House of Commons Hansard #75 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was finance.

Topics

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10:50 a.m.

The Acting Speaker (Mr. Kilger)

I hesitate to interrupt the hon. member simply to ask him to co-operate. I am aware that the issue raised by the Hon. Minister of Justice, to which both opposition parties have responded, is of great if not paramount importance for all members of this Parliament.

However, I must ask the hon. member to co-operate and stick to his motion so the debate remains relevant. With all due respect, despite its importance, the other issue should not be dealt with on this opposition day but wait for another opportunity here in this democratic House.

So I simply ask you to please co-operate and keep to today's motion put forward by the hon. member for Saint-Hyacinthe-Bagot.

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10:55 a.m.

Bloc

Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC

Mr. Speaker, I apologize. I sometimes have trouble controlling my emotions, especially when deeply hurt by the comments made by some of our colleagues.

I am happy to rise today to speak to a matter I care deeply about, namely the scandal condemned by the auditor general on May 7, whereby a rich Canadian family managed, in December 1991, to transfer a $2 billion family trust fund to the U.S. without paying a penny in tax on the capital gains from these assets.

This rich family was able to transfer its assets tax free because of a so-called advance ruling by Revenue Canada. It is important to understand what an advance ruling is. Wealthy taxpayers-and it is essentially they who are involved financial operations of this nature and this magnitude-can ask Revenue Canada for an advance ruling on an interpretation of the Income Tax Act in order to protect secure a financial transaction or their own interpretation of the Income Tax Act.

This advance ruling, which was made on December 23, 1991, when everyone was busy partying, was based on a distorted analysis out of touch with the realities of tax laws by senior officials from the revenue and finance departments.

Several unusual facts relating to this issue lead us to believe that the government has some things to hide, that it does not want to shed light on this episode. Indeed, even though the decision was made under the previous Conservative government, it may be that friends of the Liberal Party of Canada, major contributors to the Liberals' election fund, very rich and influential people who gravitate around the centres of power, such as the offices of the Prime Minister and the Minister of Finance, have had some influence, with the result that, today, the government wants to hide things.

The first unusual fact is that senior officials from the revenue and finance departments had several meetings before issuing this ruling. During those meetings, they leaned on one side or the other. First, they said that the family could not transfer to the United States these assets of $2 billion tax free. However, in the end, on December 23, after numerous representations had been made by the tax experts representing the rich family involved, Revenue Canada issued an advance ruling allowing this scandal to take place.

Oddly enough, there are no minutes of these meetings, no report, no written account of the arguments put forth by the two sides before such a distorted interpretation of the tax provisions was made.

The second unusual fact is that, to this day, the ruling, which may have cost hundreds of millions of dollars to Quebec and Canadian taxpayers, is not supported by any technical analysis. There is no technical document.

When it wants $50 from middle and low income taxpayers, Revenue Canada does not beat around the bush. It issues a notice and sends a long letter explaining that an amount of $50 is due and payable. However, when hundreds of millions of dollars are at stake, no technical document is to be found.

The third unusual fact is that, for almost a week, meetings took place from morning until evening. On December 23, during the holiday season, while everyone was at home relaxing and celebrating Christmas and the New Year, some public servants were at work. The result was that, on that day, Canadian taxpayers' goose was cooked. Quebec and Canadian taxpayers are the ones who, through their taxes, must pay the hundreds of millions that were not paid by the family that transferred $2 billion to the United States.

Two days before Christmas, a family in Canada had additional reasons to celebrate, following Revenue Canada's ruling. However, all the other Canadian families would, had they known about this-because the government kept it a secret-have been saddened by the shameless attitude of senior public servants, who probably acted with the complicity of those in office at the time.

Another strange thing: while all advance rulings by Revenue Canada are normally made public, available to everyone, it took until last March 21, five whole years, for this advance ruling delivered in December 1991 to be made public and for the auditor general, on the basis of this very information, to bring to the public's attention this two billion dollar scandal. Five years.

Do you know what this means? It means that Revenue Canada had things to hide, because it is truly incredible that all these advance rulings were made public over the last five years with one exception. Oddly enough, it was the most important one. Oddly enough, it was the one that is costing Canadian taxpayers hundreds of millions of dollars. It is definitely rather strange.

This implies as well that for five years a small group of people knew, but that the bulk of the public did not. What is the word for this? In the United States, they would be described as insiders, people who were able to profit from their knowledge of the existence of the December 1991 advance ruling, of the existence of an erroneous interpretation, but one given by Revenue Canada regarding certain tax provisions from which others in their limited little group could have profited.

It means that the tax experts representing the very rich Canadian family that transferred its two billion dollars to the United States had a secret, a golden piece of information that they could sell all over the place to other rich Canadian families, because let us not forget that this 1991 ruling served as a precedent.

It means that, for five years, other rich families in Canada were able to profit from this advance ruling, in order to do exactly the same thing as in the case that concerns us, which is to not pay a cent of tax, and have the rest of Canadian taxpayers compensate for the fact that they were able to transfer billions out of the country.

Another strange thing in all this is the attitude of government representatives. When the auditor general made this case public last May, he did so in connection with the work of the House of Commons public accounts committee.

The public accounts committee is the committee that looks at all the recommendations, as it will today with the auditor general's new recommendations, and the public accounts committee examines all the chapters in the auditor general's report, analyzes each of the recommendations, and calls witnesses, as well as looking into the various scandals uncovered by the auditor general, involving spending or the numerous examples of waste in the departments, for instance, or situations such as those that concern us today-a misinterpretation of the tax act. This is the mandate of the auditor general.

As for the information made public by the auditor general, you have seen the performance before the public accounts committee by the Liberal representatives, including the hon. member for Brome-Missisquoi. You have seen them tearing out their hair in front of the cameras, sending out press releases about how they were going to get to the bottom of the circumstances surrounding this advance ruling, the circumstances which made it possible to avoid taxes because of a loophole in the Income Tax Act.

Two days later, the hon. member was nowhere to be found. The story was that he had been called back to his riding on a very urgent matter, and could not get back until the next week. Finally, he was absent for two weeks. He could not be reached. And why? Because he had received an order from higher up. He had been given orders from higher up to button his lip, because some people linked to the Liberal Party, perhaps even to the PMO or the office of the finance minister, had, or might have, profited directly or indirectly from this ruling. So he was told to keep quiet.

After that, everything went haywire. The Minister of Finance announced he was transferring the case of the two billion dollar trust to the finance committee, so that such an ambiguous situation-as he referred to it- would not be repeated in future. He called it an ambiguity in the tax law, whereas it is not; it is clear that government employees were not entitled to make the interpretation they did.

By transferring the matter to the finance committee, the Minister of Finance was merely clouding the issue. And why? Because the finance committee is not mandated to cast light on a specific case, whereas the mandate of the public accounts committee is to carry out a thorough investigation, to virtually convert itself into a royal commission of inquiry. As for the finance committee, it is not concerned with the day to day administration of tax policy, as the public accounts committee is. Nor does it investigate cases raised by the auditor general. Its focus is on the changes in taxation policy.

By transferring the case to the finance committee, the finance minister certainly was aware-having been an MP and the Minister of Finance long enough-that it would not examine the specific case from 1991, but would make recommendations on future changes to policy.

When it did get to the finance committee, the Liberals' attitude was really scandalous. First, the chairman of the finance committee. When the auditor general appeared before the committee, for more than an hour and a half he scolded the auditor general, was derisive and tried to undermine his credibility by taking the floor. This is unheard of in a committee of the House of Commons: a chairman who decides to take the floor for an hour and a half and tell off the auditor general.

