Mr. Speaker, thank you for allowing me to speak in the debate on pre-budget consultation. I will start by addressing two remarks to my Liberal colleague, the chair of the finance committee.
The first is that it is very difficult for the official opposition to buy the compassionate speech made by the hon. member, since, for the past three years, this government has been trampling on the clientele he claims to defend on behalf of his government.
For example, as far as assistance to students is concerned-this was one of the recommendations in the Liberal majority report-along with assistance to the sick, to the most disadvantaged in our society like welfare recipients and the least well off, and to the unemployed, as well as job creation, we have trouble believing the sincerity of the hon. members across the way for one simple reason: this clientele, the most disadvantaged, has been attacked by the government.
The cuts this government has implemented in the past three years in the Canada social transfer were intended precisely to reduce transfers in the areas of social assistance, postsecondary education and health.
We judge the government not on the wish of Liberals that appears in the Liberal majority's report, but on the government's actions. In the last three years, these actions consisted in bullying people who are among the neediest in Quebec and Canada.
The second remark on which we can agree partly with the chairman of the Standing Committee on Finance concerns the government's performance in terms of sound management of public finances.
When we compare these results to what we observed three years ago, there certainly are notable differences. But, we must also say that four factors contributed to these results, and they have nothing to do with the Minister of Finance's sound management. They have nothing to do with the government's sound management. And this sound management played only a minimal part.
Four factors contributed to the situation. First, the situation in the U.S. When the U.S. is doing well, chances are Canada will also do well. In the last three years, the situation in the U.S. was conducive to economic growth in Canada, to an increase of Canadian exports to the U.S., which helped our economy.
Second, the situation in Canada, which is clearly influenced by the situation in the U.S. In the last two years, the interest rates have dropped in a way we had not seen for years. However, this drop was attributable partly to the situation in the U.S. and partly to the problem of underemployment in Canada, where the unemployment rate is higher than 10 per cent, where people work less, where they consume less, where inflation is lower, and, consequently, where interest rates are lower. This is not a result of the government's policy.
Third, the massive cuts in transfers to the provinces. It is easy for a finance minister to say: "I am putting our fiscal house in order so I am not giving you any more money". That is what this government and this finance minister have done. One of the largest contributions to the objective of putting the federal fiscal house in order was cutting transfers to the provinces. It gave the federal government some room, but it made it hard for Quebec, for example, to put its own fiscal house in order.
I remind you that Bernard Landry, Deputy Premier and Minister of Finance, said recently-and we do not repeat it often enough-that if it were not for federal cuts in transfers, the Quebec government would not have a deficit today. It would be a zero deficit. It is easy to say: "We will meet and even exceed our objectives".
Fourth, and this is not insignificant, the finance minister and his colleague, the chairman of the finance committee, can brag all they want about this excellent performance with regard to the sound management of public finances, but it does not change the fact that, without a $5 billion surplus in the unemployment insurance fund, the finance minister would not have the same results. And that surplus did not come from his contribution or his government's contribution, but from the contributions made by employers and employees to the unemployment insurance fund.
The government took this $5 billion surplus in the UI fund and instead of spending it, or at least part of it, to create jobs, applied it to deficit reduction. This is easy to do. Anybody could have done as well or maybe even better than the finance minister.
When you look at the overall spending cuts, the largest savings come from cuts in transfers to the provinces and to individuals. This is how the government has put its fiscal house in order. Cuts in departmental operating budgets over the last three years represent about 17 per cent of the overall cuts. It is not much.
With regard to sound management of public finances, the government could have done a lot better, which is what the auditor general has been telling us for three years. Recently, he also reminded us that there were significant shortcomings in the management of public funds and public stocks.
The fact that Quebecers and Canadians have been paying more taxes in the last three years is not mentioned, even thought that fact goes hand in hand with the situation I was describing earlier and with getting our public finances in order. Did you know that in the last three years, the individual tax portion of the federal revenues increased by 17 percent?
Quebecers and Canadians saw their federal income tax increase by 17 percent in the last three years but their personal revenues increased by only 7 percent. That means that after three years of Liberal management of public finances, Quebecers and Canadians are poorer. Federal taxes increased faster than individual taxpayers' wealth. And the Liberal majority's report boasts about the government's accomplishments.
