House of Commons Hansard #278 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was finance.

Topics

Points Of OrderRoutine Proceedings

11:10 a.m.

Liberal

Don Boudria Liberal Glengarry—Prescott—Russell, ON

Five times.

Points Of OrderRoutine Proceedings

11:10 a.m.

Liberal

Peter Milliken Liberal Kingston and the Islands, ON

As the chief government whip says, five times.

The fact is that he is running for a particular position and he indicated very clearly that he was not going to leave his seat in the House until he got it. Why give up certainty and trade it for something so uncertain? He is staying as a member of the House and that is the case now.

If that situation changes before the House resumes in February, I am sure that Your Honour will want to bear that in mind when looking at the facts and assessing the situation in making a ruling on this point of order.

With great respect, the point of order is premature. The hon. member for Lethbridge should really get a grip on the rambunctiousness of some of his members. I realize it is Christmastime, but all the presents do now flow in December. Some of them may come on another day.

This application is premature. He should have waited, as he said he would do when he spoke to the Calgary Herald in November, until he is in a position where the Reform Party is the larger party and then make his claim.

Points Of OrderRoutine Proceedings

11:10 a.m.

Reform

Ian McClelland Reform Edmonton Southwest, AB

Mr. Speaker, what is happening today is perhaps the most important consideration that will be faced by this Parliament. Make no mistake, Mr. Speaker, the point has been missed thus far in this debate. The fact is that our country is at peril, every bit as much as if we were facing an enemy from without. We have an enemy in our midst. We have given the Trojan horse in our Parliament the ability to subvert the actions of the House. The really important consideration is we are going into a life and death battle for the future of the country. The separatists, the Bloc, have a democratic right to be here. They have a democratic right to fight this on any battlefield they can get and to do so with passion.

We have the same right to use everything in our power, every resource we have, to fight them. For the last two years our fight has been one of retreat. Every opportunity the country has had to face the separatists, to stare them down, we have retreated. That is what damn near cost us the country on October 30.

The time to start facing down the separatists is now in the very centre of the country, the House of Commons. They have no right to be the official opposition. They do not represent the continuation of the country as a whole and complete entity.

Points Of OrderRoutine Proceedings

11:15 a.m.

Reform

Ken Epp Reform Elk Island, AB

Mr. Speaker, I do not now envy the load of responsibility you carry. The decision which is yours now to make is pivotal.

I add and emphasize the definition of the official opposition, which you must take into consideration, from section 196 of Beauchesne:

The political party which has the right to be called the "Official Opposition" is the largest minority group which is prepared, in the event of the resignation of the Government, to assume office.

This statement does not say the government will resign, but only in the event it resigns.

I cannot emphasize strongly enough the importance of the decision you are about to make in the next six weeks. You are being called on to decide who would form the Government of Canada in the event the Liberals resigned.

If you decide Canadians are best served by a party whose stated objective, which it has demonstrated in the last two years consistently, is to break the country into two pieces, you would err greatly.

We receive a great deal of mail. I receive mail from my constituents in Elk Island and from other people right across the country. The Speaker needs to be informed that there are Canadians right across the country who have written to Reform MPs, me included, in near exasperation, asking when we will do something.

We are helpless in the sense, as has been pointed out, that we are the third party by the ranking of numbers. A number of petitions by electors of Canada have been presented, asking the House to name a loyal party to Canada the official opposition. This is of greatest importance.

I have received letters from and have had personal appointments with people who said they are so distressed but feel so helpless. They ask: "What can we do? We have a group in Canada that wants to tear the country apart and we cannot even deal with them in the House of Commons".

This is a very serious problem. I urge you, Mr. Speaker, to do the right thing, and I appreciate the tremendous responsibility you bear at this time.

Points Of OrderRoutine Proceedings

11:20 a.m.

Reform

Randy White Reform Fraser Valley West, BC

Mr. Speaker, some question has arisen in the House on the matter of 53 Bloc members versus 52 Reform members, although I do not believe that is the entire consideration placed before you by our House leader.

The question arises whether the current Leader of the Opposition is deemed to have resigned from his seat in the House considering the issue of conflict of interest by an individual who has verbally given notice to lead a province and a party dedicated to separating from Canada.

The issues that individual is now dealing with are provincial in nature and not explicitly in the interests of the federation. Mr. Speaker, I therefore believe there are 52 members in both parties and that you should look at the issue of whether the Leader of Opposition is a member of the House at this point.

Points Of OrderRoutine Proceedings

11:20 a.m.

Bloc

Gilles Duceppe Bloc Laurier—Sainte-Marie, QC

Mr. Speaker, I have a few brief comments.

I could tell you that if the Bloc had finished third in the 1993 election, we would have had enough pride not to beg for the job of official opposition. I think that it is a matter of numbers, as the Bloc parliamentary leader pointed out.

I find it hard to understand the third party, Reform. Yesterday, they were calling for the Prime Minister's dismissal; today, they want to become the second party with fewer members. They live in a different world.

As the holiday season gets under way, there may be too many people in that party who still believe in Santa Claus.

Points Of OrderRoutine Proceedings

11:20 a.m.

The Speaker

I think that is one round. I was given notice of this point of order and I wanted to hear it.

At this moment there is no decision for me to make, nor would I make one now.

I will consider the statements that were made by all our colleagues here in this House, I want some time to reflect.

As you know, there may be changes in the number of members sitting in this House. These changes may occur in the coming weeks.

You have asked me as your Speaker to reflect on a point of order that was raised. I have now received information from you, my colleagues. I intend at this time to take the information, gather information of my own, reflect on what has been asked of me and if it is necessary, when it is necessary, I will return to the House with a decision.

FinanceGovernment Orders

11:20 a.m.

Saint-Léonard Québec

Liberal

Alfonso Gagliano LiberalSecretary of State (Parliamentary Affairs) and Deputy Leader of the Government in the House of Commons

moved:

That this House take note of the Interim Report of the Standing Committee on Finance pursuant to Standing Order 83.1, presented to the House on December 12, 1995.

FinanceGovernment Orders

11:25 a.m.

Winnipeg North Centre Manitoba

Liberal

David Walker LiberalParliamentary Secretary to Minister of Finance

Mr. Speaker, just over a year ago I was privileged

to lead off the last take note debate on the possible measures for the 1995 budget. Today it is a pleasure to replay that role for the 1996 budget. It allows me to renew the heartfelt challenge to all hon. members of the House.

I also take the opportunity to thank on behalf of the Minister of Finance the finance committee for its work not only on prebudget consultations but on many other issues. I see both of my colleagues from two opposition parties here and I extend my thanks to them.

The chair of the finance committee who was here earlier to present a report told us yesterday that the finance committee has met over 200 times since the government was formed. It has a considerable workload. The attendance has always been first class. There is continuity in what has been said in debate in the committee. The collegiality we have in the organization of our work is greatly appreciated. We know that in a partisan House there are natural divisions, some very heartfelt divisions, but it is also reassuring to those of us to enjoy Parliament to see a committee work so well. On behalf of the minister I say thank you and wish everyone season's greetings and I look forward to continuing the work in the new year.

Today's debate is an accumulation of the work done by the committee as well as individual members of Parliament. Since September we have been meeting with Canadians in Ottawa and across the country. The committee split itself in half. Half went west and half went to Atlantic Canada and Montreal. We have heard hundred of witnesses in a series of round table discussions. We have also heard individual presentations. The interested public as well as members of the committee are getting more familiar with the process. We have had some very good debate.

I would highlight the work by charitable organizations. They have given us some new ideas. I would also highlight the work by health coalitions. They have given us some suggestions to what the budget response should be on health care. We have also heard from several business organizations talked about their optimism with the economy and at the same time their desire to see some changes in the way we do business.

These suggestions are always considered. They are always taken in good faith. They are very much appreciated. The government has every intention to follow up on these many ideas. The government is awaiting the committee report which will tabled in the House during the Christmas recess. It will have more ideas and a semblance of what we think should be done.

The Minister of Finance was before the committee last week. He presented his idea of where we should be heading, the 2 per cent target for the deficit in two years. That was the new announcement for the second year of our rolling target. The committee wholeheartedly endorsed the suggestion, although there were two dissenting opinions. On the whole, the committee appreciated that the minister was very forthright about our new target. Parliamentarians, Canadians and people around the world watching the Canadian fiscal situation were very pleased with what the minister said.

One of the pledges which brought our government to office was to deliver genuine change in how the federal government manages its fiscal decision making; change that provided the public with more open access to information and a change which would give Canadians and their representatives, their members of Parliament, a real role in charting the course of action for the nation.

The latest economic and fiscal update, which the Minister of Finance submitted last week to the House Standing Committee on Finance, is a very concrete example of this commitment to account publicly for our actions and to make our decisions openly. The same thing can be said about this debate.

Again, I must challenge my hon. colleagues from all parties to seize this opportunity and provide the government with concrete, sensible, non-partisan advice. This is a chance to really make a difference in the interest of our constituents and of all Canadians.

The 1995 budget demonstrated clearly and convincingly that public and parliamentary input was valued and acted on by our government. This was confirmed by the substantial public acceptance of that budget.

It must be and will be the ideas and suggestions of all members that dominate this debate. Meaningful discussion occurs most easily when there is a clear and defined context for the issues involved. When it comes to budget planning, that context is nothing less than Canada's economy and the fiscal situation of this government.

I would like to spend a few minutes highlighting some of the key points that the finance minister made in his presentation to the finance committee last week. Let me start as the finance minister did by reiterating one fundamental point.

Our government's objective is not simply to provide a better balance sheet. It is to provide and work toward a better country, a fairer society. It is an economy that more than anything else is capable of producing the kinds of jobs and growth that will enable Canadians to have faith in their future. This is a compelling reason why our commitments to fiscal health will not falter.

There is simply no contradiction between deficit reduction and job creation. Continued deficit reduction is essential if we are to get our interest rates down, interest rates that stand in the way in the creation of jobs.

The federal fiscal situation is directly tied to the outlook for the economy as a whole. I want to touch on how our economy has evolved since the last budget.

Last February the budget projected an economic slowdown as high interest rates weakened the U.S. economy. Unfortunately that slowdown came much sooner than anyone anticipated. Today however we seem to be back on the right track. The U.S. economy is poised for a moderate expansion through 1996 and beyond, a growth that will contribute directly to Canada's growth.

Domestically, interest rates have been falling. They are almost down 2.5 percentage points from the early 1995 highs. This contributes not only to spurring consumer and business confidence and investment, but also eases the cost of our debt charges.

Another harbinger of renewed growth is the fact that our cost competitiveness continues to rebound strongly vis-à-vis the United States. It is now the best that it has ever been in the 45 years that we have kept data on this particular issue. In turn, our merchandise trade balance, exports over imports, stands at $34.6 billion, an all-time high in September.

As we can see, our economic fundamentals are strong but as the finance minister warned our committee and all of us, the challenge is to keep them strong, to take the further budgetary action that will translate those basic strengths into more jobs for Canadians. That takes us to the fiscal challenge and the relationship between public debt and the economy.

Twenty years ago for the federal government the debt to GDP ratio stood at 19 per cent; ten years ago it stood at 50 per cent; today it is close to 75 per cent. The issue is not simply excessive government spending. The very nature of the ratio is the relationship between two variables. The debt to GDP ratio reveals the two things on which we believe very strongly we must concentrate. One is to keep our spending under firm control. The other is the necessity to maximize the nation's potential, its productivity, its capacity to grow, its capacity to create jobs.

I agree with the Minister of Finance. Our strategy must be based on synergy. Neither growth nor deficit reduction is sufficient alone but pursued together they can do the job.

This brings me to the heart of our approach, the steady pace approach based on rolling two year targets that we have adopted. In my view, these do not undercut our commitment to ultimate deficit elimination. Instead, they are a credible strategy to make sure that we get to where we have to go without throwing the baby out with the bath water. Of course we could lighten our load further, just like we could lighten a car by throwing out the engine or removing the brakes, but that would not likely take us to where we want to go.

Our government knows where it wants to go: to the destination Canadians have set for us which is to bring down the deficit firmly and consistently but in ways that sustain and enhance economic growth. That is what we are doing.

By 1996-97 with our 3 per cent interim deficit target secured, we will have halted the growth of the debt to GDP ratio. But that simply sets the stage for the next challenge which is to ensure that this ratio continues to track downward, year after year, cycle after cycle.

