House of Commons Hansard #112 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was harmonization.


Excise Tax ActGovernment Orders



Alex Shepherd Liberal Durham, ON

Mr. Speaker, I will be sharing my time with the hon. member for St. Boniface.

Bill C-70 is really about re-engineering the Canadian economy. We live in very changing times economically. Surely as if we had lived back in the 1800s when the horse was replaced by the iron horse, today our society is changing dramatically before our very eyes.

When we talk about Atlantic Canada, for instance in the province of Nova Scotia more people today are engaged in education than in the fishery and forestry combined. It tells us that the nature of our society is changing. We have to change our internal and external trade mechanisms because this is becoming a very competitive world.

The harmonization of the GST is just part and parcel of a general program to make our economy much more efficient by stopping the duplication of various taxes and the overlap it causes and make our economies efficient and competitive as we move toward the 21st century.

We have talked about the WTO. It was the Atlantic provinces when they first came into Confederation back in 1867 that were the engines of growth at that time, the creators of wealth and the builders of ships. It is to their credit that those provinces have realized the importance of a harmonized GST system and of doing away with duplication and overlap to create more efficient economies for their people which will create jobs in the future.

We need a more homogeneous Canadian market, a Canadian trading system. This is just part of the parcel to do that.

Let me first address the whole concept of provincial sales taxes. Each one of our provinces at various times has implemented provincial sales taxes. They have come along and changed them, applied them to some things in one province and others in another province.

When I served on the finance committee I travelled to Atlantic Canada. I talked to the people about the kinds of administrations that existed in the provincial sales tax system. We get the same thing in my province of Ontario. It likes to protect children's clothing so it is exempted from the PST. Prince Edward Island is very concerned about home heating fuel so it is exempted. In other words, there is a patchwork of provincial sales taxes and rates which go from 12 per cent to 7 per cent and to 0 per cent in Alberta.

There is a hodge-podge of provincial sales taxes across the country. In and of itself what has that created? I am surprised that members of the Reform Party who talk about making this a better economy cannot see the importance of changing this outmoded system of individual provincial sales tax regimes.

When I was in the province of Newfoundland I was surprised and shocked to find that businesses were complaining about mail order businesses which operated out of Ontario and shipped products to Newfoundland because the retail sales tax in Ontario was less than that in Newfoundland. In other words, somebody would not buy something in their own neighbourhood because they could buy it cheaper through a mail order business in Ontario because of the difference in the provincial sales taxes.

These are some of the very basic problems a harmonized system is attempting to address. It is long overdue. It is not a matter of change for the sake of change. I hear some people say that the Liberals just want to change the GST and harmonize the sales tax so that they can meet their election commitments. Nothing could be further from the truth. This concept of integrating the two taxes is very important for our future as a country and for our economic well-being.

It is very important to have a similar system across the country from coast to coast to coast. That is my ideal. Some members of the Reform Party will say that we did it in only three provinces. Those three provinces are three more than we had a year ago. At this rate we will have harmonization across the country in a few years.

I would like to talk about the difference between a multistage tax and a single stage tax which basically is what the provincial sales tax is. The value added tax is a more efficient tax, if the people listening believe that there is such a thing as an efficient tax. It is an efficient tax in that it taxes at all stages of consumption. The provincial sales tax is not efficient for a number of reasons. One very real reason is that the provincial sales taxes invariably become embedded in manufactured goods. What do I mean by that?

I mentioned initially the importance of re-engineering our economy, creating a more robust economy in Canada. Another aspect is our export sector which has been the engine of growth and the engine of employment. Many people come to the industry committee week after week and say that to start a small or medium size business in Canada they have to start with the assumption that 70 per cent of their sales will go outside the country. What does that have to do with taxes?

The bottom line is that with the provincial sales tax system, we incorporate and compound the taxes on our export sales because there is no mechanism to relieve our exports of the provincial sales tax. The whole concept of the GST or a value added tax is that when we export something, we do not include those taxes in the export selling price. In other words, it makes our products much more competitive in the world environment. I will give an example.

In my riding even though we do not have a General Motors plant, General Motors is a big player in the economy. General Motors currently would pay provincial sales tax in its operations. Everyone knows there is no such thing as a business tax per se. We hear the province of Ontario argue back and forth that it does not want to shift the taxes from businesses to individuals. I would like to suggest that there is no such thing as business taxes. The only taxes are on individuals. We are all paying the tax on a personal basis whether it is in that car or the products that we buy daily, our telephones, refrigerators and so on. We are all paying the tax. Sometimes we see it, sometimes we do not. That is the essence of the problem of provincial sales tax.

It is amazing that members of the Bloc have not noticed that their own system is a very efficient one. It is completely harmonized with the existing GST system. The automotive sector is one of the growing engines of our economy. It is one of the things that has kept people employed and has allowed our economy to go forward in the last few years. A car produced in Oshawa when sold in the United States has PST, provincial sales tax, embedded in the selling price but a similar car produced in Ste-Thérèse, Quebec does not. All things being equal, the car produced in Ste-Thérèse, Quebec and shipped into the American market is cheaper than the one produced in Ontario.

Everyone can understand why I believe that Ontario and most other provinces will eventually harmonize. It is just good business, just good sense and just good for the economy.

The interesting aspect about this is that moving toward a truly harmonized system means that we have a common base, a common rate and a single administration. One of the most important things is a single administration so that we end the duplication and overlap which exists in the system.

I would like to mention a person I contacted just this morning, Fred Shaw from St. Anthony, Newfoundland. Fred is an accountant. In his own practice, because of the harmonization process he is actually going to end up charging more on his invoices but he said that his customers are going to be a lot better off under a harmonized system. The province of Newfoundland is going to be better off by millions of dollars by harmonizing its administration system.

Mr. Shaw talked about buying a load of gravel. Before, he would have had to pay the PST and the GST on a load of gravel but if the same truck had spread it over his front lawn he would not have had

to pay the PST. This is the sort of ridiculous argument we are all doing away with under this system.

In conclusion the object of a harmonized system is to create a more robust engine within Canada and to create a more dynamic economy as Canada competes in the 21st century against many other competitors that are doing the same thing.

Excise Tax ActGovernment Orders

12:10 p.m.


Ronald J. Duhamel Liberal St. Boniface, MB

Madam Speaker, the purpose of our debate today is to take a serious look at this bill, to stay away from the political partisanship that arises from time to time when discussing these issues and to make a thorough analysis based on the following: does this bill provide more benefits for business, yes or no?

I think our comments should aim to improve instead of simply to attack, criticize, denigrate and crush this bill.

I do not want to take up valuable time with further justification of a restructured harmonized federal-provincial sales tax. The facts have been clearly and convincingly addressed by my colleagues.

The facts are there. What we have to do now is improve this bill if we can.

As we all know, the harmonized sales tax will eliminate hidden taxes that inflate prices and hurt exports. It is simpler, more transparent for consumers and for business, and an integrated approach makes possible a lower overall sales tax rate. We know that, those are realities. If people do not agree with the facts they should attack them and show us why.

We know perfectly well this is a better, more straightforward and less costly approach that will help meet the needs of people in a far more flexible way.

Today I want to focus on an aspect of this legislation that has too often been attacked by those who place partisan politics and narrow regionalism ahead of clear objective thought.

