Debates of April 24th, 1995
House of Commons Hansard #186 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was loans.
- Message From The Senate
- Financial Administration Act
- Electoral Boundaries Readjustment Act, 1995
- Farm Improvement And Marketing Co-Operatives Loans Act
- Oklahoma City Bombing
- Born To Read Day
- World Curling Championship
- Health Care
- Armenian People
- Schizophrenia Society Of Canada
- Yellowhead Highway Association
- Born To Read Day
- National Junior/Juvenile Judo Championships
- Security Services
- Quebec Referendum
- National Volunteer Week
- G-7 Summit
- Canadian Security Intelligence Service
- Goods And Services Tax
- The Economy
- Canada's Credit Rating
- Telecommunications Industry
- Life Insurance
- Pearson International Airport
- Presence In Gallery
- Report Of Byelections
- Order In Council Appointments
- Government Response To Petitions
- Committees Of The House
- Motion No. M-5
- Questions On The Order Paper
- Farm Improvement And Marketing Cooperatives Loans Act
- Income Tax Act
Farm Improvement And Marketing Cooperatives Loans Act
The Deputy Speaker
Is it the pleasure of the House to adopt the motion?
Farm Improvement And Marketing Cooperatives Loans Act
Some hon. members
Farm Improvement And Marketing Cooperatives Loans Act
An hon. member
(Motion agreed to, bill read the second time and referred to a committee.)
Farm Improvement And Marketing Cooperatives Loans Act
The Deputy Speaker
It is my duty, pursuant to Standing Order 38, to inform the House that the question to be raised tonight at the time of adjournment is as follows: the hon. member for Ottawa West-the Public Service.
Income Tax Act
April 24th, 1995 / 4:45 p.m.
Alfonso Gagliano for the Minister of Finance
moved that Bill C-70, an act to amend the Income Tax Act, the income tax application rules and related acts, be read the second time and referred to a committee.
Income Tax Act
Winnipeg North Centre
David Walker Parliamentary Secretary to Minister of Finance
Mr. Speaker, it gives me great pleasure to take the opportunity to present Bill C-70 to the House for second reading. It is an item arising out of the budget presented in February 1994.
I will explain the process we go through with a major piece of legislation such as this one. Immediately after the minister presents the budget we have a debate on it and it is voted upon. Subsequently we introduce the budget measures act which incorporates many of the activities of different departments. It was begun last year and took up the time of the House of Commons in May and early June and of the Senate in June. It was finished before July 1.
Subsequently in the public perception we began to deal with the budget for 1995 but we had not finished the work arising from the 1994 budget. Today we are continuing the work from last year's budget.
Last fall we found out about the changes to the Income Tax Act, which is the second part of the work done in a budget. At first we have changes to departmental activities, including for example the Unemployment Insurance Act. Then we have changes to the Income Tax Act. Previously the House considered amendments to the Income Tax Act arising out of the business of the budget of last year. They were reviewed in the House of Commons last November and were reviewed in committee in December. A few witnesses appeared. We considered some of the changes offered by the opposition and decided to go ahead with the bill as it stood. It was then presented to the House, went through the Senate, and is now law.
Because of the enormous number of changes made, we split the amendments to the Income Tax Act into two different sections. This is the second section. Bill C-70 represents the second set of amendments to the budget arising out of the February 1994 budget statement.
They are a number of technical amendments which affect the income tax situation of those in the business world and corporations. In summary, the amendments implement certain measures announced in the budget of February 22, 1994 as well as other measures announced by the government in 1994.
The measures are described, first, as debt forgiveness. It requires a debtor whose indebtedness is forgiven to apply the unpaid amount to reduce any tax losses and the tax cost of properties owned by the debtor. Any unapplied balance is brought into the income by individual debtors whose incomes exceed $40,000 and by corporate debtors that are not bankrupt or insolvent.
Second, we are changing some of the rules by which we treat foreign affiliates. We expand the categories of income of foreign affiliates which must be reported as income of their Canadian shareholders.
It responds to a widely held view by Canadians. It was a perspective that we certainly heard about in the late eighties and early nineties when we were in opposition. Canadians saw the corporate world was able to transfer moneys to foreign affiliates and to avoid taxation in certain regimes which they considered to be too high. We took a very progressive step in our first budget, the budget of February 1994, to expand the rules and ways in which we were able to deal with foreign affiliates.
Third, we now require financial institutions to report profits and losses on securities held in the ordinary course of business, on income rather than capital on a market to market basis.
I was very much involved with the initial discussions that were held with industry when we announced the rules. I am very happy to say the relationship between the financial institutions and the government have greatly improved through numerous discussions.
