House of Commons Hansard #29 of the 36th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was gst.
SupplyGovernment Orders
The Acting Speaker (Ms. Thibeault)
I must advise the hon. member that his time was only 10 minutes, being the third speaker to address this subject. If the hon. member has the unanimous consent of the House, he could go on for another eight or nine minutes. Is there agreement?
Nelson Riis NDP Kamloops, BC
Madam Speaker, I thank my colleagues for this extension. I will conclude my remarks quickly.
I think I have made my case. We can say this is the most dreaded tax in the country. What is more important than what I have said so far is the fact that in my judgment the imposition of the GST and now the blended sales tax, the HST, is the straw that broke the back of the Canadian taxpayer.
People knew that our tax system was unjust, unfair and biased. There is no question about that. People realized that they had to pay taxes in order to get many of the programs we value in our country, but the GST was too much. It pushed people too hard. It broke the will of people to comply with the tax system of our country so the economy started to move underground in a serious way.
The most popular books for about three months of the year on Canada's news stands are on how to beat the tax man, how to evade taxes. Look in this morning's paper. On the financial pages there were a number of seminars on how to move taxes offshore, how to set up an offshore tax haven. These seminars are being held in the capital city. People have lost faith in our tax system so they are finding ways and means to avoid paying taxes.
Although I have seen no empirical evidence I suspect a lot of Canadians these days are not paying the taxes they are actually obligated to pay, in the underground economy or whatever. I am loath to say these are bad citizens because they know our system is so corrupt.
As my friend said earlier, people in Atlantic Canada know the tax system is wrong when there are folks who buy expensive yachts and get tax breaks while they now have to pay extra taxes on their children's winter clothing, on their books and school supplies and on heating fuel. It penalizes the working poor, the jobless and the victims of an economic downturn. They are punished and treated more cruelly under this blended sales tax.
I look at my friends across the way in the Liberal Party. They are nice people but why do they continue to perpetuate this cruel tax on us? Why do they keep telling people they are going to tax children's clothing and books? We would have to look long and hard to find a a country around the world that says, “What we are going to do now is we are going to tax reading material, books”. It is silly and regressive in a knowledge based economy to be taxing literature and books.
I realize my time is up and I do not want to abuse the privilege that my colleagues have given me to conclude my remarks. Suffice it to say that we are not at all keen on the GST. If the government is going to listen to Canadians, listen to what they said on the weekend when they responded to the poll that asked: If there is a tax decrease planned in the next budget, what kind of tax decrease should it be? Overwhelmingly, some 80% of Canadians said to begin to lower the GST. That would put money in every community in Canada tomorrow.
With the money being taken out by increased GST premiums, increased payroll taxes and so on, every dollar we can put back into the small and medium size communities and rural areas of Canada would be helpful, to say nothing of the urban areas. If we reduce that level of the GST tomorrow, it means that every single Canadian citizen would actually have extra money in their pockets to spend. Maybe $1, maybe $5, maybe $20. Most people we know spend the money. They are not putting it into savings accounts. They need it simply to live.
We think that the enthusiastic endorsement of the Government of Quebec on the blended sales tax was wrong. We believe that the bribe to Atlantic Canada was wrong in principle. Therefore we obviously are not supportive of this motion that would simply give another bribe to Quebec to say thank you for joining in this rather odd and peculiar tax scheme.
With that I will say, obviously we are not going to be supporting this initiative put forward by my friends in the Bloc.
Michel Guimond Bloc Beauport—Montmorency—Orléans, QC
Madam Speaker, we all know the values that are dear to the New Democratic Party. This is a party that promotes more fairness, justice and openness. I have to tell you that I find the statements made by the hon. member for Kamloops, and particularly his conclusion, rather confusing.
I do hope he was not talking on behalf of his party. I do hope this is not the final position of his party. However, I would like the hon. member to tell us if he thinks the province of Quebec was treated fairly and appropriately.
The province of Quebec agreed, in all good faith, to harmonize its sales tax in 1991 and never received any compensation for it. On the other hand, the Atlantic provinces harmonize their tax and are compensated. According to his deep values and principles, does the hon. member think this is a fair, normal and acceptable way to treat the province of Quebec?
Nelson Riis NDP Kamloops, BC
Madam Speaker, my friend makes a very convincing argument. First, I do speak for my party. No, we do not think it is fair. We think the point being made in today's opposition day debate is reasonable. There was an unfairness. The people of Quebec through their government were not treated equitably or fairly. They were not treated in the same fashion as the people in the three Atlantic provinces were treated.
However, he used the term compensation, which is a fair term. I use the term bribe. I do not believe that bribes are appropriate in any circumstance. I do believe that the provinces in Atlantic Canada were bribed quite frankly. It is a cruel and very brutal term but not believing in bribery I cannot say that knowing they were bribed we should probably bribe another province as well.
My friend's point is well taken. There was an injustice. Yes some provinces were treated differently from other provinces. More particularly the province of Quebec was not treated in the same way the other provinces were treated. They were given a bribe and Quebec was not.
Alex Shepherd Liberal Durham, ON
Madam Speaker, I listened intently to the member for Kamloops as I always do. I suppose that if, when my government showed up at this House in 1993 there had been no GST, things would have been a lot different. The reality is that it had been implemented.
The member talked about being on the finance committee. I did that trip. Only we were talking about a harmonized tax at the time. The small and medium sized business people said resoundingly “Harmonize the tax. We are dealing with two administrations here. It is ridiculous. The bureaucratic overlap and duplication for small businesses is inefficient”. It was that initiative, to make a dynamic economy, to get more money in the hands of Atlantic Canadians which we strove for.
Having said that, it is not just Canada. It is Australia. It is the European Union. It is New Zealand. All these countries have moved toward a consumption tax.
