House of Commons Hansard #204 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was million.

Topics

SupplyGovernment Orders

5:15 p.m.

Some hon. members

Nay.

SupplyGovernment Orders

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The Acting Speaker (Mr. Kilger)

In my opinion the nays have it.

And more than five members having risen:

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The Acting Speaker (Mr. Kilger)

Call in the members.

And the bells having rung:

SupplyGovernment Orders

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The Acting Speaker (Mr. Kilger)

Pursuant to Standing Order 45, the recorded division on the question now before the House stands deferred until Monday, May 29, at the usual time of adjournment, at which time the bells to call in the members will sound for not more than 15 minutes.

The chief government whip has the floor on a point of order.

SupplyGovernment Orders

5:15 p.m.

Liberal

Don Boudria Liberal Glengarry—Prescott—Russell, ON

Mr. Speaker, I would request unanimous consent to further defer division until 5.30 p.m. Tuesday, May 30.

SupplyGovernment Orders

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The Acting Speaker (Mr. Kilger)

To be sure the House understands, the government whip has requested a further deferral of the vote to Tuesday, May 30 at 5.30 p.m. Is that agreed?

SupplyGovernment Orders

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Some hon. members

Agreed.

SupplyGovernment Orders

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Liberal

Don Boudria Liberal Glengarry—Prescott—Russell, ON

Mr. Speaker, perhaps you would find unanimous consent to commence private members' hour immediately, in other words consider it 5.30 p.m. and to do the same at the end of private members' hour, in other words finish 10 minutes ahead of time at the end.

SupplyGovernment Orders

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The Acting Speaker (Mr. Kilger)

Is there unanimous consent to proceed to private members' hour?

SupplyGovernment Orders

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Some hon. members

Agreed.

SupplyGovernment Orders

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The Acting Speaker (Mr. Kilger)

It being 5.20 p.m., the House will now proceed to the consideration of Private Members' Business as listed on today's Order Paper.

Underground EconomyPrivate Members' Business

5:15 p.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

moved:

That in the opinion of this House, the government should consider the following initiatives for addressing the underground economy: a ) an enhanced information campaign to educate the public and to encourage their participation in addressing the problem; b ) a limited amnesty on interest and penalties otherwise payable when a taxpayer voluntarily declares income previously undeclared; c ) a tax credit to taxpayers on home improvements and renovations to provide an inducement to create the essential paper trail and to serve as one of the primary vehicles for the information campaign.

Mr. Speaker, the underground economy materially and adversely affects the lives of all Canadians and literally costs us billions of dollars of revenue each year as a result. That is why I submitted Motion No. 382 to the House for consideration.

While the existence of the underground economy in Canada is an undisputed fact, estimates as to its size vary widely depend-

ing on the methodology employed to measure it. Estimates range from 2.5 per cent to 3 per cent of GDP to over 20 per cent of GDP; in dollar figures $20 billion up to $140 billion.

Even at the lower end of the range the revenue potential I believe warrants further initiatives to realize the potential and to contribute to the restoration of Canada's financial health.

There are good reasons why we should act now. As the finance minister has said, everything is on the table. It is imperative that moving forcefully on the underground economy be part of the overall strategy to meet our financial targets. Now that the economy is growing we must encourage as many people as possible to integrate back into the legitimate economy of the country.

The government currently has better tools to address the problem of tax evasion, but tax evaders are also becoming more sophisticated. Given this reality, it would be prudent to take advantage of new provincial information sharing and other initiatives before this new advantage is neutralized.

There are some general assumptions about the underground economy I would like to note. There is the premise that once you are underground it is very difficult to come out even if you wanted to. That is primarily because people who are working underground generally have offered arrangements and deals to their customers and clients substantially below the otherwise market price. That means customers come to depend on them.

In addition, once a taxpayer has evaded taxes and not reported that income and paid those taxes, there is interest and possibly penalties which grow over time and may grow to an amount which would be prohibitive as far as the taxpayer's being able to settle it.

Most of the underground economic activity is very difficult to detect because there is no paper trail, no invoice which would verify such activity. That is one of the aspects I hope to address with Motion No. 382.

Some of the arguments for dealing with the underground economy include the statement that if every Canadian paid their fair share we would all pay less. We must all do our part and fulfil our responsibilities and become part of the solution.

Since the recession clearly added to the underground economy these new additions are the people we have to get back before their dependency becomes irrevocable. I believe focused efforts on certain segments will be most successful but a general initiative should still have positive results because the first wave of results will come from reminding Canadians of their legal and moral obligations.

While the size of the underground economy is elusive, Canadians consider it large enough to warrant attention. There are a number of reasons people choose to participate in the underground economy.