We made recommendations to the Minister of Finance about what he should put in his next budget. If I may, I will describe these recommendations briefly, for the benefit of members and of those watching.
The first recommendation made by the official opposition-and I see the chairman of the finance committee across from me, perhaps to intimidate me, you never know-was to say to the finance minister: You have managed to come up with some leeway. We may or may not agree on the means, but you have come up with some leeway. Furthermore, in the Liberal majority report, this point is emphasized, and I quote: "This year, after two thirds of the period, it is virtually certain that the government will exceed its objective; a deficit of $24.3 billion, or 3 per cent of GDP".
As a result, and I mentioned this earlier, we look to the federal government and see some breathing space; we look to the provinces, however, and they are scrambling. Only the provinces, Quebec in particular, have found ways of balancing their budgets.
I was telling you earlier that, after three years, the government had slashed provincial transfer payments for social assistance, postsecondary education, higher education and health. These are areas that come under provincial jurisdiction. Just like that, the government decided it was making cuts, despite its bilateral contract with the provinces.
We are, therefore, asking the Minister of Finance to do everything within his power to restore part of what he has sneaked away from the provinces in order to solve his own public finance problems, so as to allow the provinces a little more leeway. That is the first recommendation. I might make an aside here: while he is at it, he could perhaps allow Quebec a little leeway in order to compensate it for having harmonized its provincial sales tax with the federal tax, since it has received no compensation whatsoever, unlike the three maritime provinces with their billions in compensation. Perhaps it is time for him to give some thought to some form of compensation for the Government of Quebec.
The second suggestion we made to the Minister of Finance, in our dissenting opinion accompanying the Liberal majority's report on pre-budgetary consultations, was to use part of the surplus generated by the unemployment insurance fund, not to absorb his deficit but to promote job creation. And as we suggested many times to the Minister of Finance, that is what he should be doing. The position taken by the Bloc Quebecois, the official opposition, was supported by the Canadian Chamber of Commerce. We asked the Minister of Finance to substantially reduce employer and employee contributions to the unemployment insurance fund. When we say "substantially", we mean up to 60 cents for every $100 of insurable earnings. That is not peanuts, not 6 cents or 7 cents, but something substantial that could boost job creation.
The contribution rates to the unemployment insurance fund have a significant impact on the capacity of businesses to create jobs. This is a payroll tax, a tax on employment.
Yet, despite the efforts of the government-and I do recognize, as the chairman of the finance committee said earlier, that there has been a light reduction-we are talking about a significant reduction, which is extremely urgent, in my opinion. The situation is getting worse every day. Despite the number of jobs created in the last three years, we still have a deficit of 900,000 jobs. It was 850,000 jobs one month ago but the most recent data indicate that we would need up to 925,000 new jobs to regain the level of activity and the rate of participation in the work force that we had before the 1990 recession. We are unable to create jobs, which should be our absolute priority.
Speaking of which, in our third recommendation, we suggested the finance minister reform the corporate income tax system. We in
the official opposition were very happy and flattered when the finance minister took note of the corporate tax expenditure analysis we released three weeks ago. We conducted an extensive analysis of tax expenditures. For the sake of our listeners, tax expenditures are any means available to Canadian corporations to avoid paying taxes or to have them deferred.
Some tax expenditures are quite appropriate and still relevant in view of the way Canadian businesses have evolved. However others, according to our analysis-analysis which, I will remind the House, had not been carried out for 25 years-should be scrapped. Others yet should be streamlined in order to redirect the potential savings through the years toward job creation support. This is what the Bloc Quebecois did. This is what the official opposition did.
We have worked on this analysis for weeks. I will remind you that there had not been a comprehensive analysis like the one carried out by the Bloc Quebecois over these many weeks since the Carter Commission in the mid-1960s.
We have analyzed 30 tax expenditures, or 30 ways businesses can avoid paying taxes for various reasons, some good, some not so good, depending on the economic situation and the times. Of these 30 expenditures, 22 were identified as warranting further analysis, because of their importance either in explaining federal government revenue losses or for their impact on both Quebec and Canada, according to the tax experts we consulted. Of these 22, 12 were the subject of an in-depth analysis and led us to make recommendations to the Minister of Finance three weeks ago.