The industry felt at first that the tax measures were too aggressive and did not take into account some historical developments, particularly in the insurance industry. We argued very strenuously that the insurance industry should be understood. We held discussions not only in Ottawa but across the country. We listened to representatives of their associations and met with senior officials of individual companies. They pointed out that if we did not proceed with some care our evaluation of their securities and our treatment of their securities no longer being on the capital side but on the income side would greatly hurt their business.
The insurance industry is very important to the country. There are more than 140 active insurance companies. We want to make sure we stabilize the companies and do not do anything negative to affect either their capital base or their income base.
After several weeks of discussions amendments were suggested back and forth. I think all parties will agree that the rules as finally presented to the House a few weeks ago and now being expanded upon at second reading are fair to everyone.
We must remember the purpose of the Government of Canada is to ensure that every corporate sector is taxed properly and pays its fair share. That is the demand of all Canadians. The insurance industry has responded admirably. It is more than willing to pay its fair share and now feels the rules and regulations we are developing are more appropriate to its business activities.
I take this opportunity to publicly thank members of the insurance industry who have taken many hours to explain to me the nature of their business. Last year was my first year in the finance field on behalf of the Government of Canada. When that is the case we need a lot of kindness from people in the private sector to explain how they operate and the way new regulations or new tax regimes negatively affect their businesses. There was no element of hostility. I very much respect their willingness to spend time with me to ensure I understood their case.
Fourth, in terms of funeral arrangements we are providing an exemption for interest earned on prepaid amounts under eligible arrangements entered into by individuals to cover their funeral and cemetery expenses. This is a combination of federal and provincial laws, rules and regulations that govern people who make such arrangements ahead of time.
Through trust arrangements at the provincial level those funds are protected but because of the high cost of property, particularly in major metropolitan areas, we found that the limits originally being considered were not sufficient. The change is to accommodate the reality of how people are purchasing plots in cemeteries. We do not feel we are suffering in any way, shape or form an unnecessary financial burden. We are
dealing with the reality of the high cost of property. We did not want to put Canadian taxpayers, the industry or the non-profit sector in the field at risk through unfair tax rules. These amendments address the issue.
Fifth, we are permitting publicly traded real estate investment trusts to qualify as mutual fund trusts for tax purposes.
Sixth, we are dealing with mutual fund reorganizations. It will allow a mutual fund corporation to convert into a mutual fund trust on a tax free basis and will allow tax free mergers of mutual fund trusts.
Members of the House will know that the mutual fund business is one of the fastest expanding businesses in North America. Every effort has been made at the regulatory level to keep in touch with the industry and keep up to date with its changes.
We have sought through the Income Tax Act several other initiatives in the securities industry to ensure the tax regime is fair to people in the mutual fund area and is current with established practices. As time goes on, if the industry continues to change as fast as it has, we will have to make future changes.
Seventh, we are dealing with objections and appeals. This requires large corporations to specify in notices of objection to income tax assessments the issues under dispute and the amount of relief sought.
The House may be familiar with the past practice of legal departments and taxation departments of corporations sending notices of appeal to Revenue Canada on a regular basis, indicating that they have an objection to the taxes being assigned by Revenue Canada. By making a general objection as they have in the past they have been able to wait for specific tax cases to come forward. Once the tax cases are registered they are able to re-examine their books to see if they apply. In theory that has caused the Government of Canada to have a great deal of liability each year in the corporate tax sector.
We are seeking to limit the liability in the future within a specified time that we think will give the corporation a lot of time to review its tax assessment. The notice of appeal should specify exactly what is being appealed. It is no longer suitable to have a general appeal against the tax assessment. The corporation must specify exactly what it is objecting to and proceeding with, if necessary, through legal action. That will give Revenue Canada and the Government of Canada an opportunity to proceed without having to worry about innumerable court cases in the future.
The eighth section deals with securities lending. This will permit investment dealers to deduct two-thirds of dividend compensation payments made in securities lending arrangements.
The bill has a fairly broad range of measures. It complements the original budget speech, the budget bill introduced last year and the changes to the Income Tax Act dealt with in the fall of 1994 that were finished in the spring of 1995. The bill introduces specific measures that are very compact including funeral arrangements. It establishes the principles of fairness long talked about by governments but rarely acted upon.
The objections and appeals, the opportunities to challenge tax rulings and deal with the tax payable by foreign affiliates, are fair measures. The Minister of Finance has done an excellent job. He stated quite often that the government would not let up on bringing more fairness to the tax system. Those measures will be benchmarks of the new fairness in the Income Tax Act dealing both with corporations and individuals.
When we have made major changes affecting an industry such as the insurance industry we have proceeded not only with a determination to make things fairer for the whole sector but we have been responsive to criticisms and to critiques. We have been willing to talk with these people and to talk to the executives of the different companies and to the associations and to respond when a point is well made.