The auditor general, and it is important for taxpayers to realize this, is one of the most venerable institutions of this Parliament. The auditor general is the watchdog of the public purse. He is accountable to Parliament, not to the Liberal Party of Canada.

He judges the performance of managers, their good and, especially, their bad decisions, and reports to Parliament. In other words, he is accountable to the people. He monitors public finances and the interpretation of tax laws in the best interests of the

taxpayers of this country. And the only thing the government side did was undermine the credibility of the auditor general.

Recently, this happened again. The report of the Liberal majority on the finance committee, the very report ordered by the Minister of Finance, said, more or less: "The auditor general had no mandate to do what he did". However, he did have a mandate to do what he did and he had done so many times. He has examined the interpretation of tax laws at least seven times in ten years.

When the Liberals were in the opposition, they used the cases of erroneous interpretation of the Income Tax Act by senior officials that were raised by the auditor general. Today, they condemn him. They say the auditor general has no mandate.

Second, they said he had no credibility. That is a serious charge. The auditor general watches over the interests of all taxpayers. He is accountable to Parliament and makes departments, ministers and senior officials give an account of themselves, but they say his analysis is not credible. What is their basis for saying so? They rely on the opinion of six experts who appeared this summer before the finance committee. I was there, and six out of eight experts spoke out against the auditor general.

Do you know why? Because the six of them, all of them, were tax experts representing wealthy canadian families and helping those families to take millions if not billions of dollars out of Canada in order to avoid paying a cent of income tax on these amounts. Now, has anyone ever seen people who are judge and jury shoot themselves in the foot? Of course not, it would make no sense. But the Liberals, pursuing their saga and their objective, which is to hide the inside information in this matter, relied on these experts.

There is more. Instead of closing the gates and saying that this sort of wrong interpretation would no longer be tolerated, they said that this distorted, wrong and cynical interpretation made by Revenue Canada would become the rule. The borders will be opened. Once the government accepts the report of the Liberal majority, wealthy Canadian families will be able to do as they please. They will be able to transfer millions and billions of dollars without being bothered in any way by Revenue Canada. Mr. Speaker, just try to take $ 2,000 out of Canada and open an account in a foreign country to see if Revenue Canada will allow you to do it. Just try.

The attitude of the Liberals in this matter is bewildering but suggests that the government probably has many things to hide.

As I said earlier this week in this House, if we scratch the blue of the decision taken by the Conservatives in 1991, we will soon find some red underneath. In other words, some influential people in the Liberal Party benefited from this decision. Furthermore, the fact that the standing committee on public accounts cannot go into this matter as thoroughly as it would like to and call witnesses, namely senior officials and even politicians who were involved in this decision in 1991, and even tax experts who were around at the time, suggests that the government is trying to cloud the issue and hide things.

The government has something to hide. There might be people in the Prime Minister's office or in the finance minister's office who do not want this thing to become public knowledge, but it is the Canadian taxpayer who is paying for it, and probably for other cases since, as I mentioned before, and this is very significant, the 1991 case has set a precedent for others. As soon as this kind of advance ruling is handed down, and insiders get wind of it, and we are dealing with insiders here and, by the way, insider trading is an indictable offence in the United States, they may use it to other people's advantage. They might have used it to benefit their clients if they worked for tax consultants, for example.

As a result of this ruling, astronomical sums of money are being transferred abroad without any interference from Revenue Canada. In this case as in others that might have occurred, the government must come to its senses and protect the interests of all taxpayers, not only those who are millionaires or billionaires.

I would like to take this opportunity to announce to the House that the official opposition is currently working to create a vast coalition coast to coast. This coalition will be constituted of unions, elderly people organizations, student organizations, groups devoted to the well-being of underprivileged people, and Canadian citizens who are fed up with the attitude of the federal government on this issue. We hope this vast coalition will bring some sense to the government.

In the meantime, let us hope that it will see the light, it is in the best interest of all Quebecers and Canadians. It is outrageous for the government to attempt to cover up this scandal, hiding behind false arguments, instead of getting to the bottom of it.

It is kicking a big fuss, trying all kinds of tricks in the public accounts committee or the finance committee to make sure that the truth will never be known.

I would like to take this opportunity to reiterate, on behalf of Quebecers and Canadians, our trust in the institution of the auditor general and the work Mr. Desautels did on this issue and many others.

If there is an auditor who deserves the highest respect for his work and his integrity, and who has in fact been supported by a former auditor general, Mr. Kenneth Dye, it is Mr. Desautels,

whom, I believe deserves to be applauded for his work instead of having his reputation systematically tarnished by an unscrupulous government.

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11:15 a.m.

London West Ontario

Liberal

Sue Barnes LiberalParliamentary Secretary to Minister of National Revenue

Mr. Speaker, I am very pleased to make a brief comment at this time. We have just heard the opening speech on this daylong debate.

I want to make it known to Canadians that during this debate they will hear more than the speculations and the fearmongering that we have just heard. I hope they understand that this is an extremely complex area of tax law.

An open public hearing was made at which time unfortunately no evidence was put forward by the members opposite to prove any of their speculations. So what we have today is a debate on the one side where people are looking to find a problem that they could not find when the hearings transpired. We have a tabled report and what we are doing is open to debate today.

I ask Canadians to listen to members from all sides of this House who will give their opinions. I believe the government, acting responsibly and in a balanced manner, will be able to shed some reality in this discussion.

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11:15 a.m.

Bloc

Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC

Mr. Speaker, when they talk about reason, when they say that the government behaved reasonably, I must say it is certainly not the case in this instance. Since the very beginning, it is remarkable how many steps, how many measures the government has taken to cover up, to conceal the situation.

Even in the public accounts committee, of which my colleague is a member, they used every trick in the book; motions were submitted, even a motion saying that light would be shed on this issue in the fall was defeated by the Liberals. It takes some nerve to do that. Every time my colleague, the member for Beauport-Montmorency-Orléans and Chairman of the Standing Committee on Public Accounts, tried to raise the issue, he was turned down. They used the finance committee's analysis as an excuse to say: "Finance is working on it. Once they have done their job, we will see".

The Standing Committee on Public Accounts has the authority to act almost as a royal commission of inquiry. Until now, I have not sensed a willingness, on the part of the Liberals, to get to the bottom of this issue. On the contrary; the finance committee report, a Liberal majority report, and even the statements made over the last two weeks by the Prime Minister and the finance minister, show clearly that they want to cover up, and not shed light on the issue.

Not only will they not shed any light, but they announced, in the Liberal majority report which has now been recognized as the government's position on the issue, that what was done in 1991, that misinterpretation of the tax legislation, will now become the general rule. From now on, this is how Revenue Canada will officially interpret the tax provisions.

I want to ask Canadians to consider the so-called reasonable attitude of the government. It is not a reasonable but a outrageous attitude. These people practice patronage. I hope that Canadians will see it some day. I hope that those Canadians that are now Liberal supporters will raise the question in their ridings and ask their members of Parliament for an explanation.

Sometimes I look at Liberal members and I wonder if they read the reports of the committees and of their government. Sometimes I hear things and wonder if I have not landed on another planet. I feel they know nothing about the government's positions and their implications. They just go along with everything.

They go along, they applaud, they smile and say: "My my, we are good". They are in fact shooting themselves in the foot.

They are here to represent their constituents but instead, they applaud the government's positions when in fact that government is only protecting a handful of rich friends of the party. That is not normal. I hope they will wake up eventually because this is no way to behave in politics. It is certainly not our way. And it is most unfortunate.

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11:20 a.m.

Liberal

Derek Lee Liberal Scarborough—Rouge River, ON

Mr. Speaker, the hon. member leads off debate on this important issue today and he suggests that we have a scandal. The auditor general has reviewed the issue. The Standing Committee on Finance has reviewed the issue. The hon. member has spent 20 minutes or so introducing us to the issue in the House. He suggests that it is a scandal but all that he has done has asked questions.

