Debates of Oct. 20th, 1997

Income Tax Conventions Implementation Act, 1997

[Jim Peterson, Liberal, for the Minister of Finance]

moved that Bill C-10, an act to implement a convention between Canada and Sweden, a convention between Canada and the Republic of Lithuania, a convention between Canada and the Republic of Kazakhstan, a convention between Canada and the Republic of Iceland and a convention between Canada and the Kingdom of Denmark for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and to amend the Canada-Netherlands Income Tax Convention Act, 1986 and the Canada-United States Tax Convention Act, 1984, be read the second time and referred to a committee.

Mr. Speaker, I intend to be very brief this morning.

We intend to enter into three new tax treaties with Lithuania, Kazakhstan and Iceland and we are making revisions to four existing taxation treaties, those with the Netherlands, Denmark, Sweden and the United States.

Canada currently has 61 treaties for the avoidance of double taxation and the prevention of fiscal evasion. With these three new treaties we will be up to 64. This is very important for Canada as a nation which is outward looking and which depends on 40% of its economic wealth in any one year on its exports, on its commerce abroad, on its foreign direct investment and the flows of information, capital, technology, royalties, dividends and interest.

In five of the treaties, those with Ireland, Denmark, Lithuania, Kazakhstan and Iceland, the major provisions, apart from avoiding the double taxation of income, i.e., deciding that if income flows from one country to another, which country has the right to tax it. Obviously both countries cannot if we are to have a modern world. Otherwise the rates of tax would easily exceed 100% of that income.

Through these treaties one country foregoes the right to tax in certain circumstances. For purposes of simplicity we have countries of source and we have countries of destination, usually where the recipient is resident. Will it be the country where the income is owned or the country where the recipient is resident that will determine the primacy of taxation? In this exercise we have followed the general outlines set out in the OECD model convention for the avoidance of double taxation.

In five of these treaties, those of Ireland, Denmark, Lithuania, Kazakhstan and Iceland, one of the main provisions involves reducing the withholding tax that would otherwise be payable by the source country, in this case Canada, 25% under the Income Tax Act, reducing it down to a level which is far less punitive. In most of these cases we have reduced it to 5% where the foreign resident has a controlling or major interest in a Canadian corporation. The rate is often reduced to 10% where interest payments go abroad. In many cases where there are payments on government debt, there is no withholding tax whatsoever.

One of the main concerns in bilateral negotiations has been to try to reduce the withholding taxes to zero, where they deal with royalties on scientific know-how, computer software and things which are necessary to produce a modern industrial state.

I regret that in some of these five treaties we are not able to get that rate down to zero on such royalties. However, in the treaties with Sweden and Netherlands we have confirmed that we will have a zero withholding rate on those types of payments. This is significant progress in a world which is increasingly dependent on the flows of information and technology.

Perhaps the most important change being made today is with respect to the tax treaty with the United States. Its main provision deals with social security benefits which flow across the Canada-U.S. border: a person resident in the United States who receives Canada or Quebec pension plan or old age security benefits or a person resident in Canada who receives from the United States its social security benefits.

Just so we understand these provisions I would like to go back to the law as it existed prior to 1996. At that time the country paying the benefit did not exercise any taxing jurisdiction or taxing power. That taxing power was exercised only in the country of residence. Therefore a person resident in Canada who was receiving U.S. social security was taxable in Canada. The rule was that only half of that social security benefit went into the resident taxpayer's income but it is obvious to members on all sides of the House that this produced unfairness.

For example, if persons resident in Canada were receiving social security from the U.S. of say $8,000 they were taxable on only $4,000 of it, whereas if they were receiving $8,000 of old age security they were taxable on all of it. This was not equitable and not fair.

Therefore we entered into negotiations with the United States to change that law as of January 1, 1996. We said that rather than the country of residence taxing the pensions or the social security it would be the country of source. If a resident of the United States received Canada pension plan or OAS, Canada would withhold 25% on those payments to the resident in the U.S.

If the U.S. person was a low income taxpayer and his or her marginal rate of tax was either zero or less than the 25%, Canada gave that person the option of filing a tax return in Canada. To the extent that the tax would have been less than that 25% withheld by Canada, Canada would give a refund. It worked well for a person resident in the U.S. receiving pension benefits from Canada. On the other hand it did not work so well going the other way.

The U.S. withheld 25.5% on social security payments going to a resident of Canada but it did not allow the Canadian who was in a low income or no income bracket to file a U.S. tax return and be taxed on a net basis; i.e., to be taxed at less than 25.5%.

Accordingly, negotiations were entered into with the United States and that is the result of this protocol. We are saying that the country of residence of the taxpayer or the recipient now has the exclusive right to tax. The country paying the social security, the United States will forgo its withholding tax or Canada will forgo its withholding tax when paid to the United States.

Second, the resident of Canada will include only 85% of U.S. social security in their Canadian income, and a reciprocal right applies to residents in the United States receiving pensions from Canada. This means that low income taxpayers are in effect going to be taxed on a net basis and it will not be punitive. This is a desirable and hopeful result.

In order to protect those who might have already suffered or paid their taxes, this law, when in effect, will be retroactive to January 1, 1996. To help in the transition, if someone has already paid their taxes for 1996 or 1997, we have said that they will pay no more taxes than they otherwise would have. Therefore if a person is in a higher bracket than the 25.5% withheld, they will not have to pay that for the years 1996 and 1997. It will only be on an ongoing prospective basis that these full rates of tax, applicable to domestic or resident taxpayers, are going to be applied.

There is also one other amendment that deals with capital gains. We know that if a U.S. resident owns real estate or resource properties in Canada and disposes of them they would be subject to Canadian tax. Suppose they own those properties through a corporation resident in the United States and sell the shares in that corporation. It would seem natural that they should not be able to get away with something by doing it indirectly through a corporation, that they could not get away with it even if they owned those properties directly. This is why Canada has always had a law in its books which states that where one owns those Canadian assets indirectly through a U.S. corporation, they will be taxable as if one owned those assets directly.

However, the U.S. does not tax Canadian residents on this basis. Accordingly, we have amended the tax convention with the United States in order to reflect that both of our laws be brought into this more modern mode. Quite frankly, in terms of administering a law when a resident of the U.S. sells the shares of a particular company it is very difficult to look behind that corporate shell and find out what all the assets are. In a modern world this does not make a lot of sense.

I am very pleased to say that we have settled this issue of transporter pensions or social security in a way that is fairest to those who have the lowest income and whose tax rates would otherwise be under the 25.5% U.S. rate or the 25% Canadian rate when they are taxed on a net basis. This is a desirable result. It is fair and is evidence of the ongoing good co-operation and strong relationship between our two countries.

[Jason Kenney, Reform, Calgary Southeast, AB]

Mr. Speaker, I rise on behalf of the official opposition to address Bill C-10, an act to implement a convention between Canada and various conventions between the countries of Sweden, Lithuania, Kazakhstan, Iceland and Denmark for the avoidance of double taxation and the prevention of fiscal evasion and also to amend the 1986 Canada-Netherlands Income Tax Act and the 1984 Canada-U.S. Tax Convention Act.

At the outset I would like to make clear that the official opposition supports the proposed conventions with Sweden, Lithuania, Kazakhstan, Iceland and Denmark. We have no objection to the essentially housekeeping amendments made to the Canada-Netherlands Income Tax Act.

However, the government did try to seek our consent and that of the other opposition parties to rush this bill through the House, which is often the case in technical bills involving housekeeping amendments of this nature.

It is a good thing that we as opposition MPs sometimes look a little below the surface to find something very suspicious and nefarious lurking beneath the surface of such technical bills.

Indeed such a nefarious section exists in this bill with respect to the tax treatment of social security payments to Canadian residents from the U.S. social security fund. Schedule section of part VII of Bill C-10 deals with those payments which the hon. minister just addressed.

However, in reviewing the government's rationale for amending the treatment of taxation of social security payments received by Canadian residents, the minister left out a few very pertinent facts.

He implied that somehow these change being made from the third protocol agreed on by this government in 1995 to the protocol that was signed in April by representatives of the American and Canadian governments would somehow increase tax fairness and provide tax relief for lower income resident Canadian seniors.

That really is not the full picture. What the minister forgot to mention was that tax treaty, the 1985 third protocol which imposed a 25% flat withholding tax for social security payments coming to Canadian residents, was negotiated and agreed on by this government, the very government whose members are saying that it was an unfair agreement. Indeed it was.

Let us back up a couple of steps and give the government a bit of a history lesson when it comes to how it has treated these 80,000-some seniors who have received U.S. social security payments in Canada.

Originally since the 1984 U.S.-Canada Income Tax Convention Act, 50% of social security payments to Canadian residents could be included for purposes of Canadian taxation. That made a lot of sense because it was the same treatment that U.S. recipients of social security have. That is to say, 50% of their social security payments were included for the purposes of taxation.

In 1992 the U.S. government under one of the Liberals' ideological allies, Bill Clinton, decided it was going to raise taxes on seniors. It did that by raising the total maximum inclusion rate for U.S. social security benefits from 50 to 85% so that theoretically wealthier seniors were paying more tax on their social security benefits.