The issue of course is a decision by the government to provide a formula for short term adjustment assistance to provinces when they face significant structural cost to participate in the new integrated system. That is the prime issue I want to address today.

There will be assistance when assistance is necessary. There will be a formula that will indicate clearly, fairly and objectively the type and amount of assistance the government will provide.

Under this legislation adjustment assistance becomes available to provinces which experience a revenue shortfall in excess of 5 per cent of their current retail sales tax receipts because they moved to a single harmonized sales tax system.

For qualifying provinces, in this case Newfoundland, New Brunswick and Nova Scotia, the formula means that the federal government will provide, and this is very important, first of all, full compensation for the revenue shortfall, that is the shortfall over 5 per cent of the current retail sales tax in year one; that same full compensation for the shortfalls in year two; half the amount of the shortfall in year three; 25 per cent of the provincial revenue shortfall in year four.

Now we have measures that are concrete, specific and fair.

This assistance is a necessary investment in making Canada stronger through helping disadvantaged regions move to a modern tax to meet modern challenges. It is a 21st century type of investment reflecting the fact that government must change how it involves itself in economic development.

We see profound changes taking place aross the country.

Businesses have made it clear that the best role for government is to give firms and workers the environment to compete and that is what it is doing with sales tax harmonization, and that is what responsible government and leadership means.

The assistance formula developed applies equally to all. There is no discrimination, no favouritism, no bribery. It is clear, concrete and objective. It applies equally to all. Any province that faces a transitional revenue loss exceeding 5 per cent because of harmonization qualifies for assistance over that amount on a 50-50 basis. After four years those provinces are on their own.

That means that B.C., Alberta and Ontario would not meet the threshold. They will not lose money on harmonization, just as Quebec did not when it harmonized. In fact, I am told that Quebec

made money through its staged harmonization approach, that it was clever in doing so and it should be commended for that.

Not every province has the economic size and scale to become instant winners under harmonization. For the three Atlantic provinces, with their less developed economies and such problems as the fish stocks, harmonization does carry a painful near term cost. That is why this government has developed a compensation formula and why those governments will receive about $960 million in assistance.

Under the same formula Saskatchewan and Manitoba will also deserve assistance. They would be entitled to over $550 million for the four year period when they decide to harmonize, a fact that is not propagated loudly or widely by either of those governments. I want to mention that under the same formula Saskatchewan and Manitoba would also deserve assistance. They would be entitled to over $550 million for the four year period when they decide to harmonize.

It is surprising and to some frustrating that this government's approach has been turned into a political football. There is a tragic cynicism at work, the type of cynicism that knows the price of everything and the value of nothing. "Let's do what we can in order to enhance our popularity which is plummeting, and let's do whatever in order to noticed".

Who can argue the value of helping provinces provide the environment to industry that would help them fly? It is not just one or two sectors but all businesses in a region. This is particularly true for the Atlantic region which is why it has moved to accept the harmonized approach.

By what illogical leap can it be suggested that because the Atlantic provinces or Manitoba or Saskatchewan qualify for assistance, equal financial benefits should be provided by provinces that do not suffer major losses?

How can anyone rationalize such an approach? What kind of approach do they want when they say we should not distribute wealth according to the needs of a province or a region?

That is not a prescription for fairness. If we do not share in a way that responds to needs and loss it is a premise for selfishness. Statistical uniformity in no way builds economic futures or preserves a vibrant Canadian society. One size does not fit all in a nation as diverse as Canada. It never has and I do not think any provincial politician in their heart of hearts believes any different.

For example, Quebec and Ontario are the major beneficiaries of our federal tax regime for research and development, the most beneficial in the G-7. Do those governments want these credits to be proportioned on the basis of geography rather than economic reality? I think not.

No, certainly not. So why, when we are looking at another program, do they want the same? Is this not a contradiction? Is it not unfair and insensitive? I think so.

That is the heart of the issue and the key to fairness. Government assistance should be determined by the principles of need and performance. That is the way to be effective. That is the way to be cost efficient and that is the way to build a 21st century economy.

Let me repeat this is not a political issue, or it need not be. It is not an accounting debate. Rather, it is a question of Canada's economy today and into the next century. Sales tax harmonization is a solution that gives Canada's affected provinces an effective, more fair and competitive tax.

Our challenges are too pressing, our opportunities too real to squander on petty partisan politics. Let us get on with looking at the issues clearly rather than applying emotional blinkers or dog in the manger logic or simply saying something in order to help the party's flagging popularity.

Yes, our approach and assistance will make the maritimes more competitive. Any province can seize a clear and concrete solution to the problem by getting onboard themselves. The solution does not involve a dramatic fiscal cost. They will benefit quickly and surely through greater competitiveness and real cost savings to their businesses. That should be carrot enough and reward in full.

There are provinces like those in the Atlantic region. They want to make the transformation but face a tough short term downside. That is a barrier they cannot overcome by themselves so we have developed a cost shared short term solution to help them over the hump. That is the essence of partnership and of real national leadership.

Different players bring to the table different problems and different resources. By working together, drawing on our strengths and compensating for our weaknesses we all emerge stronger. The strength of a value added sales tax regime is that it is a better tax for today's economy.

For Canada's place in that economy we face the problem that its advantages have not been fully harmonized with provincial-federal taxes. If we work together through the format and approach our government has set up, the result will be a tax system that makes us stronger, that helps deliver more jobs and that is fairer to us all.

This is the end of my remarks, but I could have gone on for hours, because at last we have an approach that makes sense.

Excise Tax ActGovernment Orders

12:25 p.m.


Monte Solberg Reform Medicine Hat, AB

Madam Speaker, given the opposition of the Retail Council of Canada and many independent retailers to this deal, precisely because it is being brought into only one region, and they point out that it will mean higher costs for them and ultimately for consumers, and knowing the impact on Atlantic Canada will be especially difficult to deal with given the state of its economy, how can the member justify pushing for this deal when he knows it will hurt consumers in Atlantic Canada?

Excise Tax ActGovernment Orders

12:25 p.m.


Ronald J. Duhamel Liberal St. Boniface, MB

Madam Speaker, I thank my colleague for his question. I know that he takes these questions seriously.

I thought I had shown quite clearly in my address that this was as fair an approach as could be found. I have not heard one political party, not one politician, come forward with something that is more sensitive or sensible which responds to the needs that have been articulated. I am befuddled.

I suspect he probably has another question. Surely he listened to what I said. I said let there be no doubt that all systems are imperfect. Let there be no doubt that this has imperfections, but let me see something that is better, let me see something that will respond more significantly to the needs of Atlantic and other Canadians.

The major point here is that it treats Canadians fairly. The opportunities that were given to the Atlantic provinces are also available to Manitoba and Saskatchewan. There is a formula. It is not discrimination. It is not biased.

Of course, when one talks about taxes in general we are not going to find a whole lot of people who are going to agree with any level of taxation or any adjustments to the taxation system. Clearly what we have now is not efficient. Clearly what is being proposed here is much better. It is much more sensitive. It is much more workable.

Surely if my colleague has another option, he or his party will put it forward and then we will let people look at it and decide which of the two options is better.

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12:25 p.m.