It is a little too late in his remarks to do it but perhaps a subsequent member will address this. However, I wish that someone would please outline what element of the issue constitutes a scandal. I put this to him and I ask for his reaction.

The advance ruling procedure that was used does not create any new law or any new rights. It is simply a decision by the department on what the tax law was at the time.

If this particular trust had simply changed its domicile without seeking an advance ruling, I put it to him: Would not the department have come to the same conclusion in doing an assessment or making the decision not to do an assessment after the change in

domicile had taken place? It would have come to the same conclusion that the tax law permitted the change in domicile without the deemed dispositions that would otherwise have taken place.

Where is the scandal? If there is a problem it may be in the existing tax law. Unless the member can point to a problem, I suggest to him that an advance ruling would have had the same effect as an assessment would have had after the change in domicile of this trust had taken place.

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11:20 a.m.

Bloc

Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC

Mr. Speaker, that is exactly what I was saying. The hon. member, my Liberal colleague, did not read the proceedings of the finance committee, did not read the testimony of the people who appeared before the committee, most of all did not read the auditor general's report and did not read the report of the Liberal majority in the finance committee.

There is a scandal because the economy of the legislation concerning taxable Canadian property-it sounds technical, but that is the objective-the economy of the legislation said this concept, which allowed the transfer of some public corporation assets elsewhere in the world, free of tax, was to be applied only to foreign residents, not to Canadian residents.

The concept of TCA, of taxable Canadian assets, was applied to a Canadian family that transferred $2 billion outside the country and did not pay a cent in taxes. When you talk about the proceedings and the experts who were consulted, as I was mentioning earlier, the six experts your friends claim to be are people who represent rich Canadian families and who allow them to export capital.

I will confront you with 15 experts who have no links with rich Canadian families, academic tax experts, people who know their business, and they will tell you quite the opposite. The auditor general did his job, his interpretation of tax legislation is correct, and it is Revenue Canada's interpretation that is wrong.

The proof of the matter is that Revenue Canada issued a notice in 1985 that said that, in a case such as this one, the TCA, transfers of capital outside the country free of tax, could not apply to Canadian residents. And what is rather strange, in 1991, within a week, during the Christmas holidays, while everyone was celebrating, Revenue Canada's decision was changed following discussions with representatives of rich Canadian families. That is a scandal.

The other scandal is the attitude of the government, of Liberal representatives who, instead of shedding light on this and closing the borders to this flight of rich families' capital, open them wide to favour their friends.

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11:20 a.m.

Liberal

Maurizio Bevilacqua Liberal York North, ON

Mr. Speaker, I listened very carefully to the hon. member from the opposition and I am still trying to figure out exactly what he is talking about. Today he has certainly presented perhaps the weakest case that he has ever presented in the House of Commons.

The auditor general raised important policy questions in an area that Parliament had not really reviewed in over 25 years which related to this issue. The committee as I understand it in turn produced a report and submitted thoughtful recommendations which the government is reviewing carefully.

I want this to be very clear for those Canadians who are watching the House of Commons proceedings. There is no evidence of large scale capital flight that is depriving this government of tax revenue owed to it. Canada already has tough tax rules for people who leave the country and these tax rules are much stricter than the ones in almost every other country including the United States, the United Kingdom, France and Germany. They certainly are tougher than the ones in Japan.

Does the hon. member think that by repeating the words "family trust" and "scandal" that somehow he is going to score political points? Canadians are intelligent and clearly they will find that what the hon. member is simply advocating is cheap politics.

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11:25 a.m.

Bloc

Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC

Mr. Speaker, there is a scandal, namely the tax-free transfer of $2 billion abroad, when this kind of thing should not have been done. There have been other such transfers since then, and do you know why? Because the Deputy Minister of National Revenue said so when he appeared before the finance committee. He said that the decision on the first $2 billion may have led to other transfers.

The other point is, you are saying we want to score political points, you will see that the points scored will not be not political. The coalition we are setting up includes organizations from across Canada that are very interested in letting the government know they disagree with this. As you will see, this coalition is apolitical and the Liberals in each of their ridings will feel the heat.

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11:25 a.m.

The Acting Speaker (Mr. Kilger)

In conclusion, I wish to thank the hon. member for Saint-Hyacinthe-Bagot for his understanding and co-operation, which I accept. As he pointed out to the House, the circumstances were difficult.

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11:25 a.m.

Scarborough East Ontario

Liberal

Doug Peters LiberalSecretary of State (International Financial Institutions)

Mr. Speaker, I am very pleased that the hon. member has brought forward this motion. I must admit in listening to him for the last half hour I was not sure whether I was listening to "This Hour Has 22 Minutes" or that maybe I was on another planet.

This does give the House an opportunity to see in black and white just what the hon. member and his colleagues have been shouting about for the past several days. As is so often the case, this motion makes it clear that the hon. member is rather confused on more than a few points.

The motion asks the House to condemn the government for failing to shed light on various transactions. I will have more to say in a few moments about what those transactions were and how the motion mischaracterizes them, but first I would like to take a look at the suggestion that the government has somehow been concealing things.

The auditor general issued his report on May 7 of this year. The Minister of Finance immediately asked the House of Commons finance committee to look at the important issues raised by the auditor general.

The Minister of National Revenue announced an immediate moratorium on the kind of advance rulings that had concerned the auditor general. That certainly does not strike me, and I am sure it does not strike Canadians, as the action of a government that wanted to conceal something.

The finance committee was given an extremely broad mandate and held several days of open public hearings. The committee heard from the auditor general and members of the auditor general's staff, a total of eight private sector professional and academic experts, and senior officials from the Departments of National Revenue, Finance and Justice.

The committee invited opposition members, including the hon. member who brought forward this motion, and the auditor general to suggest witnesses. During those hearings all committee members, including the hon. member, were free to ask any and all questions and to discuss any issue they saw fit. These hearings were also open to the public. Is there any possible process that could be more transparent than that?

In addition, the committee has tabled its report complete with partially dissenting opinions from the opposition members. The report is over 60 pages long and deals with every one of the issues identified by the auditor general. Again, I fail to see how this indicates a desire to conceal something.

In response to the committee report, the Minister of Finance said that the government would look seriously at the recommendations contained in both the majority report and the minority reports and would take action once there had been adequate opportunity for consultation. In the meantime Revenue Canada's rulings moratorium would continue.

How does all of this show any reluctance to shed light on an issue? The fact is the government has acted quickly, transparently and appropriately in response to the concerns raised by the auditor general.

If anyone is afraid to shed light on these matters, it is the hon. member and his colleagues. With their unsubstantiated claims of scandals and billions of dollars worth of capital fleeing the country, they are leaving Canadians entirely in the dark about what are the real issues.

This brings me to the next part of the hon. member's motion. The motion talks about a flight of capital; $2 billion in total that left Canada free of tax. It suggests that even more money, billions even, is sure to leave the country as a result of some unspecified thing the government has done or the government has not done.

The hon. member is a colourful speaker and this is a colourful motion. It has a vision of convoys of Brinks trucks lined up at the U.S. border waiting to go south. Colourful as that image is, Canadians deserve better than this. Canadians know that there is no restriction or tax on moving money out of Canada. Apart from a handful of countries with exchange controls, this is the way the last half of the 20th century world is. Money moves freely and we are all the better for it.

Having confused the issue, the hon. member will now back up and say that what concerns him is not movements of money per se, but movements of untaxed capital gains. Somehow he says $2 billion in assets left the country with no tax being imposed. Here again the truth is considerably less exciting and a whole lot more complicated.

