House of Commons Hansard #220 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was ethics.
Dick Harris Reform Prince George—Bulkley Valley, BC
Mr. Speaker, implicit in the response of the minister of Indian affairs to the question of the hon. member for North Island-Powell River was the suggestion Reform Party members in B.C. were responsible for the ongoing blockades in that province. I ask him to withdraw that comment.
Points Of OrderOral Question Period
The Speaker
With regard to what was said in question period, hon. members have been given a great deal of latitude both in the formulation of questions and in answers.
I hope all hon. members would consider when asking questions and giving answers to use rather more judicious language. In so doing, the hon. member's point is for debate. No hon. member was mentioned and it is not a point of order.
This concludes question period.
Government Response To PetitionsRoutine Proceedings
Kingston and the Islands Ontario
Liberal
Peter Milliken LiberalParliamentary Secretary to Leader of the Government in the House of Commons
Mr. Speaker, pursuant to Standing Order 36(8), I have the honour to table, in both official languages, the government's response to 17 petitions.
Lyle Vanclief LiberalParliamentary Secretary to Minister of Agriculture and Agri-food
Mr. Speaker, I wish to table pursuant to Standing Order 32(2), copies in both official languages of consultants' reports of the environmental assessment of the net income stabilization account and the crop insurance program.
These assessments were conducted to fulfil our responsibilities under the federal-provincial NISA and crop insurance agreements and as required under section 5(2) of the Farm Income Protection Act.
Warren Allmand Liberal Notre-Dame-De-Grâce, QC
Mr. Speaker, I have the honour to present in both official languages the ninth report of the Standing Committee on Justice and Legal Affairs.
Pursuant to the order of reference of Monday, March 27, 1995 your committee has considered Bill C-72, an act to amend the Criminal Code with respect to self-induced intoxication. After a series of meetings and witnesses your committee has agreed to report the bill with amendments.
This is Parliament and the government's response to the Daviault judgment of the Supreme Court of Canada.
Richard Bélisle Bloc La Prairie, QC
Mr. Speaker, I have the honour to present in the House the fourteenth report of the Standing Committee on Public Accounts. This report deals with the management of federal buildings. Their value has been estimated at between $40 billion and $60 billion, in 1985 dollars.
In its report the committee has included a series of recommendations for the Treasury Board Secretariat. The Auditor General concluded in his 1994 report that not enough attention was being given to managing federal property in accordance with Treasury Board guidelines.
Consequently, the public accounts committee has recommended in its conclusion that the Treasury Board Secretariat apply the policy directives set forth in its property management manual and ensure that they are complied with and their objectives are met.
Pursuant to Standing Order 109, the committee asks the government to table a comprehensive response to this report.
John Manley LiberalMinister of Industry
moved for leave to introduce Bill C-99, an act to amend the Small Businesses Loans Act.
(Motions deemed adopted, bill read the first time and printed.)
Charlie Penson Reform Peace River, AB
moved for leave to introduce Bill C-334, an act to amend the Canada pension plan (cancellation of benefits).
Mr. Speaker, the purpose of the bill I am introducing today and which I wish to table is to fill what I consider a gap in the Canada pension plan.
The bill will allow people who became disabled after they started drawing a retirement pension to cancel that benefit at any time before the age 65 so they can apply for a disability pension.
As the Canada pension plan reads now, a person receiving a retirement pension, which can be received as early as age 60, can cancel the plan only within six months of plan start up. My bill seeks to amend that.
(Motions deemed adopted, bill read the first time and printed.)
Bill Graham Liberal Rosedale, ON
Mr. Speaker, it is my pleasure to present a petition requesting discrimination against same sex relationships be removed by amendments to the human rights act.
I endorse this petition. I have four petitions to that effect which I would like to table in the House.
Robert Bertrand Liberal Pontiac—Gatineau—Labelle, QC
Mr. Speaker, pursuant to Standing Order 36, I present a petition on behalf of the constituents of Shawville, Quebec, dealing with a social issue, requesting that Parliament oppose any amendments to the Canadian Human Rights Act or the Canadian Charter of Rights and Freedoms which provide for the inclusion of the phrase sexual orientation.
Chuck Strahl Reform Fraser Valley East, BC
Mr. Speaker, I have the honour today to present eight separate petitions, still protesting against Bill C-41. These are in addition to the 19 I have already submitted to the House on the same issue.
Today there are another 553 of my constituents concerned about Bill C-41 and the undefined phrase sexual orientation which they feel will set a precedent in federal legislation. They are quite concerned about that.
They are also concerned that Bill C-41 will establish a dual standard of justice by punishing identical crimes with different sentences.
I am happy to concur with the petition.
Jean Payne Liberal St. John's West, NL
Mr. Speaker, on behalf of the workers at the Newfoundland dockyard, I am pleased to present a petition signed by over 30,000 Newfoundlanders.
The undersigned residents of Newfoundland draw to the attention of the House that the dockyard has provided significant employment in St. John's and surrounding area for the past 112 years. It has employed 850 people with an income and payroll of over $26 million.
Therefore the petitioners call on Parliament to cease all efforts to sell or close the Newfoundland dockyard and provide the necessary capital to retool the dockyard with new equipment so the jobs of these many Newfoundlanders that are desperately needed will be ensured.