Jay Hill Reform Prince George—Peace River, BC

Madam Speaker, it is necessary to make the point right now to the hon. member that the Reform Party, as much as it should be, is not the Government of Canada. Therefore it is not up to us to put forward options for this particular tax. Certainly during the election campaign we will be putting forward options on a whole range of issues so that Canadians can choose between the various parties and their platforms.

In this particular case, given that the hon. member and his party campaigned during the 1993 election campaign on scrapping, abolishing, doing away with the GST, how can he reconcile that with the present plan to harmonize it? How can he reconcile harmonization with the promises that were made by him and his party during the 1993 election campaign?

He states what is fair. What is fair to the Canadian people is for the government to live up to its election promises.

Excise Tax ActGovernment Orders

12:25 p.m.


Ronald J. Duhamel Liberal St. Boniface, MB

Indeed, Madam Speaker. My colleague has no doubt seen an accounting by the Prime Minister of Canada with respect to the promises made on the electoral platform. The majority of those promises have been honoured.

My hon. colleague who asked the question knows full well that setting aside the GST was one of a number of options. Harmonization was in the electoral platform. My colleague knows that. My colleague is intentionally trying to make it an issue when it is not. Why would my colleague not read the relevant sections into the record? Harmonization was clearly an option. Harmonization was mentioned on a number of occasions. My colleague knows that.

The other thing that I find extremely strange is, as I understand it, every party in the House of Commons is in favour of harmonization. Every single party. If I am wrong, let them stand up and say so. As I understand it, businesses are in favour of harmonization. Yes, there is additional work that needs to be done. Yes, the systems need to be fine tuned. However, let them stand up and be counted. Let us have no more rhetoric. Let us look at this initiative as it is intended to be, to make the system fairer, simpler and less costly. Let us look at it from that perspective.

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12:30 p.m.


Richard Bélisle Bloc La Prairie, QC

Madam Speaker, I listened with interest to the remarks of my colleague opposite, and I would like to say that the bill is nothing more, in the opinion of the Bloc, than a collection of amendments to the GST.

In addition to several dozen small technical changes on exemptions from payment of the GST, there are a series of amendments providing for the harmonization of the GST with the sales taxes of the three maritime provinces. In Bill C-70, the GST becomes a harmonized sales tax, as the Minister of Finance describes it.

The bill also provides an exemption from federal sales tax, and this applies right across the country, for books bought by public libraries, schools, colleges, universities and other organizations involved in literacy programs.

We received this bill at the last minute and we in the official opposition deplore the way the Minister of Finance tabled these documents. The official opposition had less than 24 hours to examine the text of a bill of over 300 pages, which came without any explanatory notes. In this way, the government is trying to avoid debate and to keep the real issues hidden from the people of Canada.

The Liberals do not keep their promises, to say the least. The Deputy Prime Minister should resign again. The GST is with us for the duration, as Bill C-70 pointedly indicates. The Prime Minister promised transparency in the last election campaign. The Liberals are doing now what they criticized the Conservatives for doing in the past. The new GST is a hidden tax, because it is buried in the selling price of goods and services.

The 1994 Liberal majority report stated that it would simply be wrong to keep Canadians in the dark as to what they were paying in taxes to their governments, and a hidden tax would make it difficult for them to force the government to account for the way taxes are collected and, to a lesser extent, for the way public funds are spent.

The Minister of Finance is today presenting us with the hidden tax he criticized at the time. Furthermore, in 1989, the dissenting report of the minority Liberal opposition stated: "In addition, if the GST is hidden in the selling price, it will be much easier for the government to increase it later on".

The old Liberal federal sales tax was hidden in the price. The Conservatives made it visible by creating the GST as we know it. With the proposed agreement with the maritimes before us today, the Liberals are again hiding this much hated tax. There is always this double talk: They say one thing when in opposition and another when in office.

In 1989, the Liberals tore out their hair over this issue, but now that they are in office, they are hiding the GST as if nothing had happened, as if this tax had never existed.

This is a disgrace. This shows selective memory. The Liberals boast about listening to businesses. But when the Canadian Chamber of Commerce surveyed its members in 1994, it concluded that 70 per cent of Canadian businesses were against hiding this tax. In February 1996, the same organization surveyed its members again, only to find again that 76 per cent of them were against hiding this tax. For a government that boasts about listening to business, it does not seem to be listening very well.

Let us take a look at the compensation formula, which is in fact a $1 billion political present. But the real cost is that of harmonizing with the maritime provinces.

In a shameless exercise in window dressing, the Minister of Finance has paid off the maritimes so that they would help him honour an election promise that had not been acted on. One billion dollars is what Quebecers and Canadians from the other provinces will have to pay for an election promise that was not kept by the Minister of Finance and the Prime Minister. One billion dollars is what this measure is really costing us.

There is no mention of the compensation formula in Bill C-70. The MOUs provided for some $961 million in compensation. We are still waiting for the Minister of Finance to unveil the criteria for his compensation package and to clearly show that Quebec is not entitled to such compensation.

In spite of Quebec's repeated requests to that effect, the federal government has turned a deaf ear. The objective is always the same: to penalize Quebec and particularly Quebecers, who elected a sovereignist government. This compensation may be a political gift to make the Liberal UI reform, which adversely affects seasonal workers in the maritimes, more palatable to the population of these provinces. Otherwise, why would Ontario, Quebec and the other provinces not be entitled to such compensation for harmonizing their sales tax with the federal one?

This cost of $1 billion over the next four years will be largely exceeded. The result of reducing the tax base at the consumer's level from 19 per cent down to 15 per cent will be that, in future, Quebecers and Canadians from the other provinces will have to pay more equalization to the maritimes.

These additional equalization costs will be paid by all taxpayers in Canada and Quebec. The commitment made by the finance minister to the governments of the maritime provinces is not acceptable, when you compare the cushy deal reached with the maritime provinces on harmonization with what happened in Quebec in recent years.

The agreement reached by the federal government and the three maritime provinces will eventually be expanded to include all Canadian provinces. At the present time, the majority of Canadians are against the minister's plan, against the introduction of a single 15 per cent tax, to be collected by the Canadian revenue commission the government wants to set up.

The tax burden would thus increase in Quebec, in Ontario, and in several other Canadian provinces. Bill C-70 will have a number of consequences for Quebec. For many years now, the Government of Quebec has made a genuine effort to harmonize federal and provincial tax bases. Quebec collects and administers for the federal government the GST such as we now know it in Quebec. We have therefore worked very hard in Quebec to bring about this harmonization at no cost to other Canadians.

This bill is unfair to Quebec on more than one count. Quebec's fiscal autonomy would be undermined by the Canadian revenue commission, which would be responsible for administering the new 15 per cent GST. The present harmonization worked out

between Quebec and Ottawa is therefore a far cry from the minister of finance's bill, whatever the Liberals might say.

Quebec will never agree to take part in such a fiscal regime. This new attempt by the federal government to interfere in provincial jurisdiction must be denounced.

Far from harmonizing federal and provincial sales taxes, this bill stands a good chance of jeopardizing several years of efforts by Quebec to achieve harmonization with federal taxation. The existing harmonization in Quebec was accomplished with the consent of both parties, and in all good will.

Today, the Minister of Finance is scrapping all the agreements signed with Quebec and trying to replace them with a bill that is nothing more than a pre-election ploy.

The government has made only partial use of a measure proposed by the Bloc Quebecois, so the public ends up with a half-victory. In our opinion, however, even with this GST credit on books, the government is not going far enough.

