House of Commons Hansard #271 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was jobs.


Income Tax ActPrivate Members' Business

December 5th, 1995 / 5:40 p.m.


Gurbax Malhi Liberal Bramalea—Gore—Malton, ON


That, in the opinion of this House, the government should amend the Income Tax Act to eliminate the payment of personal income tax on interest from personal savings accounts when the amount of interest is $1,000 or less.

Madam Speaker, I am very pleased to have the opportunity to introduce this motion today. I believe taking this action could benefit a great number of people, particularly our senior citizens.

Amending the Income Tax Act to eliminate the payment of personal income tax on interest from personal savings accounts when the amount of interest is $1,000 or less is not a completely new idea.

In 1974 an exemption on the first $1,000 of interest income was introduced as a way of counteracting the impact of inflation on the taxation of interest.

It was also believed the exemption would reduce tax evasion, as those with small amounts of bank interest would no longer have an incentive to ignore the interest they received when filing their income tax returns.

Another argument was that the exemption would increase savings by increasing the post-tax return of investment that produced interest. All of these were valid arguments in 1974 and remain valid today.

In 1988 as a result of a decision by the Tory government the exemption was removed. According to statements given by the witnesses to the Standing Committee on Finance in 1987 the people who had the most to lose if the exemption was removed were senior citizens.

It therefore stands to reason that senior citizens are the people with the most to gain if the exemption is reinstated. According to testimony before the committee more than 80 per cent of taxpayers over 65 claimed the $1,000 deduction in 1983.

Despite the fact that the deduction was removed in 1988, 2,026,620 or about 70 per cent of all seniors who filed income tax returns in 1992 still included bank interest as a source of income. Bank interest was even more significant among the seniors 75 years of age and older, with 878,370 people or about 75 per cent naming bank interest as a source of income. It is obvious that for senior citizens keeping their money in a bank savings account is a way of life, the result of a lifetime of habit.

Think for a moment of the life of a person who is 75 years old. Think of the time they were born, the significant events of their lives and the lives of their parents. Think of the Great Depression. Think of the second world war. These people have known the hardship of trying to make ends meet when the ends just seem to get farther and farther apart.

The Great Depression hit Canada and Canadians hard. It was a terrible, grim time when all manner of personal indignities and deprivations became the norm. People lost their jobs, their homes, their dreams. Soup kitchens were a booming business. Men tramped the city streets trying to pick up 50 cents doing odd jobs or in desperation travelled the country in boxcars looking for work or a handout and the advice of those who still had handouts to give. It was always the same as that of John D. Rockefeller, always to save their money, not squander it. It was a lesson they took to heart.

Then the war came and blew the depression away. Suddenly there was a desperate need for everyone to work, but there was an equally desperate need for everything to go to the war effort. Rationing was introduced and people learned to barter and to save their butter and eggs for the important events in their lives.

People saved string from parcels. They saved paper. They saved buttons and zippers from discarded clothing, anything they thought could be used again.

Our senior citizens and many of their children still save everything useful. They are the original recyclers and they know how to clip a coupon. When they were finally able to work again they saved every cent they could squeeze from their carefully worked budgets as a down payment on their future.

Credit was a dirty word to our senior citizens. It meant you could not afford to pay your bills. It meant a loss of dignity.

Instead they saved to buy their homes. They saved to pay cash for their furniture, their appliances and their cars. They saved to pay for the education of their children. They saved for their old age so they would not have to do without in their sunset years, so they would not be beholden.

Now with interest rates so low their carefully hoarded nest eggs are yielding less and less. Seniors have been hard hit in recent years by falling interest rates. Unlike younger people who may have been able to accumulate savings, our senior citizens are usually unable to work. Their interest from their savings is their income. A $1,000 exemption on interest will really make a difference to them.

Younger taxpayers still working may enjoy a tax advantage or an investment in an RRSP, but such investments and tax breaks are often unavailable to seniors. Many older people are not at ease putting their money into more adventurous avenues.

Often they do not feel comfortable turning their life savings over to a stranger to invest. They are afraid of losing what they worked so hard to save. They feel it is safe and secure in a bank savings account and they want to be able to withdraw their money at will.

Surely the people who built this country deserve a break. It was their money, carefully saved and invested, the banks had at their disposal when others came to borrow. Their habit of putting money aside for the future enabled the banks to invest in the dreams of other younger people when they wanted to start a business or build a new home.