The fact is Canada does tax people leaving Canada on any capital gains their property has accumulated. We are one of only a few countries that do this. Our rules in Canada are tougher than the rules in the United States. Our rules are tougher than the rules in the United Kingdom. Our rules are tougher than the rules in France. Our rules are tougher than the rules in Germany. Our rules are tougher than the rules in Japan. Our rules are tougher than the rules in Switzerland and they are tougher than those in almost any other country anywhere else.

We do not tax people who leave with gains on Canadian property. That is because we will tax the gains on Canadian property when they are actually realized or if a tax treaty applies, the person's new country will tax those gains. This is not a loophole. It is not something of which only rich people or only trusts can take advantage. It is a basic part of our tax system and it has been there since 1972. It makes good policy sense. Do not tax on realized gains unless you have to tax. It is not the only policy we could have and the committee has suggested that it be reconsidered. But it hardly deserves the kind of scorn the hon. member is heaping on it.

The issue that Revenue Canada had to rule on in 1985 and again in 1991 under the previous Tory government was whether certain shares were the kind of property which is known as taxable

Canadian property. The issue is a complex, technical one. There was no immediate clear answer. At the end of the day Revenue Canada said the property was taxable Canadian property.

Last May the auditor general indicated that he was concerned that this might not have been the correct answer in a technical sense. As soon as the minister became aware of the auditor general's concerns, he asked the all-party finance committee to look at the issue with the help of experts. He did not hide from the issue. He faced the issue squarely. He did not put it in an expert's hand. He did not do any of those things. He put it in the hands of an all-party finance committee and asked its members to consult the experts, suggest witnesses and come back.

The committee invited the opposition to suggest those experts who might participate and the expert opinion was overwhelmingly that Revenue Canada was correct. There was no tax free flight of capital. Let me repeat, there was no tax free flight of capital.

The particular taxpayers concerned did not pay any tax, true. That was because they did not owe any tax. I am sure that not even the hon. member who proposed this motion really wants Revenue Canada to collect tax it is not owed.

The motion goes on talk about other capital leaving the country, as though the government had opened some secret door to let people escape tax. That is absurd.

The committee found that in 1985 and 1991 the rulings did not open any new avoidance opportunities. With the Minister of National Revenue's continuing moratorium even in the unlikely event that there was some yet undiscovered, secret way to exploit the current rules, taxpayers could not be certain their avoidance techniques would work because the Minister of National Revenue has put a moratorium on advance rulings.

It is true that there is a flight of capital under way right now. That flight of capital is into Canada. Business people and investors around the world realize Canada is such a good place to invest their money, to do business, and there is a flight of capital into Canada these days.

Regrettably the separatist government in Quebec makes it hard for that province to attract its share of this new investment. It is understandable that the hon. member tries to distract attention from what are the real issues. Those real issues are that the separatist government in Quebec is not attracting the amount of money into Quebec that could have attracted if there was another government.

The simple fact is that this issue, important as it is, does not involve any flight of capital. The issue of tax is not a flight of capital. People come into and leave Canada all the time. Some of them are rich people, and some of them are poor people. Some of them do not owe any tax but that does not mean that our system is grossly deficient, much less that there is some government conspiracy to let people off their legal obligations.

The motion also talks about the government attacking the credibility of the auditor general. The hon. member said that the committee denounced the auditor general. That is simply not the case. That is pure unadulterated rhetoric.

The hon. member is well aware that the report of the finance committee is just that, it is a report of the finance committee. The committee is composed of members of Parliament from all officially recognized parties in the House. The role of a parliamentary committee is a vital one to our democratic process. The work of the committee is the work of its members. Its work does not represent government policy, it represents the work of its members.

The government would not have it any other way. We value the work of the committees of this House. Even the hon. member who put forward this motion would not want to have a system whereby the work of committees was not independent.

By ignoring this distinction I can only conclude the hon. member does not wish to deal with the difficult policy choices that the report implies, not when there is an easy headline, not by repeating irrelevant accusations, not by simply defending the auditor general against non-existent attacks. Those are the tactics of the opposition members and they are certainly irrelevant.

In summary, this motion is an excellent written summary of everything that is wrong with the official opposition's approach to so many complex matters. It ignores the real question. It repeats unprovable accusations. It denounces the government for acting irresponsibly. It simplifies to a point of incoherence some very difficult public policy issues. All of these are untrue. All of these are ridiculous. The motion will be rejected by anyone who believes in parliamentary democracy and believes in the rule of law.

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11:40 a.m.

Reform

Monte Solberg Reform Medicine Hat, AB

Mr. Speaker, it is a pleasure to speak to the opposition motion today. As I see it, there are two major issues that flow from the motion and from this whole issue.

First is the government's attempt to redirect criticism for the handling of the affair by blaming the auditor general. That is the first big issue. The second is how confusing Canada's taxation system is, and the failure of the government to provide crystal clear tax policy that prevents disputes of the type we are talking about today. Those are the two big issues.

I want to say a couple of words about this specific incident. What we have here is a curious set of events that led up to the tax ruling in 1991 and a curious set of events that get us to this point in the debate in 1996.

A tax ruling was made that was not made public which had a curious lack of documentation surrounding it. We know that this ruling allowed $2 billion to leave the country in a circumstance where, ordinarily, it may have been taxed. The final point I make with respect to all this is that the auditor general looked at all this and found that there was no wrongdoing.

While there are many unanswered questions, the government has done a very poor job of making tax policy clear. It is very wrong and irresponsible when its members turn around and criticize the auditor general.

The Bloc Quebecois has gone way beyond the pale in suggesting that there is some kind of great scandal here, that Canadians are going to rise up. That is just a little hyperbole on its part.

However, the opposition motion gives us the chance to talk a little more about these two issues, the government using the auditor general to escape accepting responsibility for the lack of clear tax policy and really how confusing our taxation system is.

What I regard perhaps as the most serious of the two issues is the efforts of the government to blame the auditor general and to try to redirect criticism to him so that it does not have to take the heat for not being clear about tax policy.

This has become a theme, really, for the government. I point to the recent responses to questioning by the Prime Minister with respect to the Somalia inquiry. He is blaming the inquiry, in this case, for some of the problems he is having. He is blaming it for taking too long and for being too tough on witnesses.

I see a theme developing where the government is trying to blame other people. In the case we are talking about, its members are blaming the auditor general, an officer of the House and not accepting responsibility themselves. This will catch up with the government so that its members cannot continue to blame other people, particularly independent agencies, when things go wrong.

There is no shortage of incidents where things have gone wrong for the government and I want to talk about a few of those for a moment if I might.

I hate to continue to raise this, but I feel duty bound to do so because it is one of the things people have been talking about the most over the last little while. It is something that Canadians are very concerned about.

I go back to the whole issue of the broken promise on the GST. We had a situation where the government was blaming the media when it came to its broken GST promise: "Oh no, we didn't promise to scrap the GST. Look at our red book". Of course, they were on national television doing exactly that. Again, they were trying to shift the blame. They did it on the GST on reading.

The Prime Minister wrote the don't tax reading coalition and said he would remove the GST on reading materials. We have had policy conventions since then, in 1992 and in 1994, where the government said that it would remove the GST on reading. Now the government is trying to say: "You must have misunderstood. That is not really what we meant at all". This is despite the fact that it is in Hansard and in all kinds of public documents. Again, the government seems to have a problem accepting any responsibility, just like in this debate over the auditor general and his criticism of taxation policy.

We have a situation where the government promised to provide 150,000 day care spaces but it will not accept responsibility for making that promise. I do not support the government when it comes to providing these day care spaces. We believe that it should take a different tact. However, that is not the issue. The government made a promise in the red book and it is now trying to weasel out of it.