This close scrutiny of corporate taxation has shown that federal government revenues could be increased by up to $3 billion per year without raising the corporate tax rate, without increasing the tax burden on small business. Simply by redefining objectives, we could use this $3 billion to create thousands, if not hundreds of thousands of jobs.
Let me give you just one example. One of these tax expenditures is the partial tax exemption on capital gains. This is offered to both corporations and individuals but we had given ourselves the mandate of reviewing corporate taxation; personal taxation will be next.
Let us get back to fiscal spending. On every dollar you earn as a private citizen, you may have to pay as much as 40 per cent in federal and provincial income tax. This dollar is the basis on which your income tax is calculated.
However, if you make one dollar in capital gains, only 75 cents of this dollar is taxable at a rate of between 19 and 20 per cent. Twenty-five per cent of this capital gain, for instance, if you have
shares and each share earns a dollar, 25 cents of this dollar is not taxed at all.
Wage earners who pay income tax cannot shelter part of their income from the tax tables. However, in the case of wealthy people with a lot of capital, especially companies with portfolios of shares which increase in value, only 75 per cent of the value is subject to a minimum tax on capital gains.
This measure made sense until the wealth tax was abolished. When this happened, there was no longer any need for the capital gains exemption. It was the subject of heated discussion under the Conservative government, not so much under the Liberal government, because they did not have the same political will to deal with problems where taxation of the rich is concerned. They are worse than the Conservatives, and sometimes more astute.
We can say that under every government there has been a heated debate around this exemption. The conclusion was always a rational one. And the conclusion we heard from the tax experts was that it made no sense to maintain this exemption.
So we suggest abolishing this exemption, which would allow the federal government to collect around $400 million in new revenue without increasing the tax burden on corporations or private citizens. The exemption should not exist because it makes no sense at all and costs and the government a half billion dollars annually. All the tax experts we consulted, without exception, told us that this measure was entirely unfair.
Another area where we asked the Minister of Finance to act, and I am still on subject of corporate tax reform, is the whole issue of deferred income tax. As you know, businesses in Quebec and Canada have the option of deferring their income tax for seven years and also the option of going back three years, and I am referring to taxes they would normally have to pay because of their profits.
Deferring income taxes is not a bad principle per se; we think it should be upheld because new companies could need some help in starting up for example. Profits made the first year should be ploughed back into a business since this increases profitability and efficiency.
There are also companies which operate in very cyclical sectors. They can make considerable investments for two or three years and see the results only seven years down the road. At the end of the seventh year, they have to offset the loss of income from three years before. That is normal.
However, added to other provisions of the corporate tax legislation, the system creates situations where some very profitable companies never pay a single penny in income tax, year after year. Some business people even boast about it. That is not normal.
The amount of deferred income tax accumulated to date is certainly not trivial; it stands at $36 billion. This is $12 billion over and above next year's deficit according to the estimates of the finance minister.
It seems to me we could strengthen the rules so that one day profitable businesses, most of them large corporations, will have to pay at least part of what they owe Revenue Canada.
Those are two examples of tax reform that we have proposed to the finance minister in order to help the government put its fiscal house in order and, most of all, to support efforts to create jobs.
Besides, now that some of these tax expenditures have been tightened or abolished, we urge the government to adjust some of them so that small and medium size businesses as well as VSMs or very small businesses-which have created the most jobs in the last ten years-can continue and be encouraged to create even more jobs, since we still need about 1 million jobs to get back to the conditions that existed before the last recession.
Fourth, we recommend that the federal government immediately launch a review of individual income taxes. We came to the conclusion, and the Liberal majority report agrees with our concerns, that individual income taxes have reached a ceiling. The underground economy problem is related to that. We should undertake a comprehensive review of our tax system.
It is perfectly useless to make suggestions right and left the way Reform members have been doing. Besides, that is all they have been doing ever since we came here. There is no point in making piecemeal proposals to reduce personal or corporate income tax before a very probing assessment of the situation is done.
We had an opportunity to sort out the problems in the personal income tax system. Major changes may be in order, because there has not been a comprehensive review of this system since the Carter commission in the 1960s. We do not advocate lowering or increasing taxes. Certainly not increasing them.