Jean Augustine Liberal Etobicoke—Lakeshore, ON
Mr. Speaker, pursuant to Standing Order 36, I wish to present a petition on behalf of the Religious Faith Community supporters and members, who call upon Parliament to put an end to
discriminatory treatment in Canada of gay and lesbian citizens in their familial relationships by amending federal legislation that currently allows unequal treatment.
Len Hopkins Liberal Renfrew—Nipissing—Pembroke, ON
Mr. Speaker, I have a petition signed by many Canadians expressing a deep interest in the Canadian Armed Forces.
Our petitioners request that Parliament, at the earliest possible time, initiate a wide ranging public inquiry, replacing many being convened piecemeal, into the Canadian Armed Forces, including the reserves, which will investigate, report, and make recommendations on all matters affecting its operations, tasking, resources, effectiveness, morale, and welfare.
John Bryden Liberal Hamilton—Wentworth, ON
Mr. Speaker, pursuant to Standing Order 36, I am pleased to rise in the House today to present a petition with over 2,800 signatures from my constituents in Hamilton-Wentworth calling on Parliament not to support the closure of Mount Hope, the Hamilton weather office, since it would adversely affect the safety of both aviation and marine operations as well as the agricultural community, local businesses, and recreational interests.
This is a very fine facility at the Hamilton airport and I fully endorse this petition.
Paul Szabo Liberal Mississauga South, ON
Mr. Speaker, pursuant to Standing Order 36, I wish to present a petition that has been circulating across Canada.
This particular petition comes from the Bolton, Ontario, area. The petitioners would like to draw to the attention of the House that managing the family home and caring for preschool children is an honourable profession, which has not been recognized for its value to our society. They also state that the Income Tax Act discriminates against families who make the choice to provide care in the home for preschool children, the disabled, the chronically ill and the aged.
The petitioners therefore pray and call upon Parliament to pursue initiatives to eliminate tax discrimination against families who decide to provide care in the home for preschool children, the disabled, the chronically ill and the aged.
Questions Passed As Orders For ReturnsRoutine Proceedings
Kingston and the Islands Ontario
Liberal
Peter Milliken LiberalParliamentary Secretary to Leader of the Government in the House of Commons
Mr. Speaker, I would ask that all questions be allowed to stand.
Questions Passed As Orders For ReturnsRoutine Proceedings
The Deputy Speaker
Shall all questions stand?
The House resumed from June 15 consideration of the motion that Bill C-70, an act to amend the Income Tax Act, the Income Tax Application Rules and related acts, be read the third time and passed.
David Walker LiberalParliamentary Secretary to Minister of Finance
Mr. Speaker, today we are in third reading of Bill C-70. As I outlined when I spoke previously, the intention of my speech is to encourage the House to accept the final reading of this in the House of Commons as quickly as possible and to outline in a very factual way what the act intends to to do. It is related to the budget of 1994. This is one of two bills that deal with the amendments to the Income Tax Act.
In addition to what I outlined previously in the House, new rules are provided for debt securities that are not required to be marked to market. These rules deal with the measurement of income while the securities are held and the treatment of gains and losses on disposition.
Bill C-70 also amends the rules for the taxation of resident shareholders of foreign affiliates. This action is being taken as a result of the government's ongoing monitoring of developments in this area. The changes expand the categories of income of foreign affiliates that must be reported as income of their Canadian affiliates. Another modification prevents the use of an affiliate's foreign active business losses to reduce Canadian shareholders' income. This change also protects the Canadian tax base. The amendments are generally effective for taxation years commencing after 1994.
There are also a number of measures that were announced after the 1994 budget. These include six new tax measures that I would like to outline briefly.
First, this bill addresses the issue of eligible prepaid funeral and cemetery arrangements. Under this legislation individuals making such arrangements will not have to declare interest on their deposits up to a $15,000 maximum contribution as income, provided the deposit is not withdrawn for other purposes. The provider of eligible funeral and cemetery arrangements is, however, required to include in income the total amount received from an eligible arrangement.
Turning to the next measure, the bill proposes that real estate trusts with publicly traded units be allowed to qualify as mutual fund trusts. This measure responds to representations from the real estate sector, which is interested in expanding the available methods of financing real estate. We believe the proposed change will facilitate the restructuring and refinancing of this sector.
The third of these post-budget measures is a measure that will help mutual funds to reduce overhead costs and improve services to investors. These amendments will allow mutual fund corporations to convert to mutual fund trusts on a tax free basis and also allow tax free mergers of mutual fund trusts.
This bill also proposes new rules to speed the resolution of objections and appeals, particularly by large corporations. Large corporations will now have to specify the issues under dispute, the amount of relief sought, and the facts and reasons for objecting. The rules also limit the ability of large corporations to raise new issues in a notice of objection where the objection relates to reconsideration of an assessment. However, new issues raised by Revenue Canada on such reconsiderations may still give rise to a notice of objection.
In addition, the legislation will ensure that the new requirements relating to the notices of objection will not apply to assessments that have been appealed to courts before this legislation receives royal assent.
The final measure I want to highlight deals with the tax treatment of dividend compensation payments and other amounts connected with securities lending.
