House of Commons Hansard #50 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was finance.
Herb Gray LiberalLeader of the Government in the House of Commons and Solicitor General of Canada
Mr. Speaker, in so far as the Ministry of the Solicitor General of Canada is concerned the answer is as follows:
Paul Zed LiberalParliamentary Secretary to Leader of the Government in the House of Commons
Mr. Speaker, I ask that the remaining questions be allowed to stand.
Questions On The Order PaperRoutine Proceedings
The Acting Speaker (Mr. Kilger)
Is that agreed?
Michel Bellehumeur Bloc Berthier—Montcalm, QC
Mr. Speaker, there is a question standing in my name on the Order Paper since March 6, 1996. I am referring to Question Q-19. A little while ago, I asked the government whether an answer would be forthcoming. Since then, my question has remained unanswered. This is a very simple question. I would like to know whether or not the government will be answering this very simple question concerning the Privy Council. These things are easy to assess and there should be no problem in giving an answer on this.
Since March 6, no answer has been provided by the government to this very simple question. Is it trying to hide something? Are there things it does not want Quebec to know about? I do not know. But I am persistent and I will rise in this House every week to ask the government to answer my question.
Paul Zed Liberal Fundy Royal, NB
Mr. Speaker, as my hon. colleague knows, we have nothing to hide. The question is in process and we are preparing an appropriate answer.
The House resumed consideration of the motion that Bill C-36, an act to amend the Income Tax Act, the Excise Tax Act, the Office of the Superintendent of Financial Institutions Act, the Old Age Security Act and the Canada Shipping Act, be read the second time and passed.
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
Mr. Speaker, I shall resume my demonstration where I left off when I was interrupted by question period. I was trying to make taxpayers in Quebec and Canada understand why we oppose Bill C-36 which is implementing certain measures announced not in the finance minister's latest budget but rather in the 1995 budget.
We were noting earlier that many of the measures contained in this bill and in the 1995 budget were merely ad hoc measures relating to some small and often insignificant aspects of corporate taxation. Let me give you an example.
Last year, the Minister of Finance told us: "I am pleased because my 1995 budget will ensure that corporations, and large corporations in particular, the big companies, pay more taxes. The relative amounts paid by taxpayers versus businesses-small, medium and big in particular-will be readjusted".
One of the measures announced with great pomp to restore equity and efficiency to the corporate taxation system was a special tax whereby $160 million would be collected from Canadian banks.
Before going any further, I would have two remarks to make on this subject. First, this special tax of $160 million is ridiculous, given that last year major Canadian banks made record profits of close to $5 billion. Second, it is also ridiculous that, in Canada, major banks, financial institutions and corporations, as well as very rich families, can take advantage of the tax system's flaws, flexibility and loopholes, as shown by two recent scandals.
There always has to be a scandal somewhere. In the first part of my speech, I referred to two major scandals that were uncovered: one by the Auditor General of Canada, the other by the prestigious Toronto Star .
The auditor general was very clear. Through family trusts, a system which the Bloc Quebecois, the official opposition, has been condemning since it arrived in this House, two family trusts were able to transfer $2 billion to the United States, without paying one penny in taxes on capital gains, $2 billion.
The second scandal, which involves, indirectly if not directly, major Canadian banks, was exposed on May 9 by the Toronto Star . The newspaper got hold of a Revenue Canada study which had been released shortly before to a select group and which stated that, in 1991, tax evasion amounted to no less than $60 billion. In other words, no less than $60 billion left Canada, possibly to be invested in countries deemed to be tax havens.
Since then, there has been no major change in the way capital gains are taxed, even though we have been asking the Minister of Finance for almost three years now to take action and to overhaul the tax system. We are not talking peanuts here. When you think that $60 billion in assets in 1991 alone were moved out of the country tax free, as if by magic, and there was nothing that could be done because of weaknesses in Canadian tax law, and also because of weaknesses with respect to relations between Canada and the so-called tax havens. You know what that means. That means that taxes not collected on this wealth must be found somewhere else.
Since his first budget in 1994, and even more so since his 1995 and 1996 budgets, the finance minister has been trying to get this money from the taxpayer, through various means, first, by cutting transfers to the provinces for welfare, postsecondary education and health. It is always the same taxpayer getting hit. But because the minister has not taken a firm approach to tax reform, he must make up the shortfall through other cuts.
While these wealthy Canadian families and big businesses are taking advantage of tax loopholes, the Minister of Finance will be
making up the shortfall by dipping into the unemployment insurance fund, in complicity with the Minister of Human Resources Development, who certainly showed us how little he cared today. He will use the contributions of workers and employers to make up for what others are not paying. That is Canada's so-called fair tax system.
The Toronto Star focussed on certain interesting points concerning this $60 billion tax evasion, one of which was that the bulk of these transactions were linked to the major Canadian banks.
We in the official opposition are not surprised by this. We have nothing against the big banks, but they must behave like good corporate citizens as far as taxes are concerned. For the past two and a half years or so now, we have been criticizing the fact that Canadian banks have about 46 branches in the Caribbean alone, this area being considered the ideal tax haven. Why do they have these 43 or 46 Caribbean branches, twice as many as they have anywhere else outside of Canada? This is not right.
And now we see why. With branches in these countries which are considered tax havens, it is easy to take advantage of the weakness of the tax agreements signed with those countries and to ensure that profits are not taxed at the fair rate they ought to be.
As I recall, when the Minister of Finance tabled his budget in 1995, the one that has given rise to this Bill C-36, he said: "We have taken drastic measures against the major Canadian banks. We will be imposing a special tax of $160 million on them". Do not make me laugh. The Minister of Finance should stop trying to be funny.
This concerns us, because it took two scandals, one involving $2 billion and another involving $60 in tax evasions, flights of capital abroad, for the Minister of Finance to decide finally to give the finance committee openly, not behind closed doors, the task of reviewing corporate taxation and particularly taxation of capital gains.
We on the other hand will continue to monitor very closely the Minister of Finance's accession to the demand we in the Bloc Quebecois have been making since our arrival here. The experts who will be working with the finance committee, with the elected members on the committee, were appointed by the minister at the time of the latest budget. Some of them at least may be clearly in a conflict of interest.