Ever since Quebec introduced the QST, all books have been exempt from the provincial sales tax, and not just those purchased by literacy institutions, schools, public libraries and so on. All books are QST exempt, including those purchased by consumers in bookstores, which represent the bulk of GST revenues on book sales.

The measure announced by the Minister of Finance is, therefore, a cosmetic one, designed merely to enable the Liberals to boast that they have eliminated the GST on books, when in fact they have not done anything of the sort. Taxing books means taxing knowledge, making it even less accessible to certain members of society.

This does, however, represent a half-victory for the Bloc Quebecois and for the public, in that we have been battling from the very beginning, even as far back as when the Conservatives were in power, to eliminate the tax on books. For this to become a total victory, however, all books would have to be exempted from this GST disguised as a harmonized sales tax, not just books bought by literacy and educational organizations.

What the Liberals are aiming at with Bill C-70 is, in fact, nothing more than a whitewash, a diversionary tactic, at which they are experts, and which is what has kept them in power for so many years. The moment of truth is at hand. They will have to answer to the Canadian public in the next election. Then their poor track record will speak for itself.

Rather than passing this bill, the Bloc Quebecois proposes a concrete revision of the corporate taxation system. According to our analysis, the federal government could recover up to $3 billion annually by revising or abolishing certain outmoded, inefficient and unfair tax expenditures, using the money instead to encourage businesses to create jobs.

In today's struggling labour market, the purpose of corporate taxation ought to be to encourage the creation of good, lasting jobs, while ensuring that the funding of public services is equitably divided between corporations and individuals, and among the corporations themselves.

A number of analysts see a problem in the way taxes are collected in Canada: While the tax rate on profits is lower than elsewhere in the world, capital and payroll taxes are higher. This discourages job creation. Instead of remedying this situation, the Liberal government is attempting to hide yet another broken election promise. What a poor record the Liberals have to show for themselves after three years in power.

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12:40 p.m.

St. Paul's Ontario


Barry Campbell LiberalParliamentary Secretary to Minister of Finance

Madam Speaker, I listened with interest to the comments of the hon. member opposite and, as usual, there was the litany of complaints. But he did allude to the fact that of course Quebec has a harmonized tax. I would like him to tell this House whether that is an improvement over the situation which prevailed previously when there was a separate Quebec sales tax and a federal GST.

Is the hon. member supportive of harmonization as it has been working in Quebec and, if so, why would he deny the same opportunity to other regions of the country?

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12:40 p.m.


Richard Bélisle Bloc La Prairie, QC

Madam Speaker, I can inform the parliamentary secretary that yes, I strongly support harmonization as implemented in Quebec. What I want to say today, before this House, is that Quebec received no compensation for its efforts to put together a harmonized federal and provincial sales tax.

Why has the federal government committed nearly $1 billion in compensation for the three maritime provinces, the plan we are discussing today, while Quebec is not entitled to any compensation? I deplore this double standard.

It is the same old story. In the end, the federal government is trying to make amends for its new employment insurance policy.

In the three maritime provinces, there are many seasonal workers who will be penalized. The government is providing a disguised subsidy of nearly $1 billion just before a federal election is called, in an attempt to make its employment insurance policy more palatable to the maritimes and make seasonal workers in these three provinces forget they have been penalized. They want to

make them forget about that before the next federal election. That is what I find intolerable.

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12:45 p.m.


Barry Campbell Liberal St. Paul's, ON

Madam Speaker, Quebec did not receive compensation at the time that it harmonized. It would not qualify for compensation under the formula that was announced, debated and passed by this House several months ago.

That formula requires a province to incur a net loss of tax revenues of over 5 per cent in order to qualify for assistance on any measure. Quebec would not be in a position to benefit from that formula, nor might I add would Ontario were it to harmonize now or British Columbia. Other provinces would qualify. The maritimes do quality and that is the simple answer.

Not only did the province of Quebec not lose revenue on harmonizing in the manner in which it did several years ago, but in fact gained revenue by operating two systems simultaneously for a period of time. I wonder if the hon. member is aware of that.

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December 3rd, 1996 / 12:45 p.m.


Richard Bélisle Bloc La Prairie, QC

Madam Speaker, I can inform the parliamentary secretary that I know all that. They say that according to the formula that was approved, Quebec and Ontario are not entitled to compensation, but what is particularly galling is that 25 per cent or about $250 million of the $961 million in compensation being granted today to the three maritime provinces will be paid for by taxpayers in Quebec. I think this is something we and Quebec taxpayers cannot accept.

In addition, the equalization formula will be modified, which will also affect the three maritime provinces that will get this compensation. In the end, these three provinces will not be getting $1 billion and Quebec taxpayers will not be paying $250 million. It will be a much larger amount. That is what the people of Quebec refuse to go along with and that is the point I wanted to make today.

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12:45 p.m.


Peter Adams Liberal Peterborough, ON

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.

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12:55 p.m.


John Cummins Reform Delta, BC

Madam Speaker, the member opposite suggests that making it easier to pay taxes somehow makes it more attractive, something like turning vinegar into wine.

Why should retailers or anyone else feel better about paying this tax?

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12:55 p.m.


Peter Adams Liberal Peterborough, ON

Madam Speaker, one thing about the harmonization process we are going through, which has already taken place in the province of Quebec, is that it simplifies and cheapens tax collection. Like the member, I do not like paying taxes, but I certainly do not like paying taxes unnecessarily to have my taxes collected, which is the situation now.

Where there is a sales tax and a GST there are two sets of tax collectors, two sets of forms, different dates for submission of the taxes. All of that costs money. As a result, the amount of tax being paid is greater. I believe that a simpler, harmonized tax system that lowers the tax we pay is better than the current complicated and expensive tax system.

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1 p.m.


Brenda Chamberlain Liberal Guelph—Wellington, ON

Madam Speaker, I am pleased to speak to Bill C-70 which amends a number of acts but, most important, provides for the implementation of agreements between the federal government and the governments of Nova Scotia, New Brunswick and Newfoundland and Labrador to harmonize the federal and provincial sales taxes effective April 1, 1997.

This legislation is an important step in our election promise regarding the GST. Let me remind the House, especially members of the Reform Party, of our promise. The red book states: "A Liberal government will replace the GST with a system that generates equivalent revenues, is fair to consumers and to small business, minimizes disruption to small business and promotes federal-provincial co-operation and harmonization".

This is the promise that I made to the people of Guelph-Wellington in the fall of 1993 and it is a promise that I look forward to seeing to its completion right across Canada.

We promised to replace the GST with a system that generates equivalent revenues. At a time when the people of Guelph-Wellington are demanding fiscal responsibility and restraint from their federal government it is important not to overlook the $18 billion that is currently raised by the GST. Any realistic Canadian knows that we cannot continue to provide social programs, reduce the deficit and care for our people without revenue.

It is also important to note that all net revenue from the GST is deposited into the debt servicing and reduction account. This means that all moneys generated by the GST go to fight the deficit. We have had a clear picture from Canadians of what they want us to do with the deficit.

We promised to replace the GST with a system that is fair to consumers and to small business. The cry for tax fairness is loud and clear in Guelph-Wellington. My constituents do not mind paying their fair share, but they want a tax system which distributes the burden.