The first and most fundamental is basic greed, people taking care of themselves at the expense of others. The second is a belief in the myth that everyone is doing it and nobody is getting hurt, which clearly is not the case. Some feel it is easy to get away with because we have an honour system in our tax system of declaring income. There also is a perception that no major effort is being made to stop it. Some would suggest the income tax system is too complex and too cumbersome to operate within. We have matters such as the level of respect for government and politicians. It is a problem in today's society.

The objectives of the strategy to address the underground economy generally include to recover revenue legally owing to Canadians, to encourage voluntary compliance and to protect the interests of honest taxpayers.

To educate Canadians on the facts about the seriousness of the underground economy and how we can help is extremely important. We need to demonstrate to Canadians the government is appropriately discharging its responsibilities in enforcing the law through tough but fair actions. We want to eliminate illegal activity which harms the Canadian economy and thus all Canadians.

Tax evasion compromises the government's ability to provide essential social and economic programs. It leads to unfair competition to honest businesses and it places an unfair burden on honest taxpayers.

I refer to the 1994 report of the auditor general in relation to the income tax system: "The success of the tax system depends ultimately on the public's willingness to meet its tax responsibilities through voluntary compliance. This willingness is fostered by showing respect for the taxpayers and gaining their confidence through a proper balance between facilitation and enforcement". Today I am tabling this motion and its proposals to address in part both of these aspects.

In the tax act there are consequences for failing to declare income, to report a tax return. I will outline them very briefly. If a taxpayer fails to file a return he or she can be subject to a penalty of 5 per cent of the tax unpaid. In addition, there is an interest charge of 1 per cent a month to a maximum of 12 per cent. Failure to report income can get up to a 10 per cent penalty on the income if the person were shown not to have reported income in the previous three years. In all these cases interest is compounded daily.

With regard to wilful tax evasion, the penalty prescribed is up to 50 per cent of the tax owing. If the individual is charged there can be an additional penalty ranging anywhere from an addition-

al 50 per cent up to 200 per cent of the tax plus imprisonment of up to five years. Needless to say these penalties are very extreme and reflect the seriousness of the problem of non-compliance with the Income Tax Act.

I do not suggest the government is not interested or not taking appropriate steps with the underground economy. Much to the contrary, I believe the motion compliments much of what the government is now doing.

As we all know, the government has entered into a number of provincial information sharing agreements to assist in detection, including joint audits, shared strategy and techniques and training. There have been increased investigations and audits, particularly in identified areas of high non-compliance. These include home renovations, construction, auto sales, restaurants and jewellery, as well as other service sectors.

The government has also embarked on a program of higher publicity of prosecutions. It also has found that as a result of this increased publicity the amount of voluntary disclosures has doubled. Each year Revenue Canada handles 15,000 leads or referrals as a result of its audit activity. It is working closely with the key stakeholders, with businesses, professionals and with the provinces to deal with tax evasion, the underground economy and smuggling.

To give an idea of the extent to which it has that co-operation, Revenue Canada has held consultations with more than 240 groups representing a wide range of industry sectors, including the Canadian Institute of Chartered Accountants, the Canadian Homebuilders Association, the Direct Sellers Association, the Canadian Jewellery Association, the Canadian Restaurant and Food Association, tourist associations and chambers of commerce.

These initiatives have helped to refine our strategies, identify areas of non-compliance and explore initiatives for improving that compliance. I believe that Motion No. 382 complements these initiatives by placing a greater emphasis on the role of the Canadian public.

I would like to suggest some general approaches which we can consider in addressing the underground economy. Certainly the information sharing agreements with the provinces will lead to enhanced opportunities for the traditional audit. The public, through an educational and information campaign should be assured that the agents of law enforcement will get appropriate support as well as become more effective. In fact in 1994-95 Revenue Canada's enforcement activities and its underground initiatives are expected to add an additional $3.8 billion to its tax assessment. Other approaches must concentrate on labour intensive sectors and other high probability areas, some of which I have already mentioned.

In launching a general information campaign to address the myth that everyone is doing it, we are going to go a long way in breaking the back of the underground economy. Most Canadians will think twice if they know there is a serious and substantial risk of being caught and that the consequences which I previously outlined are very serious.

Tax evasion is a crime. It is not a victimless crime, as often is argued. All Canadians are its victims because tax evasion leads to among other things job losses and an increase in the deficit. Honest taxpayers are carrying more of the burden of taxation. Legitimate businesses are operating in an environment of unfair competition, often leading to their bankruptcy. We must stress the theme that people who evade taxes are in fact cheating honest taxpayers, including the poor, the needy and the disadvantaged.

We need to publicize the number of investigations, leads and referrals which are received by Revenue Canada each year from Canadians who know tax evaders and are very concerned about the prevalence of tax evasion within our society. Many more Canadians would contact Revenue Canada if they only knew that those calls would be followed up. We must encourage and promote voluntary compliance as well as enlist the support of all Canadians. We have to ask them to just say no to tax evaders.