Following that, this government entered into negotiations with the Americans to produce the third protocol, which did not create a parallel system with the American treatment of the taxation social security benefits. Instead what they did was impose this 25.5% flat withholding tax on those payments being made to Canadian seniors and American residents of Canada. That was devastating. It had an absolutely devastating impact, particularly on low income seniors.

I think the members from the government who come from the Windsor area in particular where many of these taxpayers are concentrated know of what I speak. It put many of the lowest income seniors there into terribly dire straits.

Many of the lowest income seniors saw their tax bills rise by $1,000 to $2,000, people on fixed incomes, people who do not have the resources to hire tax accountants or lawyers or specialists to advise them on this kind of change. Suddenly it appeared, even after the government made commitments that no one would pay more taxes.

The hon. deputy prime minister, a member from the Windsor area, indicated in several public statements on the record that the 1985 protocol would not result in a tax increase for any Canadian resident. He was wrong. He was completely wrong because every Canadian receiving U.S. social security payments saw a significant increase in their tax bill. The government was wrong then and it is wrong again today.

Those seniors lost trust in this government's ability to protect their interests in negotiating the 1985 treaty. As a result there was a lot of political heat felt by this government. They went back to the table and they renegotiated it, and today we are analysing the result of that negotiation.

What happened? Once again this government sold Canadian seniors down the river by raising the inclusion rate of U.S. social security payments from 50%, as it was before 1985, to 85%. That is a 70% increase in the inclusion rate. That is a 70% increase in the taxes that seniors who receive U.S. payments will have to pay the Canadian government.

The Liberals call this fairness. They say this is revenue neutral. It is not. If more seniors pay more taxes than they used to, that is a tax grab.

I know this government has a problem when it comes to accounting. By adding $100 billion to the federal debt it claims to have somehow balanced the budget. It thinks adding debt means fiscal responsibility, that increasing taxes equals tax fairness. It is more of the same old Liberal tax, spend and borrow game that we see in section 7 of part VII of Bill C-10.

This is a very serious matter and I hope the government listens closely. We have received representations from an organization representing thousands of Canadian resident seniors, the Canadians asking for social security equality. They point out to us the kind of very serious dire straits that older Canadians fell into as a result of the 25% flat withholding tax, unfair tax grab, imposed by this government in the 1985 treaty.

They made representations to the government to make changes so they could get back to revenue neutrality with the pre-1985 tax rules. Instead they get a 70% tax increase.

The government will say these changes are fair because Canadian taxpayers who receive Canada pension plan and OAS, now seniors benefits, have an inclusion rate of 100%. They are right. Liberals must be happy that seniors have to get shaken down.

What they are doing under the proposed seniors benefit changes is to deeply penalize middle income seniors in particular who have acted responsibly to save for their retirement by imposing massive taxes on their income from private savings. That is what they are doing under the seniors benefit. They are doing very much the same thing under this bill.

The government will argue, as have several of the members from the Windsor area, that the 100% inclusion rate for CPP payments to Canadian residents is somehow a precedent for these Canadian residents receiving U.S. social security payments. On the face of it, it seems like a reasonable enough argument. We want fairness. Everybody should be treated the same.

There is a difference here. Canadians are not taxed on the payments they make to the Canada pension plan. The so-called premiums, premiums which the government will be raising by 73% between now and the year 2003, are deductible from the taxes we pay. They are not included as taxable income.

The U.S. government treats its taxpayers differently. They do not get to deduct the cost of their social security premiums paid to the U.S. treasury. They are taxed at source on those payments. That is why Americans do not have a 100% inclusion rate for social security benefits. They have decided for policy reasons to tax that pension system at the front end when the taxpayer earns the money and pays into the system rather than when he retires and collects from it.

Imagine the case of a hard working Canadian taxpayer who goes across the border to find gainful employment in the United States because there are not enough jobs in Canada. Under American law a portion of their paycheque is taken off at source and sent to the U.S. federal treasury to fund their social security benefits. They do not get to write the cost of that off against the taxes they pay. They are paying taxes on those premiums and they make their retirement plans based on that income. Of course most of these people are seniors on modest fixed incomes. Then finally along comes their retirement and what happens?

If they were residents of the United States they would be faced with a very small tax on the social security benefits they receive. In fact anyone in the United States who earns up to the equivalent amount of $40,800 Canadian as a senior would pay no taxes on their social security benefits, none, zero, zip. There are no taxes for low income seniors on their social security benefits. If they earned a little bit more, if their income was a little higher, then for middle or higher income seniors somewhere between 50% and 85% of their social security benefits would be taxable.

The Americans have built a progressive scale into their tax system for social security benefits. There is progressivity and fairness. The wealthy would pay more, 85% of their social security benefits are what they would pay taxes on. But the poor would pay nothing.

This government has created a double standard for Canadian residents earning the same social security benefits. Not only did they have to pay taxes on their social security premiums when they were working, now they will have to pay taxes on 85% of the social security benefits regardless of whether they bring in $10,000 a year or a million dollars a year.

This government loves to lambaste our American friends for unfair taxes. This government prides itself on being the paragon of fairness when it comes to taxation, but it has created this gross double standard. It is going to double tax Canadian residents who happen to have worked in the United States, who have been taxed once by the U.S. government on their payments into the social security plan. They will now be taxed again regardless of their income level and 85% of their social security benefits will be included for purposes of Canadian taxation. That is not fair. That is what is called a tax grab and it is something the government is going to pay a serious political price for.

Let us look at the so-called fairness of these changes if you were a recipient of social security benefits in the United States earning $30,000. What would have happened under the 1985 tax treaty this government brought in, if you were a Canadian living in Canada collecting U.S. social security benefits, the 1985 tax treaty which it is trying to change added $1,300 to the tax bill. If you were a senior earning $30,000 the changes brought in in 1985 would have added $2,000 to your tax bill.

I spoke to some seniors from the Windsor area on the telephone today who indicated that the flat 25% tax imposed by the government in the past tax treaty added $2,000 to their tax bill. This is not just a number, not just a figure. It is real money out of the pockets of real people, affecting their lives, making them poor, putting many of them in distress.

We have heard stories of seniors receiving social security benefits in Canada who had to leave their apartments, who had to sell their cars and could not drive to the grocery store and who could not afford cabs. I understand there is a member of the government from Windsor who actually should be commended for volunteering to drive some of these seniors to the grocery store because they cannot afford a cab because of the $2,000 tax grab agreed to by the government in the last tax treaty. It was not fair, not right. It was a tax grab so the government tried to change the rules.

What happens now? The government grabs more. Under the new treaty, under the fourth protocol that we are debating in Bill C-10 today, the same seniors will again see an increase in the taxes payable on their U.S. social security payments. In fact somebody earning $30,000 a year will pay over $3,000 more than they did in 1985.

We are talking about seniors on a fixed income of $30,000 a year who will see 10% of their gross income disappear because of the 70% increase in the inclusion rate proposed by Bill C-10. That is fairness? They call that fairness? I call it a rip-off, a rip-off on top of 36 tax increases imposed by this government since it came to power.

Let us look at the example of a Canadian resident with a gross income of just over $40,000. What happens to him? In the United States he would only pay an inclusion rate of 50%, not 85% as in Canada. The marginal tax rate would only be 32% but as a resident of Canada he would pay $2,600 more than he would if he were a resident of the United States. That is how we are treating our seniors and I think it is shameful.

The government will claim again and the finance minister has said in correspondence with me that these changes are necessary, that the 50% exemption was in the tax treaty because when the treaty was signed that was how the U.S. taxed its own residents' social security income. True enough. If that is how the U.S. government treats its residents, why are we treating people who paid into that system differently? Why do they have to pay 85% of their income into this system?

As people from Canadians Asking for Social Security Equality have said, this is a massive tax grab. They just want an amendment so they will get the same treatment they had under the pre-1985 rules. That seems reasonable enough to us. So that they do pay their fair share but not a penny more.

This government's idea of tax fairness is that everybody pays more. My idea of tax fairness and tax efficiency and a growing economy is a system where Canadians get a bit of a tax break. It is a system that acknowledges that Canadians have worked all their lives and it will not penalize them for saving. They have saved all their lives and they will not get penalized for trying to live out a reasonable retirement.

I repeat that this is from a government that has imposed 36 tax increases on Canadians, tax increases that have amounted to $24 billion in additional revenues as of last year. It is from a government that now imposes a tax burden of 46% on the average Canadian family. This is a government that has presided over four straight years of shrinking after-tax family income. The government calls that a record of economic growth. I call it a record to be ashamed of. This is a government that has presided because of those tax increases, because of that shrinking family income over 9% unemployment, over 17% youth unemployment.

Now in Bill C-10 which we are considering today the government is attacking Canadian residents who are receiving U.S. social security payments. Under the proposed amendments to the Canada pension plan the government is attacking younger Canadians by imposing on all working Canadians a 73% increase in their CPP premiums. This will give self-employed Canadians a $3,600 tax bill for their CPP premiums, money that people of my generation know we are likely never to receive.

This is a government that is proposing, in its amendments to the seniors benefit, tax increases which would severely penalize middle income seniors for having acted responsibly and for having saved for their retirement. And today again it proposes yet another tax increase.

My message to the government is to listen to Canadians who are speaking out about this and who are asking for fairness. Even the finance minister made an admission in a letter to me dated September 22 by saying “I can understand some recipients are not in favour of the new agreement”. Why is that? It means that after 1997 they may have to pay more tax than they did in the past. The finance minister admits it.