I believe this would be a good habit to instil in the young people of today as well. I believe giving them an income tax exemption on the first $1,000 of interest would prove to be an incentive.

As parents we always want things to be better for our children than they were for us. We try to teach them the importance of a strong work ethic. We show them ours is a society that celebrates

success. We tell them they must always strive for personal excellence. We encourage them by stressing there is nothing they cannot achieve if they just try.

We know young people must be given the opportunity to learn to take responsibility for their own lives. Only then can they acquire the self-confidence and pride in their own accomplishments that everyone needs for self-esteem. Without self-esteem it is pretty hard to gain entry into the mainstream of society and virtually impossible to become the leaders we will need in the future.

Our youth are the future of our nation and our world. They will decide our destiny. The choices made by the young people of today will eventually define the world in which we all live.

There is little in this life more fulfilling than saving for a goal and reaching that goal through conscious effort and sacrifice. I can think of no better or more satisfying way to take control of one's own life and destiny.

Our government should do whatever it can to encourage our young people to be responsible citizens and consumers. Among young people age 25 to 29, 406,660 or 55 per cent included bank interest as a source of income in 1992. So it is already a significant means of saving, ready to increase with some encouragement. Young people who may be saving for a down payment on a house or for a new couch or refrigerator are not making much interest on their savings. They should not be penalized on what little they do earn.

An exemption would act as an incentive and would make more money available for banks to loan out as well. Many of the big ticket items like appliances have been purchased on credit cards in the past few years. Instead of the dirty word it was to our seniors, credit and the amount of credit available somehow became a status symbol.

Credit is incredibly easy to get. Everyone has heard of reports of children and even the family dog being offered credit cards. But credit card purchases cost consumers much more than waiting until one can pay cash. It is very easy to be sucked into the maelstrom of spending more than one actually earns.

In the first seven months of this year 36,118 consumer bankruptcies were filed across Canada. That is 16 per cent more than in the same span last year and one per cent more than in the first seven months of 1991, when the 12-month toll reached an unprecedented 62,277. According to some analysts, much of the cause of these consumer bankruptcies is credit card borrowing.

Saving is clearly a better way to go. For those with relatively modest incomes, an investment in a savings account is one of the few investment opportunities readily available.

In closing, I would like to say that there are plenty of tax breaks for those with large amounts of money to invest. An exemption on the payment of income tax on the first $1,000 of interest from savings accounts would give a break to the little guy and help our senior citizens as well.

Income Tax ActPrivate Members' Business

6 p.m.


Pierre Brien Bloc Témiscamingue, QC

Madam Speaker, I too rise to speak to the motion by the member for Bramalea-Gore-Malton concerning the tax exemption of interest income from saving accounts generating interest of less that $1,000.

I am convinced that this motion, under its present form, as the member explained in his speech, is aimed at helping people with low incomes, people who are not well off. However, it creates a huge void, because, of course, a motion is not a bill, it is not very precise. The motion provides:

That, in the opinion of this House, the government should amend the Income Tax Act to eliminate the payment of income tax on interest from personal savings accounts when the amount of interest is $1,000 or less.

Let us look at it in today's context. Someone with $10,000 in an account earning 9 per cent would make $900. This means that this $900 would be tax deductible. It might be a commendable goal. However, if I had $50,000, I could make five $10,000 term deposits in five different accounts and earn $4,500 in interest, $900 on each account, and pay no income tax. But in truth, I would not belong to the group the motion is aimed at. I am not convinced that he is not trying to help people with a high income or large savings to evade income tax.

For this reason, I find it difficult to support a motion whose present wording would create such an unprecedented tax loophole. Even if there is a precedent, it would still be a horrendous loophole.

If you put this debate in a larger perspective, you can see that the goal of the motion is to help lower income people. I am pleased that we are showing concern for people with a low income and few savings.

In politics we are very often influenced by the richest lobbies, we also go to bat for the neediest, but in between there are all the workers, all the wage earners, that we very often forget and that are probably the least organized. They very often belong to professional corporations or trade unions, but it is very seldom that we show concern in our speeches or political actions for the lower middle class. They maybe the least organized and this would explain the fact that they are the target of all government measures: they are not a political force.