I agree with the member when he says it is a retrogressive tax in the sense that it affects all income groups the same. What I cannot understand is the member's acceptance of having said that and at the same time arguing for a reduction in the rate because if it is retrogressive on the upscale, it is retrogressive on the downscale. When those reductions are given, they are being given to the wealthy just as they are being given to the poor. Why would the NDP members not argue for a more targeted tax cut? Why do they want to reduce a retrogressive tax?
Nelson Riis NDP Kamloops, BC
Madam Speaker, my friend's question is a very valid one. I want first of all to say that while there was some enthusiasm on the part of business for a blended sales tax, I think it was also predicated on the fact that they were assuming it would be blended across the country. Increasingly as companies do business across provincial lines and internationally, this adds even more confusion in terms of the business that they do. However, we will set that aside and I will answer my friend's question directly.
Our position as a political party is that we would like to see the eventual phase out of the GST. As we get into a more fiscally realistic era it would make sense.
Tax cuts obviously will become a reality one day. The fairest way would be to eliminate and phase out the GST. The reality is to go from its present level to zero in one fell swoop would be irresponsible. We simply cannot afford that as a country at this point. Therefore, a phase down to us makes more sense.
A phase down of the GST would create a lot more jobs than an across the board corporate tax cut, an across the board personal tax cut. I agree that some selected tax expenditures would be appropriate as well, but the GST phase down would put money in people's pockets immediately and hopefully one day we would see the end of the dreaded GST.
Jim Jones Progressive Conservative Markham, ON
Madam Speaker, we support harmonization with the provinces provided they are all treated equitably.
Because the Government of Quebec benefited from harmonization at the time, there was no discussion about compensation. Now that the eastern provinces have followed the same path of harmonization at a loss of more than 5% of their revenue, the provincial Liberals negotiated with the federal Liberals for a compensation of $1 billion total.
In retrospect Quebec thinks it should be compensated. However it is not the only province that will not receive compensation upon harmonization. Ontario will not, Alberta will not and also B.C. will not. These provinces pay substantially to those provinces that are being compensated.
In 1993 the Liberal government verbally promised to eliminate, scrap and abolish the GST. The Liberal red book itself was much more vague however. It only promised to replace the GST with another tax, a vague system that was supposed to generate revenue, claimed to be fairer to consumers and small businesses, promised to minimize disruption to small businesses and promised to promote federal-provincial fiscal co-operation and harmonization.
The Liberal red book pledged “Give the all-party finance committee of the House of Commons a 12-month mandate to consult fully with Canadians and provincial governments and to report on ways to achieve tax fairness, simplicity and harmonization. In particular, the committee will be mandated to report on all options and alternatives to the current GST”.
The Liberals led voters to believe that they would scrap the GST, not hide it in the price in three provinces which they have tried to do.
The Liberals used to think the GST was not visible enough. As the former member of Acadie—Bathurst and Liberal finance critic once said “The whole idea of visibility was seen by many Canadians as being a deterrent to free spending governments which would just raise the tax, get the money it needs at election time for promises, spend it foolishly and then all of a sudden be in extremely difficult times”. Even the Liberal MP for Kenora—Rainy River said “To keep the GST hidden from Canadians is despicable”.
The Liberals said that harmonization is a step toward replacing the GST. The Minister of Finance said “There is some possibility that when we take power in 1992 the provinces will entrench the GST in their sales tax regimes—It would be extremely difficult to undo in that instance, but I would consider removing it nonetheless, and in all other scenarios I am committed to scrapping the GST and replacing it with an alternative”. The minister also called the GST a regressive and unfair tax on living.
The Minister of Finance promised to do away with the tax and replace it with an alternative method of collecting moneys. Why has he not done so? Why has he not honoured these promises? Because the GST is, in fact, a fair and equitable method of collecting tax for this country. It was a well thought out plan on the part of the Tory government.
In April 1996 the federal government along with Nova Scotia, New Brunswick and Newfoundland agreed to harmonize their sales taxes and to bury them in the price. It was no surprise that all governments involved were Liberals. To entice the three provinces to participate, the Liberal government paid almost $1 billion in compensation according to negotiations struck. This allowed the participating provinces to reduce their sales tax for a combined federal-provincial rate of 15%.
However, they failed to realize, or maybe they did, that far more goods and services would now be taxed. Those living in the three Atlantic provinces have been hardest hit. The HST attacks low and low middle income Canadians the most. Instead of paying only the GST, now they must pay the GST and HST, an increase of 8%, on electricity, fuel, oil, food, children's clothing, gasoline, telephone, haircuts and school books. Those items that saw a decline in tax applied were those items high income Canadians can more often afford to purchase. Examples would be cars, stereos, home appliances and boats.
As Senator Robertson so eloquently put it “What is more equitable about a tax that makes it cheaper to buy a fur coat and more expensive to buy a jacket for a child, or more expensive to pay for electricity and less expensive to purchase a new car?”
Canadian taxpayers are footing the bill for this agreement. One billion dollars went from the pockets of taxpayers to the three maritime provinces to compensate them for lost revenues. Those provinces are receiving more than twice the money of their anticipated shortfall. In total the three provinces would have a revenue shortfall of $395 million but in fact they are receiving total compensation of $971 million.
Why was it necessary to overpay these provinces by more than $570 million? Was this a good business decision or just an incentive to get the provinces to sign for a bad deal?
All this money was paid up front. However, the provinces may end up raising other taxes to make up the shortfall in future years.
We have heard from the provinces. It is clear that citizens are not pleased that the three provinces are being compensated through tax dollars. The government has gone so far as to offer those provinces that did not collect enough revenue, namely, P.E.I., Saskatchewan and Manitoba, their share of compensation if they decide to harmonize.
