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.