Meeting that challenge means more jobs. It means enhanced economic sovereignty as we free ourselves from being beholden to foreign lenders. That is why our government has mounted the largest assault on the federal deficit in Canadian history.

In the 1994 budget we took action to deliver three year savings of $20 billion. In the 1995 budget we took even more dramatic action for a further $29 billion in budget turnaround. In both budgets the vast majority of our action items were spending cuts.

The results are already becoming clear. Last month the finance minister announced that the deficit for our first full year in office was $37.5 billion, $2.2 billion below the target set in our first budget and $4.5 billion lower than the previous year.

In 1993-94 the deficit stood at 5.9 per cent of GDP. It went down to 5 per cent last year. This year the deficit will continue to decline to 4.2 per cent of GDP, on its way to 3 per cent in 1996-97.

In order to maintain that progress, the finance minister announced last week that the deficit for 1997-98 will be brought down to 2 per cent of GDP. This is estimated to be approximately $17 billion. This means that we will have cut last year's deficit by more than half. It also means that the debt to GDP ratio will be on a downward track.

Furthermore, this means that the government's new borrowing requirements on credit markets in that year, which is the way that many other governments, including the United States, calculate their deficit, will be less than $7 billion, less than 1 per cent of GDP. This means that by 1997-98 new borrowing requirements in relationship to the size of our economy will be at their lowest level since 1969.

I have emphasized our action on the spending side of the fiscal equation but I want to reiterate that there is a second track, which is the redesign of government itself and its programs to play a better part in creating jobs and growth. It is jobs and growth and the revenue they bring to government which will also help us to ultimately eliminate the deficit.

That is why we have made improvements to the unemployment insurance program which have been the most profound in the last 25 years, bringing it into line with the labour market realities of the 1990s. It is why we are encouraging small businesses to invest and hire by lessening the regulatory burden and by improving their access to capital. It is why the government is emphasizing trade

missions around the world. Canada is a trading nation and new exports mean new jobs.

There is a companion priority to jobs for our national well-being that our budget planning must encompass. That is to sustain our social programs in the face of a changing global economy and domestic demographics.

This priority is reflected in our unequivocal support for Canada's health care system. It is also reflected in our commitment to ensure that Canadians are not discriminated against when they move from one part of the country to another and seek social assistance.

Let me add a few notes about the nature of Winnipeg and Winnipeg North Centre. I was first elected to represent that constituency in 1988. Many people have said to me: "You were the social policy critic of the Liberal Party in opposition and now you are working in finance. How do you resolve the two? Do you not feel as if you are doing harm to your own constituency?"

Let me state quite clearly to the House that the actions we are taking will help my constituents to have a strong province and a stronger country. It will increase the ability of governments to respond for years to come. The actions we are taking now will provide more opportunities for them than could be imagined under the present debtload.

The situation which has developed in the last 15 years has been an increase in child poverty, a high rate of high school dropouts, and the incidence of high unemployment in downtown Winnipeg. There is a feeling of helplessness, a feeling that governments cannot respond, that governments have neither the energy nor the ideas to develop a stronger economy.

I want to assure my constituents that uppermost in my mind as I carry on in the position as Parliamentary Secretary to the Minister of Finance, is the impact of these actions on their lives. I know that by the way we are gradually reducing the deficit we will not harm the ability of the federal or provincial governments to respond to their needs.

There is in the public debate a great deal of noise about the impact of cutbacks on the provinces, about the impact of social transfers. Let me again assure everyone that every thought was given to minimize the impact on provinces such as Manitoba, Saskatchewan and other poorer provinces across the country so that they could retain the fiscal capacity to respond and deliver appropriate health care and social policies to our people. As the government regains its strength it will be able to respond even more clearly and strongly to ensure that there are job opportunities, school opportunities and a lifestyle we can all be proud of.

Let me conclude on the same note as I did over a year ago. For many years when it came to decisions on the economy and our fiscal dilemma, the federal government too often took the easy way out leaving the hard choices to another day. That has not been our path. We have taken the hard choices and the role of leadership, real action to bring the deficit down sharply, but we have also taken measures to boost economic strength and a real commitment to sustain the social safety net Canadians from coast to coast to coast cherish.

The struggle is not over. We have more to do, further to go to complete our fiscal freedom. We must continue to set priorities for where the government can and must act to help growth and jobs.

This is where we came in today. On behalf of the government, I encourage hon. members to share the ideas and concerns that we can work together on to ensure a strong and prosperous Canada.

FinanceGovernment Orders

11:40 a.m.

Bloc

Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC

Mr. Speaker, I would like to congratulate the Parliamentary Secretary to the Minister of Finance on his excellent speech. If only it reflected reality, it would be fantastic, but it does not. Coming back to the Liberal majority interim report on prebudget consultations, I would like to read to you a few lines of this whole report, which are quite telling and which distort the premises of this debate.

The last paragraph of the interim report on prebudget consultations, the Liberal majority report, reads as follows: "The Committee recommends that this House support the real and sustained progress being made on deficit reduction, while maintaining a balanced approach".

These few words seem to indicate that the government is taking the people of Quebec and Canada for fools, and that they are not; this is an insult to their intelligence.

The fact of the matter is that, in light of the actions it has taken over the past two years and the direction it is taking for the next three years, the government does not score well in terms of financial administration. Why not? Because the Minister of Finance will be meeting his targets in 1995-96 and in the following years at the expense of the unemployed, welfare recipients, students and those who are sick.

When the Minister of Finance tells us that, in 1995-96, his deficit will reach $32.7 billion, we have to add to this $32.7 billion the $5 billion he snatched from the UI fund surplus.

When he talks about having largely exceeded the deficit reduction target for 1996-97 set in his last budget, when he talks about the deficit being brought back down to $24.3 billion in 1996-97, once again, we have to add another $5 billion in funds snatched

from the UI fund surplus. I remind the House that, since 1990, the federal government has not paid a dime into the UI fund, which is fed by employees and employers through their premiums. The Minister of Finance makes himself right at home, snatching from the UI fund surplus an amount of $5 billion that must be added to his 1996-97 deficit figure. Beside the $5 billion drawn from the UI fund, federal transfer cuts must also be taken into consideration. In 1996-97, these cuts will total approximately $2.5 billion.

Therefore, if we figure out the total for next year, that is if we add to the $24.3 billion deficit mentioned by the Minister of Finance in his economic statement the cuts in transfers to the provinces, as well as the surplus in the UI account, we arrive at an actual deficit of $31.8 billion for 1996-97.

The same is true for 1997-98. The Minister of Finance paid a visit, with great pomp, to the committee last week and showed us, with his usual imposing presence, all kinds of nice and colourful diagrams and graphs. He told us that not only will he meet his budget goals but that, in 1997-98, he will be able to bring the federal deficit down, to 2 per cent of the GDP, or $17 billion. Again, the Minister of Finance does not tell the whole truth.

The government is hiding some facts. Indeed, to this $17 billion deficit we must add $4.5 billion in cuts, which is a way for the federal government to offload its problems onto the provinces. Mr. Speaker, we are talking about $4.5 billion. The federal government dumps its deficit reduction responsibilities on the provinces, to the tune of $4.5 billion in 1997-98. Then, we must also add to that amount a $5 billion surplus in the UI account, which the Minister of Finance and his government will take from the UI fund.

Therefore, far from standing at $17 billion as claimed by the finance minister and his secretary of state, the actual deficit in 1997-98 will total $26.5 billion.

When you look at all this you wonder what the Minister of Finance has done in the last two years to really provide leadership and sound management regarding Canada's public finances? What has he done? Nothing. The minister was content with taking, if not stealing, the UI surpluses. He was content with offloading his responsibilities onto the provinces, and, regrettably, he was content to solve his deficit problems on the back of the unemployed, the welfare recipients, the sick and, soon, the elderly.

These are the corrections I wanted to make following the finance minister's snow job, which was added to this morning by his secretary of state.

How does the Minister of Finance manage to get these surpluses in the UI account, which will be $5 billion this year, $5 billion next year and $5 billion the following year?

He uses an approach which is twofold. First, as we saw with the reform introduced by the Minister of Human Resources Development, which I consider to be a human tragedy, the minister came up with a plan to tighten UI eligibility criteria. In so doing, not only was a surplus created, but also the responsibility ends up dumped into the backyard of the provinces, as literally whole families, thousands of families eligible in the past for unemployment insurance, end up on welfare year after year.

For Quebec alone, the Quebec department of income security calculates that no fewer than 10,500 additional households will end up on the welfare rolls in 1996-97 as a result of the tightened UI eligibility criteria which have been decreed by the Minister of Human Resources Development, lauded by the Minister of Finance, and backed by this government, one which has not shown a once of compassion in the two years it has been in power.

In 1997-98, the tightening up of UI will force an additional 26,500 households, 26,500 Quebec families, onto welfare. A further 27,500 Quebec households we be added in 1998-99. A sad thing to contemplate.

The second equally heartless approach this government is using to create a surplus in a fund into which the government has not put a red cent for the past five years is to maintain high contribution levels for employees and employers.

I think the public is entitled to know that contributions at this time represent $2.95 for each $100 of insurable earnings. The Minister of Finance could have reduced that figure, this very year, from $2.95 to $2.93, thus creating no fewer than 12,000 new jobs and meeting his deficit objectives for the coming year and the year after that, but he preferred to sacrifice 12,000 jobs by maintaining contribution levels at $2.95 per $100 of insurable earnings, instead of dropping them to $2.93. That is how they claim to have achieved the goal of sound and balanced administration of public finances that we all are seeking to achieve.

As I have already said, the main victims of the two years of Liberal reign have been the jobless, the welfare recipients and the students. Before long, as the Minister of Finance disclosed during his appearance before the finance committee, it will be seniors whose necks are on the chopping block.

Among the Minister of Finance's objectives, as revealed in his last budget, is a review of the Canada Pension Plan. Now, having tightened up UI eligibility criteria, he is focussing the same attention on the pension plan.

But why make such a mess of things? Why reduce the federal government's deficit by creating a very substantial social deficit? There are other options. The Minister of Finance has other options

than skimming the surplus off unemployment insurance. He has other options than offloading the deficit on the provinces and, in the process, on students, welfare recipients and those who are ill. He has other options than preventing the creation of thousands of jobs by keeping unemployment insurance premiums unduly high. He has other options than attacking senior citizens.

And one of those options, one we have kept repeating for more than two years, is a thorough reform of corporate taxation. We keep telling him but it was not until others started saying the same thing that the minister realized that perhaps something could be done in that area, but there is still a lack of political will to do so. The people of Quebec and the people of Canada are not being told the whole truth, once again.

Until 1987, the Department of Finance published statistics on Canadian businesses that made a profit without paying taxes. In 1987, the last year for which figures were available, 93,405 businesses had made profits totalling $27 billion without paying taxes. After that, do you know what they did? The Department of Finance and the Minister of Finance at the time and today, the current finance minister, were so ashamed of these figures and how they multiplied, because they tripled over a period of seven years, that they stopped publishing these statistics.

According to a report from the Department of Finance published last year in December, if I am not mistaken, 288 tax measures were available to Canadian businesses, 288 measures they could use to avoid losing part of their profits to federal taxes.

Let me tell you about two of these measures which the Minister of Finance, if he had the political will to do so, if he were not himself directly involved in the wonderful world of big business, could set in motion immediately and plug the holes in the tax system with little effort.

First there is the income tax return, and then there are tax havens and the lack of fiscal measures to prevent Canadian businesses from using countries considered as tax havens as part of their tax planning.

With respect to the tax return, allow me to quote from an excellent study done last September by Professors Bernard, Lauzon and Poirier, three researchers for the department of accounting sciences at the Université du Québec in Montreal.

In connection with a study of 438 businesses, they say, and I quote: "Of the 438 businesses included and analyzed in our study, we found that 200, or 46 per cent, actually paid less than 20 per cent of their profits in income tax in 1992. Two hundred businesses managed to pay less than 20 per cent tax, because of the tax return. Of these 200 businesses, 30, or 6.8 per cent of the sample, received tax refunds totalling $126 million, despite profits of $200 million".

These 30 businesses received a tax refund of $126 million, despite profits of $200 million. Does this make sense?

My quote continues: "It is also noted that 51 businesses paid no income tax-0 per cent income tax-despite $282 million in profits before taxes. Of those 200 companies, 72, or 16.4 per cent, paid less than 10 per cent tax. Thus before tax profits of $2.2 billion gave rise to actual tax payments of $130 million, or approximately 6 per cent income tax."