If you look at this motion in the larger perspective, it shows a desire for equity. In the area of taxation everything is a matter of equity. However, I do not think that the solution is to increase the

deductions we now have. With our deficit at around 32 billion dollars, such a proposal does not seem like a good idea at the present time. Just as we cannot afford to forego tax revenues, because our tax system is extremely complex and some people can even afford tax experts to bypass the system. I am not talking about fraud or anything illegal here, just going over every comma and every sentence in the Income Tax Act to get the most out of it.

I am just back from a series of consultations held by the finance committee in western Canada, where even tax experts told us: "Look, we cannot even make sense of this Act ourselves, and we are not sure that the government can make sense of it either. One of these days, we will have to consider a real reform, whose first objective would be, even before the amount of tax revenues to be generated, to simplify the whole system". Of course, the second objective would be to determine the optimal level of revenues to be generated by a new tax system.

All of this brings me back to an issue which has yet to be settled. The people have the feeling that the current tax system is not working and they are not mistaken.

Take, for example, the GST which has been in effect for several years now and which will not generate more revenues this year that last year. There is a problem here. Even though the growth of domestic demand is weak, we see that taxpayers have developed a number of ways to avoid paying this tax, which is perceived as being extremely unfair.

This has been fuelled by the Liberal members who decried this tax, when they were in opposition, and promised to replace it, something they never did. By the way, we should also be concerned about that. People felt that their concerns were legitimate since they even had the support of a political party saying that the tax was unfair.

It is true that it is not perfect, that it is flawed, that it causes a lot of problems, but the Liberal Party was accused of demagoguery when it said that it was a new tax. The tax on services was new, but the tax on goods simply replaced the federal sales tax. In that context, it is not right to make the taxpayers angrier than they already are about the current tax system for purely political reasons.

I come back to the fact that we cannot afford today to add these types of deductions, but if we want people with low incomes and few savings to feel that there is some kind of justice, we have to ensure that our tax rules do not allow higher income people to avoid paying their fair share.

Sometimes people are right, sometimes they are wrong, but when we refuse to have a thorough debate on an issue, the perceptions that people have, whether good or bad, remain. An example of that is the perception that banks do not pay their fair share. I do not have a definite opinion on that, but I think that it is something that is worth looking into. It is not by avoiding the issue or by making a fine statement that will sound great on the news, such as it is too generous, it is out of date, etc., that we will make progress. We will have to look into all this.

Perhaps when the Minister of Finance and the Minister of Revenue both consult Canadians on the budget next year they ought, instead of listening to all of the organized groups whose final word is always "Do anything you want to anybody else but me", to set some guidelines for a real debate, true consultation on various scenarios for tax policies and tax expenditures, in order to get a proper evaluation.

How much do the present measures cost? What are their objectives? Based on that, let us go out to Canadians so that they may make their own evaluation and come up with a final conclusion that "We can afford this, but not that. Here are what our priorities are for taxation for economic and social development".

Our taxation system pursues two objectives, obvious economic ones, but a major social objective as well: the redistribution of wealth. This ought never to be lost sight of. For that reason, if the taxation system is simplified, that second objective must not be lost sight of.

You do not deal with fiscal problems due to the fact that not enough tax revenue is being collected from people who could pay more, by increasing the number of deductions that already exist. We simply cannot afford it. How much would the measure suggested today cost? Good question. I repeat, those who are a little better off may manage to avoid this altogether by having more than one bank account, as I explained earlier, by having three or four accounts, for instance. That often happens.

I have two or three accounts myself. The point is to put your money into different accounts, keep your interest income below $1,000 and thus avoid paying taxes on this income. I realize this technicality could be improved upon while maintaining the purpose of the motion which is that interest income of $1,000 and less would not be taxable, but in the end, what have we achieved? How are we going to finance all that? The question lies here as well.

Therefore, out of a sense of fairness, yes, we have to work on it, but not necessarily in the way suggested. In the minute I have left, I wanted to say, because I heard mention of RRSPs, where accumulated interest is tax protected, that they are not really affected by such a motion, because RRSPs are taxable only when money is removed from them. This is when tax is taken, according to our income at that point.

So this would not promote saving necessarily. It would not have a particularly strong effect on saving, because the vehicle already exists and is already attractive enough, I imagine, from all the

funds successfully channelled and the financial institutions' aggressive campaigns to solicit RRSPs.