We know that the Standing Committee on Finance worked long and hard to find alternatives to the GST. I congratulate my colleagues on the committee for their work. As a relative newcomer to the committee, I appreciate the long hours that members faced in looking for an alternative to the GST. The result of this work was the national VAT, and its recommendations are seen in the agreements signed between the federal government and the governments of the three Atlantic provinces.

The recommendations of the committee received an important endorsement, one which I would like to remind the House of: "It is simply unacceptable that Canada remains the only country in the world with ten different sales tax regimes". This person went on to say: "We commend the government on its attempt to harmonize the tax with the provinces". That endorsement came from the Reform Party in June of 1994. I look forward to its support of this legislation.

We promised an alternative to the GST which would minimize disruption to small business. I polled small business in Guelph-Wellington in November of 1994 on this issue. Sixty-four per cent of respondents said they believed that a harmonized VAT would be simpler and more fair.

I asked business people in my riding because they are directly affected by changes to the GST. They know that a harmonized sales tax is good for business. Businesses must currently pay two separate taxes and deal with two separate bureaucracies.

The Canadian Institute of Chartered Accountants estimates that harmonization will save businesses between $400 million and $700 million annually.

The idea of harmonization received another important endorsement in June of 1994. Let me remind the House of what this person had to say: "I want something that works. And I'll tell you this, that if we had one VAT, one base, one bureaucracy to collect it, the manufacturers and the businesses of Ontario would save over a billion dollars by being able to deduct those costs that you cannot deduct today on the sales tax". This person went on to say: "It has been one of the areas of major competitive disadvantages that Ontario manufacturers have had and Ontario businesses have had, and I say stop the rhetoric, stop the politics, stop the finger pointing. Get on with harmonization and simplification of the GST, or whatever the new initials are, and the PST".

That endorsement comes from Mike Harris, then the leader of the third party in Ontario and now premier of the province. I look forward to his support for a harmonized sales tax in Ontario.

We promised an alternative to the GST that promotes federal-provincial co-operation and harmonization. I have said in this House before that my constituents are tired of governments that blame other levels of government. They want us to work together with all our partners for their betterment and to secure a better future for Canada.

They are proud of our Team Canada approach to international trade and they want to see that approach in solving all our problems. Bill C-70 is an important step in a Team Canada type effort in sales tax harmonization.

The efforts that have resulted in this legislation were not easy. It is important to remember that the Standing Committee on Finance reviewed suggestions and comments from over 1,200 individuals and representatives from various associations. They rejected many suggestions because they did not generate the revenue they needed or because they were simply unworkable.

I believe that the proposals that we are debating today go a long way in fulfilling our promise. Our country continues to face serious problems. It is simply irresponsible for this government to abandon its deficit reduction efforts by ignoring the revenues generated by the GST. Nor did we promise to do so.

Deficit reduction and our future remain our priority. In doing so, we are fulfilling another important promise, to generate and create opportunity and in doing so creating hope and growth for our country.

We made a promise to replace the GST. Reformers, on the other hand, promised to keep it as it is until the deficit was eliminated. We know that their deficit reduction target seems not to matter to them any more. Irresponsible tax cuts and more spending are election promises that Canadians will be hearing from Reformers. Deficit reduction, promise keeping and sound administration is what Canadians are seeing from this Liberal government.

This is important legislation. When it passes, Canadians living in New Brunswick, Nova Scotia, Newfoundland and Labrador will save time and energy for their businesses. They will have a tax that is better for consumers and they will have promoted federal and provincial co-operation.

The premier of Ontario, Mike Harris, said in opposition: "Stop the rhetoric, stop the politics, stop the finger pointing. Get on with harmonization and simplification".

We have taken his advice in Atlantic Canada at least. This legislation deserves our support.

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1:05 p.m.


Myron Thompson Reform Wild Rose, AB

Madam Speaker, I appreciate hearing the member speak on this issue. I have to smile a little when she talks about the keeping of promises. That is getting to be a joke to the people across Canada in terms of what the Liberals have done.

I would like the member to comment on a statement that was made in 1994 by the then revenue minister from Vancouver, now the transport minister, who predicted that voters will punish any provincial government that fails to merge its sales tax with a revamped goods and services tax. If that would be the case I wonder if this member can tell me why the results in P.E.I. recently.

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1:05 p.m.


Brenda Chamberlain Liberal Guelph—Wellington, ON

Madam Speaker, first, I am very glad I made the member smile. As we know, newspapers say that Reformers do not smile very often. So I am very happy to have helped him along today.

I also would like to say that I think the reality of this initiative is something like our health care initiative. The reality is that particular initiative across Canada had to start in two or three provinces. The GST is being implemented in the same way in two or three provinces. As we move across Canada we will eventually have a GST in place that will help the retailers an awful lot.

The reality of this is reflected in a poll I conducted in early 1994. My retailers told me very loudly and clearly that it was very important to have a tax at the end of the sale that is not visible. The retailers originally asked the Conservative government 10 years ago to make the tax visible. They have since come forward to the finance committee and admitted they made a very serious error, that it has really hurt the growth, the competitiveness and the buying patterns of all Canadians. That is what we are hoping to achieve with this change.

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1:10 p.m.


Myron Thompson Reform Wild Rose, AB

Madam Speaker, there is one nice thing about asking a question in Government Orders as opposed to question period. In question period we do not get a second chance. I did not hear the member make any comments with regard to the voters punishing the government that will not go along with this. The voters in P.E.I. sent a very loud message that they are not interested. Could the member comment on the results of the P.E.I. election?

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1:10 p.m.


Brenda Chamberlain Liberal Guelph—Wellington, ON

Madam Speaker, in reality, as I said in my speech, if the member was listening, we have to look toward the provinces co-operating. We also need a solution that is proper for each province. At this time P.E.I. has decided to have a second look, which is fine. We have to work together in harmony although I know the Reform Party has difficulty with that. But we will take our time, we will go slowly and we will do it right.

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1:10 p.m.


Herb Grubel Reform Capilano—Howe Sound, BC

Madam Speaker, the Minister of Finance has asked this House to approve the blended tax deal he has made with the Atlantic provinces. The Reform Party opposes this legislation on several grounds.

First, it does not fulfil the election promise to kill the GST. The red book fine print may have hedged on this issue but the impression left with the public was quite clear. The Liberal Party had been in a historic fight with the Conservative government's Brian Mulroney against the GST. With such a fight under its belt, it would use the opportunity of being in office to scrap the hated tax. The resignation of the Deputy Prime Minister and the parliamentary protest actions of the members for York South-Weston and Broadview-Greenwood support this view.

Second, the blended tax deal comes with too high a price tag for the rest of Canada. Why should taxpayers outside the Atlantic provinces pay nearly $1 billion to the governments of those provinces which have voluntarily agreed to go along with the federal government's plan? They have no moral right to be compensated for an action which was essentially voluntary. It is quite clear that the transfer was a political bribe by the federal government so that it could pretend that it had begun to deliver on its election promise to scrap the tax.

Third, the blended tax does nothing to get rid of the fundamental flaws of the GST system as enacted by the Mulroney government.

As an economist, I was a strong supporter of the policy that would replace the manufacturer's excise tax by a value added tax. The latter promised to eliminate the cascading of taxes, distortions between industry's prices, be good for exports and leave a paper trail that discourages tax evasion. However, the value added tax

which eventually emerged from the Conservative's deliberations as the GST fell far short of the ideal found in academic studies of such a tax.