To have good tax law we have to be determined to be fair but we also cannot be stubborn and in the face of obvious mistakes hold to a position which puts companies at a disadvantage. I have learned a lot about the insurance industry as a result of these measures and I am hopeful we will continue to have these discussions in other spheres.
The government welcomes the opportunity to open up this debate, to have second reading on Bill C-70, amendments to the Income Tax Act. We welcome comments from the opposition and its critique on what we are trying to do and its suggestions on how we can make the Income Tax Act fairer in the future.
We also welcome the opportunity to hear from witnesses in committee both in the House of Commons and later in the Senate so that the views of professionals in the field can be heard, taken seriously and government can continue to refine the Income Tax Act to be fairer and more just to more Canadians and as we proceed over the years to make further amendments to ensure every Canadian is paying his or her or corporate fair share and at the same time finds the system just in the way they are treated and in the way other people are being treated.
Income Tax Act
Yvan Loubier Saint-Hyacinthe—Bagot, QC
Mr. Speaker, I thank the government for giving us this opportunity, through Bill C-70, to speak not only on particular provisions of the bill, which enacts certain measures put forward in last year's
budget by the finance minister, but also to raise the whole issue of reviewing Canada's tax system.
I can tell you right off the bat that the official opposition will not support Bill C-70 at second reading stage, not because of any specific measure, but because of the lack of significant action on the part of the government regarding tax loopholes and the review of the tax system the Bloc Quebecois has been requesting since the Liberals came to power, nearly 15 months ago.
A little while ago, I listened to the secretary of state talk about an in-depth review of the tax system, of the openness of this government regarding the inequity and unfairness of the Canadian tax policy. Pretending to be concerned with equity and social justice, this government has done nothing to plug tax loopholes since it came to power.
All this is contrary to what the red book said. The government no longer refers to the red book, which was waved at us month after month, because it is ashamed. It can no longer establish any parallel between its election promises and its action in the area of taxation. In fact, the red book contained many Liberal policy statements on tax fairness, pointing out to the fact that in this great country which prides itself on being fair from coast to coast, as the Prime Minister likes to say, there are totally unfair situations.
As a matter of fact, the red book mentioned a few. It said that some corporations had not paid a cent in income tax for years because of the previous government's laxness and the fact that it supposedly had many friends among big business, which was not the case of the Liberal Party. The Liberal Party, too, had criticized the fact that, since 1984, personal income tax had increased much more rapidly than corporate income tax. If I remember rightly, according to what the Prime Minister said at that time, it wanted to correct all the unfairness and injustice in the tax system in the first two years of its mandate.
Since they have been in office, the Liberals have not fulfilled their undertakings. They have not fulfilled the promises they made during the campaign in order to get elected.
Let me give you some examples of unfairness in the tax system. Let us take, for instance, the family trusts. It is not for nothing that, for the past 15 months, since our arrival here, we have been saying, over and over again, that the tax rules for family trusts are unfair to all the taxpayers in Quebec and Canada. It is no coincidence if we have been pestering the government about every second day since 1993 about family trusts. It is because this tax system is truly unfair to Canadians, from whom the government asks more and more sacrifices because its finances are in a sorry mess, while at the same time the richest Canadian families are allowed to accumulate capital gains year after year without paying any income tax for up to 80 years.
Even the tax experts are divided on that issue. Some work for the very rich Canadian families, others take a view more compatible with the interest of the general public. Some of these, for the last two to three years and even since the review, four and a half years ago, of family trusts and the 21-year rule, have sharply criticized the perpetuation of such a measure and the possibility to defer income tax on capital gains for up to 80 years.
As the official opposition, we have made this issue one of our favourite themes, especially since we obtained sketchy information from the private sector and some Canadian universities that lead us to believe that hundreds of millions and even billions of dollars could be recovered by abolishing certain privileges linked to family trusts. We know that those trusts have become a major means of tax planning for the wealthiest Canadian families, individuals and companies.
We are not talking here about the principle of family trusts, which can be a good thing. We are not talking about the principle of family trusts, which may apply, for instance, to families with a handicapped child who will need to be taken care of in the future, even once his parents are dead. We are not against the whole idea, nor the administration of these trusts, but what we have been questioning since we arrived here, and even before, during the election campaign, is the fact that a millionaire can use this system to defer indefinitely taxes on his or her capital gains. We cannot accept that.
What did the Minister of Finance give us in his last budget? He wanted to look good. He said: Since I cannot stand the official opposition complaining about such a blatant case of unfairness and injustice in the tax system, I will mention the words family trust in the budget speech to shut them up in the future. But he forgot that we have ears to listen, eyes to read and brains to analyze.