The preferred approach to non-compliance is voluntary disclosure and voluntary compliance. That is why this motion emphasizes public education and incentives for compliance rather than some aggressive measures which others may propose. The taxpayer must ultimately be treated fairly and with respect.

The underground economy permeates Canadian society for the benefit of some but to the detriment of all. Canadians must realize that underground economic activity makes victims of us all. Honest businesses are faced with unfair competition. There are job losses because many of those businesses go bankrupt. Health, education and other essential economic and social services must be reduced because of the reduced revenue. Honest taxpayers must pay more to make up for those who do not pay.

Most Canadians have been faced with an offer to pay cash for a lower price. What we do not realize is that to accept a deal from a disreputable service provider is not only to condone the crime but also to promote tax evasion. When someone offers a lower price for cash but no invoice, not only do we lose the revenue but the consumer also gives up needed protection.

In my experience we do get what we pay for. When we go underground to provide services, or particularly when consumers accept underground services, they can expect lower quality work and lower quality materials because those businesses do not have to comply and will not comply with the industry regulations. As well and most important, consumers do not get the protection and the guarantee they would otherwise have if

they had an authorized purchase order and/or an invoice. When the customer goes underground as well, he has no recourse and no protection.

This motion also asks the House to consider a couple of very specific initiatives.

Members should be aware that in the United States 25 states have at one point or another attempted to introduce or have introduced amnesties of sorts where tax evasion is a problem.

I am proposing a limited amnesty. It is not very specific in terms of its details, but is a limited amnesty of approximately a two or three month period on interest or penalties otherwise payable when a taxpayer voluntarily comes forward and discloses and reports income previously unreported. I would like to repeat that. The amnesty has to do with interest and penalties, not the taxes otherwise owing.

Phase two of the amnesty would implement an enhanced effort to crack down by engaging more investigators on a contract or commission basis possibly. This phase would continue as long as there is a favourable pay back.

With regard to ongoing efforts, we would report regularly to the public on the success of the program and consider an extension of the time frame as has been done with such things as gun amnesties. Our analysis of those who come forward will also provide information to the government which it can use to focus future efforts, thereby creating a ripple effect of the benefits.

This particular aspect of a limited amnesty is merely a suggestion which may or not have merit quite frankly. It is the kind of thing however I am hoping that the House will give due consideration to in committee.

The second specific new approach I proposed in this motion was an input tax credit. We must let the public know that when they patronize a supplier for the cash price without an invoice, they are actually condoning fraud. By refusing to do business with those who do not give invoices, they will become part of the solution.

After some work that I had done with the finance committee particularly with regard to the hearings on the GST, one of the facts that came out clearly throughout that process of public consultation was the extensive admission of underground activity in certain sectors. That was readily forthcoming, particularly because honest businesses represented by these associations and organizations were hurting. They were going bankrupt. We were losing jobs.

The construction industry particularly related to home renovations and improvements was found to have, based on the information from those associations, anywhere from 25 per cent to 40 per cent of its activity underground. That is over $1.5 billion to $2.4 billion. There is a substantial amount of tax revenue lost to the government because that business activity has not been reported by those businesses.

The proposal therefore states that as an inducement for the public to be part of the solution, we offer a tax credit possibly for the GST paid on home improvements or renovations. The taxpayer would be required to submit an original invoice or at least keep one available for a review should they be subject to audit and submit it as part of their tax return or by a separate filing.

The objective here is to create a real paper trail in an area of abuse with which most people are familiar. Their reward is a tax credit. Although that tax credit would reduce the revenues otherwise available to the government, it does mean that we generate reported income on which federal, provincial, corporate or business taxes are paid on which withholdings for payroll, health care and other source deductions that are matched by the government also would come into the system, thereby generating substantially more revenue.

This initiative would also I believe constitute an excellent vehicle through which to educate the public on the problem and to discourage generally under the table economic activity. Finally, this initiative is basically geared to help support honest businesses that are prepared to provide an invoice.

Consider someone who has been operating underground for sometime who approached a prospective customer. If that customer asked for an invoice, it is very likely that the business person would refuse to do the business simply because they would have to provide a piece of paper which would provide that essential audit trail and be a verification of the economic activity.

Initiatives like this may assist us in terms of dealing with the underground economy.

I have taken the opportunity to speak with members of all parties about the matter. I am finding across the House a very strong interest in this subject matter because of its importance to all Canadians.

I am not very concerned with regard to the specific initiatives. The ultimate objective is for the House to adopt this motion as a vehicle to bring the underground economy as an issue of importance to all Canadians to committee. Then together we can explore methods in which we can address one of Canada's most serious problems, the underground economy.

Underground EconomyPrivate Members' Business

5:40 p.m.