Although the agreement was not announced until the 1996-97 fiscal year, and even though the payments are meant to cover a four-year period, Ottawa booked the entire amount to the 1995-96 fiscal year. That lets Ottawa play a shell game with its deficit numbers. The finance minister said he can do this because he said before the end of the 1995-96 fiscal year that he would seek such an agreement. The auditor general has slammed this accounting trick.
The Liberal government has broken its promises over and over again. The manner in which it harmonized the sales tax in the Atlantic provinces is evidence of this. Canadians have been deceived over and over by the Liberal government. First it opposed the proposed GST and now it takes credit for it. Example, the Prime Minister in London just a couple weeks ago.
The harmonized sales tax does not even come close to matching the red book's fine print. The GST is still here. It is the three provinces which are replacing their sales tax, not Ottawa.
The red book promised a tax system that minimizes disruption to small businesses. Retailers make it quite clear that tax included pricing would have caused major disruptions. Businesses selling in these three provinces from elsewhere in Canada will be required to collect and remit both taxes. No such burden will be faced by merchants in the three harmonized provinces when they sell to the rest of the country. This is both another cost to business and yet another barrier to interprovincial trade.
We applaud our PC senators who were successful in amending the harmonized bill. They were able to postpone tax included pricing until a time that provinces representing a majority of the population agreed. Tax included pricing in only three provinces would have driven up the cost of doing business. As a result there would have been added costs for everything from national advertising to the cost of reticketing items that are normally shipped from elsewhere with the price already included.
In closing, allow me to quote the hon. member for Saint-Hyacinthe—Bagot “The Liberals have done a patch-up job. In the three Atlantic provinces the existing GST and the provincial sales tax are being replaced with a single tax, called HST. But the fact of the matter is that it is the same tax. It is the same GST with a different name, with approximately $1 billion in bonuses for the maritimes. They have done a patch-up job to meet their election objectives. They have made a partisan patch-up job at public expense and at the taxpayers expense with the taxes paid to the federal government every year.”
René Laurin Bloc Joliette, QC
Madam Speaker, I listened carefully to the remarks of the hon. member for Markham, who seems to be blaming the government for not abolishing a tax that the Conservatives brought in when they were in power, that is, before the Liberals.
He blames the government for not keeping its promise but what I do not understand is where he stands on the motion we put forward today? Is the hon. member for Markham, who blames the Liberals for not keeping their promise and who recognizes that this tax has not been as beneficial for the Atlantic provinces as he could could have hoped, ready to adopt the motion which our party has put forward today?
If the tax has not been good and if the Liberal government has not kept its promise, we suggest today to him that they have at least one opportunity to restore justice or to correct the unfairness created by this tax. Are the hon. member for Markham and his party ready to support the motion put forward today by the Bloc Quebecois?
Jim Jones Progressive Conservative Markham, ON
Madam Speaker, I did not hear all of the question because I did not have my ear piece on for the translation.
I believe that my party supports the setting up of a panel to review this and will accept the decisions of the panel.
Jim Pankiw Reform Saskatoon—Humboldt, SK
Madam Speaker, the hon. member for Kamloops earlier this morning gave a very chilling account of the truth surrounding the GST and indicated what a regressive tax it is.
I pose a question to the members of the House. What would you think of a tax on going to the bathroom? Sounds preposterous doesn't it? The truth is we are just inches away. We pay GST for getting our hair cut. Should this not be a reality check for government? Have we now gotten to the point that we are taxing bodily services? I cannot stop my hair from growing.
He very correctly indicated that it is a tax on low income people. Everybody has to get a hair cut. Everybody has to buy clothing and books for children. He said if we did not have the tax that money would remain in the pockets of the people and the people would spend the money. He should have finished that. When you spend the money it stimulates the economy and it creates jobs. That is the whole point.
The GST is a tax on jobs. It is a tax on the economy. That is why it is regressive. Furthermore it drives a massive underground economy. The very people burdened by the GST are the hard working Canadians, people like contractors who provide services for other people. It is a natural tendency to say “I am so overburdened by the regressive taxation system in this country, I will tell you what. I am going to do that for cash”. They make cash deals. So the GST drives a massive underground economy that results in a lot of lost revenue for the government. If the government would lower taxes, simplify the tax system and make it fair, people would not have an incentive to evade taxes.
Furthermore, the GST is a massive burden on small business. Instead of contemplating ways to expand their business and improve the services they provide to their clients, the guy now has to hire somebody to do accounting to help the government collect its taxes. Then the government has a massive bureaucracy in Revenue Canada to collect it. Think of the downsizing we could do if we did not have to administer this ridiculous tax.
The compliance and administrative costs of operating the GST are extremely high. Why do we not have common sense and say “Let us scrap the GST and simplify our tax system”. It makes perfect sense. Why can the government not see that?
Jim Jones Progressive Conservative Markham, ON
Madam Speaker, I do not know if I am to respond to that.
The GST has been politicized too much. When it initially started out it was to replace the federal sales tax on manufactured goods which was 14%. Maybe there are some items that should not be included.
We should look at the benefits the GST has accumulated to this country over the last few year. Companies are now more competitive because the hidden manufacturers' tax is no longer there. The tax is not included in goods that go out of the country. We have, from a free trade standpoint, benefited. We have enjoyed a $16.7 billion surplus in tax revenues coming from free trade. The GST has not been all that bad for us.
SupplyGovernment Orders
The Acting Speaker (Ms. Thibeault)
In resuming debate, we will be going in periods of 20 minutes for speeches followed by 10 minutes of questions and comments.
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
Madam Speaker, I am very pleased to speak to the motion presented by my colleague from Mercier.