The Income Tax Act currently provides that the lender of securities not be treated as having disposed of the securities under these arrangements. As well, payments to the lender as compensation for dividends are treated as dividends in the lender's hands. While these dividend compensation payments are generally not tax deductible, a special rule established in 1989 allows security dealers to deduct two-thirds of such payments. This legislation extends the use of the two-thirds rule, thus ensuring that our securities industry remains competitive. However, the deduction of these payments will be somewhat limited.
I can assure hon. members that the government will continue monitoring these measures to make certain they can operate effectively.
Other changes clarify the effect of certain dividend rental arrangements and the meaning of securities dealers registered or licensed to trade in securities for the purpose of the Income Tax Act.
In closing, Bill C-70 amends the Income Tax Act effectively and equitably. It seeks to better target tax assistance delivered to certain business sectors while at the same time broadening the tax base and thus protecting government revenues. The legislation contained in this bill also clarifies a number of important issues related to the act.
Given all this, I have no hesitation in encouraging all of my hon. colleagues to support this bill.
André Caron Bloc Jonquière, QC
Mr. Speaker, I am pleased today to speak on Bill C-70. I am pleased because, first, I thought the government was going to talk about tax reform in Canada with this bill, an act to amend the Income Tax Act, the Income Tax Application Rules and related Acts.
Like many Canadians, I think Canada's tax system should be changed significantly, if not completely overhauled. So, I thought, perhaps very naively, that the Liberal government was going to do its homework. Why was I so hopeful? First, in part, because I had read the red book. The red book promised tax equity and that those who had taxes to pay in Canada would pay them.
From what I can see, the book has faded. We hardly ever hear mention of it. At the start, last year, I remember seeing this book resplendent in all its redness on the desks of the members opposite. Now, from what I can see, the red is more likely on the faces of the members. Some members are looking embarrassed at the outcome of the Liberal's election promises.
Let us look at what we were supposed to have in Canada. We were to have jobs; we were to have tax equity. There are no jobs; the jobs we lost were not even replaced. As far as tax equity is concerned, we may have it next year, or maybe in two, ten or twenty years, from what I can see.
It is true that there is a very strong lobby on behalf of those who do not want reforms in Canada, those who are benefiting from the existing tax situation. I remember a debate on this a few weeks ago. One Liberal member naively said that change was slow. He himself had proposed a reform, but he knew that change was slow because of the strong lobby of the well heeled, who benefit from the weaknesses of our tax system.
I am delighted to see that a Liberal member who has been in the House much longer than I can confirm what we in the Bloc already knew. However, Canadian taxpayers really want tax reform.
If we look at the papers and talk with our constituents, we realize that people are not happy with the present tax system. Looking at the size of the bill before us, which contains perhaps 200 pages, I naively thought that the measures proposed by the Minister of Finance would be quite substantial, at least as
substantial as the size of the document itself, but I realized-and will try to demonstrate to you-that what the minister came up with falls far short of real tax reform.
It is not only taxpayers but also experts who are demanding changes. Canada's tax system-which over the years has been modified by legal precedents and amendments, by new regulations, and by various interpretations of the legislation in effect-has led to the emergence in this country of various tax experts and consultants, who help large corporations and wealthy individuals get around the Canadian tax maze to avoid paying their fair share.
The experts themselves tell us-I read a few newspaper articles-that Canada's current tax system is very confusing. A mother cat would lose her kittens in such a maze. There are various interpretations. There are people who manage to get around the system without paying their fair share, simply because the tax structure has become so complex that no one can find their way around it, except for experts who take advantage of this situation by directing work to their firms, which charge substantial fees and often engage in lobbying activities.
The hope I had has been dashed. This hope, which was reflected in the red book, shared by the public and confirmed by the experts, has been thwarted once again.
For the information of the people listening to us, or the colleagues who were perhaps not paying attention and who may not have noticed, the bill before us, Bill C-70, implements measures proposed by the Minister of Finance in his 1994 budget. On this day of June 1995, we are here in this House to discuss tax measures that were proposed by the minister in February 1994. It is obvious that, if we wait for the minister to speed up tax reform, we will wait for a long time.
If we take a look at the clauses now, we could say that the minister has made an effort and that at least there will be a few amendments to the Income Tax Act that will bring us closer to a comprehensive reform. All those who listened to the parliamentary secretary to the Minister of Finance speak before me will have realized that this was not the case.
What, essentially, do we find in this document? We find a few rather trivial reforms which are just a drop in the bucket, when what the Minister of Finance should really be doing is delivering on the Liberal government's promise of a fairer tax system for Canada.
So, when we look at these measures, those which, in my opinion, have the greatest impact are the provisions exempting from tax the interest earned on prepaid funeral arrangements. Some Canadians have been more prudent than the governments of recent years. Figuring that one day they will die, they are prepaying their funeral expenses. These amounts generate interest, with the result that the Minister of Finance has devoted a great deal of attention in this close to 200 page bill to this issue. It is one of the five or six measures in the bill. Funeral expenses are tax exempt.
There are other proposals for exemptions, such as tax-free arrangements for mutual fund corporations. These are also very interesting, but we are still talking about people who will not be paying taxes. This is perhaps as it should be, but it does not augur well for tax credits, and I will come back to this a bit later. The bill deals with exemptions for those who invest in mutual funds, as well as foreign affiliates.