When he brought forth his measure, saying that he would eliminate fiscal benefits for family trusts in 1999, he took us for something that we were not. He also took Quebecers and Canadians for something that they were not, because he knew very well that, by putting off to 1999 the necessary change only for family trusts, he was warning rich Canadian families four years in advance so that they could get ready and take out the hundreds of millions of dollars, even billions of dollars that they had put into these trusts and transfer them to other financial vehicles, other powerful tools of tax planning. We have not dealt in any way with all the tax loopholes that these rich families and all the big Canadian corporations can benefit from.
Is that how the government sees social justice, and fairness in the tax system from coast to coast? Is this how the government shows its concern? This government has only one concern: to look good. It does not matter what the substance is; the impor-
tant thing is to look good. The last budget, like the previous budget and Bill C-70 before us, shows us this government's propensity for cosmetic changes, for phoney tax reforms that do not change anything.
One should also look at the tax agreements signed with countries considered to be tax havens. We in the opposition refuse to let the government get away with this. We have been hounding the government since the last election campaign so that, ever since the 1994-95 budget, the Minister of Finance tried to silence us, to stop us from denouncing the inequities and tax loopholes in these tax agreements by putting up a smokescreen.
At that time, the Globe and Mail called the Minister of Finance, with good reason, the stand-up comic of Canadian tax policy. The minister presented things very dramatically but with such a lack of substance that, a few minutes after he delivered his speech, it was easy to see that nothing had changed with respect to tax agreements. Even the Auditor General of Canada said soon after the budget was tabled that, with the exception of some administrative adjustments allowing businesses to take advantage of tax agreements with countries considered to be tax havens, nothing had changed in the tax system in this regard.
What does this mean, that nothing has changed? It means that, again this year, next year, and in two, three or 10 years from now, the Canadian tax system will still provide for this kind of agreement, which is not a bad thing per se but which makes a big difference when such agreements are signed with countries used to shelter billions in Canadian and U.S. dollars, and tens of billions of dollars in European and Japanese currencies.
You know that such tax treaties enable certain Canadian businesses to open dummy subsidiaries offshore, carry out no business activities offshore, pay no tax or very little abroad, yet claim in Canada losses they did not even incur abroad, just for the sake of reducing their operating results in Canada and avoid paying their fair share to the Canadian tax authorities.
We are not talking about small and medium size businesses, the vast majority of which do their corporate duty and pay their fair share of taxes, but large corporations which can take advantage of loopholes in the Canadian tax system that were plugged neither in last year's budget nor in the finance minister's latest budget and are allowed to remain, although the Liberal government claims to be concerned about fairness in the tax system.
These tax treaties signed with 16 countries considered as tax havens are key to or at least instrumental in the federal government's improved performance in managing the Canadian tax system. Yet, the Minister of Finance continues to maintain that these are good tax treaties, that there is nothing wrong with these treaties and that, in this age of globalization and internationalization of trade, it is natural to sign tax treaties with other countries.
We have always maintained that it is natural to have tax treaties and that, when businesses open subsidiaries offshore and pay taxes abroad roughly equal to what they would have paid in Canada, such treaties should be signed to prevent double taxation and ensure that the production system in which Canadian businesses operate is fiscally equitable, promotes job creation and so on.
However, we are utterly opposed to signing with tax havens treaties which, in the opinion of the Auditor General himself, make no sense whatsoever. The internationalization and globalization arguments do not hold up when, by raising very little if any tax revenue from large corporations taking advantage of such tax loopholes, the fiscal position of Canada is not only threatened but made worse.
The Department of Finance stopped releasing figures because they are too shameful. In 1991, the last year for which such statistics were available-as statisticians would say-the last year before the previous and the current government felt to ashamed of these results, no less than 77,000 Canadian businesses did not pay a cent in tax. But then again, we were told it had to do with the businesses' production cycle. That is understandable.
We can understand that a business may need to develop its products or services over a period of one, two or maybe three years before turning a profit, gaining a share of the market, or preserving a share of the market for a specific product. However, there is a problem when the production cycle lasts for a period of five, seven, ten or twelve years, during which the business does not pay any taxes but registers a profit every year, such as the banks which made profits of $4.8 billion last year while paying hardly any taxes.
When I see that CN makes profits, pays its president a salary of $350,000 per year and grants him an interest-free loan of $400,000 to buy a house in Westmount, while at the same time acting in an inhuman if not barbaric fashion in the rail dispute, I wonder about this government's intentions and its election commitments regarding equity, social justice, the respect of rights, as well as fairness in general. Something is wrong somewhere. Incidentally, CN did not pay taxes either.
There is a problem with taxation and these few measures-although we feel some are valid-are so minor given the scope of the flaws in the Canadian tax system, which has not been reviewed in 35 years, that we simply cannot support and praise the government for such minor initiatives.
Among others, Mr. Séguin, a former Quebec revenue minister, says that, for 30 years now, the only changes to the federal tax system-I am not quoting him directly- were the inclusion of new elements or some minor reforms to that system, and that all this was essentially a top-loading exercise, in the sense that
new measures were added to existing ones, thus turning the Canadian tax system into a monster.