This is not considered unusual. The government considers this usual. The Reform Party is mum on the subject, their nest having been made long ago. They do not find it unusual that such businesses make huge profits and do not pay a cent of income tax, or almost none. It is acceptable for these business to use 288 measures to get around having to pay and for the government to make drastic cuts in unemployment insurance and in transfers to the provinces for welfare, post-secondary education and health care. For the Liberals and the Reform Party this is fine, just as it is to continue with a tax system that no longer makes any sense.

It makes no sense when we look not only at these facts but also at the market emerging for the exchange, the sale of tax losses. These classified ads can be seen every day in the newspapers, as I have said repeatedly over the past two years. The Globe and Mail , the Financial Post , The Economist , all financial and business magazines carry ads like this one: ``Tax losses for sale''.

Just imagine, they are no longer selling goods and services but tax deductions. The ad goes on to say: "Our client, a cosmetics distributor with large tax losses and undervalued assets seeks a buyer who can use his tax deductions. Discretion assured". I should hope so, discretion assured. They should be ashamed of themselves. "Please contact-"I will not identify the company but not because I am not tempted to do so.

I find it simply outrageous that, faced with this evidence, the government, the Minister of Finance, the Reform Party can hide the reality of tax evasion from the population and not have done anything in the last two years to close the loopholes. Another way for large corporations and high income people to avoid paying their fair share to the federal government is to use so-called tax havens.

An article in last June's CA Magazine , the magazine for Canadian chartered accountants, urged large corporations and very high income individuals to create companies in countries regarded as tax havens. It urged Canadian chartered accountants to create these phoney companies in tax havens such as Bermuda and some Caribbean countries so that they can shelter their millions of dollars in profits and avoid paying taxes to the Canadian government, or pay very little.

That is a lot of money. In 1992, the auditor general talked about $16 billion in revenue lost to those countries regarded as tax havens; $16 billion is a lot of money. Although all individuals are required by tax laws to report all the money they make outside Canada, corporations and businesses are not. They are not required to report their income outside Canada.

The hundreds of millions, even billions of dollars in profits, as the auditor general said in 1992, that go through the phoney companies set up in these tax havens are not taxed. The profits are sent back to Canada without being taxed so that thousands of Canadian businesses, most of them large corporations, do not pay one penny of tax while making billions of dollars in profits.

I do not understand why the Minister of Finance has not yet initiated a corporate tax reform, as we have been asking him to do for the past two years. He should do it, if only to be fair to businesses that do pay their taxes, to the majority of businesses-we all know entrepreneurs-with a sense of corporate citizenship.

He should also do it to be fair to those businesses that see other businesses, like the ones I just mentioned, get away with not paying a cent in taxes when they, on the other hand, are bled dry, especially since 1990, to be good corporate citizens, and when individual taxpayers are even worse off than businesses, paying taxes year in year out but being affected by all the cutbacks, like the ones announced by the Minister of Finance, that were made since 1984 to the UI fund and to federal transfer payments. At the end of the day, it is always the same people, the taxpayers, who foot the bill for these inhuman measures, which border on incompetence in improving the state of public finance as planned.

We are always accused of getting on the case of banks. Well, they will come under scrutiny because, when we look at tax havens and at what the six major Canadian banks are doing, it is outrageous. Is there nothing wrong with these banks being allowed to use such tax havens to avoid paying taxes to the federal government?

There are quite telling figures in this regard. Just the other day, officials of major banks were close to tears, saying: "We have to pay taxes. That is terrible. They are strangling us". Banks will make $4 billion in profits this year, and they are complaining about being strangled.

Is it normal that the Scotia Bank, for example, has more branches in the Caribbean alone that around the world? Scotia has 33 branches in the Caribbean, in small countries that are generally viewed as tax havens. Thirty three branches. It has one branch in America outside the Caribbean, five in Europe, seven in Asia-I would say there are quite are few more people, potential customers, in Asia than in the Caribbean-but 33 in the Caribbean.

It is the same thing with CIBC: seven branches in the Caribbean. Same for the Royal Bank: ten branches in the Caribbean. There are even countries with a population of barely 60,000 where Canadian banks have four branches.

Is it normal to put up with that? Is it normal to let these banks take advantage of tax loopholes to transfer hundreds of millions in these countries, take the profits back home, not pay any federal taxes, and then announce with great pump, as they did one after the other last week, record profits for 1995? This no longer makes any sense.

In view of this situation, it is not surprising that, since 1950, the fiscal contribution of Canadian companies, unlike that of individual taxpayers, has been shrinking and is now next to nothing.

Let us take a brief look at history. In 1950, companies paid 23 per cent of all taxes collected by the state, compared to 24 per cent for individual taxpayers. In other words, the contribution of companies and individual taxpayers was essentially the same.

And what were these contributions in 1993? The federal government collected 52.7 per cent of its taxes from individuals, compared to only 6.5 per cent from companies. That change alone should make us wonder. It should make the Minister of Finance, as we have been asking him to for two years, undertake, with our assistance, a comprehensive and in-depth review of the corporate tax system.

But this is not all. On December 8, it was mentioned in the daily La Presse that companies should pay more taxes. The article read, in part: Corporate tax represents a smaller proportion of the GDP in Canada''-a comparison was being made with the United States-and this gives us reason to believe that it might be possible to reduce some of the tax benefits granted to Canadian companies''.

Who expressed that view? It is not leftist groups, nor the Bloc Quebecois, the unions or some progressive organizations. Do you know who said that? It is the International Monetary Fund, which is a group of very conservative analysts, conservative not in the political but in the philosophical sense of the word. These people usually ask the Minister of Finance to cut twice as deeply as he actually does in federal programs and expenditures. But this time, the IMF is asking the minister to review the corporate tax legislation and perhaps impose higher taxes on companies, at least those that do not pay their fair share, and there are a quite a few of them.

There is a gap between what goes on and what we have been asking for two years from the Minister of Finance. If the minister really wanted to show some leadership in putting our fiscal house

in order, he would not target the poor. He should take a comprehensive approach regarding this issue. When we speak of fiscal consolidation, this means not only expenditures but also tax receipts, revenue.

Is it possible, from what I have just demonstrated, that the Canadian tax system may want some cleaning up? That it may be time to do some tidying of corporate taxation, after 30 years of adding on and taking off new measures, top-loading as it is termed? If only out of a need for fairness, as I have said, for those who pay their taxes as opposed to those who do not, as well as to simplify the system.

Two years ago, I asked the library for some reference books so that I could know all there was to know about taxation. I do not think my office could have held all of the documentation I would have had to read to be an expert like those folks who get half a million dollars a year to advise businesses to open up branches in tax havens, or those who write in CA Magazine.

For all of these reasons, the Bloc categorically rejects what the Liberal majority report states concerning pre-budget consultations. I would like to indicate four approaches the Minister of Finance might use in preparing his next budget.

The first is absolutely vital: the Minister of Finance must reform the corporate taxation system.

Second, as the Quebec Finance Minister asked this week, the federal government must forget about the Canada social transfer for Quebec and give it tax points, in order to eliminate duplication and overlap in the management of this reality, thus enabling Quebec to assume the responsibilities the federal government has abdicated with respect to the most disadvantaged in society. Quebec can take over and do it much better.

Our third suggested measure: further defence cuts. Another $1.5 or 2 billion could well be cut as early as next year. This is something he can and must do.

As for the fourth measure, we are asking the Minister of Finance to stop dumping on the jobless, welfare recipients, students and the sick-as well as the seniors who are about to be added to their ranks.

These are the four points the Minister of Finance and his government ought to be guided by, after two years of showing absolutely no compassion toward the most unfortunate of our society, while boasting of how well they are handling public funds, this is nothing but smoke and mirrors.

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12:10 p.m.

The Deputy Speaker

Pursuant to the agreement, the hon. member for Capilano-Howe Sound will now speak for 30 minutes, without questions or comments, on behalf of the Reform Party.

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12:10 p.m.

Reform

Herb Grubel Reform Capilano—Howe Sound, BC

Mr. Speaker, I am pleased to rise today to offer the Reform Party's first comments on the preliminary report of the finance committee's prebudget hearings which was tabled today.

To come right to the point, Reform considers the report's budget recommendations to be too timid. The proposed deficit target of $17 billion or 2 per cent of GDP in 1997-98 is totally inadequate.

I remind Canadians that even two years from now the government plans to add $50 million per day to the debt, which by then will be over $600 billion. This amount is $2 million more per hour than it collects. Currently the government is spending $4 million more per hour than it brings in.

In addition, the absence of a definite date for complete deficit elimination is very undesirable, as is the failure to announce any plans for tax reform and reduction.

In the Reform Party's minority report we set out our alternative recommendations to the Minister of Finance: cut spending sufficiently to achieve a deficit of $12 billion or 1.5 per cent of GDP for fiscal year 1997-98.

It is important to recommend announcement of a budget in balance or in slight surplus in election year 1998-99. In addition, we suggest the minister offer Canadians hope by the promise that budget surpluses generated by economic growth in the following years will be used partly to reduce taxes and partly to lower the debt.

The proportion in which this is done will have to be decided, but a definite commitment to this kind of plan is necessary in order to prevent the successive pressure for using surpluses for further increases in spending.

We urge the minister to initiate plans for the introduction of a simplified tax featuring a single rate with a generous personal and spousal exemption, thereby restoring fairness, visibility and efficiency. This simplified taxation system would end the nightmare of the GST.

Before I present our reasons for opposing the government's recommendations and offering our own, I want to raise a point which troubles me greatly. If the past is any guide to the future, many speakers in the House will attack the fiscal plans of the Reform Party on the grounds they are slash and burn and show a disregard for the welfare of the most needy in society.

This attack is balderdash. Our program is not slash and burn. No one in the House has a monopoly on compassion. We propose our program precisely because we care and want to preserve Canada's support for the neediest. We defer with Liberals on the merit of cutting today versus cutting tomorrow and a number of other mainly technical issues of economic management.

I will discuss these issues and hope that Liberal members will similarly stay away from denouncing moral standards of others and proclaiming the superiority of their own. All Canadians will benefit if they do.

With this preliminary out of the way, let me now turn to discussion of Reform's position in favour of the more rapid elimination of the deficit. In developing this position, I draw heavily on ideas which were advanced by the IMF, several Canadian think tanks and a large number of business leaders, economists and private individuals in their presentations to the finance committee.

We recommend the elimination of the deficit by the end of the government's mandate because it reduces the risk that some threatening event will once again increase the deficit to the point at which the debt grows more rapidly than national income. As more and more Canadians realize, when this happens we find ourselves in the unsustainable situation in which we need to borrow ever increasing amounts to pay the interest on the ever growing debt. To use analogies that have become so popular, we would not be on a treadmill standing still. The treadmill would keep speeding up and making it more and difficult to keep up with it.

One threatening event pointed to by witnesses is the downturn in economic activity certain to take place before very long. Another threat stems from the traditional reluctance of governments to enact spending cuts in an election year. Concerns were expressed about the consequences of another Quebec crisis which could result in large increases in the interest on the government's debt and thus aggravating the deficit position again.

The second reason we recommend presenting a target for a balanced budget is it signals to capital markets the government's political courage and determination. As many witnesses noted, if the government did so, capital markets would reward Canada by eliminating the risk premium on the interest rate they now demand.

In a speech a couple of days ago, the Governor of the Bank of Canada in his technical capacity noted that one of the big problems Canada faces is the risk premium that puts the Canadian interest rate above the U.S. rate due to the deficit and a lack of a signal by the government to come to firm grips with the deficit.

If we went ahead and the result were a lower interest rate it would then stimulate housing and other interest sensitive demand. The increased economic growth and tax revenues would move Canada into a virtuous cycle for a change of smaller deficits, even lower interest rates and more opportunity for tax cuts and debt reduction. This is not fantasy; this is an idea supported by many witnesses who appeared before the finance committee.

The government's rolling or shifting target of slow deficit reduction offers the worst of both worlds. The cuts create unemployment and uncertainty, which make consumers reluctant to spend and slow economic growth. At the same time, capital markets are reluctant to reduce the risk premium on interest rates because the cuts are too small and there is no definite date for the elimination of the deficit. We heard that argument in the finance committee again and again.