So, to avoid creating an additional tax shelter, which will cost us a lot and risks benefitting those who, in the end, perhaps have the income and ability to avoid it, we cannot support this motion.

Income Tax ActPrivate Members' Business

6:10 p.m.


Jim Silye Reform Calgary Centre, AB

Madam Speaker, Motion 497 seeks to amend the Income Tax Act to eliminate the payment of personal income tax on interest from personal savings accounts when the amount of interest is $1,000 or less.

The rationale used by the hon. member for Bramalea-Gore-Malton is that the motion will do five things. First, it will promote savings. Well, it is pretty hard to save these days. As the hon. member from the Bloc mentioned, this creates different avenues and ways to stuff your savings away where it will be harder for Revenue Canada to find it.

Second, the motion is intended to help the elderly who rely on savings and seldom enjoy the tax advantages of an RRSP later in life. This is an honourable objective and one I would agree with as a problem to solve. But solving it this way is unnecessary, especially if we were to devise a proper system of taxation.

Third, it is intended to compensate for falling interest rates. Why is this the responsibility of taxpayers, adjusting for the inflation component and interest income? That is not necessary. When institutions set their rates they base them on the performance of the economy. They are set at a regular time and over a period of ten years the average rate of return is adjusted for inflation.

Fourth, the rationale is to reduce administration costs because banks will no longer have to issue T4s for interest income, reducing the paperwork for Revenue Canada.

I believe the hon. member has it backwards. In April we all become employees of Revenue Canada and we work for free. We sweat for hours trying to get this income tax done and figure out how much we have to pay, make sure it is correct and then send it in. The information we use has to come from where we have earned our money or placed or invested our money. So whether interest income on savings is less than or higher than $1,000, the banks will still have to issue the paperwork necessary to show you made less than $1,000 or more than $1,000.

We need to stop tinkering with the Income Tax Act and the income tax system. We should stop using it for direct social and economic engineering. This is another example of using it for social engineering. We are using it to solve a problem. I do not deny there is a problem with money, with savings, and with how we look after ourselves, but the way to solve it is not through the Income Tax Act. We are making it too cumbersome and too difficult. It should be under a separate direct-spending program if we want to help seniors and children.

In 1917 the original purpose of income tax was simply to raise money. It was to pay for the first world war. Then the politicians and bureaucrats saw how nice and neat it was. Yes, I agree, it is a great way to deliver social and economic benefits. But problems have been created.

In 1992 the net revenue that was collected by the government on personal income alone was $60 billion. That included all the exemptions, deductions, and tax incentives or loopholes. If there were no deductions, exemptions, and tax incentives, the revenue for 1992 would have been $120 billion. That is $60 billion we are leaving in the hands of people. We give it back to the people. We know it is unfair.

If we collected that revenue and put it into the spending envelopes of the people who are responsible for immigration, transportation, unemployment, and health care, then we would know what that costs. We would know who is responsible: an elected minister or a permanent deputy minister. Those people would be more responsible and accountable. The pressure would be on the government to rationalize and justify its spending. I believe there would be a downward pressure. The problem with our current income tax system is that it is unfair.

The GST is another example. It generates $30 billion to $36 billion, yet the net take of the government is $15 billion to $16 billion. There is the system of rebates, the high cost of compliance and the high cost of collection. It is ridiculous.

If we used taxation for the one simple purpose of raising money and then put the money into the areas where we want to spend it and where Canadians want it to be spent, it would be a more efficient and effective system of taxation than we presently have and we would no longer need all these rates.

We know the system is complicated, confusing, and convoluted. We need to make changes. Yet nobody addresses that. Everybody is afraid to look at a simple system of taxation because in simplicity the cost of transition from the current income tax system to a simple tax system would be too expensive and the transition would be unattainable. I heard that from the chairman of the Standing Committee on Finance, who is an income tax lawyer and an expert in his field.

In the name of deficit reduction and in the name of losing tax dollars, is the government afraid to look at a system of taxation that features a single rate and allows a generous tax-free portion so that the people who need the money most, the seniors and low-income

Canadians, do not have to pay any income tax? That line would be somewhere between the poverty line and the low-income cut-off. Would that not reduce the pressure on our social programs? Would that not be a more efficient way of helping the people who need the help, rather than tinkering with the Income Tax Act, adding five more pages of definitions and rulings and three more reasons why auditors have to check every bank account, as the hon. member said earlier?