When I saw these words, I said to myself: "At last, the Minister of Finance is going to tackle tax havens". I saw the word "foreign" and I said, "Now we have it, the Minister of Finance is proposing a measure on tax havens". I will come back to this shortly. But no, it was merely a question of what shareholders are required to report. These are trivialities.
The bill also talks about debt forgiveness and objections on appeal. Large corporations who object to their assessments will have to be more specific. Is it really important for the Government of Canada to deal with this issue in the bill now before this House and provide for special measures ensuring that large corporations file their claims promptly concerning the taxes they owe? Certainly, I have no doubt about that.
These large corporations include Seagram, Power Corporation and all those we keep hearing about during question period or bumping into at private dinners hosted by the heritage minister. The fact remains that, in view of the situation and the need to reform our tax system, it is rather pointless to put forward amendments such as these. It figures that the government would present them on a Friday, in the absence of the Minister of Finance, because we would see him turn redder than usual, with embarrassment no doubt, because he is calling on the Parliament of Canada to consider such pointless measures, when the Canadian tax system needs to be revamped.
Tax reform is required in Canada and we will try and take a closer look at that. I would like to start by clarifying a point. I read in La Presse today the famous annual announcement issued by the Fraser Institute. It said that we will be starting to work for ourselves next Sunday.
As you know, the Fraser Institute is a group of right wing, ultra-conservative economists funded by unknown sources. In fact, I think that we know and perhaps we should say that it is backed by large corporations, which stand to profit from measures like the ones before us today and certainly claim a tax exemption for their contributions to the Fraser Institute.
The Fraser Institute calls itself an institute. It may look like an extreme right or conservative lobby, but it calls itself an institute. They are telling us that every one of us, in this House and throughout Canada, has been working for the government so far this year, but that we will now start earning money for ourselves.
They are telling us that we are overtaxed, that the government is rifling through our pockets. You see what I mean. They seem to want to have us believe that no one pays for the services available in Canada, be it health, education, national defence, infrastructure, highways or what not, and they benefit no one in Canada. These people come and try to peddle the idea that the money paid in taxes by Canadians is actually money being stolen from them.
Before going any further, I would like to denounce such pronouncements. Taxation is a very serious subject that is tied to the very nature of democracy. We live in a democracy where the government provides services, and these services must be paid for by all taxpayers who, through their members of Parliament, vote on a budget that will allow the Minister of National Revenue to raise, in the form of taxes, the money required to pay for these services.
I think no one in Canada, except the people at the Fraser Institute and their ilk, would criticize this system. We receive services, and the government has to pay for the services it provides. People are prepared to pay taxes. When they go to the hospital or send their children to school or university, they realize there are certain costs involved, and they are willing to pay their share.
They are willing to pay their share, but they want their tax assessment to be fair and equitable. The first question is whether in Canada as a whole, we are being overtaxed. Should we repeat the Fraser Institute's mantra and say it does not make sense, we are overtaxed, the government should withdraw from everything and should pay no taxes at all? In the end, this would mean there would be no more government.
When there is no more government, we no longer have a democracy but a feudal system. The Fraser Institute and people of their ilk want to take us back to the middle ages when someone would conquer a territory and be given the title of duke, count or prince. He would then raise taxes, not to provide services but more often to provide a rich dowry for his daughter who was supposed to marry his neighbour, who had also managed to impose his rule on part of the population. In the end, this is the law of the jungle, and that is not what we have in Canada.
Are we overtaxed? I will not answer that question, but I will make a few comparisons. If we look at the figures and compare them with other OECD countries, in other words, the 25 richest countries in the world, in 1992, our tax rate was about 36 per cent of GDP. That sounds like a lot, but is it really when we compare it with the tax rate in other countries? It is easy to say we are paying too much, but we have to find out whether we are paying too much, compared with what other countries are paying. There are no absolutes in economics. Everything is relative.
I do not want to insult anyone here who is an economist by profession, but in economics, we often realize that everything is relative, even the results. We often see economists contradicting their colleagues, and in the end, we realize that some economists are more accurate in their predictions than others. There are certain basic principles that economists ignore at their peril.
In the Scandinavian countries, the tax rate is not 35, 36 or 37 per cent as in Canada, but 45 per cent. That is quite a bit. In Germany and Italy, between 40 and 44 per cent of GDP goes to taxes. Compared with other countries, Canada is about average. This is not the disaster described by extreme right wing parties that think government should get out of everything and stop providing services in the areas of health care and education and let the law of the jungle prevail.
These people use a certain ideology based on certain principles to mislead the public so that people start to challenge the government's right to raise fair taxes.
I say that we are about average among industrialized countries and that taxation is not the main problem. We have to see where the problem is. I think the real problem is that the tax burden is poorly distributed in Canada. Some people do not pay enough taxes and some people pay too much.
This is why I was asking earlier and expecting tax reform. I hope my children will perhaps see tax reform in Canada. When Quebec becomes independent, we will have an eye on the world. We will be reading papers like the Toronto Star and the Globe and Mail , and I hope to read that Canada has finally started its tax reform.