In 1985 the deputy prime minister said that the proposed tax treaty would be revenue neutral. He was wrong. I will not say that he lied because that would be unparliamentary. He just did not tell the whole truth. Whether he knew it or not, he did not tell the whole truth.

We just heard the hon. minister say that this would not increase anybody's taxes, that it would bring taxes down for lower income Canadians but I have here in my hand a letter from the finance minister contradicting that statement. The Minister of Finance has admitted that Canadians are opposed to it because it will mean a tax increase for them.

Which is it? Is it fairness or is it an increase? Is it a tax cut or is it a tax grab? I guess we will have to trust the word of the hon. Minister of Finance when he says that it is a tax grab.

I have a question. I am sorry I did not have a chance to ask the minister this question, but there was no question and comment period. Somewhere in the labyrinthine hallways of the Ministry of Finance surely somebody sitting at a computer terminal has crunched the numbers as to how many more millions of tax dollars the government will squeeze out of low and middle income seniors to satisfy its insatiable demand for tax dollars through Bill C-10. Surely they know what the dollar figure is. Why have they not disclosed that?

My challenge to any government member speaking on this bill today is to tell us how much money they are squeezing out of the poor seniors with this bill. How many millions of dollars will there be on top of the billions of dollars they have already squeezed out of Canadians, on top of the billions they plan to squeeze out of seniors benefits, on top of the $10 billion they plan to squeeze out of the Canada pension plan?

It may not mean a lot to the millionaires who populate the front benches of the government and it may not mean a lot to ordinary members who get $5 out of every dollar they put into their gold plated MP pension plan. However a $2,000 tax increase for a Canadian resident senior earning only $30,000 a year means a lot. It can make the difference between living a reasonable retirement and a retirement stuck in poverty.

I am sick and tired of the government prattling on about tax fairness when again and again it means higher taxes for the people least able to defend themselves, least able to hire tax lawyers and accountants who populate the Liberal Party, least able to handle this kind of cut to their income.

I call on my colleagues opposite to look at this bill.

There is no doubt that when government members walked into the government lobby this morning, government hacks were there handing them their speaking notes. They will dutifully stand up today and read word for word, verbatim, about how this bill is about fairness and how it is just an innocuous housekeeping amendment. That is what we will hear from those members today. They do it time and again.

The finance ministry, as always, will frame the amendments and the legislation working behind closed doors with the minister while the backbenchers are left in the dark not knowing what is really in the bill. When they show up in the House they are presented with 138 pages of technical legislation. They are given their speaking notes. They have not read the bill. They have not looked beneath the surface of those speaking notes to ask the minister questions.

But seniors are asking us questions, not just members of the opposition but members of the government. They are pleading for the sake of their retirement for the MPs opposite to take this seriously and not to bluff it off as just another government bill, another technical housekeeping amendment because it is not that. Over 80,000 Canadian seniors are going to see their taxes go up over what they paid in 1985. That is not fair.

Why will members opposite not look beneath the surface? Why will they not throw away the scripted notes they have been given by bureaucrats in the finance department, which some of them are reviewing at this very moment? Why will they not speak for themselves and their constituents rather than for the bureaucrats in the finance department?

That is the challenge of democracy. That is the challenge of representation. That is the challenge this government again and again has failed to meet with its massive tax increases which have reduced hope for older Canadians and younger Canadians and which have given us a 9% stagnant unemployment rate for 86 straight months. That is the economic record of the government.

They are very sly. The Mulroney government used to get heat all the time for any little change like this one because the Liberals were very good opposition members. Mr. Speaker, I think you know that from experience. They pointed out tiny tax increases hidden in complicated bills like this one and the Mulroney government paid a price for it.

The Liberal government is very slick. It has lots of high priced PR hacks telling it how to hide these sorts of things from Canadians.

I put the government on notice today. On behalf of all Canadian taxpayers the official opposition party—and I think the other ones—will not let these kinds of things slide through any more.

The government approached us and asked us to fast track the bill, to consider it in committee of the whole and to let it go in one day, hoping that the 85,000 Canadians who will face a tax increase would not notice it. That is what it tried to do, but it will not get away with it.

We will take it to committee. We will draw out debate. We will bring witnesses before the finance committee, the same seniors who will be so deeply affected in their lives by the bill. Those Canadians will not tolerate this kind of completely irresponsible approach to democratic deliberation.

I say again that my hon. colleagues opposite should take a look at the facts. I would be happy to get unanimous consent of the House to table a chart prepared by Mr. Bruck Easton, a tax and commercial lawyer from Ontario, in which he compares the relative taxation of U.S. social security payments to Canadians using comparable U.S. rates. It demonstrates conclusively the tax changes proposed under the protocol included in Bill C-10 will levy a massive tax grab on a small number of Canadians.

A small number of Canadians, no more than 85,000, are affected by the bill. They do not have, as I mentioned earlier, high priced tax lawyers. They do not have high priced lobbyists like former Liberal cabinet ministers working for them to get access to decision makers in the government. They do not have anybody at their beck and call on a $5,000 a day retainer who can call up Mr. Goldenberg or other officials in the prime minister's office.

I was talking to a representatives of the organization today. I asked him to urgently fax me some critical information for this debate. He had to drive three miles just to get to a fax machine to fax something here. These people are not equipped like the special interest group, the big business lobby friends of the government opposite, to object to bills like this one. All they have is a bit left over which the government lets them keep, a bit to contribute to this kind of fight.

Many of the seniors are of an age and in a condition of health where they do not know what will happen to them. What happens is that they get their cheques and the cheques have shrunk; they are smaller. They look at their tax return and wonder what has happened because their income is $2,500 less than it was four years ago. That is a good question members opposite will have to answer.

There may be only 85,000 Canadian resident taxpayers affected by the bill but each and every one of them as a taxpayer has a right to object to do so. The government will be hearing from people like them.

I plead with government members not to listen to backroom boys in the ministry of finance. They should listen to their constituents, listen to Canadians asking for social security equality, and listen to taxpayers who asking to keep a bit more of their money.

The attitude of the government as with all Liberal governments is that it is the government's money. Somehow it is the property of the Government of Canada, if not the Liberal Party of Canada. This money belongs to Canadians. When the government raises taxes on particularly hard pressed seniors, as it is proposing to do in the bill, it suggests that those people do not need the money and that the government needs it more.

To do what? To lavish billions upon billions of dollars on special interest group handouts and subsidies to its big business friends.

I ask members opposite to reveal to the House and to taxpayers exactly how much they expect to squeeze out of Canadian recipients of U.S. social security payments through the bill.

I suspect the amount is probably less than the $100 million the government decided to give earlier this year to its billionaire friends at Bombardier, a company that has donated hundreds of thousands of dollars to the already overflowing coffers of the Liberal Party of Canada.

How many other hundreds of millions of dollars have been handed out to big business, corporate friends of the government? Who is forced to pay for it? Not those very same corporations but retired seniors trying to get by on $12,000 or $20,000 or $30,000 a year. That is where the money is going. I say shame on the government for having its priorities so desperately wrong.

Is the government really in favour of fairness and equality which it prattles on about ceaselessly? The hacks in the various government departments who write their scripted speeches have, I think, a very limited vocabulary because the word fairness appears about 18 times in every scripted speech.

If they really had an understanding of the concept of fairness in a modern liberal democracy, they would exercise it in the way they act and not in just what they say in political speeches. They would exercise the concept of fairness by saying to the same seniors they are persecuting in the bill today that they would be willing to give up, or at least retroactively reform their gold plated, taxpayer subsidized MP pension plan.

We know they will not do that. We know their concept of fairness starts with taxing Canadians more and taking more out of the public trough for themselves and their big business friends. That is not fairness. I call that unfairness.

I want to close by asking the party opposite to consider seriously the effect this bill will have. We will be proposing a minor amendment to the bill at committee stage to clarify article 2, paragraph 5 of article XVIII of the 1984 Canada-U.S. Income Tax Convention Act. It is a very simple amendment that would make clear the inclusion rate for U.S. social security payments to Canadians could not exceed the same level imposed on American recipients of the same benefit. There would not be double taxation or unfairness. Those seniors would be treated the same way, as if they were paying taxes in the country where they earned the benefits.

If the government agrees to the amendment, many tens of thousands of Canadian seniors will be very grateful and will be better off for it. Their lives will be better. They will be less hard pressed. They will be able to do more for themselves, for their families and for their grandchildren.

I appeal to the genuine humane instincts of members opposite to look beneath the surface of the bill and to ask the Minister of Finance about it in caucus on Wednesday. They will get a chance to do so because we did not agree to fast track the bill and are pushing for debate. They should ask him, as he confirms in his letter to me, whether it increases taxes on poor seniors, to what extent it does so, and how many more millions of dollars will come into the public treasury as a result. When he says yes, why not ask the minister to agree to the amendment we will be proposing to establish tax fairness for these hard pressed Canadian seniors?

Mr. Michel Bellehumeur: Mr. Speaker, I am pleased to speak on Bill C-10. It makes a bit of a change from being official Bloc Quebecois critic for justice.