Bloc

Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC

Mr. Speaker, I welcome this opportunity to speak to Motion No. 382 standing in the name of the hon. member for Mississauga South. When I read the motion and the accompanying material, I was pleasantly surprised by the hon. member's trenchant analysis in his short but very interesting paper. I must say he put his finger on a fundamental problem in Canada's tax system, and I am referring to the fact that a social contract between taxpayers,

individuals and even businesses and various levels of government has been broken.

This situation is so serious and so widespread, so deeply anchored in our day to day lives that recently, when the premier of Quebec, Mr. Jacques Parizeau, was buying furniture for his residence, he was asked by the salesman: "What do we do about the tax?" When we get to the point where even the Premier is asked whether the tax should go on the bill, the problem is fundamental and requires our full and undivided attention if we are to find a way to deal with the underground economy and the problems it creates for the tax system in Canada, Quebec and all the other provinces.

There are some very interesting ideas in the hon. member's document, and although the official opposition is not usually fulsome in its praise for Liberal members, and you must be aware of that, Mr. Speaker, when valid points are made, when we are offered an intelligent analysis of a problem, we are open to discussion, we are prepared to explore the best ways to deal with a situation, especially one that concerns public finances.

Consider the three suggestions the hon. member for Mississauga South explored in his motion. One is to inform the public. Many taxpayers are not aware of the impact of certain decisions or do not realize the overall impact of the decisions they make every day as consumers. Here is an example. Before the dollar dropped to 73 cents, when it was still 81 cents or 84 cents, people would tell us, and this was quite common: "Last week I went to the United States. I went shopping in the United States, because it was cheaper". That was not necessarily the case, but that is what they said. And those same people were mad as hell about the lack of jobs in Quebec and Canada.

The connection between what they do as consumers and what happens to the economy and employment is not always clear in people's minds. A campaign to educate the public about the underground economy and the impact of acts of civil disobedience, which is what we should call this today, might improve the situation in the future and make taxpayers more conscious of their obligation to contribute to the public treasury through their taxes.

The second suggestion made by the hon. member for Mississauga South also deserves our support.

A limited amnesty for income tax returns of previous years, not future years, should not encourage more people to evade taxes. On the other hand, a limited amnesty for the payment of interest and penalties on unreported incomes subject to federal or provincial income tax could encourage some people, who must feel ill at ease from time to time even if this practice is almost institutionalized, to pay what they owe. People may feel ill at ease by not fulfilling their civic duty to pay their normal share of taxes.

The third option suggested is also very interesting. Every one knows and talks about the fact, even if there are no comprehensive statistics about it, that renovation and construction is an area where the underground economy is flourishing. This is why a tax credit for tax payers who do some renovation could be an interesting idea to explore.

In short, the three proposals and the clearness of the analysis are such that we, as the official opposition, will support the proposal of the hon. member for Mississauga South because it is an intelligent and articulated proposal which deserves to be examined in depth by the standing committee on finance. I invite my colleague, who will have my support as a member of the committee of finance, to present his analysis and to suggest various options to the committee, as he did when he tabled his motion.

I also congratulate him for the clear thinking he shows on page 1 of his document when he says: "In the event of-this refers to the present context-cuts in social programs and a harsh budget-probably the last budget, and even the first one, both were hard on taxpayers, especially the poorest ones-the government will be blamed for not taking action in certain areas".

I congratulate him for having the courage to recognize that the context is very difficult due to the budget measures taken by the finance minister who is slashing transfer payments to the provinces for social assistance, post-secondary education and health, and is also taking, as of this year, $2.5 billion out of the unemployment insurance fund.

My colleague for Mississauga South has the sense to recognize that the government could be blamed for not acting in the areas where it should. He thinks along the same lines as we do.

For the past 15 months, as you know, we have been blaming the government for not taking action in certain areas-we seem to be exceedingly repetitive, but we will keep at it as long as it is not done.

First, when Revenue Canada is not given the necessary resources to collect unpaid taxes, which, over the years, have grown to $6.6 billion, according to the auditor general, and 75 per cent could be collected, in his estimation, with the proper resources, I agree with my colleague for Mississauga South, the government could be blamed for not taking action and for not immediately giving Revenue Canada the necessary resources to collect the amounts owing, amounts which are not even in question. We are not talking about avoiding taxes and the underground economy, we are talking about taxes that have not been paid because Revenue Canada does not have the resources to collect them. The government is to be blamed for this.

My colleague from Mississauga South said, and rightly so, that we are watching the goings on in government and that this is eroding our trust. Every day, we make new discoveries-so does the auditor general each year-regarding more wastage and lavish spending. We also are discovering places where the federal government failed to close tax loopholes. On this point, I agree with my colleague, who had the courage to say that his own government failed to do what it should have done.

