House of Commons Hansard #16 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was taxation.
Paul Zed LiberalParliamentary Secretary to Leader of the Government in the House of Commons
Mr. Speaker, pursuant to Standing Order 36(8), I have the honour to table, in both official languages, the government's response to two petitions presented during the first session.
Bonnie Brown Liberal Oakville—Milton, ON
Mr. Speaker, it is my honour to present a petition which has been duly certified by the clerk of petitions and signed by 126 residents of my constituency of Oakville-Milton.
The petitioners call on the government to promote an international ban on the use, production, stockpiling, transfer, export or sale of anti-personnel land mines; to legislate an end to Canadian mine production, use and export; to increase existing de-mining programs; and to support land mine victims with financial and medical care.
This petition was initiated by members of St. John's United Church in Oakville. I commend their efforts and support them in their cause.
Tom Wappel Liberal Scarborough West, ON
Mr. Speaker, I have three petitions today.
The first petition recalls the brutal murder of a constituent of mine, Louie Ambas of Scarborough. It brings to the attention of the House that Canadians from coast to coast are calling for changes to the Young Offenders Act and for heavier penalties for all those convicted of violent crime.
The petitioners therefore pray that Parliament amend the Young Offenders Act to provide that young offenders charged with murder be automatically tried in adult court and that if convicted, they be sentenced as adults and that their identities should not be hidden from the public.
Tom Wappel Liberal Scarborough West, ON
Mr. Speaker, the second petition is signed by hundreds of Canadians of Hungarian descent. They raise various concerns and ask the government to raise their concerns through diplomatic channels.
The petitioners are concerned about the preservation of basic human rights of the indigenous Hungarian minorities living outside the borders of present day Hungary, which include 2.5 million in Romania, 800,000 in Slovakia, 350,000 in Serbia and 160,000 in the Ukraine. They outline various human rights abuses that have occurred to the Hungarian minorities in those countries.
The petitioners pray that Parliament voice their concerns and protest toward those named governments and remind them of their duty to respect democratic principles and basic human rights as guaranteed by the United Nations charter of rights, and as signatories of the Helsinki accords respecting minority rights.
Mr. Speaker, I also have petitions signed by people in Calgary and other areas in Alberta. They call upon Parliament not to amend the Canadian Human Rights Act or the charter of rights and freedoms in any way which would tend to indicate societal approval of same sex relationships or of homosexuality, including amending the Canadian Human Rights Act to include in the prohibited grounds of discrimination the undefined phrase of sexual orientation.
Paul Zed LiberalParliamentary Secretary to Leader of the Government in the House of Commons
Mr. Speaker, I ask that all questions be allowed to stand.
Questions On The Order PaperRoutine Proceedings
The Acting Speaker (Mr. Kilger)
Is that agreed?
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
moved:
That this House deplores the fact that the technical committee set up by the Minister of Finance to analyse business taxation is comprised of members who are both judge and judged with regard to business tax reform; and that, this being so, the Minister of Finance should set up a joint committee of experts and parliamentarians to examine business taxation in an impartial manner according to an open and transparent process.
Mr. Speaker, I am pleased to open this official opposition day on the vital matter of reforming the taxation system, business taxation in particular.
Tax reform is necessary for several reasons. The entire taxation system must be re-examined, but I shall restrict my address to four reasons directly connected to the Bloc Quebecois' three years of reflection on this matter.
The first reason is that there has been no thorough review of the Canadian taxation system for close to 30 years. The last commission to seriously address in depth tax reform was the Carter commission, in 1967. Since then, however, some measures have been added, others deleted and still others modified. In short, since that time we have had no clear idea of what is going on.
The second reason is that the Canadian tax system is extremely complex-and we in the official opposition are not the only ones saying this, everyone is, including representatives of other countries. It is unwieldy to administer, and in some ways encourages two major problems: first, the underground economy, and the lack of control over it-and complexity equals absence of control-and second, it can even encourage, through taxation agreements with certain countries considered to be tax havens, tax evasion and capital being drained out of the country.
The third reason to reform the Canadian tax system is its numerous loopholes, which are to the advantage of those with the highest incomes, the major Canadian corporations in particular. They can afford to hire acknowledged tax specialists in order to take advantage of such loopholes and to avoid paying what they should to Revenue Canada.
Every time corporations or high income individuals do not pay what they should to Revenue Canada, the ones who do end up paying in the end are all the individual taxpayers in Quebec and in Canada.
And now for the fourth reason. Taxpayers throughout Quebec and Canada are asking us to reform taxation. They cannot abide the fact that the Minister of Finance is forever eliminating essential tools and that he is leaving out a whole chunk of the reality of Canadian public finances. Of only for that reason, if only because Quebecers and Canadians are asking the government for reform-the bosses are calling for tax reform-I think it should be done.
There is perhaps a fifth reason as well. We see that the Americans, as we look about to see what is happening elsewhere in the world, have been working at modernizing their tax system since the early 1980s. They went at it, because they could see the American system was becoming increasingly complex, more easily defrauded and more loopholed. They started the job by imposing a minimum tax on corporate revenues. Now they are analyzing the flat tax.
I am not saying this is the solution, but at least they are looking at viable alternatives. The Americans are doing it, but not the Canadians. The French are doing it too. The day before yesterday, I listened to Mr. Chirac set a five year deadline for a reform of individual and corporate taxes, because he can see that tools previously used within a given country only and protected by its borders, when tax competition was only an idea, needed changing as well to keep up with today's globalization.
Now, tax competition is less and less an idea. Taxation has to become competitive, properly harmonized and simplified to ensure control. This is taking place throughout the world.
Five criteria guide major tax reform: simplification, performance, control, justice and fairness. This is the message we have been trying to get through to this government for two and a half years. How did the government answer? I will confess honestly-not naively, as that would be too much-that we were very happy when the Minister of Finance told us, when he brought down his last budget, that he had set up a technical committee to review the tax system. We were really very happy about that.
I even told the Minister of Finance that the representations of the Bloc Quebecois, of the official opposition, had not been in vain. You finally understood that tax reform was essential, unavoidable, if there was any real desire to put some order in public finances and to have a fair tax system in Canada. I was reading the press release announcing the setting up of the committee-
Could we, Mr. Speaker, get the attention of the government side? Sometimes, when they make an effort to listen to and understand suggestions which are made to them, things in Canada seem to get better and better.
SupplyGovernment Orders
The Acting Speaker (Mr. Kilger)
As we open this debate, the hon. member is asking for the co-operation of all members of the House so that he might be heard clearly with a minimum of interruption. I encourage members, if they wish to have discussions, to take them behind the curtains to other rooms.
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
As I was saying, we were happy of that development, and I said so to the Minister of Finance. At last, you understand that pressing requests from Quebecers and Canadians for a reform of taxation cannot be ignored, but if you really wish to get public finances in order, the whole system must also be re-examined.