We have to look at tax reform. Tax lawyers are afraid to return from holidays to read the latest communiqués from Revenue Canada with the new rulings and definitions.

The current system is a disincentive to work. The more a person makes the higher the percentage they have to remit. They call that progressivity, but at a certain point they stop working for the government. Why? Because they see that government wastes money. If the government were spending the money on programs Canadians want and not what bureaucrats and politicians want, and if people could see their tax money being spent fairly and wisely, in a way that was responsible and accountable, in a clear and visible fashion, we would have more compliance. More people would pay. With a single rate everybody would know they are paying the same rate over a certain base that is tax-free.

It costs us $12 billion to send in our income tax. The personal portion we pay other people to do this for us costs $3.7 billion. Revenue Canada is $1.5 billion. The government cost for GST is $0.6 billion. Corporate costs to do the T4s and their corporate tax is $4.9 billion. The GST industry costs $1.7 billion.

It is clear: our current system is unfair, unclear, and unacceptable. There is no reason we should keep up with it and there is no reason we should continue to promote ways and means of adding more to the confusion of the income tax. We should be cleaning it up, simplifying it, rewriting it.

We have had three major tax reforms since 1971. We went from 18 different brackets and a high marginal rate of 80 per cent in 1971 to 10 brackets and 43 per cent in 1981, to today, from 1988 until now, three brackets with a high marginal rate of 29 per cent. When each of those transitions and reforms went from 80 per cent down to 29 per cent it meant more revenue to the government.

Lower taxes mean more revenue. Simplicity means more revenue. Therefore we need one more major tax reform in this country, one more simplified tax featuring a single rate with a generous tax-free portion that will look after the lower income and retain progressivity. It will introduce fairness. Everybody will know what they are paying. Reduce the rate to the area of 20 to 22 per cent, another 7 per cent reduction, and a single rate. I would argue that would generate even more revenue for the government.

Some of the other principles we should keep in tax reform are keeping it simple and understandable and defining the purpose as raising money. Tax reform is not to add another element that the first $1,000 you make in savings accounts is free because we are helping this sector; not to help the farming sector by giving this deduction over here; not to develop oil and gas by offering flow-through shares over here; not to help this by doing that over there; not to help charitable organizations by allowing generous exemptions over here; not to aid and facilitate seniors by having some moneys there.

In conclusion, the Liberals are neglecting their responsibility to the public in giving lip service to tax reform. They are not prepared to look at genuine comprehensive tax reform in this country. The Reform Party is and will. We will continue to address this issue.

Income Tax ActPrivate Members' Business

6:20 p.m.


John Maloney Liberal Erie, ON

Madam Speaker, I wish to rise today in the House to speak on Motion No. 497. I would like to congratulate my hon. colleague from Bramalea-Gore-Malton for his hard work in getting this motion to the floor of the House of Commons.

Motion No. 497 reads:

That, in the opinion of this House, the government should amend the Income Tax Act to eliminate the payment of personal income tax on interest from personal savings accounts when the amount of interest is $1,000 or less.

Federal taxes on foreign and domestic income received by Canadians and Canadian income received by non-residents are imposed under one statute, the Income Tax Act. The net income or profit received by Canadians is defined by that act.

Personal income taxes are imposed by both the federal and provincial governments. The federal government has agreements with all provinces except Quebec to collect personal income taxes on their behalf.

The federal government defines taxable income in the Income Tax Act and levies its personal income tax according to the rate schedule in the act. The agreeing provinces then levy their personal income taxes as a percentage of the basic federal tax.

In the last decade, the number of taxpayers has jumped from 10.4 million to 13.7 million. In 1988 there was a sharp drop in taxpayers due to the first year of the tax reform. Under it, a significant number of low-income taxpayers were granted tax relief. Another decline in the number of taxpayers took place in 1991 and was caused by the recession of the early 1990s.

Between 1974 and 1988 the first $1,000 of interest income was exempt. The exemption was introduced in 1974 as a way of counteracting the impact of inflation on the taxation of interest. It was also argued that the exemption reduced some tax evasion, as

those with small amounts of bank interest no longer had incentive to ignore the interest they received when filing their tax return.