Bill C-10 is extremely important. It affects a number of my constituents in Berthier-Montcalm, and particularly in the Rawdon area. That municipality is home to a number of retired persons from nearly all parts of Quebec. In particular, there is a concentration of anglophones who—while remaining Canadians' worked in the United States when they were younger, and have now come to the Berthier—Montcalm area to retire and have made Rawdon their home.

I was made aware of the problem as far back as 1995. It is a rather significant one, because retired people do not have the same income as they did while working. These people were heavily penalized because of the conventions betwen Canada and the United States, which did not work very well. Taxes had to be paid to both sides and they ended up being penalized.

Our interventions on this date back to 1995. The problem was raised here in this House. The government was challenged on it. François Langlois, the Bloc member for Bellechasse at the time, did an extraordinary job with this question. He got it debated on several occasions, both in committee and in this House. Speaking for both the Bloc Quebecois and myself, François Mercier is owed a vote of thanks for the work he has done on this matter. He is back home now, not having been re-elected in 1997.

Another Bloc Quebecois member, the hon. Member for Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, has been involved with this matter since 1995 and is still responsible for it. He defends constituents faced with this problem anywhere in Quebec in an exemplary manner.

I should say first of all that the Bloc Quebecois supports Bill C-10 before us. It resolves the questions we have had since 1995 and also the concerns of our constituents faced with this problem.

However, there are a number of parts to this bill. I have some constructive criticism, given the importance of the subject. Part VII of the bill contains the rules for American pensions. Given our geographic position, the history of the two countries, which have long been friends, our close relations with the United States, there are many economic relations between the United States and Canada, much more than, say, between Lithuania and Canada or Iceland and Canada, to mention just those two countries also included in Bill C-10.

To speed up the entire process, given the importance of relations between Quebeckers or Canadians and Americans, I think the government should have drafted the treaty for American pensions specifically, dealing with the problem of taxable income between the taxable incomes in Canada and the United States, to acclerate the adoption process and prevent ambiguity with other parties to settle the issue once and for all. But Bill C-10 also includes other conventions. Parts I to V refer to Sweden, Lithuania, Kazakhstan, Iceland, Denmark, the Netherlands and, of course, the United States. It is like trying to hide the most pressing problem in a bill that is more complex than it needs to be to solve the most urgent problem.

This will not prevent the Bloc Quebecois from supporting the bill, but had the government listened to us in 1995 and 1996, if the government had drafted a specific bill to resolve the most important problem, that is, a convention between Canada and United States, the problem would now be solved. People who should get refunds would have them, and we would be in a very different situation where we could be talking about conventions with other countries, not less important, but with whom our dealings are less important in terms of the objective of pensions for people having worked abroad who retire in Canada.

As I was saying earlier, the purpose of parts I to V is to implement tax conventions with all the countries I listed earlier, except the Netherlands and the United States. Part VI concerns the Netherlands, and part VII concerns the United States, our neighbours to the South.

These conventions are basically the same, and are largely patterned on the OECD model. They are standard conventions with which Canada is familiar because it often enacts similar conventions.

What surprised me when I looked into this matter, because I had this problem pointed out to me in my riding and we discussed it in the Bloc Quebecois caucus, is that in April 1997—and this was confirmed in the joint committee on banking, trade and commerce—there were 57 tax conventions in effect between Canada and various countries and 34 pending or under negotiation. Of the 57 treaties in effect, many are quite old, do not necessarily meet OECD standards or were not concluded in the way Canada now concludes such treaties. In other words, Canada has a great many tax treaties like this.

It is good to have these treaties between countries when the goal is to ensure fair and equitable tax treatment of residents and non-residents. It is also good to have treaties when the goal is to encourage trade and investment between countries. But we must prevent these treaties from becoming smoke screens for abusive tax avoidance. I will not mention shipping companies under flags of convenience to avoid paying taxes in Canada and Quebec. Not will I talk about the scandal we saw in the House, involving both Liberals and Conservatives, because both of them were equally involved in the family trust affair. We heard a lot about that during the 35th Parliament. Shall I talk about that? The member opposite is looking at me and might be interested in these things. I will talk about them after all, as I have the time.

It is said that tax conventions—the member opposite is smiling, he wants me to get into this, I found him a bit deadpan today, but his smile is a sign that it is important that I speak about this—encourage trade and commerce, but care must be taken not to abuse such treaties. Companies making hundreds of millions of dollars in profits can hire good lawyers, good tax experts knowledgeable in Canadian taxation. They pay then with what they get through existing legislation. It's quite legal, nothing is illegal. But there has been abuse.

The first example I gave—I did not want to get into this, but I am being encouraged to speak—is Canada Steamship Lines. As for tax conventions being used as a means to reduce one's tax liability in Canada, the example comes from high above. I am referring, unfortunately, to the current Minister of Finance. A newspaper article—this is not a figment of my imagination—indicates an in-depth study of the company was done, and the finance minister is taking advantage of tax conventions with countries considered as tax havens, such as Bermuda, Liberia, Barbados, and in 1981, when the finance minister became the owner of Canada Steamship Lines, this shipping company was conducting the same sort of business, but under the Canadian flag.

However, the study released in Le Soleil revealed, and this was later confirmed by many, that between 1981 and 1994 the company set up three subsidiaries in Bermuda and three more in Liberia.

We also learned that since 1994 the GST group established seven more subsidiaries in Barbados. According to tax experts, Liberia, Barbados and Bermuda are among the countries where the tax man is most complacent toward companies.

All this to say that when we make abusive use of legal tax conventions, as the finance minister did, such treaties serve essentially the same purpose and allow the awarding of the same contracts as before 1981, before the finance minister took over the company, but now the ships fly the flags of countries experts consider as tax havens. Why? Simply to avoid paying taxes, or to pay as little as possible. It is rather clear. Existing tax treaties are used in such a way as to benefit the wealthy.

The other example mentioned by the Bloc Quebecois during the 35th Parliament is the whole issue of family trusts. One day, in May 1996, we learned from the auditor general that there were serious concerns as to how the Income Tax Act had been applied to transfers abroad of at least $2 billion in assets held in trust funds in Canada. With the complicity of the Department, with the complicity of both the Liberals and the Conservatives, because both parties had a hand in this, $2 billion were transferred to the U.S. without a cent being paid in taxes, all this perfectly legally, again because of the tax treaties.

This is the kind of tax treaties on which we must focus to try to plug loopholes as much as possible, so that each and every citizen of this country, in Quebec as well as in Canada, pay their fair share of taxes.

These are two very important examples. Given the extensive number of tax treaties between Canada and various countries, one might expect that in signing such treaties a responsible government would assign appropriate resources to evaluating, adjusting and renegotiating tax conventions that present problems, especially with countries representing the greatest risk of tax losses for Canada.

I have a riddle for you this morning. Guess how many employees are assigned to tax treaties in the finance department. How many employees work on these treaties? There are 57 treaties that have been signed so far and, as of April 1997, there were another 34 pending. Probably several of these have already been signed.

All in all, there must be approximately 100 treaties. So, in the federal administration, this big machine, how many employees are monitoring these treaties, ensuring that they are reviewed and that amendments are made if mistakes are found, if the loopholes are too great for tax fairness? How many? A hundred, twenty-five, twelve? We have learned that there is only one in charge of seeing to these conventions. Fortunately, this is a full time job. However, he is alone, and billions of dollars are at stake.

I am not questioning the skills of this employee, whom I actually find very courageous to tackle this task on his own, without asking for any help. On the other hand, I wonder how serious the government is about seeing that these treaties are properly implemented. I think that in a case such as this one, it is not a matter of saying that the government is just ignoring the implementation of such treaties. I think that, by having one public servant for a hundred or so treaties, the government is deliberately turning a blind eye and a deaf ear to what is going on with all these international treaties.

Are you aware that Canada spent more on the visit by the Queen of England than on auditing tax treaties à an example I have chosen because it is in today's news. Speaking of royal visits, I am sure the Queen of England must now be recovering from the visit to India, which seens to have been a trial for her. This is just to show that the government is not necessarily investing in the right place. Perhaps more public servants need to be assigned to keeping a serious eye on all these international treaties, which are essentially good things.

I believe there must be international treaties. There must be legislation to protect the most disadvantaged, as Part VII of this bill does. The Bloc Quebecois initiated it in 1995. It is right for there to be tax conventions to solve the problems of Canadians residents and non-residents having once worked in the United States, but these havens and tax conventions should not be abused. To avoid this, there must be a minimum follow-up, and that is provided by civil servants, investigations, people responsible for these conventions' application.

To conclude, the Bloc Quebecois supports Bill C-10. We do, however, call upon the government to take subsequent follow-up far more seriously. We are calling upon the government, in light of what is at stake, the billions of dollars involved—big bucks here—and in light of the fact that most often it is companies who make use of tax conventions, and they can afford top notch lawyers and tax experts, to have enough resources, civil servants to do a good job, a very good one, of following up on the application of these international treaties.

[Lorne Nystrom, NDP, Qu'Appelle, SK]

Mr. Speaker, I want to say a few words on Bill C-10 that implements tax treaties and tax conventions with a number of countries such as Sweden, Lithuania, Denmark and the former Soviet Republic of Kazakhstan. It also amends tax treaties or conventions with the United States and the Netherlands.