Some of them work for firms advising major Canadian families, Canada's wealthy families, along with large companies on ways to take advantage of tax loopholes, on how to make transfers like the one we saw involving family trusts, where $2 billion was moved to the United States without being taxed, or the $60 billion in tax evasions reported by the Toronto Star . My feeling is that the official opposition, and all members of this Parliament, will have to be extremely vigilant.
As far as we are concerned, we are not prepared to take any chances with the review process; it is far too important to us. The well-being of taxpayers in Quebec and Canada is far too important to us to allow the continued protection of tax loopholes that benefit large corporations and wealthy Canadian families at the expense of Canadian taxpayers.
What we intend to do is to scrutinize the taxation system in order to be able to oppose arguments of our own-on behalf of the official opposition and on behalf of the people of Quebec and Canada-to the arguments put forward by these eight experts, a number of whom are in conflict of interest.
However, there are two positive measures contained in this bill. See how seriously we do our job in the opposition. The first one deals with business numbers and allows Revenue Canada to exchange business name and address information with other federal government departments and the provinces. As part of the effort to have corporations actually pay their fair share of taxes, I think that this measure may prove positive.
The second measure deals with interest rates applicable to unpaid taxes. It is a good idea to increase the rate of interest on taxes payable to encourage speedier payment, but we were hoping the government would take our advice. Ever since we were elected to the House of Commons, in 1994, we in the official opposition have been suggesting that resource levels should be increased at Revenue Canada to really go after those whose taxes are unpaid.
Since 1994, we have been told over and over again by the Minister of Finance that additional resources would be provided because, year after year, approximately $6 billion in taxes payable to the Canadian government remain unpaid. That is a lot of money. For all the conviction shown by the Minister of Finance and the many promises made by the various revenue ministers, out of $6.4 billion in unpaid taxes, $200 million has been recovered on average every year for the past two years. That makes no sense.
Government must be streamlined. We in the official opposition were the first to say that downsizing is required across government. But the idea is not to blindly make cuts across the board, downsizing to the same extent everywhere. Some departments, including Revenue Canada, might benefit from additional resources to recover more revenue, to recover more than $200 million out of $6.4 billion in unpaid taxes. This does not make any sense. The money is not in dispute. Taxpayers-most of them rich people, since the average amount of taxes owed has increased considerably over the last eight years-do not dispute these amounts. They know they owe the money to Revenue Canada, but the federal government does not invest in the necessary resources to go and recover it.
It might not be a bad idea to do like the Government of Quebec did and to get the additional resources necessary to recover these
unpaid taxes. These initiatives are about the only two positive measures in the 1995 budget that I see in Bill C-36.
I can tell you, as we did in 1995 when the Minister of Finance brought down his budget, that we will oppose Bill C-36. First, it does not go far enough in terms of a true reform of corporate and capital gain taxes. Instead, this government condones, through its laxness, the loopholes, the tax evasion schemes, and the fact that very rich taxpayers or corporations do not pay their fair share to Revenue Canada.
We will also oppose the bill because, in spite of the two minor initiatives to which I referred, most of the measures, particularly those that concern family trusts, are just a joke.
The government tells very rich Canadian taxpayers: "You have four years to invest your assets in other financial vehicles that will allow you to save taxes". This is a rather cavalier way of dealing with the issue of family trusts, particularly since we learned, from the auditor general, that at least two trusts transferred $2 billion to the United States without paying any taxes.
It shows an obvious lack of determination on the government's part to take action to make very rich Canadian families and major corporations pay their due to Revenue Canada, as do small businesses and individual taxpayers. This situation is totally unacceptable. For all these reasons, and for those mentioned before question period, I will ask members of the official opposition to vote against Bill C-36.
Ted White Reform North Vancouver, BC
Mr. Speaker, the title of Bill C-36 is an act to amend the Income Tax Act, the Excise Act, the Excise Tax Act, the Office of the Superintendent of Financial Institutions Act, the Old Age Security Act and the Canada Shipping Act. The title alone shows that this is just another typical case of Liberal tinkering. The Liberals are trying to adjust half a dozen different acts instead of addressing the real problems which are inherent in the tax system itself because of its complexity.
This bill in implementing aspects of the budget is finding more creative ways of taxing Canadians. The proof of that is in the size of the additional tax moneys that will be collected which were mentioned by the member from the government. All that additional taxes do is increase unemployment.
There was a lot of discussion today during question period about unemployment and the Prime Minister having said that we are going to have to live with high levels of unemployment past the turn of the century. The fact is that the Prime Minister and all of his employed for life government colleagues have no idea how jobs are actually created. If they did know they would be busy creating them.
Certainly members have heard me use the example from time to time of New Zealand, the country I originally came from. It had to face up to the problems of government overspending and debt which became unmanageable. The government in New Zealand gave up on acts like Bill C-36 because it realized it could not squeeze any more money out of the citizens of New Zealand. The entire system was overhauled to simplify it, to bring it down to much more of a flat style of taxation and to get control of government spending to reduce spending and begin paying down the debt.
As a result for example, just in the last week the New Zealand government has introduced a $100 per month tax reduction for the average citizen. There is $100 more per month in every New Zealand worker's pocket. Imagine what ordinary Canadians could do with $100 more in their pockets every month. That is significant. That is not tinkering around the edges saying we will give Canadians half a per cent here or take half a per cent from over there. It is substantial tax reform which truly makes a difference to people's lives.
New Zealand has not done everything perfectly. I am not saying we should mimic everything that New Zealand does. Because I am very familiar with it I am using it as an example of ways we could learn methods which have worked to help create employment in other countries.
New Zealand's unemployment rate is below 6 per cent and has been for several years now, since about 1993. The economy is very buoyant. I have relatives in New Zealand who own companies. They have told me that the wage rates in New Zealand are rising quite dramatically because the competition among employers to get people to work for them is so high. There is so much competition in the marketplace that the workers are now starting to reap some benefits from it. A lot of the adjustments and other things being done in this bill by the government would not be necessary if it would only adopt a realistic approach to the idea of job creation.
In 1993, as part of the election campaign, the Reform Party had a document called zero in three, which we used as a campaign document. It was delivered all over the country. In it we detailed exactly how we would balance the budget in three years and begin showing surpluses. The step following that would be to begin reducing taxes. That would put more money in the pockets of the people. They would spend more, which creates consumption and job creation. Those were the steps. We laid them out.