First, I would like to say a few words to Reform members. I was listening to them lecturing us earlier and giving us advice on political correctness. We do not need that kind of comment on an issue that is very important for Quebec, one where Quebec is the victim of a blatant injustice. We especially need no lessons in ethics from a political party that wanted, only two days ago, to invite a former minister of the Pinochet dictatorship in Chile to appear before the finance committee as an expert witness on pension reform. We have no lessons to learn from them. We do not need their moralizing.
Coming back to the subject at hand, when all the facts are considered, it is obvious that a blatant injustice was done to Quebec. To help you understand the nature of this injustice, I would like to remind you of the main features of the agreement reached by the federal government and three maritime provinces more than a year ago.
On April 23, 1996, the federal government concluded with three maritime provinces, namely Nova Scotia, Newfoundland and New Brunswick, an agreement harmonizing their provincial sales tax with the GST.
Since the three provinces faced adjustment costs, the agreement provided they would receive in the following years a compensation worth close to $1 billion, $961 million to be precise.
How did the government come up with such a compensation for these three provinces? This is how it was calculated. Here is what they said, and it was the finance minister who set that criteria that suited the three maritime provinces perfectly: “Will the maritimes loose money if they go ahead with harmonization? If they do, we will compensate them”. He put the criteria at 5%. What does it mean exactly? Under the agreement, if there is a decline of more than 5% in the tax revenue of the three maritime provinces, the federal government will take action and compensate them for these adjustment costs.
It is an important criteria to remember, and we will get back to it later when explaining why the province of Quebec is entitled to such a compensation.
What benefit was given to the three maritime provinces with an agreement on the harmonization of the GST and the provincial sales tax and $1 billion in compensation? That agreement gave them three benefits straight away. The first one was the possibility to reduce sales tax by four percentage points. That was a direct advantage for the consumers in the three Atlantic provinces concerned.
The second one was the possibility for businesses to have more competitive prices in these three provinces since the lowering of the sales tax rate allowed them to lower the price of their products.
The third one was a major added advantage for companies in the Atlantic provinces because, with the full harmonization of taxes, which has been completed since April 1, they can claim a direct refund for all the taxes they pay on their inputs.
Quebec was not able to benefit from these three advantages. Quebec, which harmonized its sales tax with the GST on its own in 1990 did not benefit from these three advantages that were provided for in the agreement between the federal government and the three Atlantic provinces. It could not benefit from a complete harmonization because it could not afford it. It had to pay costs and it is still paying costs because it was technically impossible for it to proceed with a complete harmonization because, unlike the three Atlantic provinces, it did not have the financial support of the federal government.
That is why, in December of last year, Bernard Landry, the deputy premier of Quebec, minister of state for the economy and minister of finance, and Jacques Brassard, minister of intergovernmental affairs, demanded, on behalf of the Quebec government, compensation for the adjustment costs it incurred in 1990 and the costs it has been paying since then in terms of QST and GST harmonization.
Based on a fair assessment of the costs incurred, Quebec is entitled to an estimated $2 billion in compensation. The Minister of Finance told us, and the Secretary of State for International Financial Institutions repeated the same thing a few moments ago—there are a lot of parrots in that party—“You are not entitled to this compensation because your provincial sales tax revenues have not gone down since the harmonization of the GST and the QST”.
I will remind you of the criterion I was telling you about a few moments ago and which is included in the agreement between the three Atlantic provinces and the federal government, namely that the $1 billion compensation given to the Atlantic provinces is due to the fact that the harmonization of the provincial sales tax and the federal sales tax is causing them to lose over 5% in PST revenues.
It has been claimed—and the Minister of Finance and the Secretary of State for International Financial Institutions understand this problem—by using a rationale that has been stretched to the limit, that we are not entitled to anything.
One must look at the whole tax base. One must see if, for example, the harmonization of the tax has forced the Quebec government to make adjustments elsewhere in its tax structure that may have had a negative impact on the province's revenues. One must do that. One must look at all the facts in this matter.
There are three major facts. First of all, one must take into account that, when the harmonized tax was implemented in 1990, there were other taxes on certain goods and services in Quebec that had to be abolished and replaced by the new harmonized tax. Such was the case for fuel and tobacco products. The Quebec government had to abolish the old tax when fuel and tobacco products became subject to the new harmonized tax.
By so doing, however, the difference between the old fuel and tobacco taxes and the new harmonized tax meant a loss to the Quebec government of $355 million. This is the first example of data missing from the Minister of Finance's assessment, or rejected out of hand by him, because he does not want anything to do with an accurate overall assessment—and, what is more, he knows he is wrong.
The second major point that must be considered is the overall tax structure before and after harmonization of the GST and the provincial sales tax in Quebec. People became aware that the cost of harmonizing the GST and the sales tax in Quebec meant that corporate tax rates had to be adjusted. They had to be increased in order to raise supplementary revenues for Quebec to finance the harmonization of the GST and the TVQ.
I will give two examples. The first, that the tax on profits was raised, from 6.33% for businesses in general, to 8,9% immediately after harmonization. There is a link here with harmonization of the GST and TVQ, and the costs of that harmonization. Tax on capital was also raised, from 0.52% to 0.64%.
If you look at the preferential tax rates for small businesses, the SB program, small businesses saw their tax rates raised from 3.45% to 5.75%. All of this is linked to harmonization and to the costs of adjustment or transition from the GST and TVQ to a new harmonized regime, which we in Quebec were the first to have.
The third fundamental point is the one I made when I started to speak. Since Quebec was not compensated for harmonization of the GST and TVQ, we have not been able to fully harmonize our taxation system. What that means in particular is that, normally, large Quebec corporations ought to be able to receive full reimbursement of business input taxes paid, these being intermediary products used in production of their end product for sale.