The news release that accompanied the committee's creation was wonderful in it first two paragraphs. It said, and I quote: "Canadians want a tax system that is both as fair and as simple as possible, Mr. Martin said. They also want a system that encourages economic growth and job creation. Given the complexity of these objectives, a comprehensive review of taxes related to investment and business activity is warranted. The Technical Committee will consider ways of improving the tax system to promote job creation and economic growth, simplifying the taxation of businesses to facilitate compliance and administration, and enhancing fairness to ensure that all businesses share the cost of providing government services".
When we heard that, we almost gave three cheers. When we looked at the back of the news release, things started to deteriorate, because the objectives stated there are the same we, in the Bloc Quebecois, have been steadfastly fighting for. These are goals we wanted and still want to reach with regard to tax reform.
But when we look at the process and the make up of the committee, we are compelled to conclude that this is a fraud. Why? For three reasons. First, some committee members represent businesses whose main mandate is to advise big earners and major corporations on how not to pay taxes to Revenue Canada, a fact we have often criticized.
These businesses have branches in countries such as the Bahamas, the Caiman Islands, just about everywhere in the world, countries considered as tax havens through which hundreds of millions of dollars are rerouted instead of being paid to Revenue Canada. Not only are these individuals advising corporations on how not to pays taxes, but they themselves are party to tax evasion through tax conventions signed with countries considered as tax havens.
Under such circumstances, how could committee members not be biased in favour of maintaining certain exemptions, commonly known as tax expenditures, which benefit major corporations, their own businesses and themselves? What kind of report do you think these committee members are going to produce as a result of their work through the year?
How can you expect a process taking place behind closed doors-which is what the finance minister is suggesting-to produce a true business tax reform, a complete overhaul of the system, including what is commonly known as tax expenditures? It is not in their interest to have things changed. It is in their interest to maintain the complexity of the tax system, since individuals representing firms such as Price Waterhouse and Ernst & Young make a living out of it.
If the tax system was simpler, if it was easier to monitor, if it was not possible to take advantage of tax loopholes to avoid paying federal taxes, these individuals would be out of a job. Try to find someone, anywhere in the world, who would be willing to shoot himself in the foot, not only one but thrice. Enough is enough. We learned this week that these same people contribute as much as $80,000 a year to the Liberal Party fund. How can they be totally unbiased? I think this is a masquerade.
A lot of things could be done in the taxation area. People are already up in arms. All over Canada, from coast to coast as they say, taxpayers from Quebec and all other provinces say that we must change the tax system, and it has nothing to do with a constitutional option. We must implement a more equitable tax system. We have been repeating that to the government for two years and a half but it has done nothing, it has shown no political will to reform the tax system; it just created a committee that is in all likelihood, in my opinion, a phoney committee.
How can we ever get any results? I tell you, all over Canada people say that this committee makes no senses and that the government should reform the tax system. Let me quote, as I did yesterday, another part of the letter I received from a Canadian taxpayer, Miss Jansson from Regina, Saskatchewan. In fact, she sent me a fax because the Reform members do not have the exclusive use of the fax, nor do they hold a monopoly, we also use that equipment from time to time. Miss Jansson says, and I quote:
This fax is to express my appreciation to you for presenting several important issues during your response to the finance minister Paul Martin's budget speech. While I recognize that your party, the Bloc Quebecois-
SupplyGovernment Orders
The Acting Speaker (Mr. Kilger)
Excuse me for interrupting, I know you did not do it on purpose, but I would like to remind the House that in our speeches we are not supposed to name members or ministers. We should rather refer to them by the name of their riding or by their title if they are members of the Cabinet. It might be a little more difficult when we are quoting something, but even
then we are supposed to change the name of the minister for his or her title or the name of his or her riding.
The rule in the House is that we cannot do indirectly what is not done directly. I know that you did not intend to do it, but I wanted to remind the House of this fact.
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
Mr. Speaker, I am sorry I missed that when I prepared my speech. I will go on with my quote:
While I recognize that your party, the Bloc Quebecois, has specific aspirations, your comments mirrored the concerns of many citizens in Canada.
[Translation]
And further:
Reform of the tax system should be a primary responsibility of a future oriented government. Instead, our present leaders seem to have their feet bonded firmly in the concrete of outdated, cumbersome legislation. Your speech informed taxpayers such as myself that Ernst and Yonge, a management firm most noted for their legitimization of patronage appointments, have been appointed to the tax commission studying the taxation law for large corporations. Using our tax money to pay Ernst and Yonge for these services is similar to appointing a fox to plan a security fence for a flock of chickens. Of course, the ordinary citizens of Canada have had our feathers plucked so often by our elected officials that we should not be surprised when the last vestiges of equal opportunity are removed.
There is a lot of work to do. As I told you, this lady took the time to write, to tell me that she thought this committee was a farce, that there was no real political will to reform the fiscal system. This lady also called for serious consideration of our tax system. There is a lot of work to do in the area of fiscal reform.
Just in the area of tax expenditures, that is to say the area of exemptions, tax credits and so on given to companies, it is estimated that some of them-and there are scores the impact of which is not known-are costing Quebec and Canadian taxpayers, year after year, around $10 billion.
Those are the known measures, because of course there are others that have not been evaluated for want of a review by a serious and transparent committee, one that really wants to make the process work. Ten billion dollars a year. These taxes that go unpaid or these credits that are allowed look like indirect subsidies, since, when the taxes are not collected, it as if the government were investing in these businesses, or were giving subsidies to these businesses.
It is all the taxpayers of Quebec and Canada who pay for those $10 billion a year. When you pay such large amounts you hope to get something for your money, but this is not necessarily the case. When we look at each of the tax expenditures, each of the exemptions, it is not true that we get something for our money.
Take for example the partial inclusion of capital gains. Under that measure only three-quarters of corporate capital gains are taxed. So, any company buying shares and reselling them at a higher price makes a capital gain equal to the difference between the buying price and the selling price. Only three quarters of the profit between the buying price and the selling price is taxed. Why do we not apply a normal tax rate? Why not tax 100 per cent of these capital gains? Much has been made about this everywhere in the country, and even the fiscal experts say that this should not be the case, that we should tax, as in the case of all the taxpayers' revenues, 100 per cent of the capital gains. Any investor or company buying and reselling shares already makes a gain, a profit on this sale. On top of that, we give them even more. We say: "Only three quarters of this amount will be taxed". Why not 100 per cent?
Do you know how much this measure is costing? It is costing $400 million each year to the taxpayers of Quebec and Canada. The same thing applies to the investment tax credit and the scientific research and experimental development tax credit. Essentially, this is a very good measure. It is excellent. We have to promote research and development in Quebec as in Canada. We should have done this ten years ago. We should have had these credits and grants for research and development to increase the competitiveness of companies.
Yet, once again, there are serious deficiencies in the rules which govern this research and development tax credit. They are so permissive, as far as the equipment and the research projects themselves are concerned, that there are definite abuses. I remind the House that, last year, the Bloc Quebecois condemned the use of the research and development tax credit by major Canadian banks and that, had it not been for our condemnation, banks would have continued to claim this tax credit to develop their automated teller machine systems and their internal software. Major Canadian banks have already taken advantage of an amount of $300 million in investment tax credits to develop their equipment and their internal software.