They have to practice what they preach. When we see that people in government are still spending extravagantly and wasting money, for example, the trip to the United States for members of the Canadian armed forces for a rocket launching competition, holidays for diplomats at the taxpayers' expense, and when we see that the government just brushes these questions off, I think we must all admit that the government is sitting idly by, when it should be in action.

Let us look at compliance with tax laws. This issue has been in the news for the past two weeks. Once again, contraband cigarette shops are opening up all over the place. It is obvious and the government is not allocating the resources necessary to ensure compliance with tax laws.

Here again I agree with my colleague, the hon. member for Mississauga South. The government could be accused of not acting where it should. All this must be straightened out, as far as the tax system is concerned.

I am not talking only about the federal government, but all governments. Restore confidence, make the public aware of the consequences of not contributing adequately to the tax base, and give a good example. I think these are the essential ingredients to restore the social contract and to improve public finances.

I once again congratulate my colleague from Mississauga South. The official opposition will support his motion.

Underground EconomyPrivate Members' Business

5:50 p.m.

Reform

Jim Silye Reform Calgary Centre, AB

Mr. Speaker, I am pleased to rise tonight to address Motion No. 382, which calls on the government to adopt initiatives to bring people out of the underground economy and back into the legitimate economy of this country.

The member for Mississauga South seems convinced that an enhanced information system campaign, a limited amnesty, and a home improvement tax credit will do just that. Here we have yet another Ottawa Liberal politician pushing for reactive legislation to a problem, which does not address the fundamental question of why people go underground in the first place. It is for reasons like high taxes and confusing, complex, and convoluted tax systems, GST administration and accounting costs and the list goes on.

To set the tone of my speech I would like to read a quote that was made by Alex Doulis, a very successful third generation Canadian who like many has simply packed up and left this county. He states: "I left Canada in 1989 because I began to feel powerless. I could not influence the direction of my life, which was increasingly in the hands of the Government of Canada, and the government was deaf. The problem with Canada is it has responsible government. I was giving them immense amounts of money and they used it to perpetuate their power so they didn't have to listen to me. They were responsible for me, but they did not have to represent me".

The current income tax system in Canada is outdated, overly complex, and overburdens Canadian taxpayers. Many people have lost respect for this system because they cannot understand it. They do not perceive it as fair and as a result they are quietly resisting paying taxes by both legal and illegal means.

The underground economy is evaluated at between $10 billion and $100 billion. High taxes stifle economic growth in every sector of our society, decreasing private sector productivity, increasing unemployment, and above all tempting governments to keep spending at current unsustainable levels.

That is why so many Canadians are angry at politicians and what politics and government have come to represent. For me personally, rhetoric, regulation, waste, and arrogance are just a few words that come to my mind when I think about the Liberal government and the opportunity it has to effect change.

The reality outside this fish bowl is that some people grin and bear PSTs, GSTs, income taxes and sin taxes while others choose to go underground to increase their purchasing power. All these people have to do to justify breaking the law is pick up a daily newspaper and read one of the many stories of government waste on things like grants to study blueberry jam, parliamentary junkets, MP pensions for life, and the list goes on. It is this type of negative reinforcement that encourages many honest Canadians to pay cash for goods, negotiate deals or trade their services, anything to avoid paying excessive taxes to wasteful governments.

These are not simply my views, but those reflected in one of the first speeches made by our Minister of Finance in 1994. He stated: "The rise in the underground economy is what happens when the population of a country no longer believes it is heading in a direction where we all benefit. The underground economy is not all smugglers. It is hundreds of thousands of otherwise honest people who have withdrawn their consent to be governed, who have lost faith in government".

He is aware of that. What is he doing to change it? Nothing. They still spend $40 billion more than they bring in every year. Unfortunately, Motion 382 is an example that the Liberals have done nothing to restore a sense of faith, equality, and equity in our tax system.

Not only are these people avoiding Canadian taxes, many are moving their capital completely out of Canada to invest in foreign countries. According to the Bank of Nova Scotia, in 1993 unaccounted for capital that left Canada was estimated at $7 billion. The estimated figure for previous years was consistently around $700 million. It went from $700 million to $7 billion in just a few years. That is frightening.

The former attorney general of Bermuda puts this into perspective. I read this in a book by Diane Francis, Underground Nation, where the attorney general of Bermuda is quoted as saying: "People in huge numbers are hiding money offshore because they feel overburdened or feel so unfairly treated that they think there is no point in keeping their money captive at home. What is happening is that high tax rates in Canada and elsewhere are turning what used to be hard working honest businessmen into tax evaders. The feeling I get from Canadians and certain island institutions is that they are getting a lot of Canadian money invested outside of Canada which is not there legitimately".

Why will the government not wake up? The best way to solve the problem of the underground economy is by making cheating not worth while, similar to the smugglers' bill: take away the profit from the smugglers and get rid of that tax and smuggling will end. Lower taxes are the answer.