Here we are three years further downstream. If the government had adopted our zero in three program the day it came to office, today we would be arguing about what to do with the surpluses instead of arguing about which social program should be cut next.
It does not take very much common sense for Canadians to look at what is happening on that side of the House: erosion of social programs. We heard today how the CBC has actually had bigger cuts made by the government than were listed in Reform's zero in three program. Why would the government, which claimed that it supported the CBC, make bigger cuts to the budget of the CBC than were in Reform's supposedly slash and burn budget? The reason is that it waited too long to address the problems of overspending.
Every day that this type of bill comes forward which tinkers around with the system instead of truly addressing the problems makes it harder and much more difficult to deal with those problems. If the Liberals had only got to work the very day they took office they would be running surpluses today and we would not be discussing how to reduce contributions to RRSPs.
What a ridiculous thing to be doing. RRSPs are people's nest egg. It is the tool people use to be able to retire so that they are not a drain on taxpayers. It is all very well for the finance minister to bring in rules that cut RRSP contributions because he will not be around when other governments have to deal with the problems.
I watched a documentary on television last year where they were interviewing finance ministers of the past from this place. Every single one of them admitted they knew that all of these problems would come to a head some time in the 1990s and they did nothing. They knew it would be beyond their mandate. They would not have to worry about it.
A whole series of decisions were made in this place that have critically affected the future of our children and our grandchildren. Those former finance ministers did not care about the millstone of debt and deficits they were hanging around the necks of our children and grandchildren. They went ahead because it suited them to be dipping into the trough full of taxpayers' money when they should have been truly addressing the problems.
I feel embarrassed when I have to go into a high school as I did the other day in Bedford, Nova Scotia to talk about the debt. I wrote the debt figure on the chalk board, $583 billion. In the one hour that I was in the school it went up $2.5 million.
We were talking about the debt. I said to these students: "How long do you think it took to build this $583 billion debt?" The answer is that most of it accrued during their lifetimes. In all the time that Canada has existed, most of that debt accrued in the last 20 years.
It was accrued by people who have worked in this place and did not consider what they were doing to their children and grandchildren. This bill, which tinkers with things like retirement savings, reduces people's ability to plan for their futures. At the same time, the government sends delegations around the country to tell people the bad news about the CPP. Meanwhile the politicians in this place protect their gold plated pension plan that would be illegal in the private sector which they can collect after six years and retire for good.
What about the average person out there who relies on CPP that is now being eroded because the people who sat in this place in the past did not bother to invest the income for the future. What should be done as soon as possible, before it is too late and the whole plan disintegrates, is to adopt a plan similar to the one that is used in Chile. It gives people their own super RRSP style plan. It requires compulsory contributions just like the CPP. The employers deduct and remit to the individual plans but those plans belong to the individual worker. The money does not go into government coffers to be handed out to somebody else.
In the meantime, the Government of Chile guarantees to those people who are in their forties or fifties that there will be a top-up from the taxpayer to ensure they will have a minimum pension when they retire. For everybody else there are nest eggs building which are completely separate from government control to protect them when they retire.
That system has been in place in Chile for about 12 years. The first people collecting pensions doubled what the government is providing under the government scheme. It truly works. It takes pension planning out of the government sphere.
This ridiculous Bill C-36 is eroding people's ability to save for their futures. Chile is 10 years ahead of us in innovation and in taking care of those problems.
Further down on the list the government plays around with corporate tax rates. Has it not learned where jobs are created? The Prime Minister stands up and says he has given up. He has admitted failure in creating jobs. He is just like Kim Campbell because they come from the same political school with the same old, tired out, 30-year-old theories that do not work. They just will not let them go. They think the answer to all their problems is more taxes. They think that by taxing the corporations they will fix the problem.
What about all the jobs that have left Canada because they drove corporations out of Canada? What about the 20,000 people who work across the border from Vancouver in Bellingham? Every day they drive across the border to work at companies because their bosses moved the companies out of the Vancouver area into the United States to get away from high taxation.
This is not the policy of any party. I simply want to use it as an example. Just imagine if we had a zero corporate tax rate in Canada. Can you imagine the rush of companies from the United States that would establish in Canada? They would come from all
around the world by the thousands. We would have so many jobs, jobs, jobs we would not know what to do with them.
Obviously somewhere between a zero corporate tax rate and the punitive rates we have right now is a better rate that will re-establish those good jobs for Canadians. Bills such as this increase the irritation to business with higher taxes that reduce and kill jobs.
I am from the small business sector in the Vancouver area. I owned a company that had 10 employees. I sold that company shortly before becoming an MP. Because I am from the small business sector I have many friends in that sector. I cannot tell hon. members how many of them have scaled down and moved back into their homes to operate mom and pop type operations in order to get away from taxation and all of the various levies and fees that they had to pay when they had employees. When they had employees they had to pay the Workers' Compensation Board, CPP and UI premiums. They had to remit income taxes. They had to pay all the benefits which are legislated. It gets to the point where 30 per cent or 40 per cent of all the cheques which a small business person writes go to various levels of government.
Gas taxes affect business. There was a great foo-fa-raw a week or two ago about the price of gasoline across the country. A simple bit of analysis shows that about 55 per cent of the cost is taxation. If governments were not dipping their hands into everyone's gas tank the price of gasoline would be about 26 cents a litre. It is government greed at every level that has created the problem. Bill C-36 is just another case of that.
The Liberals claimed during the 1993 election that their $6 billion infrastructure project would kick start the economy and create a job bonanza. The theory was that the people employed by this wonderful $6 billion program, although it turned out to be a big boondoggle, would spend the money in their communities, boost consumption and then the good old days of full employment would come back.
However, anyone with business knowledge knew the plan could not work from day one. Why could it not work? It would not work because it did not create long term, meaningful jobs. It bought jobs using taxpayer and borrowed money, money that was borrowed against the future of our children and our grandchildren. It was money that we did not have to spend.
For at least two decades these old line governments have been throwing money into ineffective job creation plans, grants to special interest groups, regional development funds and government funded training programs without showing the slightest concern for the debt legacy and the crippling tax load that it has left for our children and grandchildren.
If governments could create jobs through deficit spending and tax bills like Bill C-36, everyone would have three jobs each by now. Twenty-five years of $30 billion deficits and a $583 billion debt and what there is to show for it is chronic unemployment and terrible fiscal problems. Social programs are being cut and the government is scrambling to tax away every little last cent that it can get from taxpayers' pockets.