The most serious problem stems from the failure to apply the tax to the broadest base possible. Once the political decision to exclude food had been reached, a Pandora's box of other exemptions and so-called zero rating became subject to successful political lobbying.

The result is a special treatment of the so-called MUSH sector covering municipalities, universities, schools and hospitals which are exempted from the tax. Doctors and professionals are zero rated which means that they do not charge the GST, but they do not get a rebate on the GST they paid on the materials they bought while providing their services.

Hearings by the finance committee produced many stories about the nightmarish complexity and administrative costs of the GST in general. These stories went from the inequity of having five doughnuts taxed because they are assumed to embody food service delivery, while six doughnuts are not taxed since they are pure food, to the false incentives implicit in the taxation of garbage collection services delivered by a private firm and non-taxation of municipal garbage collection services. Imagine what that does to the privatization of the often much more costly municipal garbage collection services.

From evidence produced by the witnesses, it is clear that the GST did not discourage but encouraged tax evasion. Firms in construction, in home, shoe and automobile repairs and a variety of other service industries that pay the GST face serious competition from many that do not. In addition, participants in the scam to defraud the GST are alleged also to be avoiding paying income tax.

One of the most dramatic presentations was by a witness who owned a business selling used goods. The GST has virtually bankrupted him primarily because of competition from used goods dealers that do not charge the GST. Similar stories were told by legitimate dealers in used cars. The notional GST return on used goods did not prevent the erosion of the nationally important legitimate trade in used goods and automobiles.

The paperwork involved in paying the tax and claiming rebates is very significant. For larger firms the day to day operations have reached a reasonable level of cost as a result of the intensive use of computers. For small businesses the cost remains high in spite of the government's willingness to accommodate the special needs of such firms.

In sum, all of these costs and false incentives of the Canadian GST system still affect the blended tax. In some ways they have become worse because of the need to integrate the provincial sales tax with the GST. The rates are higher, the incentives to evade are larger and so on.

Fourth therefore are the inequities resulting from the harmonization of the sales tax of individual provinces with each other and the GST. This harmonization produced a number of inequities.

Historically, provincial governments have used the sales tax to engage in social and economic engineering according to the demands of their electorates. This explains why some provinces exempt food, children's clothing, reading materials, some services and medical supplies from sales taxes while others tax such items, some at different rates from those charged in other provinces.

On top of this there were differences in the rates of taxation depending on how much money provincial governments had to raise by this method. Some taxed people and companies at different rates; some spent more than others; all of which determined the average provincial sales tax rate in the individual province.

The GST has a much broader base of taxation than the provincial sales taxes. Blending them therefore meant that provincial taxes had to be put on to many items of consumption that were previously untaxed. However this broadening of the tax base meant that provinces could raise the same amount of money at lower tax rates. This fact underlies the Liberal assertion that provincial tax rates are lower in favour of consumers. This of course is a shell game. By definition the average consumer pays the same with the blended sales tax as she did with the GST plus the provincial sales tax. Otherwise it would have been a tax grab and we would have heard the screams all across the country.

Averages hide a lot of variations in gains and losses to individuals under different circumstances. People who buy a lot of reading material may or may not make up the extra taxes they pay through reductions in the rates paid on other consumer purchases. People who find their tax obligations have increased are justified in complaining to the Liberals since they voted for the elimination of the GST, not a change which costs them personally.

A fifth reason Reform opposes the blended tax legislation is that the Liberals have claimed that the administration of the blended tax will result in substantial savings in administrative costs to governments and taxpayers. Returns have to be filed and audits only have to deal with one bureaucracy rather than two. Such savings are real. However the question arises as to how large these savings will be in

relation to the extra costs involved in switching to the new system and in the day to day operations.

As it turns out, one provision in the legislation has resulted in a significant increase in costs. I will discuss this briefly by describing the problem that it attempted to address. It is the so-called tax-in provision of the legislation.

This provision requires merchants to display all prices including the taxes paid and not show the taxes separately. This mandated tax inclusive pricing works very well in Europe. It removes many of the annoyances consumers experience when under the present system they are faced with a bill for their goods and services, often inflated unexpectedly much by the GST and provincial sales taxes whenever they reach the check-out counter. European shoppers became quickly used to tax-in pricing and merchants adjusted their operations quickly.

Many in Europe and in Canada had opposed the inclusion of tax-in pricing requirements in the GST legislation because of the fear that it would permit governments to raise GST rates of taxation surreptitiously without explicit consultation and the kind of openness and resistance which is brought when people are required to file their personal income taxes. According to the experience in Europe, it turns out that this fear was not well placed.

When the Government of Germany recently tried to raise the GST tax by one percentage point, it ran into a storm of opposition. In the end it was forced to drop the plan for this increased tax. I believe the same would occur in Canada.

It is for all these reasons that show an advantage of tax-in pricing that the Reform Party in its minority report to the study on the GST endorsed the tax-in pricing provision for a national sales tax. However, the problem is that we do not have a national sales tax. We have what has been called a blended sales tax in order to distinguish it from the national sales tax. In fact it applies only to four of the Atlantic provinces.

As it turns out, I have no doubt that there may be savings for individual retailers from having only one sales tax, the blended sales tax. I have not seen how big these savings are. Therefore I am not able to relate them to the kinds of costs the tax-in pricing provision has imposed on these retailers and which costs they are required to pass on to the consumers in the provinces which are subjected to this legislation.

What are these costs? There is the once and for all cost required of individual firms to switch their system of calculating the price charged at the till. This requires not only reprogramming computers, but it is very important that it also requires the retraining of the individuals serving the consumers. These once and for all costs may be justifiable in light of the savings on the other side by not having to deal with two authorities.

It turns out that there are also very large costs associated with day to day operations which will go on for as long as there is a blended sales tax in that region and the GST and provincial sales taxes in the other provinces. What are these costs?

According to an independent study by Ernst and Young, prices that have been attached to labels on goods manufactured, let us say in the United States or Ontario, to be marketed throughout Canada will have to be changed. Tags will have to be removed by hand and replaced on the goods that are being sold in that area. In some cases the price is printed on the good, such as on greeting cards the price is printed on the back at the bottom. Stores will have to relabel all of those cards.

Major retailers base many of their marketing campaigns on the use of flyers and house to house distribution of material. Right now the copy is prepared only once with the prices and conditions applying to all of Canada. In that particular region, special copies will have to be written and separate copies will have to be printed. It is a very serious increase in costs.

We should also note that warehousing and cost of distribution are expensive parts of retailing. Those of us who have never been in that business do not realize what it takes to keep the shelves filled with goods of the required size, quality, quantity and variety that consumers want. One problem is that the varieties, quantities and qualities are not predictable.

Retailers now have as an option that if in one region their sales have exceeded those expected and they require more goods from another region, they can go to the warehouse in another region and ship the goods to the area with the shortage. There will now be an invisible barrier at the edge of the blended tax zone which means they cannot get something from the other warehouses. The studies said that truckers who deliver goods in regions on either side of the invisible barrier may now have to shift the goods around in their trucks to get at those goods which have the appropriate label for the area. This is not a fantasy. This is not something made up. Some estimates are that these costs may be as high as $100 million for this region.