The announced target of a $17 billion deficit in 1997-98 carries another risk. The careful analysis of the effects of economic growth, interest rates and spending cuts already announced suggest that with any luck and the proper treatment of the precautionary reserve this target is attainable with additional cuts of as little as $1 billion. It may be more, but it could conceivably be done by cutting an additional $1 billion. For the sake of all Canadians, I hope capital markets will not interpret this fact as evidence that the government has lost its nerve and more than two years before the election plans no more spending cuts to balance the budget. If they do, the risk premium on interest rates is sure to rise and the deficit will be even larger.

Third, we believe the complete elimination of the deficit by 1998-99 does not involve slash and burn. As the Minister of Finance found out during the referendum campaign with his reference to job losses of one million due to separation, hyperbole may be rhetorically satisfying but it has its risks. The IMF and numerous other analysts have noted that many billions of old age security and UI benefits go to Canadians who by all acceptable standards can do without them during this period of national emergency. This is a national emergency.

With a little political courage, reduced payments to high income earners would permit the complete elimination of the deficit without the need to cut into the support for Canadians with true needs and into other spending programs of the sort discussed by the finance minister in his report which yield high economic and social return.

We believe the Prime Minister's decision to rule out any and all cuts to these social programs, made on the eve of the referendum campaign for whatever political or ideological reason, very much harmed the broad interests of Canadians. I predict history will not be kind to him on this matter. It certainly has put the Minister of Finance in the position in which he will have to make some cuts in otherwise desirable government programs, and all Canadians will suffer.

In this context it is important to note that the Reform budget would not harm but might increase prosperity in employment. This is so because on the one hand the recommended spending cuts of 1.5 per cent of GDP are only one-half of the normal economic growth of the 3 per cent per year which was made famous by the red book. On the other hand, the lower interest rate and the restoration of confidence in the country's fiscal future which the governor of the Bank of Canada talked about would stimulate demand more than that lost through the cuts.

The fourth reason for presenting our program is that the delay of spending cuts results in the accumulation of more debt, which in turn necessitates higher interest payments and even more cuts in program spending in the future. This is illustrated dramatically by the realization that in this fiscal year total government spending has remained unchanged from last year at $120 billion in spite of cuts in program spending of $11 billion. The cuts were eaten up by higher interest.

More dramatically, if the government had made serious cuts in the first budget early in 1994, as Reform had recommended, it could now announce a surplus at the end of its mandate without having to make further cuts. The country's debt would now be much lower and the level of program spending would not have to be reduced as much as it will have to be done even now.

This means ultimately the Liberal approach to balancing the budget will necessitate lower spending on social and other programs than does the Reform approach. Note the irony of it all, Liberal backbenchers. Note that the minister would not have had to do what he did in his report, announce the need to renege on red book promises on the maintenance of social spending and other programs so loved by Liberals who believe the government is a source of everything good in this world.

Let me quote one sentence, a hidden way of reneging on the red book: "On these two central priorities, more jobs and more social programs, we would be less than candid today if we pretended that we are doing all we would like". Substitute "all we would like" for what they promised in the red book and we will see how in a sneaky way red book promises are being abandoned.

I have a comment on our proposed rate of spending cuts. Canadians are becoming cynical and discouraged. They have been hammered for years with talk about spending cuts. Every day they learn about more layoffs, reduced government services and higher taxes accompanied by reports that the deficit still adds millions to the debt every hour. No wonder they are worried and do not spend enough to create the economic boom we should have right now, so many years since the end of the recession.

All of our prosperity, all the job creation the Liberals are bragging about that took place since they took over were the result of a booming economy in the United States. All of our output growth was driven by exports. They were lucky.

People are not spending because they have no confidence. Canadians need confidence but they also need hope. They need to see light at the end of the tunnel. The failure to accommodate these aspirations of Canadians is perhaps the greatest shortcoming of the Liberal budget plan and one of the greatest strengths of the Reform alternative.

We offer a general reduction in the tax burden out of the revenue surplus which will be sure to materialize once the deficit monkey is off our backs. We are offering a lowering of the debt burden so that even more tax cuts can be enjoyed in future years.

We offer these tax cuts in the context of tax reform which would eliminate the abomination called the GST. We would offer hope for the young generation which will be burdened with this outrageous 75 per cent of GDP, $600 billion or more of debt probably by the time the government gets through with its timid cuts, a trillion dollar debt and the interest on it.

I recently attended a conference on the future of our social security programs and the problems caused by the baby boomers. By the year 2030, some actuaries are saying, just to deliver on the already existing promises for old age security benefits, on medicare and on CPP we will need to raise $50 billion. This $50 billion will have to be raised by a generation that has fewer people of working age than we have right now.

They will need an increase in their personal income taxes by 50 per cent.

The young generation should be on the barricade. We have to work on the social security program we are leaving as a mandate to future generations. Another thing we can work on right now is that extra legacy, almost a trillion dollars worth of debt, and if we combine the provincial and the federal debt, that figure is easily reached. It will at least be that much there is a recession, and then some of the other contingencies that witnesses have talked about will be realized.

It is one of the great hidden scandals that we in this House are borrowing and are forcing it on a yet unborn generation and young people who are too occupied with making a living. Our debt burden is the greatest in the history of this country and is one of the greatest in the history of the world. People who cannot vote are being asked to tax themselves so that we can live beyond our means.

No wonder we are getting rave reviews as being the greatest country in which to live. Any country can do that as long as it has

credit and is prepared to borrow from as yet unborn generations. Live and blow it, have a great life for everyone. Get yourself a glowing report in the United Nations. It is okay that it is done on borrowed money. Those young people do not have any vote yet. That approach is the ultimate in cynicism. I find it unbelievable this issue is not being raised. We have been promised a white book on pension reform. Nothing. They are too timid to even raise it. It is one of the greatest scandals we are going through at the moment.

It will take another 20 years when this crunch will begin to hit. Twenty years is nothing, nothing, yet it is not being discussed at all. When it comes to one portion of that unbelievably horrendous legacy we leave for our children, grandchildren and as yet unborn generations, we hear: "Oh, no, we cannot be too tough on Canadians who are making $50,000 a year on old age security benefits. We promised it to them".

We could ask Canadian pensioners who are making over $50,000 a year in today's dollars: "Do you know what kind of a burden your generation and the generation sitting in this House is passing on to your children and grandchildren? Do you not think we ought to share and get together to make sure it is not as big as this?" I believe if I spoke to audiences and pointed this out, they all would say: "Yes, I am prepared to take a little cut in my income". That is all it would take. The IMF and everybody who looks at these numbers points out that it would not take a great deal of sacrifice to do this.

What does the Prime Minister do? Probably without consulting anyone he commits his government never to do what everybody says is necessary. I hear Canadians saying that we should be doing it because it is not right to burden future generations, our children and grandchildren, with the amount we have.

In concluding my analysis of the government's prebudget recommendations, let me note that the views I expressed were shared by a large number of witnesses who appeared before the finance committee. They reflect the concern of those who argued for the preservation of our country's social security net. I am sure they are shared by a very large segment of our population. I am sorry, truly sorry, they are not shared by the Minister of Finance, cabinet and Liberal backbenchers. How good it would be for Canada if they did.

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12:35 p.m.

Liberal

Wayne Easter Liberal Malpeque, PE

Mr. Speaker, I find it interesting to speak following the slash and burn speech I just heard. Let me say to the hon. member that this government instead of just listening to the IMF and taking its direction, listens to the Canadian people and tries to meet their needs through the budget that we propose.

I will begin by thanking the members of the Standing Committee on Finance for their efforts in terms of holding prebudget consultations across the country. On November 27 the finance committee conducted prebudget hearings in my province of Prince Edward Island. That gave the opportunity for many island groups and individuals to present their views on the direction the government must take when designing the 1996 budget. Their views will certainly assist the committee in preparing its recommendations for the minister. I want to thank those islanders who took the time and the effort to think through the briefs and to present them.

There is no question about it the round table in Charlottetown put forward many views and recommendations from all sides of society. It is crucial that the government listen to what those presentations said. We had to find a balance between the massive job of deficit reduction and our social obligations to all Canadians. I would like to quote a couple of remarks from those presentations because they do differ from the left to the right of the political spectrum.

The Charlottetown Chamber of Commerce put forward its position that "the deficit must be reduced more rapidly with tough but attainable targets being clearly set out and achieved". They do go on to say though that "the entire program could take over 25 years. Given that we have had 20 years of overspending to arrive at our present position, such a time frame for debt elimination is both appropriate and manageable". As well, the chamber of commerce suggested four points: continuation of privatization; harmonization of the GST and PST; doing away with jurisdictional overlaps; and changing the annual filing system to perhaps two or three years in order to save money.

A different presentation from the opposite side of the spectrum came from John Eldon Green. He said: "I am not one of those who believes the new disentanglement can be achieved according to the rapid schedule of the finance minister or those around him, or indeed of the entire financial community in Canada. I would get out of debt the way we got into it, slowly, gradually and over the long term. What is now being attempted is entirely counter to the creation of an environment for jobs and growth", from his point of view.

Mr. Green went on to say: "The issue for me is: How much money is there in Canada and what is an appropriate amount to be left with the people, allocated to governments and devolved to other countries? Our borders have to remain open to business, but I have trouble seeing the jobs and businesses of people around me being sacrificed in the cause of global business and undertaxed profit. However I do not know the numbers but then no one in Ottawa these days seems to know anything but". I think it is a valid point.

The view of priorities that governments should set for themselves is not disputed. We as a government must also recognize

that if they are achieved at the expense of social programs on which all Canadians depend, then this quick fix is much too high a price to pay.

There are basic programs that benefit all Canadians as well as the business community: educational programs, medicare, et cetera. Yes, these programs do cost money but we can have a debate on whether it is a cost or an investment. I see these kinds of programs that this government is pursuing as an investment in the people of this country to ensure that they have the means by which to work in the job community in the future.

In fact many of these programs that we have as a Canadian government today are an asset to the business community in terms of its members being able to compete abroad.

We must maintain the level of social programs we currently have. They are one thing that unites us as a country and why this country is recognized as the best country in the world in which to live.

The approach taken by the minister to date has been a reasonable one. The minister's statement last week showed the progress we are making. Some, like members of the third party we just heard, like to blow the deficit out of proportion. Somehow they disregard the needs of people. They like to blow the deficit out of proportion and negate the progress we have made. Clearly, we have made progress.

The 1994-95 deficit was $400 million lower than predicted. We are on track to reduce the deficit to 3 per cent of GDP by 1996-97 in a timely and reasonable way. In my province in November 1995 the unemployment rate fell to 12.2 per cent, down more than 6 per cent from the 18.5 per cent when this government took office. Retail trade has strengthened through 1995 and outperforms by far the national level.

Given that kind of progress, we now must undertake and make a much greater effort to better balance the social side of the equation. Yesterday's announcement by the Minister of Human Resources Development is a move in the right direction in terms of increasing child care spaces in the country.

In terms of the social and tax balance on the tax expenditure side, a loss of tax due to a tax break either to corporations or to the wealthy is as much a cost as the direct expenditure of dollars under government programs. To date, governments at all levels have tended to target the direct expenditures and too much have ignored the tax expenditures. It is very important in this budget to try and balance that.

I know it is not easy in the face of the current attitudes that are prevalent throughout the country and throughout the world. I want to quote from Peter Newman's book, The Canadian Revolution :

"The values of the marketplace have infiltrated every institution in Canada: the family, the church, the legal system.... Anti-human, commercial values are dominating every sphere of life. Now that we're coming into economic hard times, the sense of each man for himself-save your own skin, get whatever advantage you can-is going to sink public spiritedness and make it much more difficult to preserve our sense of obligation to community".

I make that point to stress the kind of attitudes that are out there at the moment. Those are the kinds of attitudes that are coming from the Reform Party. Real leadership by the government in the face of that hard nosed attitude is required. The Parliamentary Secretary to the Minister of Finance mentioned earlier the action necessary which the government is taking to address the concerns of people.

The employment insurance proposal was one that was mentioned. I do want to point out that I hope two measures in that bill can be changed. One is the intensity of work rule and the other is the calculation of the benefit base. We must ensure coming out of this budget and the policy objectives of the government that the seasonal industries do have the opportunity to grow and prosper.

In conclusion, let me quickly list some of the initiatives I would like to see furthered in the next budget.

We must start to develop a program that deals with child poverty. Expansion of the infrastructure works program should also be considered. That has been an excellent program. In fact, it has put in place a base for businesses to develop and grow.