I could go on at great length, but you are indicating to me that I have about three minutes left. I could go on at great length, because there are dozens of exemptions such as these that would deserve to be examined seriously, in a transparent way, that would deserve to be explained to the people and also to be judged by them through the work of an open and transparent parliamentary committee, not a committee such as the one that the finance minister has set up, which is partisan, which is likely to skew the assessment of exemptions and of the tax system in general, and which will not
meet the objectives that we would hope it would meet, that is a real tax reform benefiting the taxpayers of Quebec and Canada generally.
I want to make an appeal, but just before I do, I would add that committee members will not propose to eliminate benefits related to tax conventions signed with countries that are considered as tax havens, since they themselves take advantage of them. So, what do we expect from this committee?
In conclusion, I would like to appeal to the Minister of Finance on behalf of all Quebecers and Canadians. If he really wants to get the government's fiscal house in order, if he really wants fair taxation in Canada, if he really wants not only to make people feel that everything is fine, but also to make some improvements to the tax system, I urge him to set up a real parliamentary committee supported by experts to conduct a serious, extensive, in-depth review that will produce results in the end. Once we have such an assurance, you can be sure that the official opposition, and especially myself, will work on this reform in a serious and constructive manner, with all the co-operation the Minister of Finance could hope for.
In the meantime, allow me to table the following motion:
That this House deplores the fact that the technical committee set up by the Minister of Finance to analyze business taxation is comprised of members who are both judge and judged with regard to business tax reform; and that, this being so, the Minister of Finance should set up a joint committee of experts and parliamentarians to examine business taxation in an impartial manner according to an open and transparent process.
I table this motion on behalf of the official opposition.
Barry Campbell LiberalParliamentary Secretary to Minister of Finance
Mr. Speaker, the night before an opposition day we wait with bated breath for the opposition party's motion. However, it was with some disappointment and surprise that we received the motion last night.
The motion reveals that the hon. member from Saint-Hyacinthe understands appearances but is baffled by substance. He received a press release concerning a committee and was all incensed about the composition of the committee.
We now have a motion that deplores the composition of the committee but misses the substance which is that we are in a very real way responding to suggestions from members of the House that we look at the tax system with a view to determining impediments to job creation and growth. This has been undertaken in the most proper way.
The member for Saint-Hyacinthe-Bagot is an expert in the dairy industry. Let us look at the state of the dairy industry in Quebec. If Quebec were to separate would the dairy industry of Quebec be able to export milk to the rest of the country the way it has in the past?
I would consult the member for Saint-Hyacinthe-Bagot on an issue in which he had some expertise. The dairy industry in Quebec is an area where he clearly has some expertise. I would to consult him because he has experience. However, he also would obviously have some bias with regard to that industry because of his familiarity and he was paid by that industry. I would be pretty wary of his advice and I would want it subjected to scrutiny and public consultations that followed.
Coming back to the analogy from the letter the hon. member quoted, if I wanted to understand why the fox wanted into the hen house I would not just talk to the hens, I would interview the fox also.
It has been extremely disrespectful of the member to waste the time of the House. He has really out done himself in the way he has attacked the process. As I said, he understands appearances but he is clearly baffled by substance as he engages in what is really intellectual cross-dressing. This is a triumph of dogma over good sense. In the process he has belittled the reputation and professionalism of some of Canada's most eminent experts on taxation.
He has implicitly attacked the government's demonstrated commitment to tax fairness and ignored the raft of actions we have taken to ensure that businesses pay their share of the cost of providing government services to Canadians.
The member has abused the purpose of supply day itself, a time which we should spend on critical issues, with a motion that contains some regrettable misinformation.
What is really deplorable is not the composition of the technical committee and not the process of taxation review but to leave out of his remarks the recognition he has that this is but a first step in a process that will involve public consultation and consultation with members of the House.
These facts should surprise no one who listened to the minister's budget speech or read the news release announcing the committee. Unfortunately that does not include the hon. member. Let me explain things to him and to other members who are interested.
Why is the committee so small? What about public participation then? This is the first step in a business taxation review. This small group, whose members have expertise in various fields, will assess
the business taxation system as a whole and make useful recommendations and propose useful options to the government.
Public consultations will be held after the committee report has been released. At that time, special interest groups will have every opportunity to make themselves heard-in response to a package of clearly set out options and proposals-before the government makes any policy decision.
That is the way we go about things. We consult the experts and we get, as some might say, something to shoot at. We have a set of recommendations and people can weigh in on either side. We want to consult experts in the fields first.
As the minister said in his budget speech, Canadians want a tax system that is both as fair and as simple as possible. They also want a system that encourages economic growth and job creation. Given the complexity of these objectives, a comprehensive review of taxes related to investment and business activity is warranted.
The last general review of business taxation was internal work that preceded the 1987 tax reform undertaken by the previous government a full decade ago. The time is right and the objectives of the technical committee are clear and concrete, goals that every Canadian from every region can embrace.
The terms of reference were spelled out plainly in the news release that accompanied the budget.
"Improving the tax system to promote job creation and economic growth in an open economy; simplifying the taxation of business income to facilitate compliance by taxpayers and administration by Revenue Canada; and enhancing fairness in the tax system by ensuring that all businesses share the cost of providing government services. In addition, the assessment will consider the interaction between taxes paid by business-including corporate income, capital and payroll taxes-and taxes paid by individuals on income derived from investments".
Promoting job creation, simplification, better compliance, increased fairness, is there any Canadian anywhere who will not agree that these are vital attributes that our national tax system must display or that pursuing these goals must be a commanding concern of the government? That is what we believe and I suspect or at least hope the hon. member shares that vision. His motion is something else. It fails the tests of fairness and openness, the same values it claims are missing from the technical committee process itself. That is regrettable.
It describes the appointed members of the committee in the English version as both judge and judged with regard to business tax reform. Common courtesy and natural justice demand that these men and women deserve better and that such a meanspirited mistaken attack is inappropriate in the House.
They are not judges who will issue binding rulings because the government and the House cannot and will not be bound by their findings. They are there to analyse and advise because they are proven experts, distinguished academics, distinguished practitioners, the sort of people who know the field and who will help us to understand it while we remain members of the House with our ability to think critically about the issues they will raise.
They are proven experts like Jack Mintz. They are lawyers and accountants. I have their names and backgrounds with me here. They represent a wide cross section of expertise including Robert Brown, chairman and chief executive officer of Price Waterhouse; Professor Bev Dahlby of the University of Alberta; Gerry Godsoe, a partner with Stewart McKelvy Stirling Scales; Allan Lanthier, senior tax partner with Ernst and Young; Wilfrid Lefebvre, senior partner with Ogilvy Renault; Profession Nancy Olewiler, chairman of the economics department at Simon Fraser; Norman Promislow, a partner with Buschwald Asper Hentelef; Stephen Richardson, a partner with Tory Tory DesLauriers & Binnington.
They are all recognized experts in their field, the sort of people we would want to work on these issues and report to us. They are not judges. They will not make binding commitments for the government. They will analyse and advise.