I had a call from a constituent last week who runs a yacht brokerage in my riding. He sells yachts. There has just been a change to the GST rules. Now he has to charge GST when he sells a second hand yacht. As he says, that is going to put his business out of business overnight. Why would people pay an extra 7 per cent to have a broker sell a yacht? It comes straight off the sales price for the person who is selling a yacht. They are now going to try to sell privately instead of putting it through a broker.
The government, in its enthusiasm to try to get that extra bit of tax out of yacht brokers, is actually going to put them out of business. This is so stupid. That same new tax rule is going to apply to auctioneers. Can anyone believe this? We will go to an auction to buy a used table and GST will be charged. It is just government greed. It has nothing to do with good management of the economy. It is typical of the type of thing this bill represents.
If the government truly wanted to make amends and get this country back on track it would not be passing things like Bill C-36. It would be creating meaningful, long term jobs if it could create a climate for job creation.
Every time the unemployment rate goes down the government likes to take credit for all the jobs that have been created. However, when unemployment rises it does not want anything to do with it. It says it is the global economy or somebody else made the wrong decision. It never wants to take credit for rising unemployment.
The fact is that the government neither creates jobs nor loses jobs but is responsible for the business environment that results in job creation or job loss. Therefore, governments should really concentrate on the business environment. Unfortunately reversing the effects of two decades of government meddling in the economy is not without its pain, as those who have ever watched the New Zealand situation would know.
About three or four years ago, Eric Malling, on the TV program "W5" did a program on New Zealand showing the sort of fiscal restraints that New Zealand was going through at the time as it adjusted to becoming a free market economy. When I left New Zealand in 1979 it was a socialist country. It was cradle to grave socialism. The government paid for everything.
By 1984 New Zealand had pretty well gone bankrupt. By 1993 adjustments had been made and New Zealand was on its way back to prosperity. Maybe members of this House saw the program on television last week where Eric Malling on his program "Maver-
icks" updated the New Zealand situation and showed how private enterprise has created so many jobs and how buoyant the economy is there.
I actually visited New Zealand at Easter. I can confirm what Eric Malling showed on that program. The country is buoyant. One can feel how successful the country has become, and it has not done it with government subsidies, with extra taxes like this. It has not done it by suppressing the right to invest in RRSPs. It did it by the government getting out of the economy and letting business create the jobs. It created jobs by getting rid of marketing boards so that entrepreneurial farmers could sell new products.
For example, I went into a supermarket and there on the shelves were flavoured whipping creams. There was brandy flavoured whipping cream, Kahlua flavoured whipping cream for special occasions. There were specialty cheeses made by little cottage industries which operated a tiny cheese making facility that perhaps only made spreadable pepper cheese and sold it to a world market.
In the supermarket there were eggs from farm operations which specialized in low cholesterol eggs for which they charged premium prices. They were almost three times the price of regular eggs. There were eggs from guaranteed free range hens which were allowed to wander the fields. They cost two and a half times the price of eggs produced under the old marketing board battery hen type operations.
These are examples of government getting out of the meddling aspect of the economy and creating the environment for job creation. It is not necessary to pass more bills to grab more taxes.
The net result in New Zealand was that so much income came from all the prosperity, the government has been running surpluses in the range of $3 billion to $6 billion a year, paying down the debt. That was responsible for the latest announcement of $100 more in the pocket of every working New Zealander's pocket every month, the result of a reduction in income taxes.
Imagine if we were able to announce in the last budget in the House that there was a $100 tax reduction for every Canadian worker. We could have done it if we had adopted Reform's zero in three program the day we came to the House. The answer to job creation and getting around these tax problems is to adopt a proactive program of creating the environment for job creation.
My colleague, the member for Capilano-Howe Sound, introduced a private member's bill on March 4, the taxpayer protection act. The bill would have required it to be compulsory for the government to live within its income and not run deficits and that there would be penalties for politicians if they overspent. They would actually lose pay.
At least one province has already introduced such legislation. The provinces are way ahead of us on this. They realize they cannot keep grabbing taxes the way Bill C-36 does. Before question period I was updating the House on the B.C. Liberal Party which is presently involved in an election. The provincial wing of the Liberal Party has promised a taxpayer protection act that would guarantee a balanced budget in two years and, if it does not make it, pay reductions for the politicians.
Look how out of touch the other side of the House is with the real world, people saying they have had enough. They do not want to pay any more taxes. They are sick of the government overspending. It is about time government got on top of the problem and do what the people want instead of following its own ideology constantly.
I hope that when there is an opportunity to debate a little more on my colleague's taxpayer protection act members will seriously consider supporting it and get us out of this cycle of tax and spend that has been going on for so long.
In my opinion the bill we are spending time on today would not have been necessary if it had not been for the irresponsibility not only of current members on the other side of the House but also of the parliamentarians who sat here for the last 25 years spending $30 billion more a year than they took in. They just did not care. They knew they would not be accountable for the end results. They were answering the short term demands of special interest groups at the expense of the next generation. It has been the most massive intergenerational transfer of wealth in the history of this country. It has to stop and the first step along that pathway is to defeat this bill.
Ronald J. Duhamel Liberal St. Boniface, MB
Mr. Speaker, I will be splitting my time with my colleague from Algoma.
My colleague from the Reform Party who made some negative remarks about the government's $6 billion infrastructure program forgets the almost 100,000 jobs that were created. He forgets the large majority of municipal officials throughout Canada would love to have that program continue. He forgets business people who are aware of it would also like to have it continue.
I find it rather strange that all of these people want it and the Reform Party does not. It says something about being out of touch. If one wants to talk about being out of touch, I assure the House it is not this government. Reform has not been popular. It was not popular at election time and has been even less popular since then. It has been dismembering itself member by member.
I am pleased to have the opportunity to address the House on Bill C-36, the income tax amendment act. I assure the House it is not tinkering. As the House is aware, these amendments implement certain measures announced in the budgets of February 27, 1995 and March 6, 1996 as well as Income Tax Act and Excise Tax Act amendments released on August 9, 1995 concerning the government's business under a number of programs.
The bill is very technical in nature and since there are those better qualified to address the technical aspects I take this opportunity to summarize points addressed by the bill. It talks about retirement savings. It reduces the limits on contributions to registered retirement savings plans, registered pension plans and deferred profit sharing plans and it reduces the allowance for RRSP over contributions.