When people see governments like this one blow their hard earned tax money, increased enforcement from a government standpoint is an exercise in futility. Motion 382 calls for voluntary compliance measures to bring these people back into the mainstream economy. Voluntary compliance measures will have little effect on people who truly feel they have been wronged by the government. It is human nature.

Although I do not condone those who knowingly break the law, the reality is that if governments do not play by the rules, what incentives are there for their citizens to play by the rules? Why is there a double standard that when you are a politician you get a pension plan that is three or four times as good as that of the private sector? Do as we say and not as we do is fast becoming the new Liberal slogan, replacing jobs, jobs, jobs.

Although the Liberals campaigned on integrity and a new philosophy of governing, I along with many Canadians feel that we are watching the same play in the same theatre with different actors playing the same roles. The names have changed but it is the same old script.

For example, with Motion No. 382 a member of the government is calling for additional tax dollars to be spent on advertising to inform Canadians of the importance, the incentives, and the obligations to pay taxes. Where is the importance and the incentive and the obligation of the government to justify how it spends money and to eliminate the waste in government spending? Why is that not addressed in the motion?

If the government has to offer incentives to comply with its policies then there is something wrong with those policies. Like the Tories, however, the Liberals do not get it. Rank and file Canadians are protesting the tax system in Canada and their concerns are not registering with this administration. Surely the estimated size of the underground economy and nationwide tax protests should have sounded some alarm bells within the Liberal caucus. Apparently not. Motion No. 382, for example, has an amnesty clause to encourage people to come clean and pay taxes they have avoided without fear of punishment by the government. Where is the common sense logic in this suggestion? An amnesty will only get people to pay the taxes they refused to comply with in the first place. How is that an incentive?

It is time for the Liberals to stop these nickel and dime, band-aid solutions for problems with our tax system and begin the long overdue process of tax reform and tax relief. Attack the disease, not just the symptom. The Reform Party understands the difference between the two. That is why we have committed ourselves to spending reductions and tax reform, including the development of a simple, visible, flat system of taxation for Canada. The single most important aspect of this system is that it would be fair, removing the incentive for many to go underground in the first place.

It is interesting to note that Motion No. 382 is targeted at GST avoidance, which indicates that the Liberals have truly backtracked from the campaign promise to scrap the GST.

Our whole process of tax reform and relief would come under the umbrella of spending reduction and restraint. A Reform government would legislate balanced budgets. We would protect taxpayers dollars by reducing the size of the federal House,not increasing it to 301 as this administration plans to do.

We would pass more responsibility on to provincial governments as well as individual Canadians. The time has come to put money back into the hands of those closest to the problems facing Canadians and, most important, those who will spend it best.

In conclusion, a Reform government would mean effective government, a transparent government with full disclosure. We would introduce proactive legislation to clean up the fiscal mess in the country which many Canadians are doing their best to avoid.

The Liberals on the other hand will continue to propose band-aid solutions like Motion No. 382. I have a message for all angry Canadian taxpayers out there when they come to the end of their financial rope: "Tie a knot, hang on, a Reform government is just around the corner".

Underground EconomyPrivate Members' Business

6 p.m.

Liberal

John O'Reilly Liberal Victoria—Haliburton, ON

Mr. Speaker, it is always so nice to follow the doom and gloom party.

It is a pleasure to speak today on Motion No. 382 introduced by the member for Mississauga South. Basically the motion calls on the government to consider establishing initiatives to address the massive underground economy that exists in Canada today.

The issue is of concern to me and should be of concern to all Canadians. I have even managed to address the matter while I was vice-chairman of the Standing Committee on Public Accounts. I had the opportunity to ask one witness, a deputy minister at Revenue Canada, about Canada's underground economy. He said that a lot of the situations which caused the underground economy were for elected representatives to discuss and address. This is what we are doing today. My colleague from Mississauga South has proposed ways to address the problem I spoke about before the committee.

The underground economy has a great deal of strength in Canada. The exact size of lost revenue is unknown, with estimates ranging from $20 billion to $140 billion a year. What is known is that each time someone participates in the underground economy money to help pay for our programs such as health care or education is lost and will most likely never be recovered.

It is safe to say that we are taking money from ourselves by being part of the underground economy. We must ask ourselves what is causing this type of economy, one the Minister of Finance does not want to see grow. It could be the threat of taxes. It could be the problems with the Department of National Revenue. It could be the perception that the system is bogged down in bureaucratic red tape. It could be a lot of things. Is it the hated GST? For whatever reason it is real. The underground economy is alive and well.