As a new member in the House, particularly as the finance critic, you do your very best to have a thorough grasp of all issues. And in order to do so, during the first months, in order to learn every aspect of the issues, you request a lot of documentation. I challenge you, Mr. Speaker, to try to read all the documents on Canadian fiscal policy. It is quite an ordeal when you consider all the explanatory notes, all the bills, all the related regulations, all the sub-regulations that have been added on. I challenge you to read all that within a ten-year period, and I will congratulate you if you succeed.
In the United States, under Mr. Reagan, they had the same problem. We all remember that one of Mr. Reagan's constant refrains was a reformed and simplified income tax system, even if he was more favourable to businesses than to individuals, but the intention was there. He reformed the American tax system and simplified it at the same time. You can always question the fairness of this process, the propensity to favour corporations and high income earners instead of low and medium income taxpayers, but in the end the tax system was simplified. People can see exactly what the taxation levels are. They can see where the system is unfair.
Here, we have to rely on experts or the members of the official opposition to scrutinize the tax system and tell the Canadian population what it really looks like. To point out to the Canadian people, for example, that 50 years ago, 50 per cent of all tax revenues were paid by individual taxpayers and 50 per cent by corporations. However, corporations nowadays account for around 17 per cent of all tax revenues and individual taxpayers make up the rest. We have to tell the people, because they will not hear about this from government members who tend to hide these things, just like the Liberal Party did during its first mandate.
I remember that it was then that the gap between individual taxpayers and corporations began to come to light.
Friends of the Liberal Party had already been taken care of during the earlier mandate of the Liberal Party of Canada, and it is still going on. Anyone can compare the list of large donors to the chest of the Liberal Party of Canada and the list of tax policies that have not been reformed because they are just what big corporations want.
When we see that the Royal Bank, for example, pours over $45,000 each year into the chest of the Liberal Party of Canada, we understand why in the last budget Canadian banks had nothing but a small income tax increase of $150 million over two years even though they made profits of almost $5 billion. We also understand why they are the main beneficiaries of the computer development programs provided by the federal government. When we see that the large corporations managing family trusts give between $35,000 and $67,000 to the Liberal Party's chest, we understand why they have until 1999 to adjust to the new family trust provisions. I find it-
Income Tax Act
An hon. member
Income Tax Act
Yvan Loubier Saint-Hyacinthe—Bagot, QC
-yes, incredible, the member takes the words right out of my mouth. I find it incredible that they would have the nerve to present Bill C-70 as a major tax reform, like the secretary of state did a few moments ago. All they are doing is adding a few minor positive elements and a few negative ones, again to make taxation even more complex.
I will tell you that it is a lot easier for this government to make cuts in social programs and to make outrageous cuts in the unemployment insurance fund. The federal government is no longer contributing to the unemployment insurance fund, but it will still take about $7 billion from it over the next three years.
Over the same period, that is from 1994-95 to 1997-98, it will also take from the provinces the money it cannot obtain by closing loopholes in the federal tax system because it wants to protect wealthy party cronys or the large corporations which also happen to be important contributors to the Liberal Party fund. It will cut transfers to the provinces by $12.3 billion. It is offloading onto the provinces the problems created by its mismanagement of federal public finances.
It is passing on to the provinces a possible lowering of our credit rating by the large bonds rating firms because, as Moody's has shown us, the federal government, even though it is represented by many stand-up comics, does not escape a serious analysis of our fiscal situation, of its unwillingness to correct this situation and our tax system in particular and to review all public expenditures item by item, including tax expenditures, as we have been asking since we arrived here.
Moody's has understood that, although this document is some 225 pages long, it is not with these insignificant reforms which make our tax system even more complex that we will regain control over our finances, over our tax system and over the government's present and future revenues.
Moody's has understood one thing, and we can quote that agency. It has understood that this budget contained a lot of weak measures. There were measures that were supposed to allow the Minister of Finance to meet his objective of a deficit representing 3 percent of GDP for 1997-98, or $25 billion, but
after that, there is nothing, just a big blank. We do not know where we are going. Moody's understood that.
Moody's understood that in spite of all the cuts made at the expense of the unemployed, the seniors, the students, and the provinces, there is no way we can turn the situation around with this system. As Moody's put it, they could not see how in the medium term, we could control the deficit, much less the federal government's accumulated debt.
I have a feeling that Moody's can make calculations spread over more than a few months or one year. Moody's estimated, probably just as we did, that in spite of all the sacrifices and in spite of the last budget and the one before, from which Bill C-70 stems, which are purported to be important and major steps on the way to recovery, to a reduction of the impact of the debt on the Canadian economy, in five years, the accumulated federal debt will exceed $750 billion and be closer to $800 billion. Moody's understood that.