[Translation]
On fiscal periods, it eliminates the opportunity to defer the taxation of business income by selecting an off-calendar fiscal period.
On family trusts, the bill eliminates the election to defer the 21-year deemed realization rule and the rules allowing the allocation of income to preferred beneficiaries.
The film tax credit replaces the capital cost allowance tax shelter incentive for certified Canadian productions with a new tax credit for Canadian film production companies.
On charitable donations, the bill eliminates the 20 per cent of income deduction limit for gifts of ecologically sensitive land.
On scientific research and experimental development, the bill eliminates inflation of SR&ED tax credits through non-arm's length contracts and introduces other measures improving the administration of the SR&ED tax incentives.
On corporate tax rates, the bill increases the refundable tax on investment income of Canadian controlled private corporations. It increases the rate of part IV tax on dividends received by private corporations and increases the capital taxes on large corporations and financial institutions.
On joint and several liability, the bill provides joint and several liability for unremitted source deductions and similar amounts where a person has influential control and causes taxable payments to be made without remittance.
On the old age security benefit, the bill modifies the structure of the recovery of OAS benefits to provide for tax to be withheld from benefits as they are paid.
On business numbers, the bill allows Revenue Canada to exchange business name and address information with other federal government departments and the provinces when they adopt the business number. I note here that the Bloc Quebecois' critic has commended the government for this initiative.
Interest rates provide for different rates of interest on amounts payable by the crown to taxpayers and amounts payable by taxpayers to the crown. How could one call that tinkering? If one had read that bill one would know it is not tinkering. It is dealing with affairs of the state in a substantial, meaningful and profound way.
More specifically, I would like to discuss the changes to taxation of family trusts.
Family trusts allow assets to be held for beneficiaries. Trusts are used for various purposes, particularly for business succession planning and for meeting the needs of beneficiaries in special cases such as old age and disabilities.
The 1995 budget proposed two changes to the taxation of family trusts: one, the existing election to defer the application of the 21-year rule eliminated effective January 1, 1999; two, to restrict income splitting, the preferred beneficiary election mechanism be repealed for taxation years of trusts that commence after 1995, except for elections with respect to persons with mental or physical disabilities.
On the 21-year deemed disposition rule, the existing provision relating to the taxation of trust generally require that assets are to be treated for tax purposes as if they were disposed of every 21 years. The measure accompanied the introduction of capital gains taxation in 1972 to prevent trusts from being used to void the taxation of capital gains on death.
The previous government passed a provision allowing a special election to defer the 21 year rule and the taxation of capital gains on trust assets until the last "exempt beneficiary" dies. An
"exempt beneficiary" essentially means a relative who is removed by no more than one generation from the person who established the trust.
Effective January 1, 1999 the bill proposes to eliminate this special election. Those trusts which have at any time before that date elected to postpone capital gains taxation will be subject to a deemed realization of trust assets at fair market value on that date. This would not apply where all of the trust property has been distributed to beneficiaries before that date. Where properties are distributed from a trust to an exempt beneficiary, capital gains would be realized when the exempt beneficiary disposes of the property or when the exempt beneficiary dies.
On preferred beneficiary election, the bill provides that, before it is distributed among the beneficiaries, the income from a trust fund is calculated in the same way as for other taxpayers. The interest, dividends and capital gains realizable are all included in the calculation of the income from the trust. The taxable income of a testamentary trust, and of some trusts created before 1972, is subject to the same progressive tax rate structure as individual income. The taxable income of other trusts is taxed at the maximum rate applicable to individual income.
The preferred beneficiary election currently allows trust income to be allocated to preferred beneficiaries defined to include the spouse, children and grandchildren of the settlor of the trust and taxed in their hands rather than at the trust level. This allows trust income to accumulate without the need to pay the income to beneficiaries. There is no requirement that the income allocated to a beneficiary ultimately be paid to that beneficiary.
The selection made by a preferred beneficiary is an exception to the general rule that the income from a trust is taxable as a trustee's income, except where this income is payable to the beneficiaries and thus taxable as their personal income.
The flexibility of the preferred beneficiary election and the potential to split income among large numbers of preferred beneficiaries make it a significant tax planning tool. The preferred beneficiary election allows trust income to be split among family members for income tax purposes without regard to the amount the beneficiary would ultimately receive.
For example, where trust income in the form of dividends is allocated to a beneficiary such as a young child with little or no other income, substantial amounts can be accumulated on a tax free basis because of the dividend tax credit. In addition, the entitlement to the $500,000 lifetime capital gains exemption can be multiplied because of the preferred beneficiary election.
This bill proposes to eliminate the preferred beneficiary election except as it applies to those beneficiaries who are entitled to a tax credit for mental or physical impairment, or who would be so entitled if amounts paid for the remuneration of an attendant or for care in a nursing home were ignored. The measure eliminates a tax planning technique and seeks to ensure a level playing field between property held in trust and property held directly. This measure is to apply to taxation years of trusts that commence after 1995.
The recent auditor general's report cited examples of tax avoidance and raised concerns about the administration of the Income Tax Act involving the movement out of Canada of assets held in family trusts. The department is undertaking certain specific initiatives to combat and deter avoidance. The finance committee is about to begin a study of the administration of the Income Tax Act in this regard.
Changes such as those made in the 1995 budget discussed earlier and including terminating the election to postpone capital gains taxation under the 21-year rule will ensure that family trusts cannot be used to defer capital gains taxation and ending the preferred beneficiary election limits the opportunity for family trusts to be used for income tax splitting purposes. The changes will help to further close the loopholes.
Bill C-36 is an important part of this government's fiscal agenda. As my hon. colleague noted earlier, it is the heart and soul of our program. It is another step toward our goal of getting government right.
Paul Steckle Liberal Huron—Bruce, ON
Mr. Speaker, I have listened with a great deal of interest to the comments of the hon. member for St. Boniface.
He spoke at some length about family trusts. If there is a misconception in this country in terms of what is really taking place with family trusts it seems to be one of those things that seems to abound at least at election time if not at other times.
Perhaps the hon. member could assure Canadians that progress has been made, if indeed there has been progress made on this issue in ensuring that the abuse of family trusts is no longer ongoing or at least if it has been that things have been done to correct the inefficiencies in the system.