The major industries in Canada are still the natural resource industries. Although we hear much about the knowledge based industries and the technological highway, it is important that we not ignore those natural based industries: agriculture, fisheries, forestry and mining.

As well, we need to enhance and strengthen the ability to market products internationally. We need to renew our commitment to the great marketing institutions across this nation, the Canadian Wheat Board and the supply management boards which have brought prosperity to communities and continue to contribute to the balance of trade.

We need to continue to maintain and strengthen our regional development programs and, in my area, specifically, ACOA. I will make one point on ACOA. Since 1993, ACOA's programming and partnering with the provinces and the private sector has created and maintained over 46,200 jobs. It has assisted 5,300 businesses. It has a proven track record in small and medium size business development.

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12:45 p.m.

Liberal

Jane Stewart Liberal Brant, ON

Mr. Speaker, I begin my remarks by noting that this is the third year in a row that members of the House have been invited to participate in a prebudget debate. They have been asked to share with the Chamber and certainly to

share with the Minister of Finance their particular points of view, their advice and their concerns about the direction and the hopes for our country and its fiscal circumstances.

I will make my remarks from two points of view today; one, as a member of the Standing Committee on Finance and, second, as the member of Parliament for Brant. I have recently met with my constituents at one public meeting to talk about the budget and will meet with them again early in the new year to collect more input and advice.

From the point of view of a member of the committee there are three things that have struck me over the course of the prebudget consultations that have been under way since September. First of all, it is very clear to me that there is a different tone in the representations that are being made at the committee table this time around.

If members recall, last year at this time the newspapers were full of the issue of the budget and the fiscal circumstances. As members of Parliament, we were receiving all kinds of representations from constituents, from lobby groups about what we should and should not do, what our strategy should be and what our approach should be.

Very soon after that, in fact as soon as the budget was tabled, all that frenzy melted away because the Minister of Finance had listened. He responded to Canadians. He addressed their concerns with a very effective budget.

That calmness, that understanding, that support for the approach to budgetary strategies continues. The tone since September has been a measured tone, a very supportive tone, one that shows appreciation for the approach the government has taken. It shows appreciation for the strategy of rolling targets. It shows acceptance that the government is going to make its commitment of reducing the deficit to 3 per cent of GDP. It shows support for the fact that conservative assumptions are taken into consideration when preparing the budget package. It shows acceptance of the notion of having a contingency reserve so that as the economy's cycles work their course, that fund will keep us on target to meet the goals that have been set.

The Minister of Finance came to the committee recently and indicated that for 1997-1998 the deficit goal would be improved to 2 per cent of GDP. I strongly support that strategy. I would encourage him again to use conservative assumptions as he prepares his budget for 1995-1996.

The committee was told in several ways and several times over the course of the budget hearings, by economists, by members of the business community, not to forget that Canada is in a cycle and we can anticipate somewhat of a downturn in the near future. I would encourage the minister to consider maybe increasing the contingency reserve that has been addressed to date.

This is all good. The tone is solid. It is supportive of our approach.

There is something else that is interesting. In this set of prebudget debates the focus has turned away from being solely on the deficit to actually talking about the debt. What that says to me is that Canadians are quite confident that the first strategy, the first hurdle; the hurdle of the deficit has been managed and now they want to continue on with good, sound fiscal management and start to attack the debt.

The minister spoke about that, as did many witnesses as well. It is a process, an evolution, a confidence that the government is moving in the right direction.

Third, I would like to point out the issue of quality. The presentations that have been made to the committee over these last few months have been exceptional. They were even better than last year. We in the committee are starting to learn more effective uses of the consultative process. We used the round table as the hon. member before me noted. It is a very effective way of getting Canadians to come together and understand the different perspectives and concerns that people have, their needs and requirements.

However, I would point directly to some of the sectors in our community which have worked so hard to pull themselves together and build a consensus before they come to committee. When they come to the committee they have a single voice. They are very clear in what they are looking for and they make a very pointed and accurate intervention.

The health community came together under HEAL and presented its suggestions to us so that a strong and healthy Canada Health Act can be maintained.

The voluntary sector has done an incredible job over this last year bringing dozens of groups together to build a consensus. It stated that these groups were building so they could be considered as a voluntary sector in this economy. It made some very good representations and suggestions to us that will help us to encourage donations at the moderate level and at the high level from businesses. We have to listen very carefully to this group's representations and give it some time because it is coming together and will provide Canadian society with very valuable contributions and partnerships that should be supported.

I also think of the coalition for private and public partnership where the private sector has come together with public partners and said that they can work together in this notion of privatization-commercialization in identifying where the effective partnerships can be built.

These are the kinds of things that Canadians are doing now as a result of the government's approach to managing the country's fiscal requirements. They are moving in the right direction and I am proud of it.

I would now like to turn to the messages that my constituents are giving me back in the riding of Brant. As I said, we met late in November with a very interesting group of people from all sides of the political spectrum. The message was loudly and clearly heard that Canadians in my community want us to continue on the deficit reduction track, to move toward dealing with the debt, to do it without raising personal income taxes and to manage it on the spending side.

In Ontario, people in my riding are now able to juxtapose the different strategies. The government's strategy is of a balanced, measured, thought out approach that is timed and pitted against goals that are set versus the strategy of the provincial Tory government, in fact almost Reform government, taking a slash and burn approach. There are two different ways of getting to the end and Canadians are saying to do it in the Liberal way.

I need to tell members about individuals in my riding who have suffered as a result of the Tory strategy. They did not know that their social security cheques were going to be cut by 20 per cent. They were not told. If they had been told they would have had to read it in the newspapers and not everyone has those facilities or capabilities. It is unconscionable, inhumane and not what governments are about.

Despite those that say that governments should be managed like businesses, it is just not true. Governments are here for people. Governments have to manage in that fashion. Therefore, I am very proud and certainly support the strategy of the government to take a balanced, measured and stable approach to managing our fiscal house.

One gentleman in our conversation, Mr. Dave Levac, brought up an issue that people are concerned about which is the issue of government accountability. We know we have to do a better job at letting people know what our goals are and about measuring ourselves against our goals. Mr. Levac suggested that ministries, when they do not spend all the money allocated to them over the course of a budgetary period, contribute that directly to deficit reduction. That is not a bad idea but there may be some very complicated and technical administrative costs that are associated with that. However, what my constituents are saying is that government still has a way to go in assuring the Canadian public that it is truly accountable in spending tax dollars effectively. I accept that input. We do have to work more effectively in that regard.

Finally, on a detailed level my constituents very much were supportive of a government that supports the social side, the side that speaks to individuals, the Canadian public. They said that government support to the economy, to industries and business through subsidies, is probably one place where the government should continue to make cuts. Let the market look after itself.

We heard that at length over the course of the hearings in the finance committee where members of the chambers of commerce and different organizations representing business said they could manage more effectively without subsidies. We should, as a government, cut where Canadians are saying they will take cuts. That should be our strategy. I think of Mr. Lobb at the town hall who said: "I appreciate the fact that where the government made cuts was more on the side of business and the economy and less on the side of the social budgetary agenda". That made sense to him.

I suggest that we continue with that strategy. We must remember that governments are here for Canadians. As a government we are opening the back rooms so that Canadians can participate in the budget debate, which is critically important to each and every one of us. We are taking a measured approach, with targets and commitments and we are meeting those commitments. We are creating stability in the marketplace, which is buying us credibility. We must focus on providing social support to Canadians across the country.

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12:55 p.m.

Bloc

Pierre Brien Bloc Témiscamingue, QC

Mr. Speaker, today the debate is on a motion intended to congratulate the government on a job well done in the area of government finances. Of course you will realize we do not share that view.

I listened carefully to the hon. member for the Liberal Party who just spoke, and I will get back to what she said later on. In fact, towards the end of her speech, she said she was pleased because people had told her this government did not reduce its deficit by attacking the most vulnerable in our society but by cutting subsidies to business, and so forth.

We will put that in perspective later on, and maybe she should provide some figures or information for the constituent who said that, because the exact opposite is true. The main sectors affected since this government came to power-and I will explain that later on-are transfers to the provinces and unemployment insurance. It is largely these two sectors, as well as some economic growth, that enabled the government to reduce its deficit.

In the case of unemployment insurance, it is an artificial reduction. I will elaborate on all that, but I will also comment on the pre-budget consultation process as such. In fact, this is the second year we have had these consultations. I am not so sure the process has improved over time. Perhaps certain technical details such as organizing round table discussions instead of hearings, could be seen as an improvement. However, when we consult people without providing a context, without parameters, as we did this year, there are certain consequences. The groups that appeared

before us had to answer several questions formulated by the Minister of Finance, without exactly knowing where the debate was leading and without necessarily having access to updated information which we did not receive until after the consultations. I will talk about all that as well.

I will discuss program review, which is an important element, and the fact that the Minister of Finance just announced there will be a phase II. I will also discuss what happened in the past few days, and I am referring to a proposal from the government of Quebec which was dismissed out of hand by the finance minister. When Quebec is willing to start a dialogue on a serious and constructive basis with genuine decentralization as the ultimate goal, it is rather surprising that the response to this initiative should be a quick and categoric no. So we are going to discuss that, plus corporate taxation and some of the measures that are in the works. So let us have a look at these items one by one.

First, the pre-budget consultations. This was the second year. Last year, the Minister of Finance came to explain his position. He came with a whole launch kit, with his video cassettes and documents. He managed to make these consultations meaningful, up to a point. This year, the process was somewhat delayed, because obviously the Minister of Finance did not want to appear in person before the committee in the middle of the referendum campaign in October. The minister preferred to postpone his appearance and let the hearings proceed during the whole month of November, without appearing at the beginning of the hearings to tell people what he had in mind.

Therefore, we found ourselves in a situation where, contrary to what was said-well, in some instances, witnesses made proposals that were constructive to a certain extent-many groups came solely to defend their own corporate interests, unfortunately. They said: "Our sector is vital. What we do is important, so do not touch us, but do look at all the rest". We cannot comment on the rest, because we have neither the knowledge nor the information to do so.

On this point, I agreed with the witnesses. Very often they spoke of overlap and briefly explained the various types, especially in Quebec and western Canada. We heard very little talk of decentralization and overlap in Ontario.

These people asked us about things and said they could not get hold of studies on the subject. It is unfortunate, because the Minister of Intergovernmental Affairs says he did studies, but never made them public. It is as if management of public funds does not concern the public. It is as if documents should remain hidden somewhere and used only by cabinet. No, this is not the way things should work. If we want to consult people seriously, we have to inform them. We have a long way to go on this.

If we really want public consultation we will have to do it in some way other than having a committee make a show of touring the provinces telling people it is listening to them, when it is not necessarily.

The interim report of the finance committee is not particularly good. It is, obviously, not the final report, but it is not up to the level of an end of session report or a high school paper. It is really too bad that, with all the expertise of the members and the personnel involved in the committee's work, the result is so ordinary. It is regrettable. Let us hope that the January report will contain more detail. This will not be easy, however, given the way the minister categorizes these consultations, providing no specific objective, no particular direction as to what he wants by way of information really, and so this is the way we end up.

I am disappointed by and rather critical of this process, which, in my opinion, does not provide many positive benefits. I will now address this issue before moving on to unemployment and transfer payments.

I would first like to talk about the program review. The Minister of Finance told us that the program review was about to enter Phase II. This means that every program involving government spending will be assessed as to effectiveness and need.

One of the problems is that parliamentarians face elections every few years. Programs are put in place by different political parties and different governments and their goals set at a specific point in time. In the mid-1970s, for instance, the government decided to create a tax credit to stimulate research in a particular area. In 1995, however, this has become less of a priority. Programs should be assessed more according to their initial goals and to whether they meet a current need. I imagine that a program review does in fact assess the need for a given program.

Our current budget situation requires that we set priorities. This means keeping what we deem most important, and to do so, we need information. All this is done behind closed doors with just a few people. This is no way to achieve a consensus and convince people to make necessary but difficult efforts to improve public finances. Until we give a sense of equity to these measures and until people feel that everyone is doing his or her fair share, there will not be a consensus. When this information is not made public, people wonder what they are hiding and why. Do they want to keep some bad programs or to eliminate some good programs? Perhaps. To avoid this kind of embarrassment, the government has decided to do everything in secret.

I would like to talk to the minister about the upcoming Phase II.