Let us say that half of it involves continuous costs every year. Who is going to pay those costs? The consumers in that region. Eaton's and other big national retailers cannot pass them on to the rest of the country because there is too much competition, forcing them to keep prices down, not allowing them to raise prices.

We believe that the very least the government can do in order to help the consumers of the Atlantic provinces is to postpone the

required tax in pricing approach until a blended sales tax or a national sales tax exists throughout the country.

In the meantime, however, there are so many flaws in this bill and in this approach to replace the GST that I believe Reform is acting in a socially responsible manner by opposing it.

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1:30 p.m.

St. Paul's Ontario


Barry Campbell LiberalParliamentary Secretary to Minister of Finance

Madam Speaker, I would like to thank the hon. member opposite for his comments. Unfortunately, one gets used to a lot of the rhetoric coming from the other side, so the hon. member's candour and honesty is very refreshing.

He endorses harmonization. I would not expect otherwise, in the light of the Reform Party's position after the GST review. He endorses tax included pricing. He is widely recognized as a prominent economist. I would be surprised if he said otherwise. He accepts, in all fairness, that there will be one time costs, but in the light of ongoing savings they may well be offset in the long run. All of that is refreshing and welcome. I would be surprised if the hon. member had said otherwise. He also has some doubts and some concerns. That is also fair.

I want to make one observation and ask him one quick question. The observation is on tax included pricing. Is he aware of the accommodations that the government has made in consultation with businesses in responding to the very concerns he raised about implementing a harmonized system in one region and not others? For instance, accommodations are being made which will allow catalogue publishers and retailers that produce catalogues to overcome the concerns they have. They need not print the prices in the harmonized provinces, as long as they indicate in the catalogue that their prices do not include taxes.

Is he aware that discussions are ongoing and regulations will reflect that the government and retailers have agreed to allow bin pricing for those items that are labelled, which would otherwise have to be relabelled individually? That would be a tremendous imposition on business so the government has accepted the principle of allowing small items that are prelabelled to be placed in bins, with the prices indicated on the bin. In modern retailing that is often the way things are done. We only have to think of our neighbourhood stores.

Is he also aware that the opportunity still exists for retailers to indicate sale prices that are exclusive of taxes as long as the tax included price is also indicated?

Is he aware that there are ongoing discussions toward improving the system more as regulations are drafted? He may not have been aware of those things. I am sure he will welcome all of those comments.

The question is to him as an economist, because he stood and spoke as an economist and less so as a politician. We welcome that in debates on critical issues such as this.

He did not speak, at least not at length, about the inefficiencies in provincial sales taxes, particularly where hidden taxes are concerned, which is a cascading of taxes, tax on tax. The ultimate consumer pays for all those hidden taxes.

I wonder if he would comment on whether a harmonized system where input credits are available now, not just for those taxes paid under the GST system, but for the component of provincial taxes would also be available, is a much more efficient system. I ask him what a rational retailer business person would do in light of those savings.

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1:35 p.m.


Herb Grubel Reform Capilano—Howe Sound, BC

Madam Speaker, I appreciate the kind words of the member opposite.

The steps now being taken in order to deal with the shortcomings of the tax in pricing provision are a typical Liberal approach: "There is no sense in admitting that we made a mistake and drop the whole thing but let us patch it up".

The member and I sat together in finance committee hearings about the GST. The length of the horror stories about the different provisions and difficulties that business has was caused by a previous government's unwillingness to do the right thing and say: "We made a mistake. Let's drop it. Let us go, say, for a broad based tax. Instead of 7 per cent, let us have it on everything but only 4 per cent". That is what we heard all the time.

I predict that if the member is going to sit in the finance committee two years from now he will hear horror stories about the administrative costs, the difficulties of going from bin pricing to all kinds of other provisions that he has mentioned. The government is going in the right direction but why does it not swallow its pride and say: "We'll suspend the tax in pricing provision for this legislation in order to get the other advantages".

I agree with him. This is why with all intellectual honesty we came to Ottawa and said that when the government does something right, proposes something that is good for Canada, we will support it. We will not play pure politics. That is why we said in our minority report that we believe harmonization of provincial sales taxes and the GST is a good idea. We still think so.

However, we did not endorse and we cannot honestly endorse the imposition of such a tax in a particular region only and having the rest of the country pay substantial sums for this to be acceptable to those regions.

I feel that the thrust of what I said remains unchallenged by the points made by the member opposite. This is not a good piece of legislation. At the very least Canadians should expect that the tax in pricing provision be removed.

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1:35 p.m.


Barry Campbell Liberal St. Paul's, ON

Madam Speaker, I thank the hon. member for his responses. He did not comment on the second part of the question and I want to give him an opportunity to do so. I asked him about the credits on inputs and how that will work in a harmonized system. Does it make good economic sense and what will happen to those savings?

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1:35 p.m.


Herb Grubel Reform Capilano—Howe Sound, BC

Madam Speaker, I thought that I indirectly admitted the correctness of this position. This is exactly why Reform supported the idea that we should have a national sales tax. Though I must say to the hon. member that after the very lengthy study of the GST as it is in operation I have really changed my mind about the merit of such a value added tax unless we could start from scratch and do what the New Zealand government did: put it broadly on everything.

The administrative nightmare, the distortions that I have mentioned in my speech that are caused by exemptions, zero rating and various other twists that are too complicated to explain here have made the tax into a nightmare. I do not believe it can be fixed. To come forward and say that we need a valued added tax on everything, including food, simply will not go in this political system, however good it would be.

For this reason I believe the country needs fundamental tax reform which would lead to flatter rates: flatter personal income tax rates, the elimination of double taxation on income from property and lower rates or maybe even the elimination of capital gains taxes. Economists agree that all those measures would do wonders for the efficiency and the growth of an economy.

In the process of having such tax reform I believe that it would be appropriate to eliminate the GST and impose the revenue loss on the other forms of taxation. We have done some very preliminary calculations which involve a flat tax. This is not Reform Party policy but we are doing our homework which is expected of us as elected members of Parliament. We are expected to do our homework, to investigate the costs and benefits of different types of taxation.

When we ran simulations of different tax rates on the computer, we discovered that the average flat tax rate would have to increase by only about three percentage points to afford to get rid of the GST with all the nightmares associated with it, including the need to send monthly cheques to individuals in Canada with lower incomes. Members know how much it costs to write, print and keep track of cheques, yet the GST and the blended sales tax require the government to send out those kinds of cheques to people with low incomes. They can be helped some other way.

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1:40 p.m.


Yves Rocheleau Bloc Trois-Rivières, QC

Mr. Speaker, it is with considerable pleasure that I rise to take my turn in the debate on Bill C-70, which concerns various amendments to legislation pertaining to the goods and services tax in Canada, commonly known as the GST.

This bill is the recognition in fact of action taken by the current federal government to harmonize the GST with the provincial sales tax in three maritime provinces, with the combined tax becoming the HST or harmonized sales tax. The HST does not apply to the purchase of books anywhere in Canada by public corporations, such as public libraries, schools, colleges and universities. All organizations involved in literacy programs are also now exempt under this bill from paying the GST on books.