During the recent debate over cuts to the CBC, there is a pledge in the red book which states that the government will provide stable funding for the CBC. The heritage minister has been one of the most vociferous defenders of funding the CBC over the years. On numerous occasions the minister has said that we must protect the CBC. I do not agree with protecting funding for CBC Television, not at all, but that is not the issue. The government is trying to weasel out of its promise. It is trying to get out of accepting responsibility for the promises that it made in the past. Again, that is what it was trying to do with the auditor general.

The auditor general should not be investigating those policy areas, the government is saying, he should not even be looking at all those kinds of things because it makes it look bad. That is too bad. It is the government and it has to start accepting some responsibility.

Another issue where the government is trying to get out of a previous promise and shift responsibility away is on the Canadian Wheat Board. I remember very well during the election campaign when we had the Prime Minister and the current minister of agriculture saying they wanted a plebiscite on the wheat board issue. However, there has been no plebiscite.

We also know that since then they have brought down a panel that was going to review the whole issue of the wheat board, what it should be involved in and should there be options for farmers other than the wheat board. The minister hand picked these people and said he was going to listen to their recommendations. Again he is trying to get out of that responsibility. He and the Prime Minister is now preparing Canadians for the fact that they will not meet their promise. We again have the government trying to slide out of a responsibility, a promise it has made.

It does not end there. I want to talk about the big kahuna of promises, the big promise that the government made during the last election campaign. It was jobs, jobs, jobs. I just want to talk about that in detail for a moment.

The Liberals won the election in part because of a promise to create jobs, jobs, jobs. The issue we are talking about they have again tried to redirect criticism from the public, from opposition parties and from other interested people over the issue of family trusts. They have tried to pin it on the auditor general. However, I fail to see how the auditor general or the Somalia inquiry or any of those other groups are responsible for the complete and utter failure of the government to fulfil its promise to provide jobs for Canadians.

We still have, as we did in 1993, 1.5 million unemployed Canadians in this country. That is a scandal. That is what the Bloc Quebecois should be calling a scandal because that truly is. It is not just the unemployed Canadians, it is the underemployed Canadians: 25 per cent of Canadians underemployed. Half of all Canadians are worried about keeping the jobs they currently have. There is scarcely a person in this country who does not know somebody who is unemployed or very afraid of not being able to get a job when they get of school. There is 15 per cent youth unemployment in this country. There are people with Ph.Ds working at minimum wage in jobs that certainly are well below their qualifications. We need the government to start accepting some responsibility for all these broken promises.

Members across the way will say that on average unemployment is going down. That is like saying, as the member for Calgary Southwest says from time to time, that the guy with his feet in a bucket of ice water and his hair on fire on average feels pretty good.

When we talk about unemployment we cannot look at averages. Unemployment in Newfoundland is up around 20 per cent, 25 per cent, 50 per cent, 70 per cent in some communities. That is an absolute human tragedy of monumental proportions. Improvements in the job picture in Alberta do not help the people in Newfoundland one bit. And so we must insist that the government start to accept some responsibility for all the promises it has made.

People in Atlantic Canada, people in Quebec are desperate to find jobs. The government cannot continue, as it has done in the finance committee report, to push the blame on to somebody else. The government of the land is in charge of the levers of power. It makes the decisions. It rode to power on the promise that it would provide jobs, jobs, jobs.

Canadians have a right to know what the government is doing to fulfil that promise, and if it does not fulfil that promise they expect the government to take responsibility, not to shift the blame to somebody else. It is time the government started accepting responsibility.

When a six-year old child does not accept responsibility it is bad. But when adult men and women, capable people, people who are supposedly the cream of the crop, people who make up the caucus and the cabinet of the country, refuse to accept responsibility for promises that are on paper, which they campaigned on, it is scandalous. It is ridiculous.

This government will pay a price. I personally am going to ensure it does. When people make promises like the government has made and refuse to accept responsibility when they do not fulfil them, then they only contribute to the tremendous cynicism we see across the country today when it comes to people's respect for politicians. Is it any wonder people are so disrespectful of politicians today? Hardly.

The government made another promise which it has tried to slide out of, to weasel out of. The red book it states:

A Liberal government will appoint an independent ethics counsellor to advise both public officials and lobbyists in the day to day application of the code of conduct for public officials. The ethics counsellor will be appointed after consultation with the leaders of all parties in the House of Commons and will report directly to Parliament.

Three years have gone by since this government took power. Do we have an ethics counsellor who reports directly to Parliament? Hardly. We have someone the Prime Minister knows who reports directly to him. The Prime Minister allegedly speaks to the ethics counsellor when a scandal arises. Then the Prime Minister comes back and tells us what was allegedly said. But this person is not an independent officer of the House of Commons, not at all.

We have had situations like when the former heritage minister met clients of his department for a fundraising dinner. We asked that these situations be referred to an independent ethics commissioner. What happened? Nothing, despite the fact that the Prime Minister and the government promised in writing to do that. Another promise in writing, another promise broken. And again the government shifted responsibility and said: "Perhaps we were misunderstood. We really do not mean the words that are on this paper".

I do not buy that and Canadians do not buy it either. It is an absolutely ridiculous package of-

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11:50 a.m.

Reform

Chuck Strahl Reform Fraser Valley East, BC

Use the right words now.

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11:50 a.m.

Reform

Monte Solberg Reform Medicine Hat, AB

I have to find the right words-misleading words, which Canadians are simply not going to buy. Canadians are tired of being misled on a whole variety of issues and they are not going to accept it any more.

I have talked for a few minutes about one of the two issues that I have identified as being ones that are important and which flow from this whole debate over family trusts and the finance committee's criticizing the auditor general. I have talked about the attempt by the government to shift responsibility over to, in this case, an independent officer of the House, the auditor general. In other cases the government has tried to shift responsibility to whomever it thinks it can.

The second issue I wanted to raise is the whole issue of the confusing taxation system. The government has been in power for three years. Why has it not clarified this particular fine point of taxation law which is so much in discussion and part of the controversy we are talking about today? The fact of the matter is until this issue was raised nobody did anything about it, despite the fact that the government has been in power for three years.

It is fairly clear that Canadians are concerned about how confusing the taxation system is. As the hon. member for Saint-Hyacinthe-Bagot pointed out a few minutes ago, when it is $50 that the average guys owes the government goes after them hammer and claw. It is no secret that the government has actually cranked up its revenue department to go after anybody at all who looks like they have missed including a penny on their taxation forms. There is no question-and I am sure hon. members will attribute to this-that there are more and more people who are complaining to MPs about how vigorous the taxation department has become in scraping every cent out of its pocketbooks so that it can continue to bring more revenue into the government. That is another issue which I will touch on in a moment.

The taxation system is extremely confusing. The Income Tax Act is 2,000 pages thick. There are currently 10,000 cases before the courts on the issue of taxation law. There are all kinds of people who have very serious concerns about the complexity of the tax system.

One of the promises which our party has made is that we would look at the complexity of the taxation system. People have a basic right to understand how the taxation system works. When the government is taking half of a person's money in taxes, it is a basic right for people to be able to understand why the government is taking the money and what it proposes to do with it.

Since this government came to power we have seen 33 tax increases. I have a feeling that people would be a lot more sympathetic to the taxation system in general if overall taxes were not so high. Right now somewhere in the range of 50 cents on every dollar earned goes to pay taxes. That is scandalous. The Bloc Quebecois was talking about a scandal. That is scandalous.

Perhaps people do not realize that since 1983, since the Tories came to power and then the Liberals after them, we have seen

federal personal taxes increase $4,000 a year per individual taxpayer. That is absolutely ridiculous. Then there are excise taxes, which have increased another $1,100 a year.