If he is serious about it, he will start by releasing what came out of phase I, and then proceed to phase II. That could make things interesting. I am convinced that there are people who would have interesting things to say on the subject. Their comments could form the basis for his next round of consultations. Instead of using these studies as a basis, he should release them and make them available to groups interested in participating in consultations. That will make for a real budget consultation process involving public participation.

We do not hear enough from ordinary citizens. It is all well to hear from formal groups, but these already have a voice; they are in contact with the various department and opposition critics. Regular folks are the least represented in this debate. At hearings, they sometimes end up sitting at the same table as the chairman of the Chamber of Commerce, who has the staff to prepare briefs and what not for him. This forum then becomes intimidating for these people. It is not the kind of forum that attracts ordinary citizens, at least very few of them and not as many this year as last year.

In time, only corporate interests will participate in this forum. I am not saying that they are all bad; there are a few that are great and quite legitimate in the bunch, but the problem is that we already hear from them. We already know their positions, and these contain very few surprises, because there are other means available to them to make themselves heard. So, this whole issue needs to be reviewed.

Moving to deficit reduction. The Minister of Finance just announced his targets for the years to come and gave us an additional piece of information: this year's deficit will be $32.7 billion. The deficit will be reduced next year, down to 3 per cent of the GDP, which means that it will be somewhere between 24 and 25 billion dollars. The following year, it will be brought down to $17 billion. No one can oppose deficit reduction, which is a laudable goal.

However, we can be critical of two things regarding the means used to that end. The first one is the transfer payments. As we know, transfer payments to the provinces are part of federal government expenditures, since it collects revenues and then makes transfer payments to the provinces.

This is the way it used to be done in certain areas such as post-secondary education, health, as well as the old Canada Assistance Plan, or CAP. Now, these transfer payment programs are grouped together under the Canada Social Transfer. The various transfer payments are combined into a single consolidated category, so that only one payment is made.

In so doing, the minister pursues two objectives. The first one is to make things less transparent, so that he can say: "We put all this together, but we reduced the payment by a certain amount". It then becomes difficult to accuse the minister of making direct cuts in the health, education or social assistance sector, since he is making a cut in the global payment made for all three areas. He says to the provinces: "It is up to you to cut where you want. You have a choice between health, education and social assistance. I reduced the overall amount paid to you for these areas. You do what you can with what you have and you pay the political price attached to it".

We must remember that this means $2.5 billion in cuts for 1996-97 and another $4.5 billion for 1997-98. That is a lot of money. My hon. colleague from the Liberal Party said earlier that cuts to social expenditures were not as steep as those made to business grants. That is just not true. Cuts to business grants made so far and over the next to years amount to about half, perhaps $1.5 billion, when transfer payments primarily used to fund social services will be reduced by $7 billion.

There is an order of magnitude there. Cuts to the Canadian social transfer alone will be four or five times larger. And that is not taking into account successive UI reforms, which, once again, are much deeper and wider in scope than cuts to business grants. So, let us not draw long bows here and let us be honest. The people should know that the cuts in question were made mainly to government social expenditures.

We could argue to determine whether these cuts were necessary or not. The hon. member may think that they are appropriate. She may think what she wants; she is perfectly within her rights. But she cannot tell people that cuts were not made there. The figures and the facts speak for themselves. The hon. member should set the record straight with her constituents, who believed her when she said that only business grants would be affected.

So, as far as the Canadian social transfer is concerned, Quebec alone will bear 26 per cent of the cuts, the first round of cuts. During the first year, there will be $2.5 billion in cuts, of which Quebec will bear 26 per cent. The following year, we are not quite sure yet how extensive cuts will be because the applicable criteria have not been set.

According to a document issued by the Minister of Human Resources Development, the new Canadian social transfer will be distributed on a population basis, which means that Quebec would absorb 42 per cent, or $1.9 billion, of the $4.5 billion in transfer payments to be cut in the second year. That is a lot of money. Especially when you think that, if the current criteria were maintained, Quebec's share of the cuts would be $1.2 billion. That is already a substantial amount. But with the new criteria, Quebec will lose an extra $700 million.

There have been discussions these past few days and an interesting proposal was put forward, but I will come back to that later, if I have time. The minister will soon have to be more precise about where he stands on this issue. Our point is that, overall, if the

federal government reduces transfer payments to the provinces, it does not really spell deficit reduction for ordinary citizens, for the taxpayers, because the problem has only been shifted from Ottawa to the provinces.

In turn, the provinces then have to make cuts and pay the political price for this. They are the ones left with the unpleasant task of explaining to their people what must be done to reduce the deficit. It is no easy task. Here they are washing their hands of it and saying that they are putting their fiscal house in order. Part of this is an illusion.

The other part that is illusory is the UI account. In the last five years, the UI account has been funded by employees and employers, which means that UI premiums are paid by insured workers through payroll deductions and by their employers. The government does not make any contributions to the UI fund. It is funded solely by the employees and their employers.

When this funding method was adopted in 1990-during the recession-, the UI account was running a deficit, which the government had to absorb. In the first three years, the fund ran a deficit, thus accumulating a three year debt. Since the 1994 UI reforms, however, the UI fund has run a surplus. This year, this surplus will reach some $5 billion.

If we look at the five years since employee and employer premiums became the only source of funding, the UI fund will have accumulated a surplus of about $1.2 billion at the end of this year. The fund therefore did not run a deficit for those five years.

Another $5 billion surplus is forecast for next year. The accumulated surplus will exceed $6 billion. The Minister of Finance has not said anything about raising benefits or reducing employee and employer premiums next year in order to stabilize, to contain a surplus that could reach $11 billion in three years in this account funded by employees and employers.

The government uses this surplus to give the impression of reducing its deficit. Without unemployment insurance in this year's books, the deficit would be $37.7 billion.

If the fund was balanced this year, for example, the deficit would be $37.7 billion. A different accounting method must be used, as well as a different account, so that we have a better balanced system and that the government does not use the UI account to create an indirect tax on employment.

We do not agree-and I will end on that note because I am running out of time-with the fact that the government significantly reduced its deficit through transfer payments and changes to the UI account. It will have to truly tackle other issues. It will have to take a hard look at the corporate tax system and conduct a real review of programs, so as to see which ones are no longer essential.

The government will arrive at a more comprehensive, permanent and stable solution that way than by simply making minor changes to its accounting method, or by off-loading the whole problem onto the provinces and never tackling the real issue.

This is why we will try, in our report, to reflect that spirit and ensure that the government will head in the right direction in terms of reducing its deficit.

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1:15 p.m.

Liberal

Dianne Brushett Liberal Cumberland—Colchester, NS

Mr. Speaker, in February, the Minister of Finance set the course of deficit reduction and economic growth. The budget focused on national priorities and set goals of fairness and credibility, goals we have met.

In 1993-94 there was a 5.9 per cent ratio of deficit to GDP. This year it will be 4.2 per cent and we are almost certain to meet our target of 3 per cent deficit to GDP by the year 1996-97. This is good news for Canadians, as we are on course and have achieved our goals.

This week the finance minister set a new two-year rolling target, the goal of a 2 per cent deficit to GDP ratio by the 1997-98 fiscal year. This means the deficit for that year will be approximately $17 billion. The borrowing requirement will be at its lowest level since 1969. This is credible reality of a finance minister of the government of today.

There are those who say we should go further and faster with cuts like this slash and burn approach but I say the deficit and debt were not created overnight and we cannot change them overnight. We are on a steady course showing results. With an anticipated growth rate of no more than 2.5 per cent next year and with inflation and wages under control we must continue the path we are on to reduce the deficit while stimulating the job creation strategy equation.

We have spent the past few months in committee listening to Canadians. They want us to be fair and show equity in all changes and cuts we make. We will earn our nation's affection and the respect of all Canadians if we as a government remain true to our own Liberal values. Those values of honesty, hard work, fairness, tolerance and compassion must prevail as we look at how to fight Canada's deficit and debt.

Liberals are a political party of the middle road. We will avoid the slash and burn policies of the extreme right wing and balance with compassion those policies of the extreme left. Margaret Thatcher once observed that staying in the middle of the road is very dangerous, as one gets knocked down by the traffic on Both sides.

The government is not afraid of being knocked down by either side. We will listen to Canadians; we have listened. We will uphold the value of a one level health care system, the values of tolerance and compassion, the values Canadians want and respect, the values of eliminating poverty among our children. Difficult choices were made last year. Unemployment is being reformed this year and our workforce is more competitive. We have had the co-operation of Canadians and I thank them for that.

I share some concerns Canadians expressed to our committee. Many asked why we do not force the Bank of Canada to lower interest rates and manipulate the money supply. Past governments have tried it and it does not work. If we reduce this strangling deficit and the debt we will have a healthy financial picture and interest rates will fall on their own, mortgage rates will fall and the economy will expand.

Economists tell us a 2 per cent reduction in interest rates over four years allows the economy to grow by approximately $13 billion. Canadians have asked us why we do not set a longer strategy to look at the debt to GDP ratio. We know we must do this, since 20 years ago the total federal debt was 19 per cent of gross domestic product; 10 years ago it was 50 per cent. It was growing even in good times. Today is close to 75 per cent. We know this ratio must be reduced if we are to compete globally and to remain the best country in the world in which to live. We know our generation must set an attainable strategy for reduction of debt to GDP.

Some recommendations by Canadians deal with the construction industry. It needs a boost. One idea is to renew the RAP, the residential assistance program we brought in last year. This helps low income earners to maintain adequate housing. It helps seniors on fixed income to stay in their home where they remain healthier and happier and it has helped the construction industry. Another suggestion was the use of the RRSP to extend to new construction by extended family members. As an example, a father could use his RRSP without penalty to construct the first new home for his son or daughter. Also, it has been suggested that if we remove the tax incentives that go along with demotion of buildings we would then indirectly encourage retrofitting and remodelling of older buildings and our heritage properties. This has two benefits. It restores and maintains heritage properties and in most cases it creates twice as many jobs. Renovating creates two jobs for every one of new construction. It does have the job creation factor.

Each one of us elected to this hon. House knows how closely literacy is tied to the economy. Without strong literary skills we cannot read the work manuals or the directions on a piece of equipment, nor can we comprehend the orders of our bosses. Adult literacy is closely linked to employment and income levels. Since literary requirements are forever on the increase it is important to promote reading.

One way this budget can do this is by removing the GST on books and magazines. It may be necessary to work co-operatively provinces. However, I believe it can be done. The provinces would participate. The marginal lost revenue would be regenerated in more sales. There would be a greater stimulation to Canadian writers and composers. Above all, a society that reads more becomes more knowledgeable and more competitive in a global society.

In last year's budget we taxed the chartered banks some $100 million over two years. What we saw as a result was an increase in service charges passed on to the consumer. At the same time the banks enjoyed billion dollar profits. It is my recommendation that we take a new strategy. That strategy in simple terms would be for us, the federal government, to establish a community investment strategy and permit it to be funded by the banks in the communities. This forces the banks to do more for small business, more for community economic development, and it forces them to leave some of those profits in local communities.

In addition, we have some responsibility to see that the banks lower those service charges. The charges have a negative impact on small business and a negative impact on the consumer. We are constantly told by economists we must adapt to an increasingly competitive world market.

Global competition means something entirely different to workers in small rural communities than it does to the workers at large corporations like Ford. This is where the banks can assist in those small communities often adversely affected by those global market forces.

I want to address labour sponsored venture capital funds. These are fairly new in the Canadian government's portfolio. They have been in existence less than five years and their mandate was to link investment opportunities to small and medium size businesses for the purposes of job creation. These are heavily tax subsidized dollars with about $2 billion in venture capital available in Canada today. Very little is earmarked for small companies requiring less than $250,000 in capital, and still a large portion is invested in secure treasury bills, not helping small business at all.

The individual who invests in these funds get a 40 per cent tax credit in addition to the usual tax deduction if the fund is placed in an RRSP. The time has come to insist these funds be used in job creation or remove the tax credit incentive. This budget can clearly look closely at this area for new revenue.

There is an opportunity since 1991 to carry forward any unused deduction in the RRSP, and StatsCanada shows that Canadians could pump up to $154 billion this year-not likely to happen because Canadians do not save that much money. There is an opportunity in the 1997-98 fiscal period to look at setting a ceiling

on RRSPs, somewhere around the $8,000 to $10,000 mark for individuals, and we can look at the opportunity in changing it from a deduction on the income tax page to a tax credit.