How does the hon. member dare suggest these technical members are also the judge? Is he suggesting they are potential agents of the business community with vested interests that will make their advice suspect? He knows better. He knows they have highly regarded professional reputations. We are grateful to them for taking on this task.
I believe they have a higher opinion of their professional obligations and their duty to the nation and its taxpayers than the hon. member opposite appreciates. He would well understand that one leaves the baggage of a given client or past experience behind when it comes to an assignment like this for the Government of Canada, that one does bring to bear one's experience. That is why we call on such people.
The real bottom line measure of performance is the commitment we have as a government to the task at hand. I am confident the members of the technical committee will take their work seriously and provide us with important assistance.
Let us remember that the report will be a public document. Its observations and suggestions will be there for everyone to see. Any unwarranted biases or favouritism, which the hon. member automatically assumes would apply to everyone else but himself, will be there for all to judge. The technical committee accepts that discipline.
What about the suggestion in today's motion that the technical committee should include parliamentarians? The answer lies in the meaning of the term technical committee, which clearly escapes the understanding of some hon. members opposite.
Modern tax systems are complicated. That is part of the problem. We have struck a technical committee which has expertise and proven hands on familiarity with the system. Its members are well beyond taxation 101. In fairness to many of my colleagues like myself, the Income Tax Act strikes us as being extremely complicated. I want a little help when travelling through the act to zero in on those areas that are impediments to job growth and creation.
The committee will begin its work high up in the learning curve. I doubt there are many members of the House with the same expertise. We will gain time by involving a committee which is made up of people with these qualifications. The question is: What added value would parliamentary presence bring at this initial, purely analytical stage?
The technical committee should be allowed to undertake its deliberations without being afraid of stepping on political toes. It should be truly independent of direct party affiliations and public constituencies.
What is astounding is that implicit in the hon. member's attack on the committee is the suggestion that he and he alone-or perhaps his colleagues in the official opposition-knows exactly what has to be done. Why consult anybody that has a different point of view? That would lead to a result which might be different from the one they have decided, for ideological and other reasons, they want to propose.
There are dramatic inconsistencies in any event in the position of members of the official opposition. On the one hand they attack tax havens; on the other hand their separatist colleagues in Quebec talk about an independent Quebec being a tax haven. I am not sure where they stand. I want to hear from the experts first and then my colleagues can weigh in.
The committee's deliberations will not be public at first but there is nothing suspicious or sinister at work, despite the misleading and mistaken implication in today's motion.
As is customary in committees of experts, task forces and royal commissions of inquiry reporting to the government, the proceedings will not be open to the public. But the report itself will be published, of course, along with any documentation the committee deems appropriate to support its assessment and findings.
One of the things of which I am most proud is the progress the government has made in bringing policy making out into the open. As was said in the House last December regarding the prebudget report of the finance committee, in the past, budgets were made for the most part behind closed doors with the finance minister consulting in private with select groups of individuals and interest groups. The government for the third year in a row has taken the budget making process out from behind closed doors to Canadians across the country.
It is that openness which has contributed substantially to the favourable public reaction the government's budgets have received and it has no intention of jeopardizing that commitment in the future. The government's performance is a matter of record and it will stay that way.
I will emphasize again that any action based on suggestions of the technical committee will come only after extensive public consultation. The minister explicitly promised that in his budget speech.
I feel we should all regret the time we are spending debating a motion so lacking in merit. It is a wasted opportunity to deal with the real substance of matters before us.
The issue of taxation, both from the perspective of fairness and how it affects job creation, represents one of the most significant challenges our country faces. It deserves a debate based on substance, not political grandstanding and partisan game playing. We are committed to meeting that challenge. The action we have taken in three budgets proves that. It also proves that we are not beholden to any particular interest as the motion may imply. Again, let us look at the facts.
In our three budgets, personal income tax rates have not been increased at all. However we have taken real action affecting the corporate sector, putting the lie to the implicit suggestions in the hon. member's motion and his discussion. This action was carefully considered with respect to the corporate sector. We fully understand the consequences that higher corporate taxes have upon business investment and the ability of the private sector to create the jobs Canadians need. We have moved carefully, acting only where we could achieve real improvements, fairness and efficacy in the tax system.
We have acted without fear. This includes measures such as higher rates for the large corporation tax and the corporate surtax and reduced deductions for meals and entertainment, reducing business subsidies. Any suggestion that we are afraid to act with respect to the business and corporate sector where action is
warranted, fair, reasonable and helpful, is simply wrong. The record shows otherwise.
There are some, and perhaps the hon. member opposite is among them, who would prefer a truly punitive tax regime for business. It is interesting that he only suggests that in regard to Canada. In the province of Quebec other things are said about tax havens and lower corporate rates to attract investment, but it is here in the House that he says: "No, no, that is not on". He and his colleagues try to play with numbers to suggest that Canadian business gets an unfair preference in the tax system.
The fact is, and he knows it, that income taxes represent only a portion of the total tax bill. When all taxes are taken into account, income taxes, corporate income taxes, capital taxes, payroll taxes, property taxes, corporations pay about two-thirds of their before tax profits in taxes. Is that too much or is it still not enough? That is a question which must always be examined as we look at the mix of tax revenues along with the structure of the tax system. That is what this government will continue to do.
The technical committee on business taxation is a part of that process. Its findings should help spur informed intelligent debate, what every member of the House wants to take place, the sort of debate that today's motion does nothing but try to undermine.
I have no qualms in urging the House to dismiss the motion.
Herb Grubel Reform Capilano—Howe Sound, BC
Mr. Speaker, I stand on behalf of the Reform Party to also oppose the motion.
The motion suggests, I think almost insultingly, that experts who have been asked to write a technical report are unaware of the kinds of political concerns which dominate the thinking of professional politicians in the House. As a former economist who has written such reports, I can say that the political concerns are always constraining and they influence what the expert report comes up with. I believe it is inappropriate that members of Parliament dictate on a day to day basis what the outcome is because they have the opportunity to influence the public information about the subject.
Once the report is written it is almost certain to go for hearings to the Standing Committee on Finance of the House of Commons. At that time members of Parliament can insist on having other experts brought in. They can ask questions relating to the contents of the report. They will have input for generating information that is broadly representative and goes beyond what the technical experts are saying, even if this is necessary.
Once the report is tabled and goes to the Department of Finance, legislation may or may not come out of it. Clearly, once legislation stimulated by the report is proposed, members of Parliament have yet more input. The legislation will not only be discussed on the floor of the House but there will be opportunities for hearings and further experts being brought in when the legislation is considered before the Standing Committee on Finance.
Therefore, it is totally inappropriate at this point to try to introduce a more direct influence of professional politicians into the deliberations of the technical experts.
My own party is not totally happy with the way in which the frame of reference of this committee has been designed. We believe in this modern age as a result of developments in communications and globalization of financial markets it is time to have a more thorough examination of the entire taxation system. We should look not just at the business taxes; we should also look at personal taxes, excise taxes and customs. It is also very important to look at some of the Department of Finance publications. There should also be consideration of the practices of local governments in their taxation of individuals and corporations. These matters are all interdependent.