In the maritimes, with full harmonization, which has been in effect since April, businesses have a competitive edge over businesses in Quebec. They are being reimbursed the taxes they pay on the purchase of the input used in the production of their final product.
The shortfall faced by big businesses in Quebec, which is tied directly to the lack of transition measures from the federal government to harmonize the GST and the QST—the Quebec sales tax—means a loss of $500 million for these businesses. Because there is no compensation, the Government of Quebec cannot reimburse the taxes paid on the input of the major firms.
When the Minister of Finance tabled his latest budget, the Quebec deputy premier and minister of state for the economy, Bernard Landry, showed clearly the link between the injustice faced by Quebec on the policy of harmonizing the GST and the QST and the fact that big business is not being reimbursed the taxes paid on input.
We are talking about $500 million, Madam Speaker. Do you know what that means? It is 10% of the Quebec sales tax revenues.
I return to the criteria whose importance I stressed at the start of my speech. The Minister of Finance said that, had the three maritime provinces lost more than 5% of their revenues, we could compensate them. This gave rise to the $1 billion in compensation to the three maritime provinces.
We have a situation where the big businesses' shortfall alone, in terms of a refund for the taxes paid on their inputs, totals $500 million or 10% of the provincial sales tax.
The federal government must be consistent. It has to look at the overall picture and if it must pay then it should do so. Quebec is currently the victim of an injustice on the part of the federal government. Members opposite can say whatever they want. We are only asking that justice be done.
I will complete my presentation with a situation that could have occurred in 1990. At the time, Quebec could have looked at the various budget items, including direct and indirect taxes, and made other choices in terms of business and consumer taxes, etc., and it could have ended up with a completely different tax structure than the current one.
For example, let us consider the direct sales tax revenues in comparison with the governments' total revenues. There are huge differences between Canadian provinces.
The ratio of sales tax revenues to the governments' total revenues is 12.9% for provincial governments in the maritimes. In Ontario, it is 8.3%, while in Quebec it is 8.6%.
In 1990, had Quebec known that the federal government would some day offer compensation for harmonizing taxes—something we did without compensation or support at a cost of hundreds of millions of dollars—it could have said “There will be some form of compensation some day”. Using the rule mentioned earlier, by which the finance minister decided that the government was to step in and give $1 billion to the maritimes in compensation after they experienced revenue losses from harmonization in excess of 5% of their current sales tax revenue, we could have said “If that is how it will work, let us reduce personal income taxes, reduce business taxes and raise the provincial sales tax so that, when the federal government comes to us with its plans for harmonizing and asks us to reduce our tax rate, it will have to pay us compensation because we will have experienced a loss in excess of 5% of our provincial sales tax revenue”. Can you see how it does not make any sense to consider sales tax revenue only instead of considering all adjustments that had to be made in the fiscal structure, including tax increases and indirect taxes, following harmonization in Quebec?
One cannot look at only part of the equation, decide that there were no losses and condemn Quebec to never getting any compensation for having made fiscal choices that were different from those in the past.
The maritime provinces depend heavily on sales taxes—they account for nearly 13% of their overall revenue, as someone said—and because they made that choice, they are entitled to $1 billion in compensation.
We, on the other hand, decided to reduce sales taxes to only 8.6% of the tax base in order to boost the level of consumption and stimulate employment, and we are out $2 billion because we made rational decisions, decisions which, I would remind Reform and Liberal members, also served the purposes of a federal regime; that should not be forgotten. We were the first to harmonize because the idea was that it could benefit businesses with respect to operations, interprovincial trade, and so forth. We went along with the federal government's proposal. So we are not interested in hearing that we are being difficult.
What is even more offensive is that $250 million of the compensation being paid the maritimes is coming from Quebec taxpayers. Not only are we not getting $2 billion in compensation, and there are actual figures to support this calculation, but as Quebeckers we are also being forced to pay $250 million to harmonize a tax in the Atlantic provinces so that businesses in those provinces can be more competitive than businesses in Quebec, can cut in on our markets, take away our jobs, and all with our help. You can see what a ridiculous and unfair situation Quebec is in.
We are not calling for a debate for the sheer pleasure of it. There must be no confusing apples with oranges, dragging constitutional arguments into a serious fiscal matter, as our colleague, the secretary of state for international financial institutions did just now. He often says the first thing that comes into his head, but this time he was out of line. What we are calling for in our motion is something quite simple.
We have figures and arguments. We think they are the best arguments. We think we have a strong case. We think we have been treated unfairly in this matter, and we are not the only ones who think so, because our view is also shared by the premiers of all Canadian provinces. Last year, at the economic summit in Quebec City, this was the unanimous view. All these people cannot be wrong. But we are prepared to play by the rules and take this approach. The Minister of Finance tells us “You are not entitled to compensation”. Maybe we are wrong. Maybe all these people are wrong. Maybe our case is not as strong as all that.
But this is our proposal, the proposal that our leader, the member for Laurier—Sainte-Marie, outlined during the election campaign, and it is an ingenious proposal that could resolve this deadlock. Its result could be that we would no longer rise every week in this House to ask the Minister of Finance for $2 billion, and he would no longer tell us we have no right to such an amount. This is a useless debate.
What we propose is that three experts be appointed—the first by the Minister of Finance, the second by the Government of Quebec, and the third jointly by the first two—to review the whole issue and analyze all of the basic data involved.
We are ready to accept the conclusion. But if the Minister of Finance rejects our proposal, it is because he has something to hide, because he recognizes his vulnerability, because he is scared to compare the technical arguments of the Bloc Quebecois and the Government of Quebec with his own technical arguments. If he rejects our proposal, it is because he knows very well that following an objective analysis, a serious assessment like the one we outlined this morning, he will realize that he owes money to Quebec. He will realize that he made a mistake. He will realize that he owes Quebec $2 billion, $1.9 million to be exact, for harmonizing the GST with its provincial sales tax.