By changing it to a tax credit, we would give a greater incentive for low income earners to invest in an RRSP because a tax credit would give them more dollars in their pockets rather than a deduction at that low level. We would seal it for high income earners so the advantage was more equal in the incentive process.

There are many more things I could talk about in the budget process such as our training programs, our education facilities, needs such as the national highway strategy, and on and on.

We have heard Canadians speak and they have told us clearly their needs and wants. With political stability in the country we can create a dynamic federalism wherein we have sustainable financial resources, sustainable economies and a sustainable environment. What more can we give our youth but a country in which they can live and fulfil their dreams?

FinanceGovernment Orders

1:25 p.m.

Liberal

Karen Kraft Sloan Liberal York—Simcoe, ON

Mr. Speaker, Canada has been declared the second wealthiest nation on earth and yet far too many of Canada's children live in poverty. There has been a steady and alarming increase in child poverty in Canada over the last decade and a half.

According to the Canadian Institute of Child Health, the poverty rate for children rose 60 per cent between 1981 and 1991. The most recent Statistics Canada figure indicates that 1.447 million children in Canada under 18, some 21 per cent, now live in poor homes.

The majority of low income children live in two parent families at 54 per cent, but a rising proportion live in one parent families. Almost two-thirds of single parent families headed by women live below the low income cutoff line. It is estimated that over half of native grow up in poverty.

The effects of poverty on children are many. Poor children are more likely to get sick, suffer injuries and are twice as likely to die from injuries in comparison to better off children. Their academic performance suffers, as poor children demonstrate behavioural problems, reduced attention spans, poor attendance and low self-esteem. Weak academic performance is often simply due to hunger. Due to their parents' inability to afford the associated costs, poor children cannot participate in simple things like recreational and extra curricular activities that children in better off homes can take for granted.

They miss out on the camaraderie in sharing healthy activities and the pleasure in self-discipline and attendant self-confidence which are so necessary to later life successes. Poor parents simply do not have the room in their household budgets to afford some of the extras that make such a difference in young lives. Their children are often left to their own devices in the home or on the street.

Disadvantaged children grow up to be disadvantaged adults. It is impossible to measure the social costs in unfulfilled lives but it has been estimated that between 1990 and 2010, high school dropouts will cost Canada approximately $33 billion. This figure includes lost tax revenue, lost income, lost unemployment insurance contributions, increase UI benefits and increased social assistance benefits.

Our social security is strongly linked to nationhood. It is through our values reflected in our social programs that Canadians from coast to coast often define themselves. Canada has always been a society committed to social equity. We have always tried to reduce the disparities between regions, between men and women, the young and old, and among the social classes.

Poverty is growing. As poverty increases, so does economic insecurity. Economic insecurities threaten families and communities. When a society becomes polarized economically, great social costs must be paid. We pay for more crime prevention, attending to different acts of violence and loss in human capacity. All of this can lead to slower economic growth. Poverty is a real threat to Canada.

I have an article written by Michael Valpy dated Thursday, November 2, 1995. In it he quotes Edward Newall, chief executive officer of Nova Corporation in an address to the Business Council on National Issues. In his speech, Mr. Newall refers to two issues that must be moved to the front burner, issues that will be positive if we succeed and hugely negative if we fail.

One of the issues he addressed was poverty in Canada and our lack of a national game plan to cope with it:

"I think this is-(a) time bomb that is just waiting to off because we are failing profoundly to deal with the issue. Almost as bad, most of the leaders of our country are not even seized with this issue. We don't understand it. We don't devote any effort to dealing with it.

"The fact that poverty is a major problem in the country is not subject to debate-it is a fact.

"In 1993, when our economy once again outperformed most of the developed world, Statistics Canada reported that an additional 348,000 Canadians had income which put them below the poverty line. More than three million Canadians are on welfare or social assistance. By some definitions, more than 20 per cent of our citizens are below the poverty line.

"Poverty is the overwhelming issue for Canada's single parent families. It contributes to the almost unbelievable high dropout rates from high schools in Canada-To what extent is this massive problem of poverty creating conditions

which will seriously undermine the quality of life for all-We do not want our future to resemble what we now witness in most U.S. cities.

"Make no mistake, real poverty is our largest-unresolved problem in Canada-Let there be no misunderstanding. We business leaders will be judged to have failed in meeting our responsibility to Canadian society if we do not have Canada address the issue effectively".

With great respect to the House, as members of Parliament we too will fail Canadians if we do not effectively act on this issue.

On November 24, 1989 the House passed a unanimous motion to eliminate child poverty by the year 2000. However, between 1989 and 1993, the number of children in low income houses grew by almost a half a million. Children are a gift to us for the future. All of us must take the responsibility to ensure that we live up to our declaration to eradicate child poverty.

The problems of poverty are complex; the solutions are multi-faceted. My reason for speaking on this crucial issue in my prebudget speech is to ask the government, when preparing the 1996 budget, to remember that the House has pledged to eradicate child poverty and that government spending priorities should be set to work toward this end.

There are many powerful lobbies, interests and misconceptions that can work to thwart attempts to act on eradicating child poverty.

We also hear from politicians on both sides of the House who say they must do as their voters wish. As members of Parliament they represent voters. We must always remember that even though children do not vote we represent them. As members of Parliament we must act in ways that honour and respect the needs of children.

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1:30 p.m.

Lethbridge Alberta

Reform

Ray Speaker ReformLethbridge

Mr. Speaker, having spent my first two years in Parliament as part of the finance committee and the chief finance critic, I certainly appreciate the opportunity to speak today on the finance report. For me, and I am sure for many others, the state of the nation's finances is a matter of utmost importance and certainly the number one issue that must be dealt with.

In the time I have today I will ask some simple questions: Where are we now and how did we get there? Who do we point at to answer those questions? Only after we have answered the where and the how can we tackle the most important question: What do we do next?

Let us begin with where we are now. The government is still going into debt but not as fast as before. It still overspends but not quite as much. It still overtaxes but it is more clever in disguising that fact.

In 1996-97 the government will spend $25 billion more than it has. In 1997-98 it will spend $17 billion more than it has. Sadly some people call this progress. I call it irresponsibility.

The finance minister is lowering the deficit but not quickly enough. Yes, he is making cuts but in 1997, not today. Yes, he is making an effort to put our house in order, but it is a half hearted effort that could come undone with the blink of an eye.

The government is playing a risky game with its go slow fiscal criteria and agenda. A recession, a secession crisis that could happen or rising interest rates, any one of those events could unwind three years of progress in a matter of days, sending us right back to where the government started at the beginning of the 35th session of Parliament, with a $40 billion to $44 billion deficit.

The government is deeply in debt, uncertain of its course, lacking in conviction and drifting at sea. How do we explain it? What accounts for this uncertainty, this sense of drifting and this ocean of debt that is drowning the federal government?

I have observed the following. The Liberals who came to office in 1993 were believers. They believed in the ideology, the philosophy and the cause of Liberalism. I must say when I compare the environment of the House of Commons with the environment of the Alberta legislature, in which I spent 28 and a half years, Liberalism was not alive in the Alberta legislature. However Liberalism is alive in the House of Commons. I cannot believe that Liberalism exists in the country in the way it does.

The Liberals who are leading the country believe in the same cause as their predecessors. The Trudeaus, the Martins and the Pearsons constructed a massive social welfare state, attempting to coddle all their citizens from cradle to grave.

What did these welfare Liberals really believe? They believed in governing from the top down instead of the bottom up. We are suffering from that. They believed in centralizing control instead of keeping it close to the people. They believed in governments running people instead of people running governments. The results of this approach were very predictable.

First, social programs fostered dependency rather than self-reliance. Business subsidies tilted the playing field instead of fostering competition. Paternalistic policies stifled initiative instead of creating opportunity. Because they believed that government could do a better job of managing people's lives than the people could, the welfare Liberals never hesitated to fund social engineering through higher and higher tax rates.

That is the legacy the Liberals inherited upon their election and are continuing to build on: an outdated, discredited welfare state that could no longer afford the vision of its creator. Yet the Liberals

who campaigned on the red book in 1993 were the children of that legacy. They believed in this vision. They came to the House believing that it worked. They believed it wholeheartedly, even after it was proved to be wrong.

In reality it cannot be avoided forever, even in Ottawa. When the truth of my last statement finally sank in, when the truth of chronic unemployment, economic dependency and runaway debt became too indisputable to deny, they discovered they had lost their bearings.

These fervent believers who sailed into office on the HMS red book discovered that the Liberal philosophy which had anchored their beliefs was gone, discredited and sunk. They awoke to find themselves drifting, lost at sea and drowning in an ocean of debt. That is why the government spent its first two years in office doing nothing. Discovering that the welfare state had crumbled under its own weight, they found they had no other vision to take its place, nothing at all, no replacement.

Now they have become half hearted warriors, deficit fighters, by default. They reduce the deficit without conviction or understanding. They do it without a vision or a goal. They do it not because it is the right thing to do, but because they do not know what else to do.

The finance minister spent two long years on the road to Damascus before he had his own fiscal conversion, two years of continuous warnings from the Reform Party, international investors, academics, the IMF, the auditor general and the Bank of Canada, just to bring him to grips with fiscal reality. He believed that those bodies were not authorities that knew what they were doing. They did. While he has now experienced a half hearted conversion to the benefits of deficit reduction, he is rowing against the tide in his own Liberal caucus. That is most unfortunate.

Tax and spend dinosaurs like the Deputy Prime Minister, the Minister of Human Resources Development, the Minister of Public Works and Government Services, and the Prime Minister are still clinging to the wreckage of their ideology like a drowning man clings to driftwood.

The finance minister is desperate to keep his government's head above water, yet these 1960s Liberals are hung around his neck like an albatross, dragging him down. They will certainly drag the country down fiscally as well.

There is a bitter irony here. These children of the welfare state are drowning in an ocean of debt that they themselves have created.

Let us look at the alternative, and there certainly are some alternatives. It is the Reform Party. What do we present to Canadians? Reform knows what to do and we know why it must be done. Reform has an end vision. We know why deficit reduction is important and where it will lead. It will lead to jobs and business opportunities in Canada.

Reform's vision includes the elimination of deficits and a reduction in debt. It is unbelievable that our debt grows at $1,000 per second. Can anyone imagine putting $1,000 on the table every second of the day and night? It is beyond belief that happens but that is the kind of debt we have. It expands at the rate of $1,000 per second.

We believe in lowering borrowing costs both for the government and the people and in lowering tax levels, leaving more money in the pockets of Canadians. We believe in social programs that offer a hand up, not a handout. We believe in a society where everyone believes they have an opportunity to grow, prosper and learn in a safe and secure environment.

That is the vision Canadians so desperately need. That is the vision of the Reform Party and that is the vision the Liberal government does not have.

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1:40 p.m.

Reform

John Williams Reform St. Albert, AB

Mr. Speaker, I am also pleased to rise to debate the economic and fiscal update tabled by the Minister of Finance for us to take a look at as we begin our prebudget consultations.

The unfortunate part of the document, if I can recall back to last year, is that the Minister of Finance has laid it before us and said: "Here is the problem. Here are the facts. This is where we are". However he did not give us any idea what he has on his mind about where we are going. He did not lay out any options. He did not give any indication of his preference. He did not say we should explore this avenue or ask what we think of a particular suggestion.

As a result, when I attended the finance committee hearings on occasion as an associate member, I heard continuous rounds of presentations that indicated: "We have a problem in this country. We concur with the Minister of Finance. Therefore we should raise taxes, but don't raise mine". We also heard: "We agree with the Minister of Finance that we have to cut spending, but don't cut me". That was the general theme throughout the presentations.

Because the Minister of Finance did not use the power of his office to give any general direction on the kind of thinking he had in mind, much of that unfortunately did not actually produce a great deal of substance.

The Minister of Finance could have given us some idea about what he has in mind, the general direction in which he would like to go. The country would soon focus and either give him thumbs up or thumbs down. Then he would be able to plan his budget in accordance with the wishes of the people.

I am fairly convinced we will find in this round of prebudget consultations a repeat of last year: "Yes, we have a problem; raise taxes but not mine or cut spending but don't cut me". If that is applied across the board the status quo would remain, which is not what the minister had in mind.

Looking at the document, we see it is a fairly detailed and substantial document not only in its content but also in its omissions. I looked at annex No. 1 which states where the government spends its money. It goes through department by department: human resources development, citizenship, health and so on.