Ronald J. Duhamel Liberal St. Boniface, MB
Mr. Speaker, my colleague's question is an appropriate and important one.
It was roughly a year ago that the Minister of Finance indicated we needed to review this whole area and to close some of the loopholes. Decisions have been made to do exactly that. As a result of a recent event where large sums of money were taken out of the country without, according to some individuals, appropriate levels of taxation or no taxation, there will be continued work done in that
area. Further loopholes will be closed. In fact this mandate has been given to the finance committee of which I am a member.
I agree that the matter often comes up at election time. I emphasize it is something that is not always well understood. I am told by very highly respected people that they can have some benefits but clearly they should not give advantages to people who have large sums of money to escape a fair rate of taxation. They too must contribute to the well-being of this nation.
Our objective at the end of this exercise is to make sure that all people who earn income are taxed in a fair and equitable way and that they make legitimate, reasonable, sensible and meaningful contributions to the welfare of this nation and to its people.
Brent St. Denis Liberal Algoma, ON
Mr. Speaker, I am pleased to join my hon. colleagues, in particular the member for St. Boniface, a colleague of mine on the finance committee, in discussing and debating Bill C-36 which implements the 1995 budget measures.
The details of this legislation should not be overlooked but the big picture is also very important. In that regard I draw to the attention of the House an article in today's Globe and Mail . The headline is: ``Bond buyers give Canada new respect''. Let me cite the opening paragraphs:
Something remarkable has happened in the Canadian bond market in recent weeks-and Canada's finance ministers can take most of the credit.
When interest rates on U.S. bonds charged upwards, Canadian rates followed, but at a lesser clip. When U.S. rates levelled off two weeks ago, Canadian rates fell sharply.
The result? The spread between Canadian and U.S. rates-a key measure of how the world's investors feel about Canada-has plummeted, indicating that bond buyers believe Canada is a lovely spot to put their money these days.
There is another paragraph I wish to set on the record:
Bond buyers who shunned Canada as a high debt, high deficit, fiscally irresponsible country for most of the 1990s have done an about-face. And it takes only a quick look at what Canada's federal and provincial finance ministers have done to understand why.
The article makes clear that fiscal restraint has become an embedded aspect of the Canadian political landscape. It is this government and this government's finance minister who have played a key role in this transformation. The legislation before us helps demonstrate a central aspect of that national sea change. It does so in a most interesting way, not only by what is in the legislation, but by what is not.
It will be noted that the 1995 budget did not include any increases in personal income tax rates, nor did the 1994 budget before it. That was again the case in the 1996 budget which contained no tax increases of any kind.
The point here is that deficit reduction and debt control are made in government problems and it is government that must be the source of the solution. I am convinced that in the years to come Canadians will look back at the 1995 budget, the source of Bill C-36, as the turning point in our fiscal history.
The actions that budget introduced totalled $29 billion over three years, more than in any budget since post-war demobilization. It set a course so that by the end of the current fiscal year, program spending will be $10.4 billion lower than when we started.
Just as important, this budget also changed the very structure of how government operates. Through focusing on structural change, not tax and revenue measures, this government made sure that spending will be restrained beyond the two-year target period. The deficit will continue to fall, reflecting our commitment to eliminating it completely.
To achieve these results, the 1995 budget took fundamental action across government programs and operations. It implemented the results of program review, a comprehensive examination of departmental spending. The budget also acted on a new vision of the federal government's role in the economy, one that includes substantial reductions in business subsidies. Subsidies will drop from $3.8 billion to $1.5 billion per year by 1997-98. The 1995 budget reformed major transfers to the provinces, modernizing the federal-provincial fiscal regime, making it more effective, flexible and affordable.
Today's Globe and Mail article shows that the commitments we have made and the fiscal actions we have taken are being recognized in real bottom line terms. They have brought lower interest rates and greater confidence in Canada. That is being translated into growing employment.
The inflation rate remains at a very nice low level in Canada. What has added resonance to our commitments, what has helped win over the world markets is the way we have approached our fiscal dilemma. Our action has been dramatically weighted toward the spending side, not added to the high tax burden of Canadians. That is why the 1995 budget did not increase personal income tax rates. However, it did propose measures to improve tax system fairness, many of which we see in Bill C-36 today.
The budget proposed eliminating the deferral of taxes on the investment income earned by private holding companies. We are also eliminating tax advantages for family trusts. We are temporarily reducing the upper limit on RRSP contributions to $13,500
per year so that extra benefits do not go to people who earn more than two and one-half times the average wage in Canada.
Even with these measures we would fall short of our deficit targets. That is why the 1995 budget moved to increase the large corporations tax and the corporate surtax. The budget also introduced a temporary tax on the capital of large deposit taking corporations, including banks.
Clearly, the 1995 budget was still a budget that placed an absolute priority on expenditure reduction. It delivered nearly $7 in spending cuts for each dollar of new tax revenue.
Again let me underscore our fiscal philosophy and the philosophy that guides our tax measures, such as those found in Bill C-36. We are tackling Canada's fiscal problem not as a narrow goal in and of itself, but rather because it is a fundamental component for national growth, new jobs, economic security and sovereignty. As the Globe and Mail article highlights, our fiscal progress and other actions are paying off. Canada's economic fundamentals are strong.
With our first two budgets we established rock hard foundations. With these measures our 1995-96 and 1996-97 deficit targets which will bring the deficit down to 3 per cent of GDP are secure.
The steps in this year's budget consolidate and extend our first two budgets and further contribute to our economic and financial objectives. We have maintained our focus on reducing program spending. Because the debt is a problem created by government, the solution should focus on cutting in our own backyard. The government has shown great leadership in handling public service cuts. That is why of the cumulative fiscal actions we will have taken from 1994-95 to 1998-99, a full 87 per cent have been expenditure savings, not tax measures.
Together the three budgets will contribute $26.1 billion in savings by 1997-98. This action, together with the reform of the employment insurance program, will ensure that we hit our new deficit target of 2 per cent of GDP by 1997-98. Our combined budget plans will deliver a further $28.9 billion in savings in fiscal year 1998-99. This means the deficit will continue to drop and the debt to GDP ratio will continue to fall.
I have had numerous town hall meetings in my riding of Algoma over the last number of weeks and I plan to hold several more. I have already had meetings in towns like Espanola, Thessalon, Hilton Beach, Little Current and Gore Bay. I plan to hold others in Elliot Lake and Goulais River.