The bill is fairly lengthy and detailed. For the most part the NDP agrees with what is being done. Primarily it is a housekeeping bill. It prevents double taxation in many cases. It also prevents fiscal evasion by citizens. In the main we support the direction in which the bill is going.

We do have one major concern and that is with part 7 of the bill. That is the amendment to the convention with the United States. It concerns over 80,000 people who receive social security benefits from the United States but who reside in Canada. What is happening to them is unfair because it is being done retroactively. That is the part of the bill which we as parliamentarians should look at changing.

Until 1996 when Canadians received social security payments from the United States, and a lot of these people reside in the area of Windsor, Ontario, they were taxed on 50% of their social security payments.

That is a system that was in use in this country for many years. It was under that understanding and under that law that people made their retirement plans and did the financial planning for their families. That is what it was based on.

Then in November 1995 the government introduced Bill S-9 in the Senate. That bill introduced a very important change. The Canadian government would not collect taxes on social security payments but instead there would be, in effect, a withholding tax taken off the paycheques of Canadian citizens by the American government. The withholding tax rate is 25.5%.

That was a big drop in income for many citizens. It happened very quickly, without proper consultation, maybe without any consultation with these citizens.

There was a lot of legitimate protest after the passage of that bill because it unfairly attacked the incomes of 85,000 Canadians who had done their retirement planning and had based their livelihood on a set of rules in place when they were working in the United States.

The protest continued for a fair amount of time. Last April the government made the announcement that there would be change. Indeed that change has been made in the bill which is before the House today.

Now instead of the United States taking off the withholding tax of 25.5%, the government in the country where the citizen resides will be taxing the citizen on the social security payment; in other words, the Canadian government in this case. On the flip side of the coin, the American government will tax American citizens receiving the Canada pension plan or the Quebec pension plan.

What the government did not do was go back to the pre-1995 taxation level which was on 50% of the social security payments. Instead the government will be taxing 85% of the social security benefits, 85% instead of the previous 50%. One could make the argument that this is, in many cases, better than it was a year or so ago but it is still not nearly as good as it was prior to 1995. This is very unfair. This was done without properly consulting the people who are affected.

There is an organization called CASSE, Canadians asking for social security equality, which is involved in this issue. It has lobbied on this issue. It made this issue an important one, particularly in the Windsor area for the election of June 2.

These citizens were not properly consulted. They certainly did not approve the change. For these people the change is not good enough. They did their planning based on the rules. The rules were changed after the game was played. Now we are in the world series and all of a sudden there is a lot of interest in baseball. If a team wins or loses that is nullified because the rules were changed after the game was played. It is extremely unfair.

The very least the government should do is grandfather this particular part of the bill so it will not affect people who are already retired. Those people have already planned their lives. They have already purchased their retirement home. They have already budgeted for their groceries and clothing. It should be grandfathered so it does not affect the people who have retired.

Like many other tax bills, if the government wants to go in this direction and it can make a case, then of course it is not unfair in terms of people who are still working not being notified because the rules are there. It is a different situation altogether. We can then argue, of course, whether a tax on 85% is too high or too low.

The first option is to go back to the way the rules were prior to 1995. These people should be taxed on 50% of their social security income. The second point I want to make is that, at the very least, it should be grandfathered so that retirees will not have the rules changed after they have done their planning.

I also want to make a couple of other remarks about the bill before us today and the general issue of tax fairness in this country. I remember the 1993 election campaign when the Liberal Party talked about abolishing the GST, about getting rid of that goods and services tax. All of a sudden the party was in power and there was no action on that.

I want to urge the government, something which our party has been doing, to eliminate the GST entirely from children's clothing and books. That would be a good step in the right direction toward tax fairness. It would reduce taxes by about a billion dollars in a targeted sense on many people who are the least able to pay for taxes in Canada. At the same time it would also stimulate some employment in terms of circulating more money in the economy. That is the kind of thing that should be done.

I was rather amused this morning as I listened to the Reform Party critic for national revenue as he waxed eloquent in the House about the need for tax fairness, to get rid of tax grabs and tax increases. You would think he was thinking about all those ordinary people, those ordinary citizens, those mainstream Canadians who have difficulty making a living in Canada.

On October 1 in Parliament that member was asked the following question: “Mr. Speaker, does the hon. member really believe we have tax fairness in this country, that the Conrad Blacks and other wealthy people pay their fair share of taxes?” He replied that they, meaning the Conrad Blacks and other multimillionaires, “pay more than their fair share of taxes”. What a shame, they pay more than their fair share of taxes. The Reform Party thinks that Conrad Black and multimillionaires are overtaxed in this country, that they are paying too much and that if we reduce taxes for them we would have to up the tax bite on ordinary citizens living right across this country. I think that is utterly disgusting for a democratically elected party in the latter part of the 20th century.

We are seeing some real hypocrisy coming from that side of the House when they pretend to be concerned about senior citizens and about the people in the Windsor area and across this country who are seeing their taxes increase by the bill that is before the House today. People who are watching the House of Commons proceedings should be aware of where the Reform Party really stands and who it really speaks for. It speaks for the extremely wealthy, the multimillionaires in this country, the people who have a lot of money. Reformers want them to have more tax breaks and to hell with the ordinary citizens of Canada.

[Ken Epp, Reform, Elk Island, AB]

Mr. Speaker, I would like to ask the member a very simple question. He is so interested in fairness. With the changes coming to CPP, with benefits decreasing relative to the premiums and seniors generally being really pushed, does he also believe in the fairness that will cause him to say no to his MP pension plan?

[Lorne Nystrom, NDP, Qu'Appelle, SK]

Mr. Speaker, I do not know what that has to do with this bill but I want to inform the hon. member that I voted against that pension legislation a long time before he was even concerned about MP pensions.

[Gary Lunn, Reform, Saanich—Gulf Islands, BC]

Mr. Speaker, we are in the House today to debate Bill C-10. I looked back on the 35th Parliament and counted about 36 tax increases by this government. Today we are in our fourth week of Parliament and this is the second tax increase proposed by this government.

We saw in Bill C-2 the single largest tax grab, again with respect to the Canada pension plan, which was brought in by this government and rammed through this House without debate. The government wanted to do the same thing with Bill C-10. It approached the opposition and asked to move this bill through very quickly without debate in the House.

With Bill C-2, I was very concerned for the future of Canada's children. Would they get a pension? Would their premiums be paying for the benefits of people today while they would never see a dime? Today I am concerned for their grandparents. Last week it was the children. Today it is the grandparents. There is absolutely no question that this again is another tax grab by this government. It is another sneaky hidden one.

What concerns me is in only four weeks of parliament we are already into the second tax increase. They are increasing the rate of what they did in the last parliament.

We already know the senior supplement is coming. This will be another massive tax grab on middle income seniors. When is the government going to wake up and realize the Canadian public is not going to stand for this?

We heard members this morning from the opposition and the government sides. I made some notes with respect to the speaker from the government side. With the proposed changes he said recipients of this benefit will have to claim only 85% of their income as taxable income. What he is not telling us is under the previous tax provisions they were required to claim only 50% of their income.

The net effect of this is a 70% tax grab on these people. The government knows full well it is putting more money in its pocket to do with as it wants.

I agree with the comments of the hon. member for Calgary Southeast. I would like to know what that number is. Some of the bureaucrats within the ministry of finance know exactly what that number is. We have a right to know what it is.

[Mark Muise, Progressive Conservative, West Nova, NS]

Mr. Speaker, Bill C-10 allows Canada to ratify income tax treaties with Sweden, Lithuania, Kazakhstan, Iceland and Denmark. It also ratifies changes to existing treaties with the Netherlands and the United States. These treaties set out a framework for taxes on investment income flowing between Canada and other countries. They provide mechanisms to avoid double taxation and prevent tax evasion.

Over the past several years Canada has negotiated tax treaties with over 70 countries. These agreements deal with problems that arise when residents of one country earn income in another. They are based on the model double taxation convention prepared by the Organization for Economic Cooperation and Development.

A key problem these treaties address is that of double taxation. This occurs when the same person or business pays comparable taxes in two or more countries on the same taxable income for the same period of time. For example, double taxation would occur if a resident of one country were taxed in both Canada and that country on dividend income received from a Canadian company.

Preventing double taxation helps facilitate investment. To prevent double taxation these treaties limit the application of each country's respective tax laws and ensure that the taxes paid in one country are recognized in the other. Limits on withholding taxes in the country where the income is earned are set. An exemption is provided for certain income that would otherwise be taxed in the country where it is earned.

The treaties outline the maximum withholding taxes that may be charged on different forms of income such as dividends, royalties and interest. Specifically under the tax treaties included in Bill C-10 a general rate of withholding tax of 5% will apply to dividends paid to a parent company on branch profits.

Second, a withholding tax of 10% will apply to interest and royalties. Software, patent and knowhow royalties, except in the treaties for Lithuania and Kazakhstan, will be exempt in the country in which payments arise.

The withholding tax on other dividends is set at 15%. When the income is then received in Canada double taxation is prevented by subtracting the tax already paid from what would otherwise be payable on that income. The treaties contain measures to prevent double taxation of income earned in Canada by residents of the countries concerned.