All of the country's taxation laws should be examined again as a cohesive single unit, an interdependent system, while keeping a very close eye on how it works in relation to foreign practices. We live in this global village which has made it very difficult for individual countries to have policies that can be carried out simply to maximize domestic objectives without taking into account the way in which foreigners are influencing the effectiveness and the workability of those domestic practices.
There are many problems with the present system of which I am very much aware from the hearings of the finance committee but also because I delved into the literature on the flat tax. The proposals for a flat tax in the United States, Canada and throughout the world are now being given a serious hearing. I believe that is the case for exactly the reasons I have mentioned. Globalization and all kinds of practices reduced the work before we had these international developments; we are not likely to do so in the future.
The biggest problem almost all tax experts agree on is that in Canada and most other industrial countries income from property is taxed three times. First, the business which earns profits from investment pays its business or corporate income tax. These dividends or profits are then entered into the income of the person who owns the business or shares in it and it is taxed again at the personal tax level. It is taxed twice, but it is worse than that. We also have taxation of capital gains. If someone then sells his business or shares in the future, if there has been an accumulation
of wealth, an accumulation in the value of that business, there is then the capital gains tax.
The capital gains tax is particularly pernicious. First, many of the gains that appear are really paper gains. If I make an investment of $100,000 and at the time I make the investment I could have bought a residence for $100,000, then we have inflation. The value of my business triples. It is now worth $300,000, but because it was general inflation I can still only buy the same residence with it. I have not become any richer as a result of the increase in the value of my investment in a business.
When the government steps in and says that 30 per cent or 50 per cent of the increase in the value of the business is due to capital gains and is taxable then it is expropriating the owner of that business. After taxation that business will be able to buy only one-half of a home rather than a full home. What is the justification for this? The asset, which is being taxed like this, has already paid income taxes, both at the business level and at the personal level.
There is fairly widespread agreement, not total agreement, among economists that this bias against the returns on investment and savings has depreciated the rate of capital accumulation in our country. It is capital that is invested in the country which raises the productivity of labour, which raises personal income, and which determines in the end our standard of living. Therefore it is detrimental to Canadians in the longer run to put such a heavy tax on income which is subject to this kind of double taxation.
I want to make one quick reference to the high progressivity in taxes. In British Columbia it is now well over 55 per cent for the highest income earned.
Someone produced a chart for me which shows that we started off in 1967 with a marginal tax rate of 80 per cent in Canada. It has now reached about 50 per cent. During this period one would have expected that the income taxes paid by the top 1 per cent of all income earners and the top 10 per cent would have decreased because after all the rates of taxation that they are subjected to have decreased so dramatically.
The graph shows that the proportion of all personal income taxes paid by the top 1 per cent of all income earners has remained absolutely constant between 1967 and 1993. There were some fluctuations, especially around the mid-1980s, when interest rates were 20 per cent and all these companies went bankrupt.
Basically the same thing is true for the top 10 per cent. It suggests that the disincentive effects which have come from these high marginal tax rates have not really been effective in getting more money out of the rich people and we might as well get rid of them.
John Richardson LiberalParliamentary Secretary to Minister of National Defence and Minister of Veterans Affairs
Mr. Speaker, I thank the hon. member for his presentation.
As with any new concept such as the one he presented and which is also before the Americans, the hon. member may be aware that the Germans looked at the flat tax. I ask the hon. member to enlarge on this. The burden of proof is to see who is going be gaining on this. That is the big question.
Even in the elections taking place in the United States where it is getting a lot of play, the question that constantly arises and is not answered is "who wins and who loses?" There is no doubt it is simple, we all win in that way, but it does not look that it is going to be as fair as they say it is. I wonder if the hon. member had some adjustments to the one that Mr. Forbes is presenting in the United States. Is that a fair comment?
It is under attack for the non-disclosure of who wins and who loses. I ask the hon. member if he could enlighten us on his approach.
Herb Grubel Reform Capilano—Howe Sound, BC
Mr. Speaker, I am now speaking about a scholarly paper that Jim Silye and I have prepared for presentation. I am sorry, the hon. member-
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The Acting Speaker (Mr. Kilger)
I certainly would not want to enter into debate about the comments made about a colleague. That could be a matter of another debate on another day. Certainly he is correct that we should refer to one another by each other's ridings.
Herb Grubel Reform Capilano—Howe Sound, BC
Mr. Speaker, this was not deliberate but just a slip of the tongue. I talk about this paper all the time. It is not in the public domain. It will be published by the Fraser Institute. It was subjected there to the scrutiny of scholars.
There members will see a calculation for the introduction of a flat tax for income earners of different categories, like single parents, seniors and so on, with all the provisions taken account of by a technical expert in the Library of Parliament using Government of Canada statistics.
According to his simulations, business income taxes would rise by about $5 billion under one of our specific proposals. This would make it possible to have practically no changes in the income taxes payable by individuals.
On the other hand, I am distrustful of these results because they cannot simulate the dynamic adjustments to which I referred-I would be happy to give a copy of this graph-in terms of simultaneously lowering the tax rate on high income earners and taking away tax loopholes.
You must remember hearing me say regularly that one of the troubles with the tax system is that the rich do not pay enough
because they have all those loopholes. If this is what you believe, then you must agree that if those loopholes are closed, they would pay more.
We then lower the tax rate. It is totally astounding how the balance of the two things over the last 25 years has resulted in the top income earners paying exactly the same share of all personal income taxes as they did before. The simplification and the dynamic benefits that one cannot quantify will make the flat tax a very good thing for Canadians.
Jim Silye Reform Calgary Centre, AB
Mr. Speaker, the motion before us is unnecessary because the technical committee was created to give advice to the government, whose final report will be shared with the Standing Committee on Finance where members of Parliament will have ample opportunity to question witnesses and give input.
Since we must debate, let me focus on the government's short sightedness on this issue. The broader mandate should be for a taxation review integrated with individual taxation, not just corporate, with a view to creating hope, growth and opportunity.
Thanks to this motion, I can give my input to the committee and government today and later when it reaches the standing committee. I believe we should untax our way to prosperity by considering and implementing a simplified tax system.
The basic concept would be to replace the current Income Tax Act with a simplified system that applies a single rate of taxation to income above a generous personal or family exemption level with no other deductions or incentives.
By restoring the income tax system to its original purpose, simply to raise revenues, government spending on social and economic benefits would be converted from tax credits or deductions into direct spending through programs, grants or subsidies, thus revealing the true cost of those expenditures.
This increased visibility of actual government spending would introduce a higher level of responsibility and accountability by both bureaucrats and elected members of Parliament.
Simplification of the rules would make the system more taxpayer friendly. It would allow tax experts, accountants and Revenue Canada auditors to once again actually understand the tax code. This in turn would reduce conflicts between Revenue Canada officials and Canadian taxpayers which currently breed disrespect, discontent and dislike for our tax laws.
It would allow everyone to file their own tax returns. It would encourage increased compliance by reducing punitive rates of taxation and by broadening the tax base, making it less rewarding to cheat. In other words, we are solving some of the problems with the underground economy.