We are humbly reaching out to the federal government so that this deadlock can be resolved and so that we can go forward. As I pointed out, we are willing to accept the conclusion of the three experts. Government members ought to take this issue more seriously, to be fair to Quebec, to show some intellectual honesty, because over the last year and a half, I have seen this debate degenerate into demagoguery. This makes no sense.
So we and our leader humbly submit this extremely intelligent proposal. All that is left to do is to settle the account.
Jim Peterson LiberalSecretary of State (International Financial Institutions)
Mr. Speaker, as everyone knows, harmonization presents many advantages for small and medium size businesses; there is only one tax, one base, one document and one administration.
Furthermore, one of the major advantages is for companies, small and medium size businesses and large corporations which must all stay competitive in the business world.
What we did with the GST is give provinces the opportunity to refund any provincial tax paid on inputs. This is the major advantage agreed to by the three Atlantic provinces. Even premier McKenna said his increased competitiveness, compared to provinces which had not yet harmonized, would highly benefit corporations.
We know that Canadian corporations now pay more than $5 billion each year in provincial tax on inputs and the best way to avoid that is GST harmonization or, in other words, a value added tax.
That being said, according to the hon. member who just spoke Quebec corporations stated they were not benefiting from the credit on inputs. They cannot get a refund for the provincial tax paid on inputs.
This is not our fault, the problem lies with the Quebec government which is not reimbursing all of the provincial tax paid by large corporations in Quebec. It is their problem.
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
Mr. Speaker, I told you the member did not make any sense, he has just proven me right.
What I said is that under complete, total and general harmonization, all aspects of the issue taken into account, when the GST is blended with the provincial sales tax, at the end of the day large businesses paying a blended sales tax on the inputs they buy are entitled to a refund. They are entitled to an input tax credit.
The maritime provinces have been able to do it since April 1st because the federal government gave them $961 million for that. In Quebec, we went ahead with harmonization, without any federal support. But we cannot do it, we cannot afford to do it because the federal government has been and continues to be unfair with Quebec.
Harmonizing both taxes is a good thing. We believe it is. We support efficiency, and the federal government knows it. But it wants to draw a red herring across the trail.
If it was being fair with Quebec, we could refund large businesses the $500 million they pay in taxes on inputs, but we cannot do it because of the government lack of fairness in its dealings with Quebec. As a result, we are less competitive than we should normally be if the system was slightly more equitable with Quebec businesses. We are competing in particular with New Brunswick businesses which enjoy a $400 million rebate linked to the billion dollar in compensation the federal government is giving three maritime provinces.
You talked about Frank McKenna and rightly so. He is still premier. I have even harsher words for him. Frank McKenna tried to steal our own businesses. He even went to Asia to try to attract Quebec businesses saying “Come to New Brunswick. You will enjoy a $400 million tax rebate”. This is what the federal government calls a fair system. Wait a minute.
Roy H. Bailey Reform Souris—Moose Mountain, SK
Mr. Speaker, maybe it is a good time to make a comment and then ask a question of both my colleagues on the government side and in the Bloc.
I listened this morning to the debate about taxes and fairness. It reminded me of the old cliché which says there is nothing surer than taxes and death. I had this come home to me the other day. I had power of attorney and was official guardian and had to deal with the burial of people who were destitute, had no money. I had to step in. When I got the bill, the thing which reminded me of the cliché was that I had to pay the taxes. These people were even taxed in death. Canadians are used to taxes.
I have a comment for the government minister and the member of the Bloc. Approximately five years ago because of the illegal importation of cigarettes into Canada the federal government removed most of the federal tax in Ontario and in Quebec. It was a federal tax but it was not removed in western Canada. Smokers out there had to pay the full shot.
Would either of these members say that maybe Saskatchewan smokers should be reimbursed because they had to pay all the cigarette taxes when over half the smokers in other parts of Canada did not have to pay them?
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
Mr. Speaker, I have a short comment regarding what was said by the hon. member from the Reform Party.
Clearly, in a ideal world nobody would pay any tax. But, I would like to bring him back to earth. We do not live in an ideal world and there are taxes to be paid. Unfortunately, we have to live with that. As you said, even death is taxed. It will take a while before that changes.
Jim Peterson Liberal Willowdale, ON
Mr. Speaker, I must agree with the hon. member from Quebec who just said that in an ideal world things would be different. In an ideal world nobody would smoke.
This being said, I would like to add two things to his comments. True, the Government of Quebec does not give rebates to companies for their input taxes, which amount to $500 million, but this is the fault of the Government of Quebec and an indication—
SupplyGovernment Orders
The Acting Speaker (Mr. McClelland)
The hon. member for Saint-Hyacinthe—Bagot.
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
Mr. Speaker, I can only answer that I will get back on track, because occasionally we have to return to serious matters. The secretary of state had a good laugh, but it is time to get back to serious business.
Our proposal is to submit all the data to an arbitration panel independent from the government, independent from the Bloc, independent from the Government of Quebec, for a full evaluation.
We believe that this is really unfair. All we are saying is that Quebec should be treated fairly in tax matters, in money matters. This should not be too hard to understand. Let us try this formula: three independent experts to study the question instead of relying on whatever members opposite have to say. We are getting a bit tired of arguing over numbers and of not making any headway in this matter after a year and three months.
Tony Valeri LiberalParliamentary Secretary to Minister of Finance
Mr. Speaker, I am hoping after having heard the first round of debate that we can restore some clarity and context to the whole issue of the harmonized sales tax and specifically the motion before us that deals with compensation.