People at Moody's have a good appreciation of our situation, and they know how to interpret figures. They know there is no hope in the medium term, and even less in the long term, that this government, with its timid reforms of the Canadian tax system, will ever regain control of our financial situation, restore fairness to the tax system, and make it work smoothly. Moody's made a proper assessment of the Canadian situation despite what the intergovernmental affairs minister said after Moody's report was made public, and despite the answers the Prime Minister gave during question period this afternoon to the effect that Canada would have the highest gross domestic product growth in industrialized countries. Despite all of that, Moody's understood many of the problems in the Canadian economy.
First of all, if Canada has the best economic growth performance of all industrialized countries this year, it is because it was so far behind. Canada was the first to go into a recession that was the direct result of the monetary policy deliberately implemented by the Bank of Canada, a policy that brought us the worst recession in the whole Canadian history. Moody's understood all of that. When a country goes into recession before other countries, a stronger economic recovery is normal, especially the technical recovery that we are supposed to have had for three years. Moody's has understood that such a surge of economic growth is only temporary.
We are glad that the more substantial recovery we have waited for so long has finally begun. We hope that this year, the economic recovery will truly lead to the creation of quality jobs for all Quebecers and Canadians. On the other hand, Moody's praises as we do the economic growth which is unrelated to this government's policies, even if the government claims the contrary at every opportunity.
Economic growth is part of a normal economic cycle where the slowing down and the trough have lasted longer than usual because, I submit to you, of structural adjustment, globalization and of the new international situation, but in fact, this is quite normal considering that we were in the basement and that we are trying to stay on the ground floor over the next year.
Moody's adds, and we agree with this analysis, that as soon as the Canadian economy slows down-not in ten years, but at the end of 1996-partly because of the slowdown of the American economy as early as next year, the effects will be very severe. This is why Moody's indicates that the deficit problem is not under control, much less the debt.
Why? Because if, in one year and a half, Canada falls back into a recession cycle, tax revenues are going to decrease, which means that investor confidence is going to diminish because the federal government's deficit problems could, as soon as 1997-98, be greater and require even more draconian cuts than the ones which have been imposed on us by the Minister of Finance these last two years and which did not solve anything.
This means that foreign investors in particular, and Moody's was speaking to them, will start asking some serious questions about the future of the Canadian federation, the future of this government, if we are still stuck with it in Quebec. They will have serious reservations. Foreign investors will start wondering whether Canadian securities are a safe investment, because when the next recession comes around, with a debt which by 1997 will probably be close to $650 billion, it is really going to hurt, because we will need an increasing amount of money to service the debt. Since Canadian savings are not enough, foreign markets become an indispensable source of financing for the Canadian government, and the interest rates we will have to pay then, as a result of Moody's downgrading our bond rating-I can tell you Quebecers and Canadians are going to feel it.
And what caused all this? The Minister of Finance, instead of indulging in theatrics and looking only at the short term, should have looked beyond the next federal election and beyond the referendum campaign in Quebec. He should have acted responsibly and done more than this superficial patching. He should have proceeded, as we requested, with a genuine review of public spending and the tax system, the tax loopholes he has yet to close after almost two years of Liberal government. That is what caused all this trouble.
It is not a question of what will happen in the short term. The financial community looked at the short term. Everything is fine, but that will not be the case next year and in two years, it will be even worse. Moody's takes a much longer view. I respect
this firm because it had the guts to do this, although it was under political pressure, because as you know, bond rating firms are regularly approached by lobbyists. Lobbyists are not just on Parliament Hill. There are lobbyists on Parliament Hill who go to see these people or the firms go directly to the Minister of Finance. They realize what is going on.
Those who today blithely say that Moody's downgrade will have no short term effect are also irresponsible because of the message they are sending to the government. I am talking about large financial institutions in Quebec and elsewhere in Canada; some are arm-in-arm with the Liberal Party while others have a certain integrity we can respect. However they behave in an irresponsible manner when they say that all is well, that the financial sector anticipated Moody's downgrade and that the federal government was forewarned on February 11 of the impending downgrade but was reassured that the economic growth was there to offset it.
In my opinion, all partisanship and opinions on the constitutional debate aside, saying such things is irresponsible. Some people are irresponsible enough to say that all is well. They are applauding the government even though it has failed to make the structural reforms, the deep structural changes that such a disaster calls for. Two years from now, these same people-I have them on record-these very people will be saying: "Two years ago the federal government should have taken more effective measures, stricter measures to get the public finances in order. It should have reformed the tax system two years ago. We could have avoided this utter tax mess. We would also not be stuck with a recession made twice as bad as a normal recession because investors holding Canadian securities have lost confidence in our system and in the government's ability to manage the public purse". These people in two years are going to say exactly the opposite to what they said last week or even last weekend about the impact of Moody's reduced rating.
