Mr. Speaker, I am happy to respond to those ideas. Clearly, I did not have enough time to go into all the advantages.
I have attended several conferences on the subject of the underground economy. The high marginal tax rate certainly has an effect on it, but the emphasis recently has been on the role of the GST. Clearly, they interact, but it would help.
On the other hand, I have been quite convinced by evidence that was educed about the size of the underground economy and especially by some simulations made by the Ministry of Finance. It turns out that while it looks like it is very big, it really probably is no more than about 5 per cent of national income. However, this is not the time to discuss that. Maybe we could do it some other time.
On larger pools of capital, I can give a personal view, which is not a Reform Party position. Long before I was a member of Parliament I used the idea in my lectures that if I were in charge I would lower the capital gains rate and the rate on corporations in Canada to 5 per cent and I would make Canada the Switzerland of North America. I have speculated that probably we could have had so much capital flowing in, especially during the period of the cold war, when we were under the protection of the Americans, that the revenue raised at 5 per cent would have been grater than the revenue we raise at our high rates at the moment. I think Americans are thinking about that as well. I am sure that if the Americans are going to lower their tax rate on corporations and we do not follow we will have exactly the opposite problem of what the hon. member is talking about.
The issue in a strictly economic seminar is an oversimplification, in a way, in today's world of integrated capital markets. Money is flowing in at essentially a risk adjusted rate where we can borrow as much as we want to. Our problem is that we are not saving enough.
To the extent that the lower tax rates on income would lower the incentive to consume and would encourage savings, we would probably lower the interest rate marginally. However, that would not be the main effect. Nevertheless, I appreciate that the member has called my attention to the idea that there is this effect on capital markets.
Finally, he noted that productivity would increase. Indeed, most people agree that the high marginal tax rates on income and on capital have led to distortions in the decisions of individuals in the allocation of their time between effort and work, between savings and investment, which overall have resulted in a lowering of productivity. It is therefore agreed widely about the direction in which the incentives would go by lowering the marginal tax rates. There is little doubt about this encouraging more work, discouraging leisure, encouraging more savings and discouraging consumption. That would be all to the good.
The problem is that econometric estimates of those effects are extremely difficult. Nobody really has been able to prove that there would be such a very large effort. I think the conclusion has been that the main effect of the high marginal tax rates on income and capital in the past has been to change the allocation of resources, which leads to distortions, which are essentially costly to society.
Being a little bit cautious about this point does not mean that I reject the hon. member's suggestion. I think it should be considered as another plus of us studying and perhaps ultimately adopting a simplified, open, and cheap new flat tax system.