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.