We have many reservations about this bill. About its form, to start with. This is, by the way, a very technical bill of some 300 pages in length. It was delivered to the official opposition late yesterday afternoon. Opposition members therefore had little time to properly prepare criticism, which we had hoped would be more articulate and thorough, because of the lack of time and the size of the document.

It is at once intriguing and distressing, because it must be remembered that the government's position on this is not clear. The history of the debate on the GST is not a high point in the history of the Liberal Party of Canada.

While very important promises to kill the GST were made by the Liberal Party in its red book, this does not even come close. This is about harmonization, with the maritimes in this case.

In an area where the government party does not keep its promises, we would have expected them to at least have an open and truly honourable debate on this issue, after giving the opposition parties more time so we could have been better prepared than we are now.

The government had made a clear, simple and specific commitment, but so far it has not kept its promises, quite the contrary. On an individual level, this has been illustrated by the behaviour of the Deputy Prime Minister and member for Hamilton East, and the promises she made, hopefully in good faith. Unless they were made in good faith and with intellectual honesty, this will confirm every preconceived idea the people of this country have about politicians not weighing their words.

That is what the Liberal candidate for Hamilton East did at the time, when stating that she would resign if the GST was not abolished. When the GST was not abolished, she had to resign,

which she did, not out of intellectual honesty, but under pressure she could not resist. She resigned for form's sake. The very next day, the Prime Minister called a by-election in her riding and she was re-elected with, fortunately, a clear warning from the people that she must not play that little game again.

During a difficult time of fiscal restraint, this little game has cost Canadian taxpayers $500,000, just because one person did not keep her word, but pretended to, in order to save face at public expense.

Let me quote the hon. member. Not too long ago, on March 11, 1996, the Globe and Mail reported something she had said as a candidate:

"I have already said personally and very directly that if the GST is not abolished, I will resign".

She did resign, but it was for appearances' sake, a symbolic resignation. She did not resign as a matter of principle, saying: "Since the government to which I belong did not do this, I would be ashamed to be a part of it". No, she resigned for appearaances' sake, because she could not withstand the pressure brought to bear on her. Then, taxpayers had to pay for the intellectual irresponsibility displayed regarding this issue.

You will agree that the Prime Minister does not fare much better. The Prime Minister said, with typical clarity and transparency, using carefully chosen words: "We will scrap the GST". As you know, to scrap means to get rid of something. The yard is now full of scrap. The Prime Minister, in his great wisdom, and also with indignation and all the sincerity that he could display, said time and again, in reference to the Liberals' red book: "We will scrap the GST".

What is the situation now? The Prime Minister cannot claim he is unable to take action. After all, he is in office, he is the Prime Minister. We are not quoting some backbencher, we are quoting the Prime Minister, the leader of the Liberal Party of Canada, who came into office on October 25, 1993, following an election campaign that included written and oral commitments, including this one, which could not be any clearer: "We will scrap the GST". This promise is not worth much more than this other slogan of the time: "jobs, jobs, jobs". What happened to that other commitment? "We will scrap the GST" and "jobs, jobs, jobs" are pretty well on a par. People say just about anything they want, including the Liberal candidates who ran in the ridings of Hamilton East and Saint-Maurice.

They say anything that comes to mind, that they will resign or that they will scrap the GST. The Prime Minister said as clearly as could be that he disagreed with this tax, when he said: "We hate the GST and we will kill it". This is an unequivocal statement. It does not leave much room for interpretation. The Prime Minister did not make many clear and specific commitments during his career, but he did promise to get rid of the GST.

Today, we can see what is happening on this issue. The government no longer mentions it, except to try to harmonize that tax. We saw what the Liberals accomplished in three maritime provinces. A harmonization process did take place. It was explained that, before this harmonization, provincial and federal taxes amounted to 19 per cent of the consumer price. An agreement was reached to lower this 19 per cent to 15 per cent.

The shortfall was made up in two ways. First, there was the immediate payment of approximately one billion dollars to these three maritime provinces, using money from the taxes paid by the other seven provinces. This money did not just drop out of the sky. It came from the other provinces. And the way the accounts are figured out in Canada, almost $250 million of this came from Quebec taxpayers.

That is harmonization for you. That is Canada's idea of distributing the wealth fairly. We are used to this game, but we will not put up with it, and it is one of many reasons why Quebecers are giving more and more thought to whether they want to remain in this country and why they came within a hair of deciding to leave on October 30, 1995. It must be remembered, and there is no reason not to say it, that on that day 60 per cent of francophones made a decision to leave Canada, and we will keep pointing this out.

Here we have a wonderful example of what it means to belong to Canada and what it costs. As we see it, staying with federalism is costing the Quebec economy. Every year, we come up short, unless you factor in, as the federal government does, what we receive in unemployment insurance and social assistance. Unless we boast that Quebec is poorer than the other provinces. And this is the diabolical logic the federalists are stuck with when they try to sell federalism in Quebec.

It therefore looks like the people, the governments of the three maritime provinces in question were, to put it bluntly, bought, given one billion dollars in exchange for agreeing to harmonize the tax, as it were.

The second way of making up the shortfall of 4 per cent mentioned earlier, the 19 per cent that turned into 15 per cent in return for one billion up front, is that they said that from now on, transfer payments would be the way to ensure that these three maritime provinces were not penalized. In other words, year after year, almost automatically, the maritime provinces, through equalization payments, will be compensated for this loss of 4 per cent, a practice we condemn.

This is one of the aspects that we feel shows a great lack of regard for other Canadians and other provinces. Another aspect, which is more likely to affect consumers, is the decision that was made as part of this harmonization with the maritime provinces to put taxes which are now visible under wraps once more, taxes that

consumers could see so they could figure, when they paid for a meal or for an item of clothing, how much they were paying in federal taxes. At the time that was something new, but now it seems that harmonization will again put this tax under wraps.

This is probably typical of the way the government runs the country, because when it is not actually hiding something, it is at least trying to.

This is a partial harmonization because it also harmonizes a lack of transparency. The public will be even less aware of how much it pays for services it receives from the federal government. This does not augur well.

At a time when there is so much talk about proper management of public moneys, when all consumers are being asked to do more and more in this respect, I think it is rather insulting that the government should go ahead and hide the GST, although the Liberals, and this was part of the abolition scenario, had made a clear commitment to keep a visible GST.

A typical example is what happened to the report of the finance committee where, in 1994, the Liberal majority said it would be improper to hide from Canadians the taxes they were paying to their governments and that creating a hidden tax would make it difficult for them to make the government accountable for the way these taxes were collected and, to a lesser extent, how public moneys were spent.

In fact, in a dissenting report by the Liberal minority in 1989, under the Conservatives, the Liberals said that if the GST was hidden in the sales price, it would be much easier for the government to increase it later on.

When the Liberal government decides to hide the GST, it knows very well what it is doing. It cannot plead ignorance, and it is reversing the positions it formerly held on the issue and doing so publicly.

In concluding, I still think we have reason to be pleased that some representations made by the Bloc Quebecois were partially included, as regards the GST on books. As was pointed out earlier, from now on all public institutions involved in education and literacy training-in culture as well, when we include public libraries, schools, universities, and community colleges-will all be able to buy books without paying the GST. We are pleased because otherwise, it would mean putting a tax on knowledge, research and intellectual curiosity.

We are pleased but we deplore the fact that this exemption on books is not extended to all taxpayers who buy books in this country but reserved only for public institutions.