Another problem addressed by tax treaties is that of tax evasion, where income earned abroad is not reported in Canada. To prevent tax evasion the treaties provide for the exchange of information. Changes to our treaty with the Netherlands include an article on assistance and tax collection.

This article, which is similar to that approved with the United States two years ago, ensures that Canada and the Netherlands will not be used as a refuge for those seeking to avoid taxes in other countries.

Bill C-10 deals with a problem that arose as a result of recent changes to the way our tax treaty with the U.S. treats social security payments. Under changes made law in 1995, social security payments made to residents of other countries were to be taxed by the government that issued the cheque. Previously the country of residence taxed that income.

The U.S. then imposed a flat 25.5% tax on all social security payments made to its former residents now living in Canada regardless of other income. This created hardship for low income seniors, many of whom saw their cheques cut by one-fourth.

Under Bill C-10 Canadian residents will no longer, retroactive to 1996, be subject to the United States flat tax of 25.5% on social security payments. Under the changes 85% of such income from the U.S. will be added to Canadian taxable income and will then be subject to the normal tax rate of Canadians.

Similarly U.S. residents receiving Canadian social security benefits will only be taxed in the United States. Bill C-10 also preserves each country's exclusive right to tax its residents gains on shares of companies that are not resident in other countries. The government agreed to a change in the Canada-U.S. tax treaty that let the U.S. tax this income. Unfortunately the Liberals did not bother to find out at what rate it would be taxed or whether there would be relief for low income earners.

The U.S. chose to apply a flat 25.5% tax regardless of the income of the recipient, resulting in hardship for low income earners. When that income was instead taxed by Canada our rules required that only half of it be applied to taxable income.

This resulted in a considerably lower tax rate than 25.5%; as low as zero in the case of low income seniors and about half for most others. With great fanfare in the House of Commons the Liberals today announced that they have fixed the mistake they made two years ago.

Canada and the U.S. have agreed to return to the old rules whereby social security and CPP are taxed by the country where it is received and not by the country that pays. The change is retroactive. A refund cheque will be issued. About 50,000 people will be affected.

The Progressive Conservative Party would like a firm commitment from the government. Before entering into further tax treaties on social security the government should determine exactly how the other country intends to tax and at what rate.

[Jason Kenney, Reform, Calgary Southeast, AB]

Mr. Speaker, I commend the hon. member on his comments.

In speaking with representatives of the taxpayers affected by the changes included in the bill for Canadian resident recipients of U.S. social security benefits, they were under the understanding the Progressive Conservative caucus would be opposing the bill.

I was not clear from the hon. member's remarks whether his caucus would be favouring or opposing the bill on the grounds that it in fact increases taxes for those seniors. I wonder if he could illuminate me and the House.

[Mark Muise, Progressive Conservative, West Nova, NS]

Mr. Speaker, our concern is that of double taxation and of tax evasion. We are concerned about the issues being addressed in the bill. That is why the discussion went forth as I presented it.

[Rob Anders, Reform, Calgary West, AB]

Mr. Speaker, I am wondering what the Tory caucus thought in terms of supporting a tax increase to keep in line with the Mulroney government's long history of increasing taxes.

Is the Tory promotion of a tax increase keeping in line with Brian Mulroney's tax increases?

[Mark Muise, Progressive Conservative, West Nova, NS]

Mr. Speaker, I just do not know how long the present government and the opposition will harp on past governments.

The past government was the Liberal government that is in force now. I am flabbergasted by how long they can look into the past. We have to look to the future and make changes as required.

[Alex Shepherd, Liberal, Durham, ON]

Mr. Speaker, I am pleased to enter into debate on the issue of Bill C-10 and, more important, to support passage of the bill.

It is appropriate to review what has happened and why it has become a problem. The Canada-U.S. tax treaty was amended and came into effect on January 1, 1996. Unintentionally social security benefits and disability benefits of some Canadians who worked in the United States for part of their working lives were taxed by the U.S. government at roughly 25.5%. We basically did the same for American residents who were receiving Canadian benefits.

The problem is that Canada has a very fair and reasonable system of taxation which allows non-residents to file tax returns in our country and to seek a refund of the taxes if they were not in fact taxable. Unfortunately the United States does not have a similar system of refund.

As a consequence a good number of seniors—as was mentioned today it is upwards of 85,000—discovered that suddenly taxes were being deducted from them that they had no real way of getting back.

In my riding and across the country I have dealt with many seniors who are concerned about the issue. I spoke to a woman in my riding, Ellen Mowat, whose total income was about $14,000. Of that amount, $10,000 was social security benefits. The result was that it increased her taxes to $2,500, and the woman was only receiving a total of $14,000 in income.

Statistics Canada says that low income cutoffs for people are about $25,000. Clearly Mrs. Mowat would be considered to be in poverty. Yet at the same time she had this problem of over $2,500 a year being deducted from her income.

I had letters from Mrs. Leona Jeremy of Middleton, Nova Scotia. It was the same situation. She had $14,000 of income and was paying over $1,000 a year in taxes. It goes on and on. Les Stevens, a resident in my riding, had a total income of $12,000 a year and was paying $1,000 in tax through this retrogressive tax the United States imposed. He had no way of getting it back.

It is interesting to note, in spite of some of the comments of the Reform Party today, that none of those people will pay any more taxes under these changes. In spite of some of the things the Reform Party has been saying today about tax increases, the bottom line is that these people will not be paying any more taxes. In fact they are entitled to a refund of their taxes.

I will address some of the other issues presented today. One is the income inclusion amount in Canadian taxes. It is true the income inclusion amount has been increased from 50% to 85%. When I say “income inclusion amount” I am talking about people in Canada receiving social security benefits from the United States being required to report 85% of that income for tax purposes.

The Reform Party went on and on about the 85%. The reality is that it was already at 50%, so there has been an increase in the income inclusion amount of over 35%.

We should think about what it means. People in some jurisdictions will be heavily influenced, such as Windsor and other border cities. There could be someone receiving Canada pension benefits and paying 100 cents on the dollar on their taxes because of the income inclusion factor being 100%. Another person receiving a U.S. pension could still report only 85% of it. How could anything be more fair? Many would suggest it should be higher.

Once again the Reform Party is taking little shreds of evidence and turning it into a fiasco. Of the 85,000 seniors who will be affected very few will pay more taxes.

The law came into effect on January 1, 1996. What has happened in the interim? Taxes have actually been held back. Mrs. Mowat is missing $1,000. It goes on and on. For over two years these people on meagre incomes have had thousands of dollars held back by the U.S. government. Our Minister of Finance has taken on their cause and negotiated with his American counterpart to relieve the problem.

It is interesting the U.S. Senate committee has already accepted the proposal without amendment and is pushing it through the U.S. Congress. Here we have the Reform Party saying that it will delay it and wants to amend it.

Who are Reform members talking about protecting? Are they talking about Mrs. Mowat? Are they talking about low income seniors across the country who are out this money? No. They are talking about the very highest income earners. That is with whom the Reform Party is siding.

The Reform Party is stating today that it is prepared to delay the legislation? Why? So a few people who do not want to pay do not have to recognize 85% of that income on their tax returns and only have to recognize 50%, even though every other senior in the country receiving a Canadian pension has to recognize 100%. Reform members are talking about these people. They want to protect them. That is atrocious.

Reform members spoke about people who could not afford to get in their cars to go and get groceries. The U.S. government has $5,000 of Mrs. Mowat's money and she is only making something like $15,000 a year. What does the Reform Party say to Mrs. Mowat? It will somehow delay the legislation. Tell me how that is being responsible.

The Reform Party talks about the progressivity of the system. We have a progressive system. I have worked with the Canadian Association of Retired Persons. The Reform Party is saying that it will get on the case and really study it. It will drag its feet through parliament.

Where were Reformers when this was going on in the 35th parliament? I did not hear them asking how they could help these poor people. It was members on this side of the House and members of the Bloc who asked how we could resolve the problem.

On various occasions the Minister of Finance went down there to negotiate with his American counterparts. He told them that the problem had to be resolved because it was hurting Canadian seniors.

The Reform Party is a great wall of silence. When does the Reform Party become interested in this issue? When we talk about increasing the income inclusion amount from 50% to 85% of the 85,000 seniors affected by this. I heard the member for Calgary Southeast say the number of people affected was 10,000. He did not say 85,000. He said it was, at most, 10,000 who may see their taxes increase. It is those 10,000 who the Reform Party is concerned about. It is not the 75,000 sitting out there who may well become deceased while they wait for this process that the Reform Party is now talking about dragging through the House of Commons.

Most people can see what the real issue is today. The government is asking for this bill to be fast tracked because we want to get that money back in the hands of seniors.

[Darrel Stinson, Reform, Okanagan—Shuswap, BC]

You want to get it in your own hands.

[Alex Shepherd, Liberal, Durham, ON]

By the way, if they are so concerned about these people, part of this protocol basically says that anybody who during that two year period, because of the 85% inclusion amount, would have seen their taxes increase will not be reassessed. How much fairer can you be? People who would have paid taxes based on the increase in the income inclusion amount during that period of time will not be reassessed.

The retroactivity is solely directed to the benefit of the low income seniors who need the money that the U.S. treasury is sitting with in its bank account. When this protocol is passed by both governments the IRS will cut a chunk to Revenue Canada and Revenue Canada will turn around and distribute that money back to those lower income seniors.