The finance minister has talked about how he has not raised personal taxes. That simply is not the case. He has raised personal taxes. He has done all kinds of things to do that. There have been 33 tax increases of various kinds since the government came to power. People have felt it in their pocketbooks.

Somebody suggested to me the other day that what should happen for people to really appreciate how much governments are taxing them is for them to write out a cheque every month to send into Revenue Canada for their taxes, as opposed to having those taxes come directly off their paycheques. Then people would come to appreciate just how heavily they are being taxed. Many people understand that.

The average family of four in Canada makes an income of somewhere around $54,000. Roughly half of that, $27,000, goes to pay taxes of all kinds. If someone had to write a cheque to Revenue Canada every month for taxes, it would be well over $2,000 a month. A mortgage payment of $1,000 is a pretty big payment every month. But stop and consider for a moment that people would have to cut a cheque for over $2,000 a month to pay the taxes in this country. It is absolutely outrageous.

We talk about people who are fearful for their jobs. We talk about people who are afraid to start a business, afraid to risk any money they have saved. And how can they save very much when taxes are this high? We wonder why we have an unemployment problem in this country. To me it is not a very complicated problem. When we are paying that much in taxes, how is it possible to save the kind of money that is needed to start businesses? It is virtually impossible.

I will give another example of how the government is working against the ability of people to save money and start businesses and create jobs. This is a perfect example of how the government has proceeded with its tax increases.

On April 22 there was a change in the tax rules affecting the notional input tax credit. When I try to explain it, it becomes very complicated and people just throw up their hands and their eyes glaze over. The net effect of it is that it removes about a billion dollars from the bottom line of small businesses. According to some estimates it amounts to a billion dollars a year. That means those small businesses have to find that billion dollars somewhere else.

Where do they find it? They either find it by charging higher prices to consumers and therefore that tax increase is passed on, or they let people go or perhaps close down their business. Again

people become unemployed. The government has done this over and over and over again.

When we are talking about the taxation system and the point I was trying to make a few minutes ago, I think people would be a lot more willing to suffer with a complicated taxation system if they knew that the government was not using the fact that the system was so complicated and so mystifying to people to raise taxes in a surreptitious way as it has done time and time again.

Another good example is the move to limit how much a person can contribute to RRSPs. That is not a direct tax on personal incomes but the effect is exactly the same as if the government put a tax on personal incomes. What happens is that people end up having to pay more income taxes because they cannot save the money they have traditionally saved through RRSPs for their retirement. On the other hand the Canada pension plan is really in trouble and the government's response to that is to limit the amount that can be put into RRSPs so that people can provide for themselves in their retirement.

Why not give people the dignity of being able to save for their retirement? But the government continuously works in surreptitious ways against the interests of people who are trying to provide for themselves, trying to create jobs by starting small businesses, people who simply want to have a few dollars put away so that perhaps they can take a vacation when they get older, put their kids through university and have the things that back in the 1960s and early 1970s people just took for granted.

I do not think Canadians are demanding a lot. They do not want some utopia in the future. They want the same kind of country we used to have. They want a country where there are balanced budgets, where governments live within their means, where there are small governments which are not in their faces at every turn and every step they take.

Canadians want some reasonable division of responsibilities between different levels of government. Do we really need to have different levels of government involved in every aspect of our lives? Do we have to have three levels of government looking after the environment? Do we have to have two levels of government involved in mining, tourism and agriculture? People want smaller government. They want a balanced budget. They want a taxation system they can understand. I do not think it is being unreasonable.

Canadians want taxes that are high enough I suppose, in that they are willing to pay taxes to look after some basic social programs. They want health care and some kind of a pension plan. But they do not want taxes going into all these wacky social engineering programs that we have seen in the past. They do not want tax dollars going into job training programs that bear no fruit as we have seen over and over again. They say let people who know how to do it do it.

Canadians do not want to see tax dollars going into regional development programs where we fund all kinds businesses which in turn use those dollars to compete against the people who are the ones who contributed the tax dollars in the first place. That is crazy. We end up putting prosperous businesses out of work or putting them under by subsidizing businesses that have been unprofitable to that point. That is crazy yet the government somehow cannot get the message.

I am grateful the Bloc has raised this issue today. I do think there are two big issues that have come from it and I will just touch on them briefly as I sum up.

The issue of the auditor general reporting on the apparent irregularity in tax law points to a couple of different major issues. One of them is the fact that the government has tried to shift the responsibility away from itself on to the auditor general, someone who has saved us billions of dollars in the past. We only wish that everybody in the government would be so vigilant in finding waste.

The other big issue is our confusing tax system. Our member for Calgary Centre has spent hours and hours speaking to people across Canada about the need to reform our taxation system. We hope that this issue will help bring home the need for government to do that.

I want to conclude by saying a word about the auditor general. It is very important when we have these independent officers of the House that the government think long and hard before criticizing these people. It is no secret that the auditor general and successive auditors general have saved the House billions of dollars over the years.

The one final request I would make is for the government to learn a lesson from the auditor general and to apply the same powers to an ethics commissioner. Then as part of the opposition we would not be talking about all the scandals we have to talk about.

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12:05 p.m.

London West Ontario

Liberal

Sue Barnes LiberalParliamentary Secretary to Minister of National Revenue

Mr. Speaker, I would like to make a brief comment and then to ask the hon. member a question.

My comment stems from the fact that I have listened to a rambling dissertation. At times I had a problem finding the relevance to today's motion. Nevertheless the hon. member said something that interested me and which I think is very reflective of his party's position on many different topics.

He talked about Canadians wanting the government and country they used to have. I find this a major problem. They are always looking backward. Unfortunately the real responsibility of a government is to look forward. This Liberal government is dealing in business, in tax and in every issue. It is not looking backward but looking forward to the future, forward for a better situation for

Canadians. That includes very deliberate, well thought out, practical management of a tax system, a system that is very complex.

We in Canada are getting more and more of our jobs from international trade. When the Liberals took office one in five jobs in this country depended upon international trade. It is now much closer to one in three jobs in Canada depending on international trade. One of the things that has enabled us to do this, among many others because Canadians are very productive people, is the fact that we have a very sophisticated, advanced and by definition therefore complex tax treatment. I know that simple is the way the Reform Party likes things but some things are complex. Part of the complexity of our tax treatment is the fact that we have to deal internationally.

Many corporations today are international corporations. They do not just do business in one country, they are multinational. This applies also to the people in Canada. Our Canadians are gathered from around the world. We get income and enhancement to our economy from investment from outside of this country. People are also leaving at different stages of their lives. Many people come to this country, work for many years and then retire and leave it. They do not want to dispose of all their property and pay tax at that point in time. Some of them may want to keep property here and have the income flowing from that property. There are very serious complications to the broad range of the Canadian public on these issues.

International tax agreements modify Canadian tax law. That is at the basic concept of what happened here in the report of the finance committee. It was a 60-page document. It dealt with process, it dealt with policy, but at the heart of the document what we have is an understanding that Canada has over 60 bilateral trade agreements. That helps Canadians to do international transactions. In fact, the Canadian tax act is modified by law by the international tax agreements. For instance, with the United States we have 10 years after the migration to collect the tax.

My question for the hon. member is: Does the member of the Reform Party believe in honouring our international tax agreements for the benefit of Canadian citizens?

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12:10 p.m.

Reform

Monte Solberg Reform Medicine Hat, AB

Mr. Speaker, of course we believe in honouring our tax treaties but I simply must respond to some of the things the hon. member said.

She spoke with some conviction about how wonderful it was to be involved in international trade, how it was providing jobs and that kind of thing. I agree. It is a very important aspect of what we do in Canada.