There are still loopholes in the personal income tax system, and some very rich taxpayers-with taxable revenues of $200,000 to $250,000 and more-still do not pay their fair share. There are some gross inequities between these wealthy individuals and the people who make from $30,000 to $125,000.
We are currently carrying out an in-depth review of individual taxation. We are also developing options for families, single people, the elderly, etc., to be applied before and after the reform we will put forward. We will prepare very succinct options, because the government is not doing its job.
For three years now, we have been asking the government to review the tax system and all it ever had to say was that it was
going to set up an expert panel to examine the corporate tax system. A few weeks ago, the government announced that it was postponing this review until after the election.
In terms of individual taxation, nothing was done. The government does not want to address that issue. Maybe there are some people around the government who benefit from these loopholes, we do not know for sure. But the lack of political will is quite obvious.
What are we going to do? We will do as we did for the corporate tax system. We will suggest to the minister ways for him to do his job.
We will also give him some hints on ways to make the individual income tax system fair and equitable. Who knows, maybe we will go as far as to suggest a reduction of the individual tax burden. But that would require an in-depth review, so we urge the Minister of Finance to at least consider that option for his next budget, because he has been at it for three years now. He is just coasting along, carried by the economic conditions, with the four main factors I mentioned earlier, without making any great effort to try to put his own house in order. Maybe the time has come for him to take a good look at his own back yard.
Speaking of his own back yard, the auditor general-and this is our fifth recommendation-raised serious questions in his last report about good management of public finances by this government. Referring to stock management, among other things, the report mentions excess spending of $1.25 billion. This is not normal. This government is boasting about being a good manager. There is a limit. I will show that this government has nothing to baost about.
As I said earlier, as a result of the government's effort to put its fiscal house in order, the real reduction in spending in departments and crown corporations represents between 16 and 17 per cent of the effort of the last three years. It did not play a major part. It should have but it did not.
The sixth recommendation of the Bloc Quebecois proposes that the finance minister-and it should be one of his major efforts- review in a minor, non-diruptive way, the inflation targets of the Bank of Canada. The government has had the power to do so since 1967. While leaving the Bank of Canada as much autonomy as possible, the finance minister does have the power to establish a general direction for general inflation targets, for instance. He does have that power.
Moreover, the Liberals, in the Liberal majority report, acknowledge-and I see the chairman nodding, although I do not understand why there was no recommendation on this, yet he is nodding.
I quote the Liberal majority report: "The tightening up of Canada's monetary policy aggravated the 1991 recession, but it had two other consequences as well: it produced the very low rate of inflation we have at the present time, but it also led to the high unemployment levels and high cost of servicing the debt, as a result of the high interest rates, which go along with this policy".
Why did this analysis not include some approaches for ensuring that what has happened since 1991 does not continue in 1997, 1998, or any other year? Why was this not taken to its logical conclusion? The government has got us used to a bit of logic, but it never follows it through. Sometimes its actions are totally illogical in relation to the logical analysis that preceded them. Why not follow the reasoning through to the end?
There is no doubt that the monetary policy has hindered job creation. There could have been a balance between the optimum rate of unemployment in the economy and the rate of inflation. The government preferred the role of obsessive inflation fighter-that is going a bit far.
The Governor of the Bank of Canada, Mr. Thiessen, acknowledged only last year that, three quarters earlier, they should have loosened controls on increases in interest rates in keeping inflation in check and that they probably weakened the economic recovery that gives rise to new jobs. He acknowledged it himself.
That is not where the problem lies. The Liberals also acknowledge it, but made no recommendation on the effect of the monetary policy. No recommendation was made on the approach of the policy and yet there are studies, including that of Professor Pierre Fortin, which say essentially: we should keep inflation at 3 per cent over the long term. The Bank of Canada would intervene on the money market to keep inflation at 3 per cent in Canada. A 3 per cent rate of inflation is no big deal.
It is now under 1 per cent, which could mean deflation. That is disastrous, because deflation is worse than an inflationary spiral. I will spare you the demonstration for the time being.