How is the tax base distributed in Canada? With a brief look at history, we will discover that taxation is a matter of choice. It is a political choice. Someone somewhere decides a tax will be levied in one area and not in another. A choice is made.
I have consulted a number of books on individual and corporate taxes. In passing, I noted that, among the countries in the G-7, Canada has one of the lowest tax rates. The members of the G-7 are meeting in Halifax. It is a beautiful city that I had occasion to visit a few years ago. I reached the same conclusion as the Quebec journalists: it is an English city.
In 1950, personal and corporate taxes in Canada were comparable. The rate was 28 per cent for individuals and 27 per cent for corporations. These were the federal tax revenues. Now, individuals are taxed at the rate of 48 per cent, corporations at 7 per cent.
As you can see, personal income tax has increased, while corporate taxes have decreased, and I am not counting here the effect of the GST and the QST. We can see that we have moved from a situation in the 1950s where there was a certain balance between personal and corporate taxes to today's imbalance.
Our first reaction is to say: "Tax the corporations". We will talk about this in a few minutes, but, before we look at what is going on with corporations, let us look at the situation of individuals. There are things worth considering.
I am not necessarily making any proposals; I am trying to channel our thoughts to avenues which could be of use to the Minister of Finance or the finance committee or the next Liberal Party committee in line to issue a red book or a red and green book, because I have no idea how to define the colour of the Reform members. However, I do feel that, at some point in the future, the colour red and the colour of the Reform Party will be mixed together. What will be the new colour?
André Caron Bloc Jonquière, QC
According to one colleague, it will be drab. I have the feeling that the next book will be the Liberal Party's drab book.
There are, I must say, some avenues which are worth exploring. Individuals. They are always telling us that we have to be careful with personal income taxes because, if we tax the rich, they will have less money, less money to invest. We have to be very careful. But I think that we still have to look into these possibilities. A dollar is a dollar. But, we have noticed that a dollar earned through employment is taxed more heavily than a dollar earned through capital gains. In Canada, people with money and who invest it, pay less tax on the money they earn on their investments than people who are salaried and on fixed incomes. Go figure. Is a dollar worth a dollar or are some dollars worth less than others under the current tax system?
Canadians have the impression that the tax scale is progressive, that everyone pays taxes. That if you earn $50,000, you pay a certain amount and if you earn $100,000, you pay twice that. This is not how it works. In 1992, based on figures I have seen, 2,000 Canadian taxpayers who had earned over $100,000 did not pay any income tax. How can these people not have paid tax? It could not be that they hid income from the tax people. I am sure that all citizens in that tax bracket are honest citizens who would promptly pay any amount owed to Revenue Canada. The fact remains that they did not pay any tax. This was made possible by all the tax credits, the many credits they could take advantage of. There were people investing in real estate, and others investing in movies or research. Anyone who had money started investing, with the result that a number of them ended up not paying any tax.
We could say good for them, if they were clever enough not to pay tax and were not doing anything illegal, all the better for them. I guess we could say that. However, there is a downside to that. I had noticed it in my region and I have friends who have looked into this whole thing. They are middle class people, earning between $40,000 and $50,000 a year, and they were wondering why the system was benefiting the rich and not them. Lawyers and accountants set up all kinds of limited partnerships from which people could borrow in order to invest, get a tax deduction on part of this investment and then repay their loans. In the end, they managed to divert money from taxation like the rich.
The downside of this is that, in many cases, the investors found that the properties selected by the limited partnership were not worth as much as they had been told. So, they lost money. They lost money in order to save on income tax. In fact, they took money owed the government to pay for services, and the only ones who benefited from all this seem to be those who set up some limited partnerships or made certain arrangements allowing some people to divert money from the taxman.
Finally, here in this House, the opposition questioned the Minister of Finance about people who had invested in research and development for that purpose. In Canada, the motto in tax matters is "save on taxes". These people, who usually came from the middle class, borrowed money to receive tax credits.
With these tax credits, it is always the same system. People take money from the government and manage to get tax credits, but the ultimate winner is the initiator of the financial scheme, the company that put forward phoney research projects. The bottom line is that these people end up with nothing.
The Department of Finance straightened some of this out. It realized that some of these companies were not seriously into research, and the credit was denied. You may say, "People knew that the government could go back three years for all these things", but the fact remains that these people got hooked because there is a belief among Canadian people that those with money can save on taxes.
I think that this is a prime example of a tainted system in which people who cannot afford to invest in sectors eligible for tax credits are urged to do so through all kinds of scams and end up being taken for a ride. I think that the Minister of Finance should look at tax shelters and tax credits for an explanation of why so many people in Canada do not pay taxes.
If this is legitimate and normal, the minister should tell us so and, if not, he should take the measures needed to correct the situation. I have some figures here. From 1984 to 1992, taxes paid in Canada by middle income households increased 6.7 per cent, compared to only 3 per cent for households with incomes
of $150,000 and over. Again, it is the middle class which is really paying the tax increases, while those with a higher income are taxed less. Some might say: But listen, 6 per cent of $50,000 is $3,000, while 3 per cent of $150,000 is $4,500; consequently, the rich are paying more. However, this is not the way things work.
With this system, the rich get richer, while middle class people see their taxes go up every year. This is not normal, and I think that the Minister of Finance, or a Liberal caucus committee, should take a close look at these issues.