I am just curious to know why the hon. member and her colleagues fought so hard against international agreements like NAFTA and actually broke their promise to renegotiate it. Again I find it fairly strange. I was talking about broken promises. I thank the hon. member for reminding me of a major one that the Liberals broke which was that they were going to renegotiate the NAFTA agreement. Of course they completely and utterly failed to do that. I do not know who they are going to blame that one on. They cannot blame the auditor general for that one. I guess they will have to accept some responsibility for that one themselves.

With respect to the complexity of the taxation system, we are not suggesting that we can reduce thousands and thousands of pages of tax rulings down to a single page. Hardly. We are suggesting that after three years in government the government should have done something to clarify that particular piece of tax legislation. The government employs batteries of lawyers and accountants. By this point in the government's mandate it is important that it look at all its taxation policies and ensure that there are not big loopholes or at least there are not issues that are up for dispute which would allow people potentially to ship $2 billion out of the country without it being taxed.

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12:10 p.m.

The Deputy Speaker

The hon. member for Mississauga South has one minute and then the member has one minute to reply.

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12:10 p.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, on the tax issue, the Reform Party has long advocated a flat tax system which allows for a basic exemption, no deductions, very simple. Reformers have also advocated replacing established pension plans with RRSPs. I see the member is nodding his head and he acknowledges that these are two things Reform has talked about.

The fact is that a flat tax approach basically shifts the tax burden from high income earners to middle income earners. How does the member square that system which does not allow deductions, including deductions for RRSPs, with Reform's other position that we should have more RRSPs to deal with pension entitlements?

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12:10 p.m.

Reform

Monte Solberg Reform Medicine Hat, AB

Mr. Speaker, there is more than one version of a flat tax.

The hon. member for Calgary Centre has presented a version which would include RRSPs and would be a modified version of the present system. It would be far simpler, far less complicated, and people would be able to understand it a lot more. He is just being reasonable. He is saying: "Let's not throw out everything that we have done up until now. Let's remember that the current tax system is what undergirds different parts of the economy".

If we yank it out in one big sweeping movement, there will be all kinds of implications throughout the economy. He has presented a very reasonable way of simplifying the system, still allowing people to save for their own retirement, especially at a time when

the government has failed to do anything to preserve the Canada pension plan, thus imperilling the future of many Canadians.

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12:15 p.m.

Bloc

Richard Bélisle Bloc La Prairie, QC

Mr. Speaker, as we all know, for nearly two weeks now, the Prime Minister and the Minister of National Revenue have either evaded the official opposition's questions about this scandal concerning family trusts or attempted to trivialize the fact that $2 billion were transferred to the U.S totally tax-free.

There is indeed a political scandal when, for three years, a government prevented the auditor general from getting to the bottom of this issue and, after the auditor general finally succeeded in alerting the Canadian public to this financial scandal, the Liberal majority on the finance committee found nothing better to do than to attack this senior official who is accountable only to Parliament.

Instead of shedding light on this issue that reeks of political opportunism and patronage, the Minister of National Revenue has the gall to say that the Bloc Quebecois is misleading the public on this issue. To inform the public is to mislead the public, is that it? The government's approach is really quite amazing.

I would rather take the word of the auditor general, the real ombudsman of those who pay taxes in this country, over that of the Liberal revenue minister. According to the Canadian press, the minister believes that the problem is not family trusts, but rather the rules governing the transfer of funds abroad. What we know for a fact is that $2 billion were transferred outside of Canada without a penny being paid in taxes and that these funds came from family trusts.

The Liberals are out to destroy the credibility of one of the most important institutions of our parliamentary system: the Office of the Auditor General of Canada. In their report, they arrive at a distorted interpretation of the Income Tax Act in order to justify the inconsistency of the revenue and finance departments, relying blindly on the testimony of six experts from the private sector, who are clearly in a conflict of interest position.

In its report, the Liberal majority on the finance committee launched into an unprecedented attack against the Office of the Auditor General of Canada, one of the most respected institutions of our democratic system. Already, during the hearings of the finance committee, we witnessed disgraceful scenes where, for nearly two hours, the chairman himself outrageously and arrogantly attacked the credibility of the auditor general.

Analyzing the auditor general's role and mandate, one immediately sees the limits that the Liberal majority wishes to impose. The Office of the Auditor General plays a key role in making an independent evaluation of the information provided to Parliament by the government. A Revenue Canada ruling, which seems to contravene the spirit of the Income Tax Act, was made in great haste, without any notes or minutes, one December 23, and could cost Canadian taxpayers hundreds of millions, according to the auditor general.

Should this issue be debated in the House of Commons? To ask the question is to answer it.

The act setting out the auditor general's mandate is clear. Nevertheless, the Liberal majority attacks it, attempting to discredit his role for purely partisan reasons.

In his 1984, 1985, 1987, 1990, 1992, and even 1993 reports, the auditor general analyzed the application of the Income Tax Act, without anyone at the time questioning his mandate, his expertise, or even the appropriateness of his intervention. Quite the contrary, the Liberals, who were then in the opposition, did not hesitate to use the reports to attack the Conservative government. How is it today that the Liberal majority is systematically attacking a pillar of our system of parliamentary accountability?

The analysis of all the events which followed the tabling of the report underscores the overt partisanship of the Liberal government, which is attempting to hush the whole thing up.

Following the revelations of The Globe and Mail , the government gagged the Standing Committee on Public Accounts by referring the issue of family trusts to the Standing Committee on Finance whose chairman is, of course, not a member of the opposition.

For the Bloc québécois, it is obvious that this change of attitude shows the bad faith of the Liberals, who are trying, through stalling tactics, to hush up the scandal and, through unwarranted attacks, to undermine the credibility of the auditor general himself.

During the two years I was the chair of the Standing Committee on Public Accounts, I remember how much respect all the members, even Liberal members, had for the auditor general. Why this sudden change of attitude? Why have the Liberal members who were sitting or are still sitting today on the public accounts committee suddenly been silenced? This about-face by the Liberals brings us back to the issue of influence exerted by partisan interests and probably by friends of the Liberal Party and contributors to the Liberals' campaign fund.

The conclusion to be drawn from this less than edifying saga for the members opposite is that the government is trying to protect people close to the top who benefited from the generosity of Revenue Canada, or even to hide a possible conflict of interest.

With the tabling of its report, the Liberal majority has shown how little respect it has for parliamentary institutions and has succeeded roundly in fuelling people's cynical view of politicians who are more committed to party interests than to good government.

Let us look at how this truly amazing story has unfolded. The auditor general reviewed two advance rulings on the transfer to the United States of assets worth at least $2 billion formerly held in Canadian family trusts, despite what the revenue minister had to say.

The Standing Committee on Finance was then asked by the Minister of Finance himself to examine the ambiguous provisions of the Income Tax Act pointed out in the auditor general's report. Meanwhile, in order to analyze and interpret the law correctly, the finance committee called several tax experts as witnesses. Now, in its report, contrary to all expectations, the finance committee has endorsed without reservation Revenue Canada's interpretation, and based its findings only on the evidence given by six out of eight experts called earlier this summer to give evidence before the committee without even ruling on the appropriateness of the evidence heard.

The Liberal majority accepted only those comments made by the tax experts who were in a position to devise such a tax planning scheme for their customers. However, the Liberals never saw fit to include in the report the comments made by a disinterested authority, like the distinguished Professor Brooks of the faculty of law in Toronto.

The matter the Standing Committee on Finance had to settle was whether what Parliament intended was clear. Can Canadian residents have taxable Canadian property or not? That was the issue at stake.

As the Liberal majority put it in the report, the crucial issue on which the decisions were ultimately to be based was whether such property could be taxable Canadian property belonging to a Canadian resident.