I was looking for finance. There is no annex on finance because it is going to spend $50 billion on interest on the debt. But we really do not want to highlight that. I am not sure if it was an omission by oversight or by design, but all of a sudden I find that this country's major expenditure, which is interest on our debt, is absent. While it is a good document for what it says, it is a good document for what it does not say as well.

On page 91 the document mentions budgetary revenues. We all know how strong the Minister of Finance is about wrestling this deficit down. He said: "I am going to bring it down to 3 per cent of GDP and now it is 2 per cent of GDP and no doubt it will be the magic number of 1 per cent of GDP". He never really tells us how, just that he is going to do it.

When we look at budgetary revenues on page 91 of the document, we find revenues from 1994 at $123.3 billion rising over two years to $136 billion. If my math is correct that is an increase in revenues of $12.7 billion.

The Minister of Finance has never wasted an opportunity to tell us that during that period he is going to reduce the deficit down to $24 billion or 3 per cent of GDP. The public accounts were tabled a few weeks ago and the deficit for 1994-95 was $37.5 billion. In the next two years the finance minister is going to wrestle it down to $24 billion, a decrease of $13.5 billion. We say: "Right on".

But then, he has squeezed another $12.7 billion out of taxpayers along the way, so his net saving is $800 million, $.8 billion. That is the total savings by the government which tells us at every opportunity that program spending is coming down and that all kinds of opportunities are being used to cut the deficit. He is not cutting the deficit; he is taxing Canadians. That is what the finance minister is doing. He is taxing Canadians more because every dollar by which he wants to reduce the deficit is a dollar out of the pockets of Canadians, not a dollar out of the government's pockets.

That is the clear point we want to make. Unfortunately, it requires doing a little bit of math because it just does not stand out in the presentation of the documents. Again, let me compliment the government on what it has produced, but let us not ignore what is not here either.

On page 91 there is tax on personal income, which is about the closest the government gets to recognizing what it is doing. It says: "In 1993 tax on personal income in Canada stood at 15.4 per cent of GDP on a national accounts basis and was higher than in all other G7 countries except Germany". At first glance we think we are bad, but we are not the worst. However, if we read on: "Relative to other G7 countries, Canada relies to a much greater extent on personal income taxes which were 13.5 per cent of GDP and social security taxes represented 1.9 per cent of GDP, the lowest share among G7 countries".

Let us take the two points together. Apart from Germany, we have the highest personal income tax as a percentage of GDP of any country and we have the lowest amount of social security taxes, those being Canada pension plan, UI, the things we return back to the constituents. We are the lowest on that, yet we are the highest on taxation which means that the money is being drained out of the pockets of Canadians and is being passed over on other issues.

Let us look at page 82 of the document. The only increase is transfers to individuals, which I can talk about later. Here we have on annex table 30, distribution of net federal elderly benefits by household income 1995.

Remember, as taxation goes up new families are being created and they are trying to buy a house. The spouse has to go to work. The Minister of Human Resources Development just announced $700 million for day care to help them over the hump because their finances are in difficulty. Canadian families are in trouble because of high taxation. We need to try to improve the prosperity.

Here we have on page 82 that we are giving $630 million to households that have incomes over $75,000, and we are spending another $500 million on households whose incomes are between $60,000 and $75,000.

I could go out on to Wellington Street in Ottawa, Jasper Avenue in Edmonton or any other main street to stop a young couple who is trying to find some money to buy Christmas presents and ask: "Do you realize that a lot of your tax money is going to pay $1.1 billion to families whose incomes are over $50,000?" Should the Minister of Finance not be taking a look at that? If he did he would find that there is room to cut spending. That is the Reform Party's platform: to cut spending rather than tax Canadians more. That is a big difference.

We can go through the document and find all kinds of references. Unfortunately the bad news has to be dragged out but the good news of course just hits us right in the face. It is a good document but the presentation on the bad news could be improved in another year. We do talk about the debt and deficit.

The other day the governor of the Bank of Canada appeared before the public accounts committee. I would like to bring to members' attention some of the things he said in his opening statement. He said: "At a minimum, this calls for action to stop the ratio of public debt to gross domestic product from rising. It is time we got the debt under control". He said further: "Just stabilizing the debt to GDP ratio may not be sufficient. Lower ratios may be needed". He concluded his remarks by saying: "We need a debt to GDP ratio for Canadian governments in total that is lower than it is now".

I am not saying that the Minister of Finance has an easy job. We all know how difficult it is. But let the Minister of Finance stand up and tell Canadians that it is the Liberal Party's policy to tax Canadians more, not to cut spending. Let us recognize that and let us get that point out.

The finance minister still has a long, long way to go before he balances his budget. If it is the intention of this Liberal government to do it totally and absolutely on the backs of taxpayers without cutting one nickel of government spending, Canadians will have something to say at the next election.

FinanceGovernment Orders

1:50 p.m.

Liberal

Gar Knutson Liberal Elgin—Norfolk, ON

Mr. Speaker, it is my pleasure to join the take note budget debate and offer my views to the Minister of Finance.

When talking about the budget the first issue we have to deal with is the debt and the deficit. We have to come to some sort of understanding on how big a problem it is. Once we come to grips with how big a problem it is, then we can say how much cost we are willing to bear to get it under control.

My own view is to move aggressively as reasonably possible to a budget surplus. I use the word surplus as opposed to a balanced budget. A balanced budget does not solve the problem of too much debt. A surplus would allow for the lowering of that debt. In the lowering of that debt there would be a number of factors that would compound positively for the Canadian economy.

There would be a lessening of interest rates as money lenders would see less of a risk in lending money to Canadians. They would lower the cost of the money that they lend. There would be less of a currency risk which would again compound to lower interest rates. Consumer confidence would go up; investor confidence would go up.

All of those factors would provide some possibility of tax relief which again would be good news for the economy. All of those factors combined would increase economic growth, increase jobs, increase opportunity and would be good for the Canadian economy overall.

However, the goal to eliminate the deficit must not be our sole purpose. We must acknowledge the linkages within the economy. To simply slash government spending would from a macroeconomic point of view lessen aggregate demand and risk putting the economy into recession.

Furthermore, we need to acknowledge there are pressing needs within Canadian society. The issue then becomes: Can the government maintain or even improve social spending or social programs while reducing overall spending? The answer is yes it can by making adjustments or deeper cuts in other areas. By establishing priorities we can consider new initiatives to meet urgent needs.

Let me bring the attention of the House to what I believe should be this country's number one social priority for the upcoming budget, the issue of child poverty. There has been a steady and alarming increase in child poverty in Canada over the last decade and a half. According to the Canadian Institute of Child Health the poverty rate for children rose 60 per cent between 1981 and 1991. The most recent Statistics Canada figures indicate that 1.4 million children in Canada under the age of 18 now live in poor homes. Poverty among single mothers remains stable and tragically high at 56 per cent.

According to the United Nations Children's Fund, among the OECD nations Canada has one of the worst records on child poverty, second only to the United States. Given the UN has also rated Canada as the top country in the world in overall quality of life, our failure to deal with child poverty is all the more glaring. To those who might insist we cannot afford it at this time, we have to ask why our OECD partners faced with similar fiscal challenges have been able to do a better job for their nation's children. I believe it is a matter of setting priorities.

I would also like to point out that in solving the child poverty problem we also address a number of other problems. We would improve the country's productivity. We would spend less money related to crime and crime prevention. We would lower our health care costs. All of these factors combine to make a better country.

The solution in part can be found through an income supplement program. I am recommending to the Minister of Finance that he put in his budget a $500 million program called the working income supplement. I will not bore this House with the details of the proposal but would point out that it was described most adequately in a supplement to the green paper in a paper called "Income Security for Children".

One might ask: "If this fellow believes in cutting the debt and cutting the deficit but he wants to invoke a new social program, where does he think we are going to get the money from?" I would like to talk for a moment about the defence budget because I think the defence budget needs to be cut, it needs to be cut not only to free up money for debt and deficit reduction but also for social programs such as child poverty.

Canada's current military budget is approximately $11.4 billion. Peacekeeping accounts for only 5.5 per cent of this budget. Canada currently has the 12th largest military spending in the world. We are the sixth largest spender among NATO's 16 members. Military spending has been declining significantly around the world for several years. However, Canadian military spending has been an exception to this pattern.

By 1994 world military spending was 29.6 per cent lower in real dollars than it was in 1985. Military spending by countries that are not members of NATO was a whole 42.5 per cent lower. However, Canadian military spending remained 3 per cent higher in real dollar terms than it was in 1985. As a result Canadian military spending rose by 46.2 per cent relative to world military spending. I ask my colleagues to check the facts which I believe they will find accurate.

The pattern is even more striking if we look back to 1980. Although it grew substantially during the early part of the 1980s, by 1994 world military spending was 16.5 per cent lower in real dollars than it was in 1980. However, Canadian military spending was 36.2 per cent higher. As a result Canadian military spending rose by 63 per cent relative to world military spending.

The Canadian government has begun to make real cuts in military spending since 1994. I acknowledge those cuts and I applaud them. The reductions, begun in 1994, are expected to total about 19 per cent-

FinanceGovernment Orders

2 p.m.

The Speaker

My colleague, you still have five minutes in your speech. The Chair will recognize you when we return to debate. Right now we will go to Statements by Members.

Drug AbuseStatements By Members

December 14th, 1995 / 2 p.m.

Liberal

Bill Graham Liberal Rosedale, ON

Mr. Speaker, the use of drugs is one of the most corrupting influences in our inner cities, producing poverty and crime.

In Rosedale riding the Regent Park community centre has set up the Regent Park community coalition against substance abuse to fight this menace. Its program involves youth making videos on such issues as drug and alcohol abuse and how to resist peer pressure encouraging smoking, drugs and alcohol.

They promote a healthier community by promoting a healthy lifestyle and set an example for their peers. At the centre young people are given an opportunity to explore these issues and reflect their thoughts in video form. In making these videos they also learn skills that will prepare them for future employment and access to the work world.

I would like to pay special tribute to the Regent Park focus coalition and its leader, Adonis Huggins, for bringing together young people and empowering them to say no to substance abuse of all kinds.

Same Sex SpousesStatements By Members

2 p.m.

Bloc

Réal Ménard Bloc Hochelaga—Maisonneuve, QC

Mr. Speaker, a few days ago, Treasury Board made a major move to recognize same sex spouses.

By relaxing the interpretation of its collective agreements, Treasury Board granted six benefits to employees living with a same sex spouse.

These benefits include bereavement leave, family leave, leave for the relocation of the spouse, as well as the reimbursement of travel and moving expenses of the spouse of a diplomat posted abroad.

These provisions apply to 200,000 federal public servants. The logical thing to do for the government would now be to grant same sex spouses the other benefits to which are entitled all federal public servants.

The ConstitutionStatements By Members

2 p.m.

Reform

Jay Hill Reform Prince George—Peace River, BC

Mr. Speaker, yesterday December 13, 1995 was a black day for Canada. Canadians remember the Charlottetown accord.

In the end, even Mulroney had the decency to consult the people on constitutional change and abided by the results of the referendum.

What was the lesson the Liberal government learned from Charlottetown? Do not give the Canadian people the right to vote on their Constitution; they might not vote the way you want them to.

We saw the same arrogance last night. Despite the pleas for help from the majority of Quebecers, who voted no in the referendum, the government turned its back on them and granted a veto to the separatist Government of Quebec.

I believe any veto over constitutional change should be given to the people through referenda, not to politicians, not to provincial legislatures.

Yesterday the government defied the expressed wishes of all Canadians who voted down Charlottetown. The Liberals have made a mockery of democracy.

LunenburgStatements By Members

2 p.m.

Liberal

Derek Wells Liberal South Shore, NS

Mr. Speaker, it is with pleasure that I rise in the House today to acknowledge the designation by UNESCO of old town Lunenburg in my riding of South Shore as a world heritage sight.

There are only 12 such designated areas in Canada. It is a great honour to have Lunenburg as one of them. Lunenburg's unique historical architecture and its traditional settlement pattern are known to everyone who has visited the town.

The old town's historical integrity is depicted in its streets, public spaces, buildings and daily life. The Lunenburg Academy, which is still operational, celebrated its 100th birthday last summer and has been featured on a commemorative stamp.

Lunenburg's popularity as a tourism destination is constantly growing due to its role in history as home of the Bluenose and the Fisheries Museum of the Atlantic as well as the continuing efforts made by residents and businesses alike.

This designation is an honour to South Shore and depicts the pride our people have in Lunenburg.