I hear stories in my riding of Victoria-Haliburton about welding shops which have gone out of business and now operate out of a truck and only collect cash. I hear of car body shops that only deal in cash, buy their materials in cash and pay their employees in cash. It has been said that there are restaurants which pay students cash and tell them not to report it. Some people have told me of contractors who continually give two quotes, a quote for cash and a quote for the legitimate way. Furthermore, some people have actually removed their business listings from the phone book so they can work in cash.

I know a lot of these people were never tax cheaters in their lives, but they may have been forced into operating this way or feel they have to operate this way because they have been doing it for so long and penalties would be too harsh if they come out and operate honestly.

One part of the motion is designed to address the situation precisely. The second part of the motion is designed to give some relief or limited forgiveness on interest and other penalties payable when a taxpayer voluntarily declares previously undeclared income.

Be honest and you won't be punished is the message in the motion. Another part of the motion suggests educating the public about the problem and encouraging its participation in solving the situation.

Our tax system is based on taxpayers voluntarily filing and paying their taxes. It is probably the least expensive way for the federal government to collect taxes owing. However there are some who do not pay which gives some businesses an unfair advantage. In the long run, if every Canadian paid their fair share, we would be further ahead. Most important, we would be paying in a far fairer way.

Nothing is more frustrating for small businesses such as contractors bidding for a job to lose the bid because the competition put in a low bid and an under the table bid.

Another part of the information campaign deals with ensuring people realize the federal government, in particular the Department of National Revenue, is addressing the problem of the underground economy. In the future more people will be exposed for contributing to the underground economy and once caught there are some serious consequences to consider. Furthermore the information campaign must stress that jobs are lost when the underground economy flourishes.

Canada must begin to realize that doing things above board is in the best interest of everyone involved. At the same time this part of the motion calls upon us as a government to help to create an atmosphere in which doing things above board is acceptable. There are other ways to encourage people to do things above board and the third part of the motion touches on them.

The third and last part of the motion deals with giving tax credits to people who are doing home improvements or renovations. The idea is to diminish the two-quote system which already exists. It also creates a paper trail that can serve as a primary vehicle for the information campaign I mentioned earlier.

We as a government must make sure that society is not punished for being honest. We must create an economy in which hard work and dedication are rewarded. We do not want to send out a message that it is all right to operate in the underground economy because everyone else is doing it.

One of our priorities when we were elected was to focus on jobs and growth. The motion helps to maintain that message and I urge all members to support the idea of the hon. member for Mississauga South.

Underground EconomyPrivate Members' Business

6:05 p.m.

Reform

Bob Ringma Reform Nanaimo—Cowichan, BC

Mr. Speaker, I would like to speak to both sides of the motion presented by the hon. member for Mississauga South.

One positive side is that the member is looking for solutions to a problem. I endorse that. I encourage members to do that type of thing. The other positive side to the motion is that it reflects what many constituents are thinking. There are constituents who are saying that the present situation is unfair to legitimate business. There are other constituents who are saying that we can work our way out of it.

I refer to a letter from a constituent who came to see me in my constituency office in Nanaimo some weeks ago. His name is Gary Chandler. His thoughts were to give each taxpayer a new deduction on income tax which would represent 5 per cent to 10 per cent of taxable income for improvements to a principal residence. Canadians have more savings per capita than the people of most countries. The measure would free up enough of that money to reduce unemployment. It would also cut into the underground market as legitimate receipts would be required.

When I read the letter and talked with the gentleman I thought it was an attractive idea, that it was something positive to undercut the burgeoning underground economy. I am not an expert in this regard so I decided to find out what my colleagues in the Reform caucus thought. I passed it on to them and the caucus financial committee discussed it. They went at it in some detail. However they found that they could not support it for the following reasons.

First, they said the taxes that would be forgone by this type of exemption would make it quite costly. The next point they brought to my attention was that it would therefore be necessary to extend the same tax privilege to other areas such as car repair, small appliance repair and household appliance repair. All sorts of areas would stand in line and say: "Us too". Before we knew it we would have a whole series of exemptions that would affect the way we do business.

The third reason they gave was that it would move us, certainly as a party, away from our proposal for a flat tax system. A lot of Canadians are complaining about the tax system. We have to make it simpler and easier to understand. The forms have to be simpler and so on. This type of exemption would move us away from that area.

The final reason they could not support it was found when examining the reason for having the underground economy. This is the principal one. The reason we have an underground economy is the same reason my colleague pointed out a few minutes ago. The government's spending level is too high. Therefore the taxation level is too high. We keep pounding at that over and over again. We realize we have a $550 billion debt and it is growing. We have to do something about it.

The government is now taking some small steps toward reducing deficit spending. We do not feel it is enough, but it is the basic reason behind the fact that we have an underground economy. Unless we tackle that first we will not solve the bigger problems.

I compliment the member for Mississauga South for raising this initiative and for trying to solve the problems. While it is reflective of the thinking among constituents asking how to solve the problems, nevertheless overspending and the high taxation rate on the part of government must be overcome first.