In conclusion, it is those low income seniors, the Mrs. Lois and Mr. Stevens of this world who are waiting for this legislature to get this bill through so they can get their money back. These people are desperate. They are not making $85,000 like the member over here. They are making $15,000 and they need their money. That is why this legislation should go through the House as quickly as possible and not be derailed by this party.

[Jean-Guy Chrétien, Bloc, Frontenac—Mégantic, QC]

Mr. Speaker, the federal riding I have the pleasure to represent in this House, the riding of Frontenac—Mégantic, lies along the American border, so that I have over 500 retired people who are being unfairly penalized by the convention adopted January 1, 1986.

Most of them are suffering, because their incomes are between $10,000 and $18,000.

Under this convention, which is still in effect, they lose 25%. The United States takes 25.5% of their American pensions at source, and there is no way to recover this amount, even though they should be able to recover much of it.

For those in the low income group, this is therefore unfair, and in the riding of Frontenac«Mégantic, more than 500 people are directly affected by the legislation before us this morning.

I have three questions for my colleague from Durham. When can retired people expect to receive their American cheques in their entirety?

My second question is: I understood that this bill would be retroactive from January 1, 1996, is this still the case?

My third question is not a question but a comment. My colleagues in the Reform Party intimated earlier that they would do everything within their power to delay passage of Bill C-10, which we are debating this morning. I think I understand why the Reform members are so strongly opposed. There were loopholes in the 1986 convention but there was also abuse. The Minister of Finance of the government to which the member for Durham belongs shamelessly took advantage of tax shelters by registering his vessels of the Canadian Steamship Line in tax havens. This is perhaps why the Reform members are opposed to Bill C-10.

We in the Bloc—and Gérard Lamothe who is watching us this morning is no doubt very proud of his member of Parliament—will support you, but we would like you to act very quickly, because a number of our constituents have been calling for this bill to be passed for months.

[Alex Shepherd, Liberal, Durham, ON]

Mr. Speaker, I thank the member for his question.

First, if he is concerned about his constituents then he does not understand the retroactive nature of this protocol. He talks about going back to January 1, 1996 for the money previously paid by his constituents that will be refunded and that we are putting the world back to 1996.

I am surprised by the member. What would some of his constituents say if he is willing to support an initiative which delays this legislation? It is his constituents who are out the money. Every month that goes by another 25.5% will be deducted from their cheques, money which they will not have to spend in his riding. I am surprised that the Bloc would support the Reform Party.

These people are desperate for their money. These people are saying “Alex, when are we going to get our money? We want our money back”. That is what we should doing. The Americans have realized this and that is why they are pushing their protocol without amendment. They realize the demoralizing effect it has on Canadians.

[Jason Kenney, Reform, Calgary Southeast, AB]

Mr. Speaker, I find the remarks of the member for Durham quite remarkable.

Who was in power in 1986 when this tax treaty was promulgated? He talks about the terrible problems these people are suffering. I talked about the very same problems in the majority of my speech. I do not know if he was listening or not.

The low income seniors who have been whacked by this 25.5% flat tax were whacked by this government which agreed to the tax treaty. Shame on it. Now it is trying to blame us for the mistake it made. We believed the Deputy Prime Minister and the finance minister just like the member did when he voted for the tax treaty, just like the seniors did when they said nobody would end up paying more taxes. What happened? They all ended up paying more taxes.

I have one question for the member. Who was in power in 1986? Did he vote for the treaty?

We do not want to drag out this debate. We would like to end it right here, right now if the government would agree to an amendment which would make it clear that this would not increase anybody's tax burden over what was paid in 1995.

If this member and the government are willing to entertain an amendment that does not treat social security payments to Canadians differently than to Americans in terms of the inclusion rate we will support it right now. We will fast track it right through this place.

Why does the member not agree to do that? He says that this will increase taxes for everybody. Under this treaty the inclusion rate will be 85% for the constituent he is talking about whereas in the United States a retiree would have to earn $60,000 to get an 85% inclusion rate on the social security benefits.

Every Canadian recipient of these payments will get an inclusion rate of 85%. It does not matter how low their income is. That is the unfairness we are trying to address. That is why we want to make an amendment. Will the member support us in getting such an amendment passed today?

[Alex Shepherd, Liberal, Durham, ON]

Mr. Speaker, I can understand why the member is having such a problem with this issue. It is because he does not understand the difference between income inclusion and taxation.

These people will see 85% of their income included on their tax returns. The reality is, they do not care. They are not taxable.

The very few people who the member is trying to defend, yes, they may see lower taxes. By the way, they are not going to be any worse off than they were for the two years in which that legislation existed.

Who are these people defending? It is not low income seniors.

Bloc members should be ashamed of themselves too—

[The Acting Speaker (Mr. McClelland)]

The hon. member for Elk Island.

[Ken Epp, Reform, Elk Island, AB]

Mr. Speaker, mine is an academic question. I would ask the member to declare publicly that people who have a low income will not be taxed by this provision. Is that true or is that not true?

We are talking about inclusion rates. Is he saying that people who have low incomes will not be taxed?

[Alex Shepherd, Liberal, Durham, ON]

Mr. Speaker, once again it depends on the definition of low income.

I will tell him that the people I represent who are making $14,000, or the example given of the individual making $10,000, no, they will not be paying any tax.

[Lorne Nystrom, NDP, Qu'Appelle, SK]

Mr. Speaker, the Reform critic was talking about tax fairness. He was asked a question in the House on October 2. The question was whether we have tax fairness? Do Conrad Black and other wealthy people pay their fair share of taxes? His answer was “They pay more than their fair share. Conrad Black is paying too much in taxes. Multi-millionaires pay too much in taxes”. I wonder whether the member agrees with the Reform Party on that.

[Alex Shepherd, Liberal, Durham, ON]

Mr. Speaker, the Reform Party seems to have an agenda which represents probably less than 10% of the people of the country.

Yes, there is high taxation in higher income groups, but not unavoidably so. We have a progressive taxation system. As the member knows, we have lowered the number of taxation categories from something like six to about three.

The agenda of the Reform Party is a flat tax. A flat tax would shift the total tax burden from the higher income earners to the middle income earners, the people that party does not represent.

[Gurmant Grewal, Reform, Surrey Central, BC]

Mr. Speaker, I have the honour and privilege of being the first ever member of Parliament to rise in this House on behalf of the people of Surrey Central, one of the six new electoral districts of Canada.

This being my first speech in the House, I should like to pay special tribute and thank the Reform Party member of Parliament, the hon. member for South Surrey—White Rock—Langley, and former member of Parliament Margaret Bridgman for their excellent representation of the people of Surrey in the 35th Parliament.

I would like to thank the constituents of Surrey Central for placing their confidence in me and in the Reform Party of Canada.

I would also like to take this opportunity to publicly thank my campaign manager, my campaign workers, my official agent, supporters and friends, my parents, my wife and my two sons for their successful efforts in the recent election.

Surrey is the heart of beautiful British Columbia. Surrey is a city of parks and is home to the largest Canadian flag.

It has the fastest growth rate of any city in Canada. We have a diverse population in Surrey Central. Many new immigrants to Canada have chosen Surrey as their new home. We want to build on the cultural, religious and linguistic integration that we already enjoy in our community as a success.

This feeling is strengthened from events such as Newton community day held recently in Surrey. I hope to fulfil my role in the official opposition's effort to build a strong and prosperous Canada.

My constituents have sent me to Ottawa to hold this Liberal government responsible and accountable for job creation, tax relief, making our streets safe again, repairing the social safety net and securing our national unity as well as to hold this government's feet to the fire for every misspent hard earned Canadian taxpayer dollar.

I now turn to the issue of the debate in which we are engaged. We are debating Bill C-10, the Liberal government's legislative proposal to implement an income tax convention between Canada and the United States, and between Canada and several other countries.

Let us look beneath the surface of Bill C-10. I can assure members that my constituents and I are glad to have the opportunity to speak out in opposition of this proposed legislation.

We are anxious to oppose this tax grab by the Liberal government. The constituents of Surrey Central, whom I have the privilege to represent in this House, eagerly want to expose Bill C-10 for what it is, a tax grab. The people I represent are proud to participate in exposing this thinly veiled tax grab.

Residents of Canada who receive social security benefits from the United States of America will be more heavily taxed by this legislation. It is estimated that at least 80,000 Canadian taxpayers will be affected by this legislation.

On this side of the House we give fair warning to the Liberals that we do not want the debate on this bill to be suddenly cancelled. We know that the Liberals will use time allocation, the Liberals will use closure or do anything else they can possibly think of to put stop on debate in this House. They have already done this with Bill C-2, the bill that contains the largest single tax increase in Canadian history.

The Liberals invoked time allocation on this second piece of legislation. We must warn the Liberals not to continue to suddenly cancel debate in this House.

Today we are debating the tenth piece of legislation in the 36th Parliament. Already in this Parliament, being only a few weeks old, we have two tax increases foisted on Canadians by the newest Liberal government.

These are the same Liberals who cancelled the Somalia inquiry. Never before in the history of our country has any government shut down a commission of judicial inquiry. The Liberals did.

The Somalia inquiry was only two thirds of its way through when the Liberals shut it down. The inquiry was very close to analysing events in the department of defence that took place under the Liberal government.

