to be done equitably and fairly. The whole object of program review has been to go to each department of government to try to find those areas where it is possible to cut while at the same time maintaining the very important aspect of our social fabric, the underpinning of our social network in Canada.
I am very proud to be a part of a government that took that kind of approach to deficit and debt reduction. I look at some of my colleagues, especially those in the province of Ontario, and often wonder whether they have gone through that kind of thought process and whether in fact we have properly dealt with some of the people who can least protect themselves in society.
It is interesting to note that the Auditor General of Canada two weeks ago tabled his report, in which he questioned whether Canada's level of debt was sustainable. What does that mean? Quite frankly, if you were running a corporation, there is a level at which the debt structure compared to the income structure is so onerous that you can no longer continue and you become insolvent. Indeed, some people have suggested that if we apply that test to the country we may well discover that Canada may be an insolvent nation, unable to pay off our debt. Our debt is increasing due to interest rates. As long as interest rates exceed the level of growth in the economy, we will continue to have an accumulation of debt and we will have to cut even deeper into the expenditure side of government.
Some people think we are in an endless situation. However, the government, particularly the Minister of Finance, has taken a specific course of action to reduce the debt to three per cent of the gross domestic product. That is not an end in itself. I have heard the minister say over and over again that with the concept of two-year rolling targets in fact we will continue to focus on reducing the debt on a year-by-year basis and go beyond the three per cent of GDP target.
There are a number of tax bills before the House. There was some interesting debate on Bill S-9, which is the Canada-U.S. tax treaty. I do not want to speak on that bill, as we are debating Bill C-90, but some of the aspects that came out of that debate were interesting. The hon. member for Kamloops was surprised that the Reform Party had accepted some of the negative aspects of the Canada-U.S. tax treaty, those things that specifically appear to assist people in the higher income groups. I wondered why the hon. member felt that way, because he also seems to be interested in the concept of tax reform and some of the Reform Party's discussions about a flat tax. I notice that the hon. member is taking part in a conference to be held later this month that deals with that area.
I would like to talk generally about the concept of a flat tax. In my mind, it also represents a form of tax change and a shift of the tax burden within the Canadian taxation system.
A lot of things the Reform Party has come out with sound simple. Why do we not have a simple system? The income tax system to many people in Canada is complex. There is no question about that. I do know, however, that less than half of the population actually requires professional help in filing their tax returns. The average person can still file a tax return without the need of an accountant or a tax lawyer. The people who require tax assistance are usually those who are in the higher income brackets. They usually are trying to take advantage of certain tax credits and tax advantages which exist in the system.
The whole concept of taxation is also an element in fiscal policy. The government attempts to get aspects of the economy energized by using certain tax legislation which gives advantages to certain sectors as opposed to others. I would think members of the Reform Party would be quite aware of the oil and gas sector out west. It has been greatly assisted by a number of concepts, flow through shares and other kinds of tax driven investments which have encouraged exploration.
If we look at the history of a flat tax aspect, it is interesting to note that its actual birth occurred in England. At the time it was originally brought in, it was thought of as more of an income redistribution process. It actually entertained the concept of moneys flowing from the government back into the taxpayers' hands. It was used as a method of negative income tax. It was used as a method of doing away with the multitude of social programs that existed. It used the tax system to allocate these resources to people. People in the lower income bracket would actually be net receivers from the government, looking at a guaranteed annual income or whatever that means is. Of course people over a certain means would be the net payers.
Surprisingly enough that has changed appreciably. In presentations I have heard it is especially becoming very popular in the United States. It does not talk about redistribution at all. As a matter of fact it talks about flattening the existing tax rates.
In Canada we have three basic classifications of tax rates. A flat tax essentially would eliminate that and would create one rate of tax. At the same time, as I understand the proposal, it would also eliminate certain members from the lower income stream. In a sense it is like a two rate system. Some people would not pay tax and everybody else would pay a flat tax. It does not take a lot of arithmetic if we actually sit down and start figuring it out to know who is going to pay this tax.
Some people like to say that if we took away all the benefits, all the bells and whistles from the existing system there would be so much efficiency that we would not have to change the quantum of tax. The quantum of tax would be reduced and when the smoke cleared nobody would be paying any more taxes than they were before. Some people would be paying a little bit less and everyone would understand the system better. Therefore it would be an efficient system.
These are all great ways to sell something but the reality is it is not true. It is just not true. Right now, 63 per cent of all income taxes paid in this country are being paid by the top 30 per cent of income earners. That tells us right away that the system is progressive. That is to say, as one makes more money one pays more tax.
People in this House will say they can point to somebody who is a millionaire and did not pay any tax last year. There are situations like that but the reality is they are very rare. I will repeat it because it bears witness and deserves to be repeated, the reality is that on an ongoing basis 63 per cent of all income taxes in this country are paid by the top 30 per cent of the income earners.