And now, on to another topic. Recently, during the French presidential campaign, I read something about taxes on personal wealth. Candidates in France and elsewhere, and this may become the case here some day, have to make a statement of their financial position. In France, there is a tax on personal wealth.
It seems that such a tax existed in Canada in 1972, but it is no longer the case. We are apparently the only OECD country which does not tax personal wealth. Consequently, very wealthy families and individuals continue to get richer; yet, the Canadian government is not even considering taxing such wealth.
There are other things too. I will not go back to the issue of family trusts. We talked about it during the election campaign, and we raised it many times here, during question period. The Minister of Finance finally did something about it in this year's budget, not last year's budget, which is currently in effect.
So, this year's budget includes a provision on family trusts in which the minister made some changes to the rules. However, these changes will only come into effect in three or four years, thus giving time to the tax experts to find another way to exempt rich families, not to mention the possibility that a successor to the current finance minister could provide another tax shelter so that these rich people would avoid having to pay taxes.
Consequently, you see rich taxpayers who do not seem to be paying taxes when they should. There are people with large personal fortunes who never pay taxes on that wealth.
Some people can set up family trusts for the benefit of their descendants, maybe not for ten generations but just the same, this raises questions.
So something can be done in Canada about personal income tax. I disagree with what the former president of the United States, Mr. Reagan, used to say, that if they stopped taxing the rich, the rich would invest. Mr. Reagan tried it, but the rich did not invest. The rich went on accumulating their wealth, because that is what they do. They do not necessarily invest. And when they do, they usually invest with borrowed money, with other people's money.
As far as corporations are concerned, I think it is obvious that the corporate tax system in Canada must be changed, because corporations receive extremely preferential treatment. They will tell us-and I heard it said this morning by the Parliamentary Secretary to the Minister of Finance-that you have to be careful, that corporations must remain competitive. So their taxes should not be too high. Their tax burden should not be too heavy.
Mr. Speaker, do you know which G-7 country has the highest tax rate? Japan, apparently. Would anyone in this House claim Japan is not competitive? Competitiveness is not just a matter of taxation, it is something else. And people who use being competitive as an excuse not to pay taxes are definitely misleading the public.
We saw a very obvious example of this recently in Quebec, where the Quebec government wanted, in fact it still wants, to introduce a 1 per cent payroll tax for businesses with a certain number of employees, to oblige them to provide vocational training. Ghislain Dufour, the Quebec equivalent of the Fraser Institute, perhaps not the equivalent because Mr. Dufour does not qualify as an institute, and I do not think he is eligible for a tax credit, Mr. Dufour said: "Quebec corporations will be less competitive. It will be harder to compete. It does not make sense". A corporation with a payroll of let us say $500,000 would pay 1 per cent, which works out to $5,000. So the corporation is supposed to go bankrupt because it has to pay an additional $5,000 for vocational training for its employees?
In Canada, corporate taxes are too low. In 1987, 90,000 corporations did not pay income tax in Canada. Not bad. In 1991, it was 77,000. Incredible. Granted, some corporations may not be doing that well and so they do not pay income tax, but I would say that one-third of corporate profits in Canada are made by corporations that did not pay taxes. So these are not companies with two or three employees that are leading a hand-to-mouth existence, these are companies that made a profit and thanks to certain measures in the Income Tax Act, manage to avoid paying income tax. So this raises a lot of questions.
It raises a lot of questions for people who have no access to tax shelters and who pay income tax on their weekly pay cheques. How disgusting. There is also the whole issue of deferred taxes. Businesses, billion dollar multinationals established in Canada, are able to put off paying taxes from one year to the next through tax deferral. There will always be a point where their profits are lower, therefore, they will be able to pay less tax, etc. These are all things that make us wonder, and that give us the right to question the Minister of Finance regarding the legitimacy of this system.
The Bloc has also talked about tax havens. The Bloc finance critic has raised this issue with the Minister of Finance many times. He has asked him questions as Minister of Finance and perhaps as a first-hand tax haven expert. It is well known that Canada's Minister of Finance stopped managing his own affairs when he came to office, got in to politics.
The Minister of Finance used to be notorious for letting his financial affairs be conducted under a different flag than the maple leaf. Some companies open up in reputable countries, often very old countries, like Cyprus, Malta, Barbados, or even in countries quite far south, close to Australia, like Papua New Guinea, Panama. There are even Canadian companies which have set up shop in these areas. They have offshore subsidiaries in places like Cyprus, Malta, etc.
There are certainly people in these areas who can afford to buy the goods produced by the Canadian factories with subsidiaries there. However, I cannot believe, for instance, that all the 20,000 or 30,000 companies registered in Panama are there for the climate, for the location half way between the Atlantic and Pacific Oceans, and because this is good for business.
We have only to think back to the scandal following the death of Mr. Irving, so well known in New Brunswick, who moved most of his businesses and who specified in his will that his children in Canada would be cut off if they did not set up in tax havens.
When you are the Minister of Finance and you see Canadian companies setting up ghost subsidiaries abroad and you know all about tax havens and you do nothing, I think you are shirking in your duty.