In order to do that I want to go back a step and focus on the early part of our mandate when the government asked the House of Commons finance committee to consider alternatives to the GST and to essentially consult broadly with Canadians on some alternatives.
The committee heard from tax experts, business people and Canadians. In fact the committee heard from nearly 500 witnesses and received over 700 briefs. It reviewed about 20 different alternatives and found that the broadest consensus by far was in favour of harmonization, replacing the current patchwork of sales tax with a single tax based on a value added system.
As you will remember, Mr. Speaker, because you were here in the last Parliament, this really became the foundation of the HST, the harmonized sales tax. It was an agreement between the federal government and three Atlantic provinces, New Brunswick, Nova Scotia and Newfoundland. Throughout this agreement which came into effect last April these provinces replaced a system which was in fact quite cumbersome, costly and complicated with one that proved to be simpler and essentially more efficient. Most important, these changes will add up to a better system that promotes a stronger economy and will result in greater job creation.
Consumers in participating provinces are benefiting in a number of important ways. Most important, there has been a reduction in the rate of tax. For Nova Scotia and for New Brunswick the combined rate of 15% represents a decrease of essentially 4 percentage points in an effective sales tax rate. In Newfoundland and Labrador the rate decrease is closer to 5%.
We heard a lot about businesses this morning in the first round. Businesses are also benefiting from the lower combined tax rate. They now have to deal with only one set of tax forms, one set of rules and one tax administration. Essentially it means lower compliance costs, and we know that translates into savings and those savings translate into the firm's own bottom line and can benefit consumers.
The Canadian Institute of Chartered Accountants estimated that if all provinces were to join in the national sales tax system Canadian business could save between $400 million and $700 million a year in administrative costs alone. I should also point out that a someone who has been part of the small business community, and Mr. Speaker, you are also part of the business community, the benefits of lower compliance costs will particularly be advantageous for the small business community. We know that the small business community also bears disproportionately the cost of dealing with two separate tax systems.
A further benefit to businesses in the participating provinces will be the recovery of the HST payable on inputs, something that was not being done before the implementation of the HST. In fact, harmonization will eliminate over $700 million in hidden sales taxes on business inputs in the three Atlantic provinces. This will in fact reduce the cost of Atlantic exports and essentially eliminate the unintentional competitive advantages that imports currently enjoy in the Atlantic provinces. The HST adds up essentially to a simpler, fairer system and really a stronger economy.
Let me now turn to what is really the aspect of this legislation that has too often been attacked, including today's motion, and essentially attacked by those who placed partisan politics and narrow regionalism ahead of clear objective thought. This of course is the decision by the government to provide a formula for short term adjustment assistance to provinces when they face significant structural costs to participate in a new and integrated system.
Under this legislation adjustment assistance is available to provinces which experience a revenue shortfall in excess of 5% of their current retail sales tax receipts by moving to a single harmonized sales tax system at a combined rate of 14% or 15%. It is important that we emphasize that this is also a short term measure limited to a period of significant transition that these provinces will be going through. It will end after four years. It is not an ongoing program which some of the members have alluded to in this House as being a subsidy. It will end after four years and it provides provinces with sufficient time to adjust to a harmonized system.
It is also important to note that it is truly a joint program. Under the formula there is near equal sharing between the federal government and qualifying provinces of the adjustment costs that harmonization would entail over a four year period, but what I find disappointing is that there are some Canadians who have attacked the entire concept of adjustment assistance.
This mindset essentially ignores history. It misreads the present and quite frankly it lacks the vision for the future. Canadian history makes it very clear that government has played an essential role in our economic evolution and adjustment.
There were tax and land grant support for a national rail system, the development of the St. Lawrence seaway, megaprojects from Lloydminster to Hibernia, special tax concessions for oil and gas development, for research and development, and for small business. I could go on and on. The list is long and quite honourable.
These government investments respond to opportunities. There is a long and proud list of federal assistance for sectors and regions that face economic difficulties and dislocations or must in fact confront some core structural change.
Equalization payments are an essential part of our constitutional framework. They recognize that all of Canada is stronger as a society and as a marketplace when we help less affluent provinces to provide a basic level of public service and support.
Perhaps some members are not aware of this, but back in 1972, when the federal government instituted income tax reform, every single province received adjustment assistance totalling more than $2.7 billion over a seven year period.
More recently the federal government provided assistance to farmers following the collapse of world grain prices. Now they are being compensated for the elimination of the Crow rate.
We have provided bottom line support for maritime fishers who were confronted by a tragedy of decimated fish stocks.
We equally shared in the cost of solving the problem of tobacco smuggling in Ontario and Quebec.
These actions were not charity. They were not partisan politics. They were essentially a reflection of the contract Canadians have struck with themselves, a nation building contract which says that there is a critical role for government and that critical role is to help when help is truly needed and where it can in fact be truly effective.
That takes me to the present. Today more than ever we must manage assistance with much more rigour, innovation and insight. The world of global competition for trade, investment, business opportunities and jobs demands that government remain constantly conscience of the bottom line.
We all know that a government which squanders resources imposes on the nation the costs of high deficits, high taxes and even higher interest rates. These we all know are job killers and investment killers. More important, they are future killers and they are hope destroyers.
This same challenging competitive environment also demands that government continue to play a role in helping its citizens, sectors and regions to meet the global challenge. That is exactly what we are doing with the adjustment assistance for the sales tax harmonization.
Assistance is a necessary investment in making Canada stronger, through helping disadvantaged regions move to a modern tax system to meet the modern challenges of today. It is a 21st century type of investment. It reflects the fact that government must change how it involves itself in economic development.
The assistance formula which we have developed applies equally to every province. There is no discrimination. There is no favouritism. More important, let me state very clear that there is no bribery involved, as was mentioned earlier by a number of members.