If we had a long term objective of 3 per cent like the U.S., where the inflation rate is currently between 3.2 and 3.3 per cent, we could eventually bring the unemployment rate down to 7 per cent or thereabouts. Do you know how many jobs that would represent? An additional 460,000 jobs would be created. That is half the total number of jobs we need in the Canadian economy to restore pre-recession labour market conditions.
Instead of considering the possibility of readjusting the inflation target range-they need not redefine the thrust of the monetary policy from A to Z, but only to set a new inflation target-the Liberals would rather say: "No, we are staying the course. There
are problems with job creation; we realize that we may have squeezed a little too tight in our obsessive deficit reduction effort, but that is the way it will be." I wonder what the logic is behind that.
The Bloc Quebecois is not calling for a relaxation of inflation control efforts, quite the contrary, but for balanced control. There is no need for this manic-depressive attitude over inflation control. We are now asking ourselves a number of questions, and so are experts who do not necessarily support the Bloc Quebecois or the official opposition because, with an inflation rate of less than one per cent, given the margin of error, we may well be, as I said earlier, in a period of deflation.
A period of deflation is basically an indication that wealth may be decreasing. If prices are expected to stay at the same level or even to fall, how can entrepreneurs be tempted to invest in the economy? Less investment means less production. And if there is less production, there are fewer jobs. It is all interrelated and the deflationary spiral causes a general downturn affecting the economy and job creation. It is worse than an inflationary spiral.
With a one per cent rate of inflation, it seems to me we should try to redefine the targets, or at least try to avoid triggering deflation, which would be worse than what we have been experiencing for the past three years with the attempts to create jobs. It is time the government thought about this; it is time Liberal members stop conducting analyses and start making recommendations that make sense, recommendations that are relevant.
Things are going well in the United States. The inflation rate there is 3 per cent, while the unemployment rate stands at 5.2 per cent. There is a connection between the unemployment and inflation rates. Americans have managed to maintain their unemployment rate at 5.2 per cent, which is described as a balanced unemployment rate. Interest rates come into play, as does the money supply, and rates remain at around 3 per cent for inflation and 5 per cent for unemployment.
The United States does not have a one per cent inflation rate and a 10 per cent unemployment rate like Canada does, something which makes no sense. Year in and year, out we forgo billions of dollars in economic spinoffs because we have decided to be overly scrupulous, as my mother would say, we have decided to outdo the right wing in the United States and to be blindly obsessive in our war against inflation. It is time to put an end to this madness.
In essence, these are our suggestions to the finance minister. We would rather have the finance minister listen to what we have to say, instead of praising the work of the Bloc Quebecois in matters of taxation, congratulating us as he does for the seriousness of our work, our great ability to analyze the corporate tax system, our good recommendations.
We will accept the government's congratulations, since we do not get them often. We will accept them also because they show, at least in part, how useful the official opposition is, how useful the Bloc Quebecois is. And we will be even more useful over the next few years, until Quebec decides to go for another system than the federal system.
I would like to tell you this: when I look at the remarks made over the past three years by the Bloc Quebecois, by myself and by all my colleagues, who are doing a wonderful job, and when I compare them with the remarks made by government members and members of the other opposition party, I see that every time a member of the Bloc Quebecois rose in this House, it was to defend the interests of those who sent us here.
I see that every time a member of the Bloc Quebecois rose in this House, it was to defend the interests of the people we are here to represent. We rose to defend the disadvantaged, the unemployed, students, seniors, the right of women to dignity through work, day care centres. Then I looked at what the others did.
The finance minister rose to defend the right of large corporations to do whatever they want as far as taxes are concerned. He rose to defend the tax free transfer of a $2 billion family trust to the United States. He rose to defend the right of very rich Canadian taxpayers to a partial capital gains exemption. Every time he rose, it was to defend the interests of rich people and large corporations.
I will not say a word about Reform members. They did the same thing as the government. That showed me how useful the Bloc Quebecois is. That is why my colleagues and myself are here, to defend the interests of real Canadians, to defend the interests of the disadvantaged, to defend real job creation measures and not measures to help the rich get richer and the poor get poorer.
I thank you for giving me this opportunity to speak. I am sure my colleagues from the Bloc Quebecois will rise again, during the next two days, to defend the interests of real Canadians and not the interests of very rich taxpayers and large corporations.
