Mr. Speaker, I am pleased to speak on the motion put forward by the hon. member for Mississauga South regarding the underground economy. I would like to begin by addressing the thrust of his proposal and comment on its three elements, because this proposal is really threefold.
Let me say right away that we agree with the thrust of the proposal, because I think everyone agrees that action must be taken to tackle the problem of underground economy. There are all kinds of numbers being put forward and debates taking place, some excessive, some not, but the fact remains that a lot of money is slipping through the government's fingers.
Naturally, taxpayers are not the only ones at fault here. It is because the tax system is becoming more and more complex and less and less acceptable to taxpayers, to the point that they feel justified in turning to the underground economy.
Let us look at the three components of the member's motion. First, he proposes an enhanced information campaign to educate the public. I think everyone will agree with that suggestion. However, we must be careful not to end up with some complex bureaucratic structure merely to explain the harmful consequences of an underground economy.
I think the public is quite well aware of the issue. However, such a measure would certainly be useful, and it would also be consistent with the concept of the people's responsibility as citizens. As elected representatives, we all have an obligation to promote individual responsibility, and we must also serve as an example. It might be necessary to make some members and ministers aware of the impact of the measures which they take and which lead people to reject our tax system.
The second proposed initiative is a limited amnesty on interest and penalties otherwise payable when a taxpayer voluntarily declares previously undeclared income.
Our system already provides for an amnesty on penalties for voluntary disclosures. As for the interest payable, we have to be cautious. Such a measure should be of a temporary nature, should have a time limit set. Otherwise, some people might be tempted to not declare income in a given year, since they would not have to pay any interest, even if they got caught. Such a scheme would enable these people to use the money for a year or two, before the department tracked them down.
If we are to have an amnesty, it should be defined and limited in time. It would be a way to go back to square one and do things properly from then on.
The third part of the motion is an interesting approach that should be explored. When we talk about the underground economy, what comes to mind most of the time is the construction industry. The underground economy flourishes there because regulations are so complicated. There are other consequences, but that industry is very much affected by underground activity, and sooner or later we will have to regain control over that industry because we are losing a lot of revenue. Entrepreneurs who want to operate within the law have a hard time fending off fierce competition. Just about everywhere, things are done under the table.
A tax credit for taxpayers seems like a good approach, but we should determine how far we are willing to go, how much the credit should be compared to the savings to be made by turning to the underground economy, because that is what the population will try to figure out, and how much it will cost the government compared to the revenues the tax credit will generate. If the credit is not high enough, it will not work. It will cost us more than before, and only some people will use it. But this is a good start, an approach to consider.
However, it must be done in close co-operation with the provinces, especially where Quebec is concerned. Each province may have its own set of rules for the construction industry, and the approach used must be consistent with the way tax revenues are generated in this sector.
The hon. member for Mississauga South has moved a motion which makes a lot of sense and which we will support. I would like however to address other concerns I have about the underground economy.
There was a lot of discussion in this House, in Canada and in Quebec when the GST was introduced. Many people link the increasing popularity of the underground economy with the implementation of the GST. I would like to remind everyone that the GST was not a new tax. It replaced another tax which the population did not see, because it was hidden, but the GST did replace another tax. What is new is that the GST applies to services.
When we talk about the underground economy and the taxation of services, we have a problem, because nothing is easier to avoid than a service tax. When a carpenter, a plumber or an electrician comes to your house and does not charge for his labour by the hour, it is very hard to find out whether he did or did not work or how long he worked. Ever since the government decided to get into taxing services, there is one element that is almost impossible to control because it all depends on the good faith of the public, a public that felt governments were taxing them enough already. This new tax has increased public dissatisfaction.
Oddly enough, I saw a poll when we were considering the GST-which has yet to be amended, but I will get to that-and it seems people work harder to avoid the GST than they do to avoid paying income tax. This despite the fact that income tax rates are often 30, 35, 40 or 45 per cent, which means 30, 35, 40 or 45 cents on a dollar earned, while in Quebec, the combined QST and GST is 14 per cent. Nevertheless, people will work harder to avoid the GST because they are upset by this tax and find it very hard to accept it.
Much of this can be blamed on the Liberal Party opposite. When the GST was adopted, they were up in arms and even made a major commitment during the last election campaign to abolish the tax. After that they said very discreetly that they wanted to replace it with something else. Once in power, they said they could not afford to forgo 15, 16 or 17 billion dollars worth of revenue, depending on the year. Something else had to be found. But how, meanwhile trying to convince people that they got rid of the tax? Voters are not easily fooled and talk about it to their members, I am sure, because these are subjects that often come up in caucus meetings, apparently. Their commitment was not met because they were forced to collect this revenue, contrary to their campaign promises.
The Prime Minister has repeated this in the House. I quote him from memory but correctly I think: "We hate that tax and we are going to abolish it". That was two years ago. In my opinion discussing a tax, replacing it or abolishing it, can take a certain amount of time from the point the decision is taken. In reality, application can take a minimum of six months, generally at least a year, due to the time needed to explain it, to have people understand it, to try to gain its acceptance.
So two years of the mandate are down now, and after three years, for it will take at least a year, there will still have been no change, because agreement with the provinces on taxation reform is not possible.
There is a problem when the government creates expectations, when it wants to make this type of changes and does not make them. That does not do anything to increase people's confidence in the taxation system, much less in those who design it and those who have to administer it. The government will have to act at some point. It is nice to have these motions, I have nothing against the member who is moving it, but he will have to exert some pressure on his colleagues at Revenue and at Finance, and on the cabinet, so that they live up to their commitment and come forward with proposals, because we have not seen anything yet.
While they are talking about taxation, I would also like to talk about something else. In Quebec, at one point there were different views of the economy, and the government of Canada was perhaps more active on the economic front in the post-war era. During the war, it had taken over a lot of taxation power from the provinces, particularly Quebec. It never gave it back.
As a result, in Quebec, we have two income tax collection systems. Revenue Quebec and Revenue Canada both collect taxes, they each have their own income tax return; every year, we must fill out two income tax returns, because taxation can be a powerful economic development tool. Through taxation, each government imposes its own vision of things, and taxpayers have a hard time sorting things out. Very few of them are able to fill out their income tax returns on their own, not because they are lacking in skills or ability, but because the returns are just too complicated. I am convinced that there are not many members in this House who fill out their returns on their own. And yet, we are the lawmakers and the ones who pass legislation and establish policies.
So there is indeed a serious problem which, over the years, has led to confrontation between Quebec and Canada because Quebec would have liked to have full control over its tax system and use it as an economic development tool. But this is not the case. I would also like to remind people who are watching us today that, not only do we have two systems, not only do we pay taxes to both Quebec and Ottawa, but there are transfer payment mechanisms to transfer money from one government to another. We send our tax money to the federal government, which gives it back to the province through transfer payments, not always in the proportions that we would like. This system is cumbersome and complicated, and requires a lot of manpower.
To conclude my remarks, since I only have thirty seconds left, I want to say that the hon. member's motion makes a lot of sense, but I would like him to remind his colleagues that they have made a major commitment and that they will have to put forward concrete proposals, hopefully before Quebecers make a decision on October 30, on what they intend to do with regard to our tax system, particularly with regard to the GST.