I would ask them, if they still have a sense of responsibility, to remind the federal government that it should not take short term holidays. It should set in motion what we have been asking it to set in motion since it took office. It must review everything it does here while awaiting Quebec's decision to leave the system. It is a system we consider to have no future, one that has shown itself to be, in the absence of tax reform alone in the past two years, immovable and, in terms of the constitution, irreformable and inflexible.
Even with respect to tax reform, it is immovable. Perhaps because of the size of the machine and of the task, but it is immovable primarily because the government is defending interests other than those of Canadians and Quebeckers, I believe. The lack of a clear stand in favour of fairness in the tax system, in favour of a complete review of taxation and in favour of the establishment of a parliamentary committee to review the whole matter tells us it is time to "get the heck out", as the current expression has it, and I am talking to Quebeckers here, it is time to get out before choices are made for us.
You only have to look at the history of Argentina or Mexico. People say that countries in Latin America cannot be used for comparison purposes. But it is not true. In the early seventies, Argentina was thought to have a brilliant future, a country rich in resources, just like Brazil. Remember, until the early eighties, we were talking about the Brazilian miracle. Opportunities were endless.
The same went for Mexico. When Pemex was created, enthusiasm ran high. Wealth was assured. The debt problem was not nearly as serious as the one we now face in Canada. And yet, these countries collapsed and the International Monetary Fund imposed on them measures that they should have imposed on themselves, but in a more humane and gradual way, to cause as little hardship as possible to individuals as well as businesses. Radical cuts were imposed on them.
I remember in 1984, before joining GATT, which is now known as the World Trade Organization, Mexico was told to cut its education expenditures by half. All at one, expenditures had to be cut by 50 per cent in education, 30 per cent in health and 45 per cent in rural development-and in Mexico, the rural sector is extremely important, much more so than in Canada. Yet, this is the kind of measures that were imposed on Mexico.
If, according to Moody's in particular, but also many others who, before the budget was tabled, shared Moody's views and those of the Official Opposition, the federal system is presently in shambles, with $548 billion in accumulated debt, just imagine what it is going to be like five years from now, when the debt will reach and possibly exceed $800 billion. This growth, from $548 billion to $800 billion in five years, not counting inflation, will cause a serious problem.
All this to say that we are ashamed of the only reform measure before us and not a very substantial one at that, changing a few minor aspects of the Canadian tax system and a few minor regulations, when what is needed is a comprehensive reform, if Canadians agree to keep this system. But when these changes are said to be urgently required by the Canadian tax system, that is too much.
I will therefore suggest that my colleagues from the Official Opposition vote against Bill C-70 because, in our opinion, in terms of tax loopholes, redressing inequities in the Canadian tax system and the sacrifices big businesses that shirk their fiscal duty as well as some extremely wealthy Canadian families are asked to make, it does not go far enough. We have been calling for much more than that in the past 15 months. We want real reform, we want the red book promises regarding tax reform to
be carried out and true tax justice to be felt in this country before Quebecers leave it.
Income Tax Act
John Williams St. Albert, AB
Mr. Speaker, the previous speaker from the Bloc Quebecois talked about how important it is that we overhaul the whole system and how ashamed he is that we are only tinkering with the system.
It brings to mind some comments I was reading in the paper over the last few days about how the Bloc Quebecois feels it can overhaul the whole system. However, now we find it is retreating. Rather than full blown separatism we now find the premier of Quebec saying he does not think that will to fly, water down the whole message, talk about something a lot less draconian than complete separation. Along with the leader of the Bloc Quebecois he now thinks perhaps some form of economic association would be the way to go. That is exactly what they have at this point.
In reference to the previous speaker's comments that he would like to see a full blown overhaul of the whole tax system, I put it in the same context that perhaps the full blown overhaul of the political system in Quebec and in Canada would not go very far either. Let us hope it would not.
That does mean to say this bill is a wonderful piece of stuff. Bill C-70 was a year old before it was even introduced in the House. This pertains not to the budget introduced six weeks ago but to the budget introduced a year and six weeks ago. It has taken the bureaucracy a whole year to come up with 200 pages of what virtually every Canadian would call unintelligible gobbledegook. It is far beyond the comprehension of most people.
This is how we run our tax system today. Not only has the Income Tax Act become incomprehensible to Canadians, it has become incomprehensible in many ways to accountants. It is incomprehensible in much the same way as the Chief Justice of the Supreme Court was saying last week that the legal system is going to collapse under its own weight because it has become so complex that even lawyers cannot understand it.