What happens if we do tax flattening? There is only one assumption which is that we are going to allocate tax liability away from that top 30 per cent, not to the bottom 20 per cent who do not pay any taxes at all, but we are going to shift it to the middle class. I do not have to tell anyone that the middle class are fed up with the taxes they are already paying. They think they are paying too much. It is those people, the two income earner families that are going to be paying the expense of a flat tax situation.
The hon. member for Kamloops was amazed that the Reform Party would be supportive of the Canada-U.S. tax convention and some of the good things it was doing for the very wealthy in that treaty. At the same time I suggest it is the same element and the same people that this party is representing that also want the flat tax.
The benefactors of this tax will be the very, very wealthy. It is not just me who is saying that. The U.S. Business News states that those people who earn in excess of $200,000 in the United States will be substantially better off with a 19 per cent flat tax. David Bond, an economist with the Hongkong Bank of Canada, says there will be significant income allocations of taxes with a flat tax. Most economists all over the world who have studied this will say that the flat tax is not viable mainly because it creates increased taxes for the people who can least afford them.
What is wrong with the tax system? Quite often people come along giving us solutions for the wrong problems. Yes, the existing taxation system in Canada is very complex. Does it need to be as complex as it is? No, it does not. We can get simplification in the system. Some of the simplifications are to stop fiddling and changing it every week. Every week we change some aspect of the income tax system. This constant change creates a situation where nobody understands it. If we just had a moratorium on tax changes perhaps we would understand it.
What is the main frustration people have with the taxation system? It is not so much the filling out of the forms as it is the rate of tax. People in this country are constantly referring to the fact that we have an underground economy. People will take their money to the Turks and Caicos Islands or wherever their favourite tax haven is to avoid taxes. That has nothing to do with the taxation system but it has to do with the rate and quantity of taxes we pay.
There have been countless international studies of every regime which has increased its taxes. There constantly was a correlation between an underground economy and tax evasion. The GST is another symptom of people avoiding taxes. The problem is the rate of tax. Canada's rate of taxation is the second highest in the OECD, just slightly less than that of France. When tax rates are as high as they are today we are also going to have tax evasion and tax avoidance.
Changing the system is not going to change the fact that we are bringing in about $123 billion in taxation. Our deficit and debt relationship do not allow us to change those numbers today. What we want to do of course is get on to a program of deficit and debt reduction so that somewhere after the year 2000 we can actually see a rationing down of tax rates. With that rationing down of tax rates it will create a greater confidence in our taxation system and hopefully domicile some of our lost tax revenues.
As a matter of fact I have often been a great supporter of asking the Turks and Caicos Islands to become one of our provinces. This was the subject of a debate in this House some years ago. I have been to the Turks and Caicos and have talked to some of those people. I think it would be a great thing. We could re-domicile all of those tax revenues that are now hiding down there.
The whole area of fiscal and monetary policy is very complex but the taxation system is still very much an important aspect of our fiscal tools to stimulate various aspects of the economy. The flat tax of course would eliminate that kind of manipulative approach to the economy and force the government to treat everybody much the same.
Is the forestry sector the same as the car manufacturer? Is the Saskatchewan wheat farmer the same as the Ontario beef farmer? I suspect they are not. I suspect the industries in this country, for example the oil and gas industry or the mining sector which rely heavily on capital intensive aspects of their businesses look at
rapid depreciation within their businesses which are all different and all unique.
We can say we do not want the mining sector and indeed that is what is happening in this country. The mining sector is going south. The mining sector says there are too many inhibitions to set up here in Canada and that it is cheaper to set up down in Chile. That is because of the tax regime. We have to remember how they got going. There were also tremendous tax incentives to get those businesses started. There is not any country in the world that does not use the concept of some kind of form of favouritism of various sectors it wants to promote.
Today we want to promote our science and technology sector. Our government is now giving something like $1 billion away in scientific tax credits. These scientific tax credits are to provide an underpinning that Canada will get into the science and technology revolution which we see creating jobs in the small and medium size business sector in Canada. Personally, I feel that those science and technology tax credits are misguided. They are not going to the small and medium size companies that really need them. A lot of that expenditure is being focused at the multinational level and larger corporations. It is not actually doing what we want it to do.
That is the kind of debate we need in this House. That is the kind of change to our tax system we need in order to fine tune it, so that it is working in the best interests of all Canadians and creating jobs. Simple solutions for complex problems are not going to do that.
This bill, of course which I support, is a money bill of the government and it is one necessary aspect of the 1995 budget. I am happy to be part of a government that continues on its commitment to meet its objectives which were laid out in that budget.