This proves that it is time for a good clean-up, a thorough tidying-up of the Canadian tax system. I think we have to review the agreements we have with 16 countries on tax rates and other tax matters. The official opposition has often called for such a review. The minister's reply is that the matter is under consideration and, given Canada's competitiveness and the current situation, we are in the best of all tax worlds. I do not think this is the case.
The Bloc will obviously vote against this bill, not because the measures are so awful in themselves, they are Canadian measures for the Canadian tax system, that is to say they cloud the situation a little more, and the system will be muddier and muddier.
Finally, I think the Income Tax Act is a little like the country. I do not want to get into a demagogic diatribe on how Canada's situation compares with the Income Tax Act. What is the Income Tax Act. It is a heap of tax measures with more measures piled on every year. No one has gone through it; no has organized it.
People have called for change, and the answer has always been no. So now we have a jungle of an Income Tax Act where the strongest manage to inch their way through and impose their rule and where, often, the people who earn their living and do their best are unfairly taxed. I think the government has to propose a tax reform. Canadian taxpayers deserve it.
Ray Speaker ReformLethbridge
Mr. Speaker, certainly the Reform Party will not be supporting Bill C-70 at third reading for a number of reasons.
With regard to the comments of the member for Jonquière and the presentation we heard for the last 40 minutes, I can understand completely why the economy in Quebec is in trouble. I can understand completely why the credit rating of Quebec was downgraded last week.
We hear the left wing, socialist diatribe about more spending by government and about punishing those who have achieved in society to the point where they have accumulated some kind of wealth to reinvest, have created jobs and have paid a major portion of the taxes that often goes to support people who want to work on the public purse in universities or at other public jobs. Who creates the revenue to pay for those jobs and to improve quality of life? Who creates it? Who takes the risk? When people take the risk, does the government have a responsibility to punish them more, to raise taxes, or to take it away from them? Are they bad people in society?
The Canadian economy was built on people using their initiative, having freedom, having the right to take risks and to lose their funds and lose respect in a community within the market system.
Those members want more legislation. They want to take money away from someone else. They want to depress the economy. The obvious result is what we see in Quebec. We also see the results in Canada.
We have had 20 years of governments thinking it could improve the economy of Canada by spending more, by increasing the level of expenditure. What has happened? It has increased the level of debt. Every year we are in a deficit position. Today it is out of control. We have inflation that is out of control, an issue that I raised in question period today. I have not received an answer to that question. We have a dilemma with the Bank of Canada. It is going to be very difficult.
The Reform Party has an answer which I will talk about today. It is time somebody said something. It is unfair that members of the Bloc Quebecois hide behind their separatist cloak. The people of Canada do not know they have a second characteristic. They think they are most likely free enterprisers. Not only do they bring to the House separation and the breakup of Canada,
but they bring socialist diatribe into the House that has ruined the country in the last 20 years. We do not need any more of that.
I am very disappointed in the words that were spoken. We have a free society. The House is a place for everybody to present their views. I will always support that. When I do not agree with something I have the right to stand and say so.
Bill C-70 brings in changes to the 1994 budget, which was a disastrous budget for the government. It came here ill prepared and presented it to Canadians. We are living with the ill effects of its poor planning, its partisan politics when in opposition, and its lack of action in the 1994 budget. Unfortunately Canadians will feel the ill effects.
The legislation is a perfect example of why we need to simplify the Income Tax Act and have a flat tax as my hon. colleague from Calgary Centre is calling for. We in the Reform Party support him.
I guarantee that even accountants will find it difficult to understand the contents of Bill C-70. Fortunately my colleague from St. Albert is an accountant. The other day he addressed the specifics in second reading of the bill. I want to spend my time talking about the budget from which the bill flows. It was the first Liberal budget that unfortunately announced the government's plan to add $100 billion more to the federal debt over a period of three years.
More important, I want to talk about the outcome of the 1994 budget and its implications for us today. The Prime Minister and the government keep insisting things are fine, the economy is growing and there is nothing to worry about. If this is the case why did Moody's downgrade our credit rating this year?
Moody's decided that Canada was a greater risk than when the government took office. After 18 months it has not convinced any investors in the country that it is serious about putting its fiscal house in order. It has presented two budgets in which it had the opportunity to announce a medium and a long term strategy to bring about deficit elimination and debt reduction. The government has failed to do that and has caused all kinds of serious implications for the economy.
It has had almost two years to come up with a plan to balance the budget by a specific date, but it has refused to do so after many questions by the Reform Party. The only commitment we have is that the Liberal government will bring the deficit to 3 per cent of GDP. That is an easy one, but it may change. With inflation changing and with interest rates doubling, it could make it very difficult.
What has the government's fiscal plan as announced in its first budget achieved to date? Members of government will say that it has resulted in economic growth and job creation. However the growth has occurred in spite of the government's plan, not because of it, and for the past six months there has been no growth at all. Employment levels have not moved in months and the economy actually shrank in both March and April.
The government's soft fiscal policy has had three important impacts on the economy. First, it has led to a rapid depreciation of the value of our currency. Second, it has forced the Bank of Canada to keep interest rates dangerously high. Third, it has allowed inflation, which was all but dead when the Liberals arrived in office, to pull itself up off the canvas. Once again it has become a major concern to investors and Canadians.