The Income Tax Act is going the same way. It has become so complex with additions, deletions, amendments and changes that even accountants cannot figure out what is happening. We then add even greater complexity. Accountants are supposed to be able to figure all this out in anticipation of legislation that is only being introduced now even though the finance minister announced his intentions over a year ago. The income tax people have been assessing tax returns this year based on the contents of this bill. However, it was only tabled on February 16, 1995. People did their tax returns before the legislation was tabled in anticipation of trying to do their tax returns based on information that did not even exist.
How do we expect accounting professionals to do an admirable and efficient job of trying to advise their clients on how to do their tax returns when they are doing it all on the basis of a statement by the Minister of Finance with no legislation to back it up and no real assurance that it will pass? We still have to vote on it. I hope that is not a perfunctory situation.
Parliament holds the public purse. The House gives the executive the authority to raise money. It is raising the money and now it is asking us if it can. What happens if we say no? Perhaps we should say no. I think it is paying lip service to Parliament.
It is an insult to Parliament that the executive can tax Canadians, impose rules, penalties and conditions all on the supposition that it will introduce legislation at some future time. It will then ask Parliament to vote on it and say it has been working on the premise that we were to approve it. What kind of way is that to run a country? Perhaps that is indicative of the kind of mess we are in because, as everybody knows, we are right up to our neck and over our head with a debt of $515 billion.
By the time the government has been in office three years it will have added $100 billion to the debt. By that time it will only have reduced the deficit by $15 billion, from $40 billion to $25 billion.
This policy of gradualism to deal with a crisis in a fiscal situation is not good enough. One hundred billion dollars in interest at 8 per cent is $8 billion more that we will transfer to lenders each year. That means taxes paid by the rank and file Canadians will be transferred to the banks in the United States, Germany and Japan, not back to the taxpayers of Canada. They will not see it.
We are paying the money lenders and they now control the way the country is run. That is a desperate and most unfortunate situation. The Liberal government seems to be totally incapable of grasping the severity of the situation.
Reformers have said get the budget balanced, do not worry about 200 pages of nickels and dimes and changes in the complexity to the Income Tax Act. Let us talk about simplification. Let us talk about getting the budget balanced. We said that it could be done in three years.
The government has a revenue of approximately $120 billion a year. In three years it will have three times $120 billion, which is $360 billion, and during that time it can only find $15 billion to squeak out of there. Is this draconian? Is this really grasping the issue and saying let us get the job done now? I doubt it. I do not think so, and my colleagues agree with me.
It is a shame that parliamentarians in charge of running this country feel that this policy of gradualism is the only way we can address the issue as this great country sinks beneath the
wave of debt. The interest is now the largest cost by far to the government, $50 billion a year.
When the Liberal government was in power 20 years ago and the Prime Minister of the day decided it was time to open the gates and let money be spent, flow like water, would Canadians have voted for them? Would Canadians vote for them today if they realized that $50 billion a year is spent on interest to pay for past excesses and the way previous governments have tried to buy votes with our own money? Now we are spending $1,500 per man, woman, and child just to pay the interest on that debt.
If and when we get the budget balanced, for ever dollar in taxes we are going to collect from Canadians, we will only be able to return 60 cents in services. The rest will go to pay the foreign lenders. That is no value for money. You pay a dollar and you get 60 cents back on your investment. What kind of deal is that? Who goes down to the local store and spends a dollar and expects to get 60 cents in value for the money spent?
They will tell the government that it is out in the next election, because obviously it does not know how to deal with the problem. Remember that the members of the government are the ones who at the last election were parading around the country saying: "Trust us, we are going to get rid of the GST".
Income Tax Act
Dennis Mills Broadview—Greenwood, ON
And we will.
Income Tax Act
John Williams St. Albert, AB
And they will-well, maybe hell will freeze over first.
They say they are going to get rid of the GST. They said in the red book they are going to get rid of the GST. They have not even talked about it. It has not even been mentioned. When was the last time we heard a member of the Liberal government stand up and say they are going to get rid of the GST? It is one of the little things they hope will go away. They tore that page out of the red book and reduced it by one page. That is one promise they are conveniently forgetting to deliver on.
Canadians are still mightily upset, because they were promised that the GST was going to reduce the debt. Has the deficit gone down? Has the debt gone down since the GST was introduced?
Income Tax Act
Herb Grubel Capilano—Howe Sound, BC
Income Tax Act
John Williams St. Albert, AB
No, it has not. Not only has it not been reduced, but the debt continues to rise and we continue to sink under the weight of interest payments that we cannot afford. The government made promises it knows it cannot fulfil, all in the hope that Canadians would vote for them. And they did, misguidedly, unfortunately, because we now find out that the government is not going to live up to the promise of getting rid of the GST.
At least the Reform Party was honest and open when it said we will get rid of the GST once the budget is balanced. Let us get the hard stuff done first.
Income Tax Act
Jim Jordan Leeds—Grenville, ON
It is pretty safe for the Reform Party to say that.