Several arguments can be made in support of my hon. colleague's motion. The exemption of the first $1,000 of interest income would promote savings. This is very important for those with relatively modest incomes. Often an investment in a savings account is one of the few investment opportunities readily available to a good number of people.

Under the existing system, by imposing tax on interest earned some consumers are more apt to choose to spend their income in the year it is earned because the interest earned on their already taxed income will be taxed should they save. "Spend it. We are only going to be taxed on it", they cry. This commonly held view dictates against the merits of saving money.

With the proposed motion there would be little distortion between present and future consumption. While there is some controversy about the magnitude of the change on savings resulting from income tax on interest, the general view is that it is a negative effect.

Some of us ask what are the consequences of reducing savings. It is generally felt that a reduction in savings will normally lead to a reduction in capital accumulation and in the long run to a reduction in output per capita.

In light of shrinking government budgets and the upcoming review of our role in the provision of pension income, we have and continue to encourage Canadians to invest in their retirement. There are deductions for RRSP contributions, but why is there no provision for savings account or Canada savings bond interest?

I realize that RRSP interest is taxed upon withdrawal, albeit generally at a reduced rate. There are real limitations in the deferral of taxation and these implications translate into economic choices.

Another argument in support of the motion is that it will help Canada's senior citizens. After the $1,000 tax exemption was eliminated in 1988 there were some very convincing statements in favour of keeping the exemption, especially as it related to senior citizens.

In the 1980s over 80 per cent of our taxpayers over the age of 65 claimed this exemption. It was said that the elimination would have a disproportionate effect on senior citizens. Almost half the current generation of Canadian seniors, about 50 per cent, live at or below the poverty line. A small percentage, 5 per cent only, across Canada enjoy incomes of $40,000 or more. The remaining 45 per cent had hoped during pre-retirement years to invest in something that would act as a supplement to their pension cheques. This 45 per cent of Canadian senior citizens over the age of 65 would benefit by the restoration of the $1,000 investment income deduction.

A third argument is that the exemption would compensate for falling interest rates. Although economic activity may in general be stimulated by falling interest rates, those whose incomes depend on interest bearing assets are being hurt by falling rates. Seniors have been hit hard in recent years by such falling interest rates.

While there are benefits for seniors and an encouragement of savings I also have some serious concerns about the motion. The proposal to exempt the interest on savings accounts runs counter to current trends toward increasing tax revenue. If all bank interest were tax exempt, the lost tax revenues would certainly be significant.

In the mid-1980s the $1,000 exemption cost the federal government about $900 million in loss tax revenue. In 1992, for example, tax filers declared over $18 billion in bank interest. This figure would be much higher if the exclusion were only for interest earned at financial institutions, as investors would adjust their portfolios to take advantage of the tax break.

Recently Revenue Canada instituted reporting changes for financial institutions. Beginning with the 1995 tax year, these institutions will be required to issue T5s for interest income at $50, down from the current $100 limit.

This new measure is meant to limit tax evasion. Some taxpayers with interest below $100 have simply ignored that income for tax purposes, forgetting or ignoring that every interest dollar earned is to be included as income. However the new change seems to indicate the government considers bank interest an important source of tax revenue.

Revenue is obviously an important component of our deficit reduction policy and reducing revenue runs counter to this necessary policy.

Another concern I have with the motion is the difference in treatment of earned income and non-earned income. Those who work for minimum wage are taxed on the first dollar they earn. Those who earn income from interest revenue are treated equitably under the existing system. I understand that invested money was once income and was likely taxed at the time it was earned, but the interest too is income. Allowing exemptions for interest income will disproportionately benefit seniors. How can we balance this against earned income so that it is socially equitable?

I will also address a comment by my colleague from Rimouski. The bill indicates interest earned on savings accounts. This would include all savings accounts and it would be an accumulative effect. It would be the total of the interest that would be considered an income. We could not spread our savings over five, six or ten

different accounts. The exemption would apply to the full income no matter where it was.

While I have some serious concerns about the bill, I generally speak in support of it because the investment income exemption is one of the few tax initiatives that would reach out and touch most Canadian citizens, including my constituents of Erie, rather than just a select group of investors.

Taxpayers are crying out for tax relief and tax reductions, and understandably so. This initiative could be a possible means of partially satisfying these demands.

