Madam Speaker, it is a great pleasure for me to join this debate on Bill C-70. It is the act that will harmonize the GST and the sales taxes in the Atlantic provinces.
As members are aware, one of the government's objectives is to have a fully harmonized sales tax system across Canada. Bill C-70, dealing with Atlantic provinces only, takes us significantly closer to that goal.
Harmonization is a first step toward replacing the GST with a truly national sales tax system. The bill provides for a single harmonized or combined value added tax called the harmonized sales tax, or HST, to replace the current retail sales taxes in Nova Scotia, New Brunswick, Newfoundland and Labrador and the federal GST in those provinces on April 1, 1997. On that date the three Atlantic provinces will have a simpler, less costly and more efficient sales tax system.
I should mention that this bill by no means diminishes the government's commitment to working with the remaining provinces to make this a single harmonized sales tax system for Canada. I urge the people of Ontario to follow this debate very closely because harmonization in the Atlantic provinces will give those provinces a clear competitive advantage over Ontario which is not at the present time moving toward harmonization.
In addition to replacing the current system, the harmonized sales tax will reduce the current combined sales tax rates to 15 per cent in the Atlantic provinces, will establish a single administration of both federal and provincial sales taxes, introduce tax inclusive pricing so that consumers will know exactly what they are paying in advance and ensure a level playing field for businesses in the participating provinces.
The new combined sales tax and GST rate of 15 per cent, for example, in the province of Newfoundland is a reduction of somewhere between 4 per cent and 5 per cent of the current total taxes paid by the people in that province.
Businesses in the three provinces should be particularly pleased with having to deal with only one tax, one set of forms, one administration, one rate and one base instead of two of everything as is the case now. This is particularly important for very small businesses which simply lack the staff to deal with multiple levels of taxation.
Under the current provincial retail tax system all businesses pay tax on the goods and services they purchase to operate their businesses. These taxes are hidden in the final price of all goods and services sold in the provinces so prices are inflated by several layers of provincial sales tax. The new harmonized sales tax will eliminate these hidden taxes by allowing businesses to claim an input tax credit for sales taxes paid on goods and services purchased to make their products and run their operations.
Businesses in the three Atlantic provinces now pay over $700 million in hidden sales taxes to their provincial governments. Eliminating these hidden taxes will mean that the cost of manufacturing, wholesaling and retailing will come down, making prices in those provinces more competitive.
Exports from those provinces should strengthen because goods produced in Nova Scotia, New Brunswick and Newfoundland and Labrador will no longer have hidden taxes embedded in their prices when they are shipped abroad. This could also be true in the province of Ontario if the Queen's Park government would move toward harmonizing the GST and the provincial sales tax.
This change is not an abstract, accountant based benefit. Canada is a trading nation with about one-third of its economy currently dependent on exports. Just as important, it is the export sector that has been creating the new jobs over the past few years. Therefore, it is vital that our exports be as competitive as possible.
It is not only exports that will gain under the new harmonized sales tax. Removing the currently buried taxes will mean that goods produced in the Atlantic provinces will be more competitive than goods imported into those provinces. Lower prices will be a greater incentive to buy items made at home by workers in the participating three provinces.
I would also like to mention that the system of input tax credits will also help to combat the underground economy. With input tax credits available at the 15 per cent harmonized tax rate, instead of covering only the current 7 per cent GST, there will be a substantially increased incentive for businesses to operate within the sales tax system rather than outside it.
I mentioned before that businesses in the participating provinces will deal with a single tax administration under the new harmonized sales tax. At the moment businesses are faced with two separate sales tax systems, two sets of forms and two sets of auditors. Businesses, and in particular small businesses which now deal with two or more separate sales tax systems on a daily basis, will save because of the reduced compliance burden. This could also be true in Ontario if it moved to harmonize the GST and sales tax.
One sales tax system means less time and money spent on paperwork. Small businesses, the micro businesses, with less than $30,000 in taxable sales, will not even have to register for either the federal or the provincial sales tax in the maritimes.
Also helpful will be the fact that businesses currently registered for the GST will automatically be registered for the new tax. Registrants will continue to use the current GST return to calculate net tax remittances.
When reporting tax collected and remitted and input tax credits claimed, there will be no need to separately identify the federal and provincial components of the harmonized sales tax at the 15 per cent rate or tax collected or payable at the 7 per cent rate. It will be much less complicated.
There is clear evidence also that businesses will pass on savings in the form of lower prices in the competitive marketplace. Past studies in Canada and in other countries show that when sales taxes are replaced with value added taxes, savings are passed on to consumers. This helps to refute some critics of the harmonized sales tax who claim that harmonization will hurt low income earners more than high income earners because of increased taxes on basic necessities like home heating fuel and clothing.
The cost of goods should actually decrease because of the lower combined tax rate and the removal of the hidden provincial retail sales tax already included in the price of those goods.
One issue of concern to retailers under the new harmonized sales tax is tax inclusive pricing, which is the answer to consumers wanting to know the total tax included price in advance of their purchases. This is a matter of including taxes in the price listed in the supermarket or wherever. The government's objective in this respect is to ensure transparency. The tax will be clearly shown on receipts.
Retailers have expressed concern that tax inclusive pricing will cost them money, make them less competitive and result in higher prices. The rules are flexible enough to minimize competitive inequities since businesses will have the option of displaying tax excluded prices alongside tax included pricing.
On April 1, 1997 the three Atlantic provinces will have a simpler, less costly and more efficient sales tax system. I hope that the other provinces, including Ontario, will soon follow suit. I urge all my colleagues in the House to support Bill C-70.