Let us look at what happened to the currency. When the Liberals came to office the dollar was traded at 76 cents U.S. By January of this year it had fallen to 70 cents. It has only managed to struggle back to the 72 or 73 cent range due to the support provided to it by Bank of Canada Governor Gordon Thiessen. It was not the action of the government. It was the Governor of the Bank of Canada who took action to make it happen.
However this is not the whole story. While declining only modestly versus the American dollar, our currency has done much worse versus other major world currencies. Since the release of the government's first budget our dollar is worth 23 per cent less in terms of the mark and 25 per cent less in terms of the yen.
Why is that bad for Canadians? There are two very key reasons. The first is that imports become more expensive. To show just how big a difference it makes, our fall versus the yen means that a Sony camcorder which cost $3,900 last year will cost $4,800 or an extra $900 in one year. The second is that it leads to inflation. As we saw in the camcorder example the prices of imported goods are jumping rapidly, which places upward pressure on the consumer price index. We learned today that inflation in Canada is now running at 2.9 per cent.
Let us talk about high interest rates. The impact of the budget on interest rates has been no better. When the Liberal government released its first budget in February 1994 short term interest rates were under 4 per cent. It is only in the last six weeks that they have fallen below 8 per cent. In other words interest rates have doubled in the space of one year. That is a record. I would say to the hon. House leader of the Liberal Party who spoke today that should be a concern with regard to the budget.
This is having a significant impact on our economy, particularly those sectors which are highly sensitive to interest rates. For example, first quarter housing starts fell 18 per cent reaching their lowest level since 1982, while housing resales fell by over 40 per cent. Automobile sales are also off significantly, down 10 per cent from last year's pace. Not only are these high rates hurting the private sector, the federal government has been the biggest loser having to pay an additional $1.8 billion in interest for every 1 per cent of interest increase.
The consequences were brought home in the government's second budget, which showed that debt servicing costs or interest payments will rise by $8 billion in the next year to a total of $50 billion.
That $8 billion as an increase almost completely wipes out the effect of all of the spending cuts that came from the government's program review and carried out by the hon. minister who is here with us. That was a good idea but the government has not controlled the interest rates and we are in trouble.
The finance department's Fiscal Monitor that came out this week notes that the public debt charges for March were up 27 per cent and were $4 billion higher than the year before. This is a 27 per cent increase, which is very significant.
I would like to talk about inflation. That is the newest problem facing the economy here today. It results directly from the soft fiscal policy announced in the government's first budget. That is where the problem is. It is a resurrection of these inflationary pressures.
In the last year, inflation rose from .2 per cent to the present level of 2.9 per cent and it is clearly threatening to escape the 3 per cent target band set by the Bank of Canada. This means that the Bank of Canada Governor Gordon Thiessen is facing a very difficult decision. If he chooses to support the value of the dollar and contain inflation within its 1 to 3 per cent target band, he will be forced to raise interest rates. As I mentioned earlier, any further increases will hit both the government and the economy very hard.
On the other hand if his concerns for the economy prompt the governor to lower interest rates, then the dollar will continue to fall and the inflation genie will escape from the bottle. This in turn will lead to higher, longer term interest rates as expectations of future inflation are priced into the bond market in a vicious cycle in which there can be no winner.
I would like to remind members of what happened the last time we entered the vicious cycle. It was in the late 1980s and early 1990s when the Liberals were in opposition. All through this period, the Liberals used the former Bank of Canada Governor John Crow as their whipping boy due to his tough stand on inflation.
As we know, they released him after they came into government. They demanded that he lower interest rates to prevent the economy from slipping into a recession seems fairly straightforward in terms of economic policy. What happened is that it eventually did.
Whether they realize it or not, the Liberals criticized the wrong man. It was not the tight money policy of John Crow that caused this recession, it was the chronic deficit spending of the former Conservative government.
The point the Liberals missed in opposition and are missing again now that they are in power is the government has two instruments with which to influence the interest rates, inflation and the dollar.
First, monetary policy as carried out by the Bank of Canada plays a very important role but it is not the only player. The government must also shoulder some of the burden through its choice of fiscal policy. That is the primary instrument which must be used to deal with the problems in the country.
What happened in Canada under the Conservatives is that a fiscally irresponsible government ignored its own responsibilities, effectively forcing the Bank of Canada to carry the ball single handedly.
I am warning the government today to not make the same mistake as the Tories. We cannot afford to let that happen. I hope the Finance Minister and his colleagues will have enough sense to provide the new governor with support in order to keep the lid on inflation and to bring down interest rates.
If the government does not reverse course and adopt a stronger fiscal policy, then we in the Reform Party will not be pointing our finger at the Bank of Canada. We will place the blame squarely at the feet of the government, which has not honoured its fiscal responsibility. My responsibility and my colleague's responsibility is to do just that. For the sake of this country, I hope this does not become the legacy of the government's first budget, the last piece of which is Bill C-70, a bill that we will not support.
There is still time to change the course. The government's second budget began to do this but the job is left to be done. It is incumbent on the government to bring about a budget for 1996-97 which puts in place a plan of deficit elimination and a plan toward reducing the debt of the country. If the government does that possibly we will have a stable economy, an economy in which jobs are created, in which Canadians will be able to risk, to invest and to live with their families in a very proper way.