The Liberals did not want to be held accountable for their actions. The senior officials, including the senior management team at national defence headquarters, did not want to be held accountable for their actions and therefore had the Liberals cancel the Somalia inquiry.

I mention the Somalia inquiry because while the House was in recess last week the Liberal defence minister announced the government's response to the recommendations of the Somalia inquiry.

The reason the defence minister had to respond last week was one of the former Somalia inquiry chairmen, Peter Desbarats, was releasing his book on the Somalia inquiry.

Today is the first day the House has returned from the break and the Liberal defence minister's attempt to finally bury the Somalia inquiry. It is not ironic that we are debating the Liberal government's bill which has a 35% tax increase buried in it.

The Liberal defence minister has chosen not to adopt the most serious recommendation of the Somalia inquiry, namely the establishment of an inspector general. The Liberal defence minister has chosen instead to leave the upper echelons of national defence headquarters unaccountable for their actions even in the future. We know the Liberals are always prepared to stop Canadians from holding the Liberal government accountable for its actions.

Two weeks ago the Liberals stopped debate on the largest tax increase in the history of this country. Last week the Liberals refused to allow the recommendations of the judicial commission of inquiry and today we are faced with another Liberal government tax increase. This is very serious. Canadians should be concerned about the fact that the Liberals have ruined the existence of the most powerful tool we have in this country to find truth, a judicial commission of public inquiry. They stopped the Somalia inquiry right in the middle of its work. They have shown Canadians that they are not afraid to stop the pursuit of truth. They are prepared to put a stop to things that hold people responsible and accountable for their actions.

The truth is that the Liberals stopped debate in the House and passed Bill C-2 at second reading. This bill represents the largest tax grab in the history of this country. The truth is that the Liberals stopped the Somalia inquiry from finding the truth. Today the truth is that the Liberals are again increasing taxes for certain Canadians with Bill C-10.

Bill C-10 is offering Canadians a new income tax convention with the Americans but the truth is the Liberals have taken the opportunity to gouge the taxpayers again. They are using Bill C-10 as another opportunity to raise taxes. The Liberals cannot even do something as simple as negotiating a tax treaty with another country without trying to figure out a way to squeeze more money out of the already overtaxed Canadian taxpayers.

The income tax take has been rising steadily in this country. The Liberals are balancing the budget on the backs of Canadian taxpayers. Let us see how strong the backs of Canadian taxpayers are. The Fraser Institute calculates that the average family of four has had lost a total of $3,000 in purchasing power since 1993, since the Liberals took power in this country.

Net personal income tax revenues increased from $51.4 billion in 1993-94 to $66.5 billion in 1997-98. These revenues are right on track to increase to $70.4 billion in 1998-99. The saving rate of Canadians in 1992 was 10% and had dropped to 3.2% in fourth quarter of 1996. It dropped further to 0.9% in the second quarter of 1997. The Canadian personal income tax burden is already the highest in the G-7 countries and is 34% higher than the OECD country average. Canadian living standards were lower in 1996 than they were in 1989. This made Canada the only nation to experience an absolute fall in living standards over that period.

Clearly the Canadian economy is not performing as well as the finance minister is projecting. In fact, it is underperforming. The election is over now. I advise the government to stop making political footballs out of the issues facing the Canadian people. Canadians are tired of these games. Let us get serious for the next millennium at least.

The government is telling Canadians that it is okay for federal Liberal politicians to have a generous gold plated pension plan. And yet it leaves Canadians with a very rusty plan. At the same time, the government has no problem in clawing back pension benefits from retired Canadian workers who have scrimped and saved for their retirement. The Liberals are placing a burdensome tax on the backs of our youth. Where is the fairness? Where is the hope for the future?

Taxes are going up again. In the red book, in the throne speech and in the recent economic statement by the Minister of Finance the Liberals made no firm proposal for tax relief for Canadians. The finance minister has just introduced the largest tax hike in Canada, a 73% increase in CPP premiums which will cost Canadians $10 billion. The average income level for Canadians has dropped almost $1,000 since 1989 and their disposable income has dropped almost 9%. Gross tax revenues total $139.8 billion in 1996 and 1997, or 17.5% of the GDP, the highest they have been in 20 years and the second highest ratio in Canadian history.

Increased revenue collection accounted for 72.5% of the total improvement in the Liberal government's deficit figures. Of the total deficit target overshoot of $10.1 billion, 53.5% was the increase in revenues.

The employment insurance surplus alone made up $7.4 billion of deficit reduction in 1996-97. There is more to the story of Bill C-10 than the badly camouflaged tax grab. The Liberals are admitting to it. They are admitting to the mistake by proposing Bill C-10.

When the third protocol took effect it was evident that the United States did not take into account the income levels of the recipients of this benefit. This devastated the lives of thousands of people including middle income Canadian seniors. At that time the current deputy prime minister, the member for Windsor West, was quoted in the Windsor Star on December 22, 1995 as saying he was assured that Canadians would not pay more taxes but would pay less taxes. He was dead wrong. He was wrong then. He is wrong now.

Everyone who earned less than $70,000 paid more taxes. No one paid less taxes. The Liberals are admitting that the income tax convention they made with the United States in 1995 was so bad they had to implement a new tax convention. This is pathetic. They are well aware of the mistakes they have made.

When they finish ramming this legislation through the House and the Liberal controlled Senate, a retirement home for the creme de la creme of Liberal party faithfuls, Canadians will have had to deal with the experience of facing three separate income tax conventions with the United States in the last two years.

The Liberals cannot seem to get it right. They do not care about more than 80,000 Canadians affected by this tax convention mess. They say “too bad, there is nothing you can do about it and there will be no debating it”.

Bill C-10 brings us back to where we began in terms of negotiating an income tax protocol with the United States. Bill C-10 is undoing the mistakes the Liberal government made in 1995 but now it includes a tax increase.

Bill C-10 returns Canadians to the income tax convention regime that existed before the terrible treaty of 1996. Under Bill C-10 Canadian residents who receive social security benefits from the United States will have 85% of those benefits taxed. Under the old system 50% of the benefits were taxed.

Bill C-10 is supposed to reinstate the old system but one specific difference is the 35% tax increase.

It will not take the next four years for Canadians to figure out that the balanced federal budget has been paid for by the Canadian taxpayers through successive tax increases, if the Liberals actually do balance the budget in the future.

Canadians want a reduction in the amount of government interference in their lives. We want to put an end to the wasteful and mismanaged spending of our hard earned tax dollars. We want to balance the federal government budget through the elimination of duplication and waste in federal spending, not by increasing tax revenue.

The Liberals are continuing to raise our taxes. They are balancing the budget through tax increases. They have not stopped government duplication. They have not stopped waste. They have not stopped mismanagement. They are only concerned with putting a stop to what will hold them accountable. These things include debate in the House, public commissions of judicial inquiry and anything else that comes close to holding them responsible for their actions.

The shutting down of the Somalia inquiry, the ending of debate on Bill C-2, the largest tax increase in history, and now the almost hidden tax increase in Bill C-10 are examples of the kinds of things Canadians will be adding up when they hold the Liberals accountable in the next election. Backbench Liberal members should be very worried. They will be held accountable in the next election.

Bill C-2 and Bill C-10 will increase our taxes, yet this Parliament is only a few weeks old. All Liberal members of Parliament will pay the price for the arrogant and sly actions of their cabinet.

Last week during the Thanksgiving break when the House was not sitting, the United Nations development program held a conference in Ottawa. In fact it was held right here in the House of Commons. The conference was one of many the United Nations is holding around the world to discuss its good governance and democracy initiative. It strives to establish the means for recipient countries to govern themselves effectively and efficiently. Some countries that have agreed to pursue democracy do not have the structures of government needed to carry out democracy.

For example the International Monetary Fund said that Cambodia was to downsize its public service. Cambodia was having a difficult time reducing its public service because it did not even know how large it was. There was the problem of figuring out exactly how many public servants there were working for the Cambodian government. The United Nations program was able to help by providing Cambodia with the tools necessary to establish the structures of a public service.

It seems to me that the United Nations could do some work right here in Canada. It seems clear to me that the Liberals need to be taught that a commission of judicial inquiry in a democratic nation is supposed to be free to pursue the truth.

The almost hidden and unjustified 35% tax increase contained in Bill C-10 stands as an example of how Liberals need help in terms of understanding the use of good governance in a democracy. They will use any opportunity to increase taxes. The abuse of the structures of good governance by the Liberal government in our democracy is unacceptable. Bill C-10 is unacceptable. The Reform Party opposes its passage through the House until the amendment is made so that Canadian recipients will pay the same inclusion rate as their American counterparts.

On behalf of the constituents of Surrey Central, I am unable to support this regressive legislation. It is another tax grab by a government which lacks vision.

[Lorne Nystrom, NDP, Qu'Appelle, SK]

Mr. Speaker, the member's illustrious leader said in the House on October 2 that he believes Conrad Black is overtaxed along with other multimillionaires. His response, just to be precise, was that they pay more than their fair share. Conrad Black and these other multimillionaires pay more than their fair share.

Does he agree with his spokesman in terms of the tax issue that Conrad Black is overtaxed? That is the Reform Party policy. Does he agree with that?