Underground EconomyPrivate Members' Business

6:10 p.m.

Liberal

Jerry Pickard Liberal Essex—Kent, ON

Mr. Speaker, I commend the member for Mississauga South for his interest in bringing this important subject to the House. There is absolutely no question our Minister of National Revenue and members on both sides of the House are very concerned about the direction of our underground economy. The issue has the focus of all Canadians and is very important to all Canadians across the country.

The greater the activity in the underground economy, the less revenue there is for governments. Underground economic activity creates unfair competition for honest businesses. Jobs are lost and honest taxpayers are forced to pay more of an unfair system in taxes when the underground economy flourishes.

For many individuals and businesses the underground economy has become a convenient way to avoid paying taxes, not to pay their fair share. When these people take their financial transactions underground they are failing to support Canada's social and economic programs. These people do not pay for the services they use. Instead other Canadians are forced to pay more. Other Canadians are forced to pay for those who participate in the underground economy.

I am very surprised the member for Calgary Centre suggested and almost condoned the underground economy and gave reasoning for it. It is serious to all Canadians that no one condone the practice. It is certainly not morally sound or fair to Canadians.

People who deal in the underground economy may feel their financial situation justifies the actions. It may be because they have not had a raise in several years. It may be because they feel the taxes are too difficult for them to comprehend. It may be just because of basic greed. They see it as cheating the tax department. It is not a simple matter of cheating a victimless tax department. It is cheating friends, the people who live next door

and the people who do business in the community. It is cheating every Canadian, forcing them to pay more in an unfair system.

I ask members as well as all Canadians to consider the real cost of the underground activity. The cost is large. It shows up in reduced essential services, higher taxes than we would otherwise be paying, unfair competition and a reduced standard of living to the honest taxpayers.

How does the underground economy affect the legitimate businessman trying to be competitive? The Canadian Homebuilders Association is concerned. Home renovators who evade taxes have an unfair advantage over other home contractors. Right from the start, honest businesses are at a competitive disadvantage because they cannot offer the consumer the same deal offered by someone who will not collect the taxes. The end result is that legitimate businesses face unfair competition and jobs are lost.

We must not forget dishonest consumers. Dishonest consumers who take a lower price and pay cash are cheating the system. They are becoming party to the evasion of taxes. These same consumers benefit from a full range of government services but are not paying their fair share. All they have done is take part in the transaction which jeopardizes our health, education and other essential services. This is simply unfair and very short sighted.

The motion before us suggests the government educate the public and encourage its participation in addressing the problems. I agree Canadians need to know the facts about the seriousness of the underground economy and what it is doing to hurt Canadians. I also agree governments cannot solve the problem alone. We all must take part and fulfil our responsibilities.

The government has recognized solutions to this problem it is now facing are not in isolation by themselves. We must understand the problem and its consequences. It is for this reason that in November 1993 the Minister of National Revenue made education a fundamental element to address the underground economy.

During this past year, officials of Revenue Canada have actively been consulting with individuals and associations across the country. Revenue Canada is seeking support of groups and individuals throughout the country. With the Canadian Institute of Chartered Accountants, for example, the department established a working committee to investigate the causes of the underground economy, to examine audit techniques and identify training that would assist in tracking down unreported or under reported income and identify the opportunities for reducing the cost of the administrative burden for compliance for businesses and individuals.

These groups are taking the message of the risks of dealing in the underground back to their memberships. Every citizen and every business has a role to play in eliminating the underground economy. Individuals can start by refusing to deal with businesses and trades people who ask for cash payments. Businesses can do their part by turning down demands to do work off the books by making sure that does not happen.

To ensure everyone is aware the government is serious about prosecuting those who deliberately defraud the system, the Minister of National Revenue is publicizing convictions for tax evasion. The increased publicity has had a deterrent effect. The number of voluntary disclosures received by the department in which people have come forward to correct their tax affairs has doubled in the past year. In addition, the number of referrals received from people each year providing the department with leads on potential tax fraud has risen to about 19,000.

I am confident we are making the right progress in dealing with the underground economy and I am hopeful all Canadians and all members of the House will applaud the efforts of the member for Mississauga South for stimulating this debate in the House.

I urge members of the House to carry the message back to their constituents. I urge the members of the House to actively seek solutions for the underground economy and create a better and fairer nation for every business.

Underground EconomyPrivate Members' Business

6:15 p.m.

The Acting Speaker (Mr. Kilger)

The time provided for the consideration of Private Members' Business has now expired. Pursuant to Standing Order 93, the order is dropped to the bottom of the order of precedence on the Order Paper.

It being 6.20 p.m, the House stands adjourned until tomorrow at 10 a.m., pursuant to Standing Order 24.

(The House adjourned at 6.20 p.m.)