When people attend the meetings, while they have concerns about one issue or another as is appropriate in this day when governments are under close scrutiny, they also express confidence in the way in which the country's fiscal affairs are being managed by the government. There is evidence of it every day. The Canadian dollar is remaining stable relative to the U.S. dollar. Interest rates are remaining at a very credible level. Inflation is well in hand. The economy is producing jobs.
We all agree that when unemployment reaches 9.5 per cent it is too high. However, our economy is producing jobs. In the months and years ahead we will see the unemployment rate decrease by many more percentage points because the fundamentals are very strong.
Bill C-36 expresses the philosophy of the government. It focuses on the credibility this government has been able to achieve compared to the past government. This legislation will help to sustain the successes we have experienced. It will only add to our credibility. It will add to the confidence investors have in our country, both domestically and abroad. It will improve the equity of our tax system and ensure that affluent Canadians and corporations do not escape paying their fair share of the Canadian tax burden.
For these reasons, I hope we have the co-operation of the majority of members in the House in supporting Bill C-36. The government is securing the financial future of the country. We are trying to get government right and in so doing we are preserving the social programs that are a hallmark of our society. These are social programs that Canadians have come to count on, health care, social services and pension plans. These are elements of our society which make us very special and unique.
Those of my colleagues who have had a chance to do any travelling outside this country will know we look quite wonderful from outside. Sometimes we tend to take it for granted what we have here. However, we are the envy of the world. As the Prime Minister has often reminded us, the UN has for a number of years in a row declared Canada to be the number one nation in the world in which to live. We know that in our hearts but we forget it sometimes.
I urge members to look carefully at how much we have and at what the government is doing to make the country an even better place not only for our children but for our grandchildren.
With that I call on the House, in a majority way, to place its trust again in the government.
Paul Crête Bloc Kamouraska—Rivière-Du-Loup, QC
Mr. Speaker, I am very pleased today to speak to Bill C-36, a sort of omnibus bill amending several aspects of the Income Tax Act, the Excise Act and various similar pieces of legislation.
What particularly attracts my attention, and what I would like to address in my speech, is the whole question of measures related to family trusts. I think it is very important that the public be very well informed of where things stand on this issue. I would like to give a brief run through of the background. In the 1993 election campaign, the Bloc Quebecois raised many questions about the amounts of money held in these family trusts. At the time, the deficit was growing, as it continues to do, and we were also wondering how we could ensure that we really received all the tax revenues that we thought appropriate.
Thanks to information it had gleaned from one source and another, the Bloc Quebecois knew that family trusts could contain money that the government was missing. Following the election, we kept telling the government: "Before pronouncing on the effectiveness of family trusts, let us at least find out the amounts of money involved, what information we could obtain".
As a young newly elected MP, I came here in all good faith, thinking that, during our work in committee, we could actually examine the figures, see what was possible and take appropriate action accordingly.
But that was my first disappointment with the work of an MP, because examining these matters in committee brought us up against a wall of indifference, and even a wall of missing information from senior public servants. Time after time, they told us: "The figures are not available. That would require giving personal information. Most trusts involve families in which there is a mentally or physically disabled person who cannot look after his own needs. That is how it operates, so there is no reason to go poking about in it".
But our representations did get the government to decide to make some modifications. For example, allowing families to free up the assets they held in family trusts until 1999. We are, of course, against that measure. It is like finding a burglar in your house and telling him: "You have an hour and half and then I am going to start running after you". He would have time to empty the house before you would have been able to find out just what he had taken.
There have been examples of this situation in recent weeks, reference to trusts containing more than $2 billion which have been able to send their assets, their investments, out of the country without having to pay any tax on them.
This is a really negative side of the government's action. The fact of voluntarily acting slower than it should have a year or two ago leads to situations like this. At a time when we need all the tax revenues we can get, the message sent to workers in particular, low or middle income earners, is that there are 500 rich families, from what it says there, that may have family trusts.
There is talk of a tax shortfall of possibly $400 million. Four hundred million dollars will not settle Canada's deficit problems, but at least in terms of tax equity, Canadians and Quebecers will get the message that the government is going after the rich as much as it is going after the poor.
When unemployment insurance reforms like we have seen recently occur in the same days and weeks as we learn that some $2 billion invested in family trusts has left Canada without being duly taxed, people consider this situation clearly unacceptable.
Finally, we consider what is in Bill C-36 to be too little, too late. It is too little, because the people who have invested in family trusts will have had all the time they need to diversify their assets and transfer them to other tax evasion possibilities. The Canadian government thus does not collect as much tax as it could have. It is too little and too late because of the time allowed for recovery.
I would like to remind the House of the recommendations made by the Bloc Quebecois in December 1994, about one year after the election, as part of a committee study. If these recommendations had been carried out at the time, we would not have to deal with trusts taking their assets out of the country and trying to find legal ways to evade as much tax as possible; whether these tactics are legitimate is a different matter, but they are still legal according to the legislation put forward by the government.
The first recommendation made by the Bloc Quebecois is that investigations be carried out to determine the exact value of assets managed by family trusts, the value of capital gains from assets under family trust management, the value of tax revenues whose collection was postponed by deferring capital gains taxes until the last trust beneficiary dies.
These studies could give us actual figures on the impact of the legislative measures taken with respect to family trusts. We must recall that family trusts were instituted in 1972 to help families facing special and rather unusual circumstances, such as caring for a child with a handicap, or even small business by allowing them to tax-shelter certain assets. But like in many other such instances, this measure is benefiting those who can afford the services of tax specialists who found in this measure a tax loophole for avoiding to pay taxes.
Since then, amendments made to the legislation have actually made the family trust loophole wider. Now, efforts are made to try to plug the hole, but the measures contained in Bill C-36 certainly do not ensure tax equity for families in these circumstances.
I would also like to remind you of another recommendation making it mandatory to pay taxes on capital gains on a trust paid out in favour of the beneficiary. This issue has been close to our hearts from day one, as it reflects the whole battle going on in Quebec and Canada around the share of tax revenue that every segment of society must pay to restore Canada's economy to health. This issue has become a symbol; it is an issue where, as a
result of yesterday's measures and carelessness, we find ourselves today having to do without desperately needed resources.