The simplified tax system would enhance fairness by subjecting everyone to the same rules. Individuals making the same income will pay the same amount in taxes. Income would be taxed only once instead of the double taxation that now exists in some cases. It would be fair by taxing businesses and individuals at the same rate which would eliminate deferral schemes.
It is very short-sighted of the government to look only at the corporate sector while ignoring the individual sector and then later on looking at the individual sector and not corporate. You have to look at an integrated system. It impacts and affects lives whether people are receiving wages or salaries or running a business.
It would enhance fairness by eliminating the opportunity for the clever and the wealthy to avoid tax through the manipulation of loopholes, as just mentioned by my colleague from Capilano-Howe Sound, and fairness by forcing governments to justify the tax dollars they spend.
The simplified tax system would also have a positive and social economic impact. It would drastically reduce the current $12 billion compliance cost of taxation. It would remove 1.3 million Canadians from the tax rolls, leaving more money in their hands. The lower income people would pay no taxes. This would leave more money in their hands, which is to me is the most direct form of social assistance that we could give.
It would replace the current graduated system, which is a disincentive toward increased earnings and investment, with a truly progressive single rate system which rewards initiative while requiring that higher income earners pay a higher share of tax. Current progressivity is graduated. The more money you make, the higher percentage they take. Why not have a progressive system, with the more money you make the more you pay but at the same time the more you keep. Persons should get to keep a greater percentage of the incomes they earn than what they give to governments.
It would help create stability in the economy by virtue of both individuals and businesses paying the same rate and taxing income only once. It would restore neutrality to the tax system with the lower rate so that personal and business decisions are not based on the tax implications of those decisions. This prevents government from picking the winners and losers.
I really believe that if both business and individual decisions were not based on tax implications but just on the investment or the opportunity or the job we would all be better off in this country.
It would eliminate discrimination against stay at home parents, thus making it a pro-family tax system. It would help expand the economy by virtue of the increase in personal disposable income.
Finally, it would allow for the elimination and/or replacement, and/or abolishment of the GST and its high compliance cost which produce no increased benefits to the taxpayer.
It would also lead to immediate tax relief through lower tax rates, lower compliance costs which are the ultimate goal. Both areas reflect a reduction in taxation through the broadening of the base and a wider distribution of the tax obligations.
The factors to consider by the committee would be the principles of the foundation of a simplified system. What all do we want to change? Any attempt at tax reform should not try to change more than people are willing to accept or people will reject it. Abraham Lincoln remarked: "With public sentiment nothing can fail. Without it, nothing can succeed".
The definition of income must be considered. Should investment income be treated differently from employment or pension income or should the system be founded on the basis of the Carter commission that a buck is a buck? The size of personal family exemption: the larger the exemption the higher the flat rate must be to generate the same amount of revenue for the government. The treatment of charitable donations must also be reviewed and looked at. Should a tax credit for charity be retained or can it be eliminated?
The treatment of depreciation: should a simplified system retain the current capital cost allowances with all the various depreciation and amortization tables and rules for businesses or allow a 100 per cent write-off in the year purchased as a trade-off for the whole tax reform?
Finally, what guarantee is there the next government will not change the rules, whatever a government puts in place based on whatever review it does? My answer is that this Parliament and this government should present a taxpayers protection act along the lines of what the Reform Party of Canada has put forward in the House before.
There are some typical objections to a simplified tax system. I will pre-empt some of the questions that may come forward and give some of the answers.
One is that a simplified tax system along the lines of a flat tax will reduce taxes for the rich and increase taxes for lower income earners. However, my colleague for Capilano-Howe Sound has shown and proven through his graphs and charts that is not the case. Further, the simplified tax system is intended to lower taxes for everyone, rich and poor alike. The personal family exemption should result in the lower income earner escaping income tax entirely, including the GST.
Another criticism is that rich will also find a way to avoid paying their fair share. That is possible only in a complex system. If we simplify the system and remove the loopholes it cannot be manipulated. The simpler the system, the less opportunity for trickery.
Another is that a flat tax is regressive. In fact, the opposite is true. By raising the personal deduction level immediate tax relief is offered to lower income earners who need it most. The current progressive system with higher tax rates on higher incomes is a disincentive to self-improvement. True progressiveness requires a low tax rate coupled with a general personal exemption. The rate and exemption level we are talking about must start as close as it can to a revenue neutral so that the criticism added to the deficit is not and must not be a factor.
Charitable donations will decrease; not necessarily, as currently out of $8 billion given by people to charities, $5 billion, well over half, is either unreceipted or receipted and unclaimed. That proves people give to a cause from the heart. They give more because they want to give rather than because it is a tax incentive. Further, if we lower that tax incentive it becomes even less of a factor. When the United States lowered tax rates donations to charitable organizations did not drop.
I wish the technical committee well. I only regret that with its mandate it would not undertake to give advice to the government, which really needs it because it has a poor idea on how to handle taxes, tax reform and tax relief for Canadians. By having an integrated review rather than a segregated and narrow review, it will be denied the opportunity of the whole picture.
Elwin Hermanson Reform Kindersley—Lloydminster, SK
Mr. Speaker, I have a question for the member for Calgary Centre, who now wears a political hat but who used to wear a business hat before being elected to the House.
We are hearing a message from the Bloc Quebecois in its resolution today under this supply day motion that businesses need to be taxed more severely.
From the government we are hearing a message that businesses need to be taxed at least at existing levels and perhaps taxed higher, and that they should be required to provide more jobs in the Canadian economy.
I ask the member to take off his political hat and put his business hat back on and say how he as a business person would respond to the suggestion by the Bloc that taxes on businesses be increased. I would also like his comments on the challenge from the government to pay high taxes and go out and create a bunch of jobs at the same time.
SupplyGovernment Orders
The Acting Speaker (Mr. Kilger)
It has been said the hon. member for Calgary Centre has worn many different hats.
Jim Silye Reform Calgary Centre, AB
Mr. Speaker, I should get my red hat back, the one I used to wear on the football field. I could use it.
In answer to the question from my colleague, if I were a businessman again and appeared before the committee as a witness to give advice, I would say first that payroll taxes are far too high. That also applies to unemployment insurance, especially now that I hear there will be a $5 billion to $10 billion surplus. Why not give me, a businessman, a tax break so I can hire more people and my employees would be happier and the corporation would be happier? Do not forget, corporations pay 1.4 times what the employee earns. Why punish the payer? Why not make it the same?
Payroll tax is one area. The high levels of taxation are another area. Corporate and business taxes are 28.84 per cent. It is confusing and complicated. Different kinds of businesses have different rates and get different discounts. There is always a continual hassle with the government, with Revenue Canada.
They send out inexperienced auditors who apply the letter of the law, tie up your office and have to justify the number of days they are there. They are looking for ways to squeeze money out of honest, above board businesses. They let the ones who are dealing in the underground go. Now they are going after them.
Why not simplify the tax system, clean up the tax mess, all these rules? It would be another way of creating more employment. Another way is to get rid of the minimum wage. It is a job killer. If qualified people are hired, one could expand and train. Businesses that hire people at a minimum wage and hourly rates are held for ransom after those people are trained, the rate goes up and production and performance go down. Without the minimum wage more people would be willing to stay on the job and fewer people would be playing the game with unemployment insurance.
Those are three reasons and I could probably think of more, but I do not want to deny the opportunity to any member of the government to ask a question.
Richard Bélisle Bloc La Prairie, QC
Mr. Speaker, I will take advantage of this allotted day to show that the lack of a coherent business taxation policy has a negative effect on the fiscal situation in general and on the government's chronic indebtedness.
At the end of the 1996-97 fiscal year, the federal net debt will be over $600 billion. According to the Minister of Finance's own projections, by the end of its mandate, this government will have added $110 billion to the country's debt. The minister keeps shouting from the rooftops that he has the government's finances under control and that he has finally managed to slow down debt growth. This is definitely not the case. The minister has no precise plan to eliminate the deficit, and he refused to commit himself to balance the budget according to a specific timetable.
He is making cuts to program spending and transfers to the provinces, taking over the UI fund surplus, penalizing families
with unfair individual taxes, and going after the pensions of those who have saved all their lives to enjoy some leisure in old age, instead of making the urgent cleanup required in business taxation, instead of closing tax loopholes and collecting as quickly as possible the $6.6 billion in unpaid taxes.
The government has not solved the public finance problem, even if it would have us believe so. According to the budgetary plan tabled on March 6, Canada's net public debt represents close to 75 per cent of the gross domestic product, while Europeans countries insist on a maximum debt of 60 per cent of the GDP as a condition of joining the European Economic Community.
The Prime Minister keeps saying that the government's objective for next year is to bring the deficit down to 3 per cent of the GDP. Let us not forget that European countries impose that criterion as a condition of joining the community, but it includes all levels of government. From that angle, Canada's deficit will be much closer to 5 per cent than to 3 per cent of the GDP.
Let us now take a closer look at corporate taxation in terms of tax avoidance and federal tax expenditures.
In the July 1995 issue of CA Magazine , the publication for chartered accountants, it was said that: ``Substantially all major Canadian multinationals use firms based abroad as part of their tax strategy''.
Tax havens provide several tax benefits. As early as 1987, the Conservative finance minister had pledged to conduct studies on tax havens. But these studies have yet to be done, even though the auditor general and the revenue department have been most insistent about them.
However, it should be recognized that in the 1994 budget, following repeated demands from the official opposition, the Minister of Finance finally amended the Income Tax Act provisions relating to foreign affiliates. These amendments reflect the recommendations made by the auditor general and by the public accounts committee, which tabled a report on the issue in 1993.
Several experts, including Mr. Corcoran from the firm Arthur Anderson, recognize the effectiveness of these new measures, but they also see their limits, since they will not prevent multinationals from continuing to use foreign affiliates to improve their tax planning.
Other experts also point out that these major changes to the foreign affiliates taxation system were not those announced several years earlier. Major tax evasions are still possible in spite of the changes made in the 1994 budget.
It is difficult, if not impossible, to estimate the amounts the Canadian tax system has lost to tax havens. However, certain indicators can give us a good idea of the extent of the moneys lost. Instead of relying on the revenue department to measure the extent of these tax losses, let us listen to the experts and the representatives of the consulting firms specializing in tax havens who are making their services available to corporations and individuals.
International Privacy Corporation, a firm specializing in tax havens, says it has hundreds of Canadian clients. Moreover, most of the 16,000 corporations incorporated in the Turks and Caicos islands are Canadian owned. Several hundreds of millions of dollars have gone out of Canada, according to that firm.
Mr. LeBreux, another expert on tax havens, estimated that several billion dollars are moved out of Canada every year. Mr. Naylor, a McGill University professor and an expert on the flight of capital at the international level, considers that the total capital flight out of Canada amounts to tens of billions of dollars.
The recovery of these amounts would make the Canadian deficit and debt melt away like the snow. In his book, Hot Money and the Politics of Debt , Mr. Naylor said the situation was alarming. It can be said that the popularity of tax havens is reaching today unheard of proportions and that they have a disastrous impact on Canadian tax revenues.
A few years ago, Harris and Harris, the biggest firm in the tax haven business, represented some 30 to 40 companies abroad. This number has now reached 400 to 500, a 13-fold increase. Numerous reports on this growing phenomenon are published in newspapers and magazines, but the Liberal government just sits on its hands.
Let us have a closer look at the impact these tax havens have on the behaviour of Canadian companies. A number of countries considered as tax havens have very low taxation rates, something like 2 or 3 per cent for foreign countries, whereas the Canadian taxation rate stands at 40 per cent. This spread makes for unfairness in taxation and can cost millions of dollars to the Canadian government. Foreign subsidiaries can also transfer their dividends to the Canadian corporation tax free, even if the corresponding revenues have not been taxed at a rate similar to the Canadian rate.
Companies that want to benefit as much as possible from these two situations can implement the three following strategies: They can transfer to the Canadian parent company the losses of foreign subsidiaries, they can transfer abroad revenues of the Canadian company, and finally they can convert into exempted revenues the revenues of Canadian companies-revenues that would normally be taxed are not, because of transfers to the foreign subsidiary.
What is the government doing to fight tax avoidance, which has become an alarming problem, and the measures used by the corporations to get the most out of it? One could argue that the government has finally become aware of the problem. But the government says that it cannot get rid of tax avoidance made possible through tax havens, because its tax system has two conflicting objectives, which are to be efficient and to remain competitive.
The government maintains that, even though several corporations are using these tools to avoid paying taxes, given the globalization of the economy, Canadian tax rules must remain competitive.
In 1994, the federal government finally reduced the number of countries where tax avoidance is possible, by withdrawing from the designated countries list the countries which had yet to sign a tax treaty with Canada. All this despite the reassuring statements by the deputy minister of Finance, who said, before the public accounts committee that I chaired during two years, that all the countries with which Canada has a tax treaty have high corporate taxes.
There are still 11 countries which have signed tax treaties with Canada and which have lower tax rates than we have. Among the major ones are Barbados, which a maximum tax rate of 2.5 p. 100; Cyprus, Malta and Switzerland, with a maximum tax rate of 10 p. 100; and the Bahamas, with a tax rate of 0 p. 100.
Moreover, there are 11 other countries who offer tax exemptions which help to significantly lower their tax rate. Among the major ones are Barbados, Ireland, Malta and the Netherlands. When you compare their tax rates with the 40 p. 100 tax rates Canadian corporations have to deal with, you can easily understand the many financial benefits these companies get by setting up business in these tax havens.
How can we stop this massive outflow of exempt dividends from foreign affiliates? The government solved part of the problem by reviewing its list of designated countries which are given an exemption to ensure that the listed countries had signed tax treaties with Canada. Nevertheless, the problem remains, because some of the designated countries have much lower tax rates than Canada.
The problem can easily resurface if the designated countries lower their tax rates after the fact, that is, once they have signed tax treaties with Canada, since Canada cannot constantly monitor these countries' taxation system.
The government is using the competitiveness of Canadian businesses as an excuse not to act. This argument does not hold. Our main competitors in this field are our neighbours to the south, the United States, whose reputation is firmly established when it
comes to opening up to businesses. They solved the problem by establishing a system where foreign affiliates are subject to U.S. taxation, with deductions for taxes paid in foreign countries.
Great Britain has a similar system. Thus, the competitiveness argument is no longer valid, since our main competitor and trade partner has rules that are less attractive than ours. This system is already in place in Canada but only with countries that have not yet signed tax treaties with us. The gap is thus closed in part although significant tax revenues still evade the Canadian tax system.
The Bloc Quebecois' position on this is crystal clear: The Canadian government must urgently revise all its tax treaties with countries that are considered tax havens to make sure that foreign affiliates are subject to tax rates similar to the Canadian rates.
When the tax rate in a foreign country is not similar to the one in Canada, this country would be subject to the same rules governing revenues on foreign affiliates' exempt dividends.
I would now like to talk about tax expenditures, a major component of business taxation. According to a very conservative estimate of the Department of Finance, the cost of tax expenditures was $9 billion in 1991 and $10 billion in 1990.
There are 59 tax expenditures associated with the tax on profits of corporations. Seven of them, namely the low small business tax rate-over $2 billion; the low tax rate on manufacturing and processing profits-another $353 million; R and D tax credits-$543 million; the partial inclusion of capital gains-$415 million; the surplus between the capital cost allowance and book depreciation-$886 million; the Part I tax refund on investment income of private corporations-$876 million; and non-capital loss carry-over-nearly $1.3 billion; all these made up, in 1991, 71 per cent of all the tax expenditures associated with taxes on corporate profits, for a total of $6.4 billion.
The concept of tax expenditure includes all deductions, exemptions, tax deferrals, tax credits and other such provisions which reduce taxes payable by a corporation or an individual. Therefore, they are a substitute for direct spending by the government: the latter does not subsidize directly, but it decides not to collect funds from certain taxpayers, which is the equivalent of a subsidy.
The implicit aim of a corporate tax expenditure is to change, with this incentive, the behaviour of certain companies in a desirable manner for the community. Tax expenditures create, however, two main problems: first, they diminish the government's tax base, which puts a heavier burden on all taxpayers who cannot afford them; second, they cause many inequities by allowing certain taxpayers not to pay their fair share of taxes. The concept of the ability to pay is not respected anymore, and this gives rise to a feeling of injustice among the people.
The greater the number of tax expenditures contained in a taxation system, the more complex the system gets, and this requires the consultation of experts whom only the well-to-do can afford. So the government misses out on revenues. We must also weigh the benefits gained against the cost to the tax system, as well as the inequity which can ensue for all taxpayers.
The Bloc Quebecois believes that, in terms of taxation, a threshold has been attained where collective benefits-these are very difficult to evaluate; in fact, they are only assessed by those who benefit from them-are less important than the inequities and the loss of earnings by the government. The various federal tax expenditures are far from attaining the objectives for which they were designed, and, often, their objectives are not consistent with society's best interests.
To improve the effectiveness of our tax system, especially our business tax system, we should consider a minimum tax on corporate profits. This form of taxation already exists in the United States. Its implementation may be complex depending on the tax base used. However, to be effective, this minimum tax must go hand in hand with a tax expenditure base that does not substantially reduce corporate taxable income.
Instead of constantly trying to plug holes in the legislation as it is doing now, Revenue Canada could make the business tax system more flexible. This system is extremely complex and cannot provide for every possible situation. Making it more flexible could mean using section 145 of the Income Tax Act, which is a general anti-avoidance clause. This section gives the minister the discretionary power to take action against anyone who tries by whatever means to avoid taxes. In fact, this section gives the minister the power to enforce the spirit of the law. Right now, such power is seldom used, if ever.
In closing, I would like to say that business taxation is complex. Everybody knows that. However, while continuing to be competitive globally, Canadian businesses have to carry their fair share of the tax burden, even though specific sectors of our economy need preferential treatment. All this is based on equity, and equity depends on the political will of a government to bring together experts and parliamentarians by setting up a parliamentary committee which will determine what kind of business tax system Canada needs.
In this sense, I strongly support the motion brought forward this morning by my colleague from Saint-Hyacinthe-Bagot. However, the Canadian government has not shown this political will so far, and we cannot be overly optimistic with regard to our chronic debt and deficit problem.
Bernard Patry LiberalParliamentary Secretary to Minister of Indian Affairs and Northern Development
Mr. Speaker, I want to thank the hon. member for La Prairie. Two things in his speech struck me. First, what he said about pensions and second, what he said about the budget estimates.
The hon. member said that the government was going after the pensions of people who had contributed to them all their lives. The hon. member is surely aware that life expectancy among Canadians increased by three years over the last twenty years to reach 80 years for women and 79 for men. He probably also knows that in the next 15 years, baby boomers will reach retirement age.
My first question is this: What alternative can he propose to make sure that today's workers who will reach retirement age in the next 15 years can count on a fair and equitable pension plan? Does he suggest to raise right now the rate of contributions?
My second question is a matter of simple arithmetic. When comparing our situation with that of the European economic union, he said that the Minister of Finance was incorrect when he stated that our next deficit would be at 3 per cent of GDP, but that it would rather be at 5 per cent. Can he explain how he got that number?
Richard Bélisle Bloc La Prairie, QC
Mr. Speaker, I thank the hon. member for his two very pertinent questions. I will answer the second one first. How did I arrive at the figure of 5 per cent rather than 3 per cent? Because in the case of countries of the European Economic Community, debt is defined as the total of a country's existing debt and deficit, including local, regional, municipal, provincial and federal levels. Whereas here, if we add the provincial government's debt-the Government of Quebec in the case we are looking at, but it could be the Government of Ontario or any other province-if we add that to the federal government deficit, even if the federal government reached its goal of 3 per cent next year, or in two or three years, if we add the provincial government debts, we would still have 4, 5 or 6 per cent.
In the European Economic Community countries, all levels of government are included in the deficit. In other words, Canada's 3 per cent would mean 1 per cent for the federal government, 1 per cent for the Government of Quebec and 1 per cent for regional local governments. That would truly bring us to 3 per cent, as it is calculated in the European Economic Community countries.
Furthermore, in Canada, if we were to add, in the case of Quebec, the debt of municipalities, the city of Montreal or the Montreal urban community, we would be much closer to 6 or 7 per cent than 3 per cent.
When the Prime Minister keeps trotting out this 3 per cent, he is referring strictly to the federal government's deficit, which is not comparable to or which does not correspond to the same concept as that used by the countries of the European Economic Community.
To reply to his first question, what I find most unfortunate in the federal government's proposal with respect to pension reform is that it is now looking at family income. Previously, the system was based on individual income. In my view, women will be the first ones to suffer under the family income approach.
As far as what I would suggest, I could say to the hon. member that it would have been better to stick with individual income. Given that we already have graduated income tax, we could taken the approach of a tax on income and people could have continued to be taxed directly, even if it means going with a percentage of the tax payable and reducing or even eliminating all tax credits. I think that the concept of basing the entire system on family income will penalize women.