If the answer is yes, then it is possible for a Canadian resident to transfer property abroad and to avoid paying taxes in Canada immediately. In such a case, the taxes will be collected by the American government instead of the Canadian government, if the property transferred is sold more than 10 years after the transfer. However, if the answer is no, as we believe it to be, it means that the concept of taxable Canadian property cannot apply to a Canadian resident and that the capital gain is deemed to be taxable as soon as the property leaves the country.

Up until the advance ruling-because it was an advance ruling Revenue Canada made in 1991-taxable Canadian property applied only to non-residents. In all likelihood, Parliament intended to control the taxation of capital gains earned by non-residents. However, section 85(1)( i ) of the Act stipulates that capital stock of public corporations is taxable Canadian property when it is received as consideration for capital stock of private corporations.

That is what the trust argued in its request for an advance ruling. However, according to the spirit of the law, this provision only applies when capital stock of public corporations is bought by non-residents. In the Act, when the application of the concept of taxable Canadian property becomes relevant for a resident, it is usually made very clear, as the following examples will show.

Section 48(1)( a ) indicates, and I quote: ``any property that would be taxable Canadian property if at no time in the year he had been resident in Canada''.

Section 107(5) also stipulates, and I quote: "property that is or would, if at no time in the taxation year of the trust in which it was so distributed the trust had been resident in Canada".

In its ruling, Revenue Canada mentioned that residents can have taxable Canadian property, which in itself sets a very dangerous precedent based only on section 97(2) of the Act. The Liberal majority report never questioned the use of a single paragraph of section 97 concerning precisely the taxation of partnerships to determine Parliament's intentions on such an important issue.

Rather, the Liberal majority was satisfied with the analysis by six of the eight experts called who, as you will all remember, work for firms involved in such transactions for the benefit of private customers.

The proposal by the Bloc Quebecois could not be clearer: even though the issue is essentially one of the holding by residents of a taxable Canadian property, that matter was never examined by the majority report. Section 97(2) to the effect that Canadian residents can hold taxable Canadian property was never questioned.

Yet, in our opinion, invoking this section to determine the taxation of family trust property transferred outside of Canada is contrary to Parliament's intentions in the case of taxable Canadian property. Only non-residents should be able to use this taxable Canadian property concept, and that is well covered in the Act.

Therefore, section 97(2) c ) of the Act should be revoked, thus eliminating this type of tax planning, which the Auditor General of Canada so rightly condemned.

Our position is also shared by Professor Neil Brooks, a consultant whose impartiality is absolutely beyond doubt. He said, and I quote:

"My position is that the ruling the taxpayer received in this case is wrong in law and policy and common sense".

This could not be any clearer, as was emphasized by Professor Brooks:

"Wrong in law and policy and common sense".

Not one of the other expert witnesses challenged this argument by Professor Brooks. Parliament's intentions are crystal clear. Moreover, the auditor general argued that the Act-specifically sections 197(5), 115(1), 128(1) and 85(1)-shows rather clearly that Parliament did not want Canadian residents to possess "taxable Canadian property".

Consequently, in view of the auditor general's findings and the experts' testimony before the Standing Committee on Finance, we are compelled now to put forward three recommendations-and, in this regard, I fully support the three recommendations of the Bloc Quebecois minority report as well as the motion on family trusts tabled today by the hon. member for Saint-Hyacinthe-Bagot.

Section 97(2) c ) must be revoked to eliminate the lack of clarity pointed out by the auditor general in his report.

The definition of "taxable Canadian property" must also be changed as soon as practicable so that residents cannot own "taxable Canadian property". This is the simplest and surest way to eliminate any tax avoidance by transferring property outside Canada.

Finally, the 1991 ruling must be cancelled so that no one can ever again refer to it to avoid paying taxes due to all Canadian taxpayers.

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12:30 p.m.

London West Ontario

Liberal

Sue Barnes LiberalParliamentary Secretary to Minister of National Revenue

Mr. Speaker, I think it is necessary to comment again on some of the matters that have been raised in the hon. member's speech.

First, the finance committee's report as tabled in the House, a public document, found that there was no loophole or tax evasion involved here. Revenue Canada applied the law correctly.

Second, I must restate that Canada has one of the tightest systems for taxing people who move abroad. The fact that Canada does not tax some gains until they are actually realized is not a loophole. Nor is it a loophole that our tax treaties give us the right to tax some gains and our treaty partners have the right to tax other gains. That is the important main element, the migration of people outside the country. This is what we are talking about here, the tax treatment of these people when they leave the country. There are very definite rules in the Income Tax act.

As a lawyer I have never been told that one subsection has a priority over another subsection unless it states that explicitly. So to say that there is just a little subsection here, so do not bother with it, is ridiculous. The experts backed that up in a very public, open round table meeting that went on for over six hours last spring, and members of the opposition were there.

Again we have a minority report from the opposition members who have brought this motion today which is just politics. It does not state reality. Reality of the Canadian tax law today in Canada is a very complex situation. What any government should do is constantly improve.

The report came up with very definite recommendations for the finance minister to consider. The report has been tabled. Those recommendations are on the table and they will be considered in due course. Canadians deserve the best tax law that we can come up with, but it has to be fair. The process has to be open. We have certainly had an open process.

I find it unbelievable that he thinks a policy decision concerning tax should not be debated in the finance committee. He may not even be aware that after tabling his report, the auditor general himself sent a letter off to the chair of the finance committee which stated that these sections of his report were under the purview of the finance committee and that it might want to look at them. That is the reality.

What we have here is politics. I understand that the opposition's job is to play politics. Unfortunately for it, the job of government is to govern and when we govern we govern with the real facts.

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12:35 p.m.

Bloc

Richard Bélisle Bloc La Prairie, QC

Mr. Speaker, the parliamentary secretary is telling us that it is a public document and that the opposition's objections are of a political nature. I would like to respond to the parliamentary secretary by submitting to him the three following elements.

First, I would like to inform him that the only ones who support the government are six experts out of the eight who appeared before the finance committee. And, as everyone knows, these six experts have very close and direct connections with rich Canadian families. Professor Brooks, whom I mentioned earlier in my speech, did not agree at all with their position.

I would also like to point out to the parliamentary secretary that the group Cho!ces, a newly formed group which agrees with the auditor general's recommendation, intends to challenge Revenue Canada's ruling in the courts.

I would like to add that even if the legality of Revenue Canada's ruling is questionable, I believe that we must also consider the fairness of the ruling for all Canadian taxpayers.

I would now like to point out the third element. As my colleague, the member for Saint-Hyacinthe-Bagot, said this morning, this decision was taken on the sly 24 hours before Christmas. We know that the notice had been rejected by junior officials for a few months in 1991.

Suddenly, 24 hours before Christmas, as the member for Saint-Hyacinthe-Bagot said, when the turkey was on the table everywhere in Canada, senior officials from Revenue Canada and Finance Canada examined the case and, at a few hours notice, allowed the $2 billion out of the country. This is really outrageous.

[English]

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12:35 p.m.

The Deputy Speaker

The hon. member for Cariboo-Chilcotin has about a minute to make a question or comment. Then we will move on to debate.

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12:35 p.m.

Reform

Philip Mayfield Reform Cariboo—Chilcotin, BC

Mr. Speaker, I would like to begin by thanking the hon. member and the Bloc for bringing this motion to the House today.

I want to know if the members of the Bloc will be pointing to the ongoing thrust of the government for more and more-

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12:35 p.m.

The Deputy Speaker

Is the member finished his question? If not, could he please put his question now.

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12:40 p.m.

Reform

Philip Mayfield Reform Cariboo—Chilcotin, BC

I want to ask how members of the Bloc would have the legislation changed to prevent the government from doing this.