On the one hand, they claim that the unemployment insurance reform will save $2 billion through cuts to unemployment insurance recipients and those who make contributions to the unemployment insurance plan, employees and employers alike, but on the other hand, they are leaving the door open for those who should be paying up to $400 million in taxes.
Imagine how much less pressure there would be on the unemployment insurance system if the government's financial statements showed additional revenues of $400 million from family trusts. This would have taken pressure off of the unemployment insurance reform. This is significant when we are talking about fiscal balance. Sometimes, in debates like this one, we hear that the opposition is there to criticize, to find flaws in the legislation.
In this case, opposition parties are not the only ones making recommendations. The Auditor General of Canada also raised the issue of family trusts and asked the government to ensure that all the information be available, so that future legislative measures allow Revenue Canada to recover all the amounts that can be recovered. The auditor general is only fulfilling his mandate, which is to ensure that the amounts owed are collected and that the moneys are spent in the best possible way to meet the objectives set.
For a long time now family trusts have been used for purposes other than to help small and medium size businesses. It is said that someone with an annual income of $100,000 or $150,000 is unlikely to have any use for a family trust. Who benefits from family trusts? It is people whose income is very high. It is a fact that these trusts benefit the very rich and that they deprive the government of considerable revenues.
Family trusts are not the cure-all. Canada's fiscal problems would not all be solved if trusts paid their fair share of taxes. However, it would allow the government to tell taxpayers: "We made high income people pay their fair share. We asked them to contribute and we made sure they all did. We did not provide them with any means to avoid paying taxes. We kept a close watch on them. Now, we are asking you to also do your share".
That would make all the difference in the world in the situation we are facing now, where those receiving unemployment insurance, those with low incomes, are being asked to pay $100, $150 or $200 in additional taxes on incomes of $20,000, $25,000 or $30,000. In family trusts, we are talking about millions of dollars, $400 million in unpaid taxes.
That would be seen as a gesture of fairness on the part of the government, a gesture not found in Bill C-36. This bill does not contain measures that would have made it possible to truly stem the flow. The government tells us that it is washing its hands of decisions concerning family trusts and capital shifted to the United States when the Conservatives were in power, that it is not responsible for what went on then.
But now, with the deadlines given, with the provisions in Bill C-36, with the fact that people will have until 1999 to transfer their money into other sectors, is the government not shirking its responsibility? It cannot blame the Conservative government for not doing its work. Now it is the Liberals who have decided to let matters take their own course and to allow people to continue to avoid paying taxes that they should be paying.
We must ask ourselves why they are doing this. Why, in these times when we are so in need of money, are they closing their eyes, not listening to reason and allowing wealthy families to continue not paying their taxes?
I think that one thing that needs to be looked at very closely is the question of party funding. Would there not be a link to be made-indeed, almost a bank reconciliation-between the contributions from these important families to parties which will accept money from anyone, whether a physical entity or a corporate entity?
In Quebec, for some years, nearly 20 in fact, only physical entities can donate to political parties. This has led to a complete change in political mores. The federal government has not yet reached this stage. Significant sums, $50,000 or $100,000, can still be received from companies, unions or other organizations.
You can well imagine, afterward, when the government is being lobbied, that the company or family which donated $50,000 or $100,000 to the coffers of the party in power is certainly going to be listened to because of that contribution.
All of the key points in this current situation are in place: a tax system that has not been revised, a government that is very timid about tax review. It talks about a technical committee. It is because the opposition has repeated the same arguments and attacks almost ad nauseam that it has managed to get some small changes of the type found in Bill C-36, to at least close the loophole in the medium term. But the government's measures are very timid, too timid, and do not make the restrictions that ought to have been on the family trusts.
In conclusion, I would say that the present government does not appear to be aware of the urgency of acting in this area. First of all, we have been aware for two years of the necessity of having all
available information on family trusts. We have asked for it repeatedly in committee, and senior officials have told us it was not available, often in a rather condescending way. Today we find out the reason for that reaction. It is because the transactions have already been made and some are perhaps being made so that certain taxpayers will avoid paying tax and, moreover, will take their investments abroad.
I think this is unacceptable even to federalist Canadians. So the government should have moved, legislated quickly on this. Today, moreover, it must turn off the taps in a hurry, because it is clear that there are many things that even Bill C-36 will not correct. There is no way with this bill to ensure that each of the great families pays the taxes it ought with respect to the funds it invests in family trusts.
This is an important point. There is nothing in this bill to force the legislator to act. This is why the Bloc Quebecois will vote against the bill. So long as we obtain no assurance that family trusts will no longer be a way to avoid paying taxes for people with the means to do so, we will continue to press for satisfactory amendments from the government. On this point, I hope the Standing Committee on Finance will act quickly, now that we have proof money is flowing out of Canada and being invested abroad without taxes being paid on it.
I think that the government should follow the auditor general's recommendations as quickly as possible and take appropriate action so that, in the next federal budget, the revenue side of the sheet will show the amounts that belong there, including taxes payable by wealthy families and by those who invest in family trusts, so that they pull their weight, and we do not see inadequate cuts that crack down harder in the wrong places, for example, through very stringent unemployment insurance legislation, on the one hand, and a laissez faire approach on the other.
This sort of situation must be corrected. I hope that, after hearing our arguments, the government will take corrective action and bring in tougher legislation, so that people can no longer evade taxes that they should be paying.
Income Tax Budget Amendment ActGovernment Orders
The Acting Speaker (Mr. Kilger)
It is my duty, pursuant to Standing Order 38, to inform the House that the question to be raised tonight at the time of adjournment is as follows: the hon. member for Bourassa-Algerian nationals.
Is the House ready for the question?
Income Tax Budget Amendment ActGovernment Orders
The Acting Speaker (Mr. Kilger)
Is it the pleasure of the House to adopt the motion?
Income Tax Budget Amendment ActGovernment Orders
The Acting Speaker (Mr. Kilger)
All those in favour of the motion will please say yea.
Income Tax Budget Amendment ActGovernment Orders
The Acting Speaker (Mr. Kilger)
All those opposed will please say nay.
Income Tax Budget Amendment ActGovernment Orders
The Acting Speaker (Mr. Kilger)
In my opinion the nays have it.
And more than five members having risen:
Income Tax Budget Amendment ActGovernment Orders
The Acting Speaker (Mr. Kilger)
Call in the members.
And the bells having rung: