Mr. Speaker, the Minister of Finance at this week's Liberal Party convention will claim that he has delivered on his red book promise and got rid of the GST. This is a false claim. Rolling the GST and PST into one in a small part of Canada does not meet the expectations raised by Liberals during the last election.
Of course, we have heard the Liberals reply to this criticism: "Read the fine print. We never promised to eliminate". In my experience neither voters nor candidates read the fine print in red books. Not even an experienced politician with a name that reminds us of the police did so. No more proof is needed.
I could raise many shortcomings of the new blended GST-PST. Let me mention just a few.
First there is the added cost for national retailers who have to print a different set of flyers, catalogues and price tags on merchandise for distribution in the Atlantic provinces and who have to change computer programs and cash registers. The Retail Council of Canada estimates this cost for all retailers to be $100 million.
The second criticism of the agreement for the new blended retail tax is that it costs the rest of Canada $1 billion. This payment is basically a bribe which the government was forced to pay because of the embarrassment caused by the red book. The Liberals obviously decided that the political cost of this payment was smaller than that of the broken red book promise, especially after their spin doctors told them to emphasize the fairness of the payment in light of adjustment costs incurred. We will see whether such payments will be made to other provinces in the future. Quebec tried to get equal treatment and failed.
We will also have to see what such equal treatment will do to the deficit. I also worry about the distribution of this adjustment assistance. Will it reach the small retailer who has to adjust his cash register and buy new computer software? How much will it cost to distribute this money to such users?
The third criticism of the deal is that it increases incentives for the underground economy. In the finance committee we heard how evasion of the GST is rampant in a number of industries; in construction, automobile repairs and many other services.
Such tax evasion is more rewarding; the larger is the gain. Since the blended tax is higher than the GST alone there will be more underground activity in untaxed income.
Fourth, the PST was a retail sales tax. In order to prevent the cascading of taxes business buyers did not have to pay the tax. As it turned out, for reasons I do not understand, many firms did pay it anyway to the tune of many millions of dollars. The blended tax falling on consumers only has to be higher in order to make up the money paid by business under the old system.
Fifth, the blended tax will not get rid of the complexity of the basic GST system. As the minister well knows, it is a nightmare. Municipalities, universities, schools and hospitals get special deals. Doctors and other professions enjoy yet another treatment. But most annoying is the special treatment given to food. "No GST on food". What a slogan. What a nightmare in practice.
Five doughnuts are not food; six are. Frozen pizza is a food. Pizza in a restaurant is not. I will not go on with the many examples of costly deviations from a value added tax on all transactions, as recommended by most economists and serving extremely well the people of New Zealand.
The trouble with today's announcement is that this complexity is now even higher. Books are no longer books free of tax. There are good books like the ones bought by libraries and universities and not so good books bought by everyone else. What a sham. What an administrative nightmare, a typical political compromise that serves no one.
Finally, I cannot help note that the minister in his statement claims that the tax will benefit consumers. I have trouble understanding this. I thought that the blended tax was revenue neutral. Are we now to understand that it lowers taxes?
If it does, what will be the effect on the provincial and federal deficits? If it is revenue neutral, how then can it benefit consumers?
In sum, the entire scheme of the blended GST-PST tax in the Atlantic provinces is one gigantic failure. It cannot be justified economically and socially. It can be justified only by someone whose judgment is clouded by the desire to extricate the Liberal Party from the serious political hole of their own making.