Income Tax ActPrivate Members' Business

6:30 p.m.

Bonaventure—Îles-De-La-Madeleine Québec


Patrick Gagnon LiberalParliamentary Secretary to Solicitor General of Canada

Madam Speaker, contrary to the private member's Motion M-497, the Government of Canada should not support the elimination of personal income taxes on interest from personal savings accounts when the amount of interest is $1,000 or less.

As hon. members may remember, before 1988 individuals were allowed to claim a deduction of up to $1,000 of interest income in computing taxable income. This interest income deduction existed at a time of high inflation as an approximate method of providing some allowance for income tax paid on the inflationary component of interest.

Inflation is now very low. Therefore this rationale would not apply today. In addition, the elimination of interest income deduction was one of a number of base broadening initiatives introduced as part of the 1988 tax reform. Those measures made possible a reduction in tax rates and the enrichment of certain tax credits.

The elimination of interest income deduction for 1988 and the subsequent taxation years was largely compensated by a $1,730 increase of the basic personal amount.

Therefore it would be inappropriate to restore this deduction particularly at a time of very low inflation. The federal revenue cost resulting from allowing a deduction of up to $1,000 of interest income for income tax purposes would be very high; in the order of $1 billion per year.

Because of the fiscal situation of our country we simply could not afford to make such a change without making up lost revenue. This lost revenue would therefore have to be made up through a general tax increase, an increase in taxes across the board. Most of the burden would fall on the shoulders of the average income Canadians while the deduction would benefit only most higher income individuals.

The bulk of the efforts of the government on the income tax side since coming to office in the fall of 1993 has been directed at ensuring the tax system is fair. A number of tax advantages that did not meet the standards of fairness Canadians expect were eliminated in the 1994 and 1995 federal budgets presented by the Minister of Finance.

Let me highlight a few of those more important changes that have contributed to making our tax system fairer. As hon. members are aware, the federal budget of February 22, 1994 proposed a number of personal income tax measures. First, the $100,000 capital gains exemption was eliminated. This exemption largely benefited high income filers, and there was little evidence that it encouraged investment and job creation as it was first intended to do.

The tax exemption for premiums related to the first $25,000 of coverage under employer provided life insurance plans was also eliminated. This measure ensures individuals with employer paid life insurance are not treated more favourably than those who purchase life insurance out of after tax income.

The government did not limit its elimination of tax preferences to those preferences that affect individuals. A number of tax measures affecting businesses were also introduced in the government's first budget. For instance, the deduction for meal and entertainment expenses was reduced from 80 per cent to 50 per cent of eligible expenses. This change makes the tax system fairer by reflecting the significant element of personal consumption involved in these or such expenses.

In addition, Canadian controlled private corporations with capital of $50 million or more are no longer eligible for the small business deduction and the enriched research and development credits accorded to small businesses.

The government's commitment to tax fairness did not end with the tabling of its 1994 budget; quite the contrary. The federal budget tabled February 27 announced more steps the government was taking to make the tax system fairer. For example, it was announced that the tax deferral advantage enjoyed by individuals with business or professional income resulting from their ability to select their own year end for tax purposes was being eliminated.

As other Canadians, individuals who begin to earn business or professional income will have to report their income on a calendar year basis.

Moreover, the 1995 budget eliminated some of the tax benefits from family trusts. The government repealed provisions allowing the postponement of the implementation of a rule requiring a deemed disposal of assets after 21 years.

Our efforts to make our tax system fair did not start and do not end with budgets. The proof of that is the measures announced by the government in December 1994 to prevent the erosion of the tax base brought about by the active promotion of abusive tax shelters

and a longer list of deductions in the calculation of the alternative minimum tax.

What the government has done in the last couple of years attests to its commitment to a fair Canadian tax system. Giving preferential treatment to interest income, as suggested in this motion, would not be consistent with the policy the government has adhered to from the start. Such a change would benefit mainly high income taxpayers, since they have more savings.

To conclude, and for all these reasons, I urge the House to reject private members' Motion M-497.

Income Tax ActPrivate Members' Business

6:35 p.m.

The Acting Speaker (Mrs. Maheu)

There being no further members rising for debate and the motion not being designated a votable item, the time provided for the consideration of Private Members' Business has now expired and the order is dropped from the Order Paper, pursuant to Standing Order 96(1).