Any province in the country which faces a transitional revenue loss exceeding 5% because of harmonization qualifies for assistance. I cannot make it much clearer than that. It is pretty straightforward. After four years it is on its own. It is a transitional measure.
That means that British Columbia, Alberta and Ontario would not meet the threshold. They will not lose money on harmonization, just like Quebec did not lose any money when it partially harmonized.
Let us go directly to the heart of today's motion by the Bloc. There is simply no truth to the fiction that Quebec incurred revenue losses under harmonization with the GST. That means that there are no grounds for its claim that it is being shortchanged.
Let us go with the facts. After beginning its phased in harmonization in 1991-92 and 1992-93, Quebec sales tax revenues were 20% and 17% higher in each fiscal year, respectively. These figures are not based on my documents. They are not based on the documents of the national government. They are based on Quebec documents.
It is a fact that annual Quebec sales tax revenues over the 1990-91 to 1995-96 fiscal years were on average 12% higher than the province's preharmonization revenue in 1989-90.
I can go further. It is a fact that when we draw the analogy with the other provinces over that same period, Ontario with a retail tax system similar to the one Quebec replaced had an average annual sales tax revenue drop of 3% below 1989-90 levels. In other words, when you make the comparison of where Quebec was with harmonization, the improvement we saw in Quebec, and look in that same period at the experience of Ontario, which has a similar retail sales tax system, we see that harmonization was a winner for Quebec.
Let me again be very clear. It is a fact that compensation is available for those provinces that fully harmonize with the GST. Let me explain that. Full harmonization with the GST means that you have the same tax base, the same rate and that members of the HST, provinces and the national government, would move in concert if we see a rise in rates, a reduction in rates or an expansion of the tax base.
The second point is that the revenue loss because of harmonization be significant. Quebec is not fully harmonized. It is partially harmonized. Quebec's revenues went up after harmonization.
The other point that was brought forward this morning by an hon. member from the Bloc was that the premiers across this country supported Mr. Bouchard when he said they are entitled to $2 billion of compensation. That was the message from St. Andrews.
Let me clarify what the premiers said in St. Andrews. What they said is that all provinces should be treated equally. Quebec in this instance has been treated like all other provinces that do not suffer a decrease in revenue due to harmonization.
Let us talk about who would have qualified for compensation under the HST in 1996 since the emphasis has been on the Atlantic provinces and that the deal was made with the Atlantic provinces, and solely with the Atlantic provinces.
Under the formula Manitoba would have qualified for compensation in 1996 had it decided to participate in the harmonized sales tax. I do not recall there being a Liberal government in Manitoba in 1996. I believe it was a Conservative government and still is a Conservative government.
Saskatchewan would have qualified in 1996 for compensation under this formula had it decided to participate in the HST. The last time I checked Mr. Romanow was still the premier of Saskatchewan, the leader of the New Democratic Party.
It is not a deal that was struck solely because we have a number of Liberal governments in the Atlantic provinces. The Atlantic provinces saw merit in participating in the harmonized sales tax. They recognized the efficiency it would provide for their business community and the fact that it would make them more competitive and improve their exports.
Let me go to another fact. André Bourbeau, former Quebec finance minister, declared earlier this year that Quebec did not lose money by harmonizing its tax rates with the GST. To the contrary, he said that the operation has generated hundreds of millions of extra dollars to the Quebec treasury.
A comment was made earlier about the fact that because Quebec did not receive compensation for this harmonization it was forced to increase corporate tax rates to make up for that compensation.
I cannot make it any clearer than that. Harmonization occurred and revenues went up. If there were any increase in tax rates for corporations in Quebec it was solely because of the decision made by the Quebec government at the time. It had nothing to do with whether or not Quebec qualified for compensation. Any linkage to that is truly false.
For the three Atlantic provinces, with their less developed economies and such problems as fish stocks, harmonization carries a painful interim cost. There is no denying that. That is why we developed this compensation formula and why they will receive about $960 million of assistance over four years to deal with the structural adjustment they are required to make as a result of harmonization.
It is surprising and quite frankly frustrating that our approach has been turned into a political football. There is tragic cynicism at work here, the type of cynicism that always knows the price of everything but the value of nothing.
Who can argue with the value of helping provinces to provide the environment to industry to help it thrive, not just one sector or two sectors but all businesses in the region? It is particularly true for the Atlantic region, which is why it has moved to accept the harmonized approach.
By what illogical leap can it be suggested that because some provinces qualify for assistance it should then be provided to every province, even to those who will not suffer major losses?
I will return to my example of 1971 when changes were made to the income tax system and every province received compensation because they were adversely affected. That was not a prescription. It is a comment we cannot agree with.
Since I only have a couple of minutes left, let me close by saying that I reject the competing point of view so often expressed by the Bloc and in effect by the official opposition that opposes any compensation. It ignores the obligation framed by 130 years of Canadian history to help disadvantaged regions become equal partners in a strong, vibrant and growing country.
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
Mr. Speaker, I heard so many strange things in that speech that I hardly know where to begin to set the record straight.
First, I do not know where the member was earlier when I presented some technical arguments. Had he been present, he would have understood that one should not get too close to the tree and ignore the forest. That is what he is doing now. We must consider all the basic data, the overall data in the case and see what happened before and after the harmonization at all tax levels.
If he looks at the data—and if he does not know, he should ask his finance minister because I suspect there is some ill will in this case—he will see that there are increases in tax rates for businesses and for individuals. Certain goods were no longer taxed, which generated losses for the Quebec government. These goods are now subject to the new harmonized tax, but the losses are still there.
This was demonstrated to him earlier. If what we are proposing is nonsense, what is the government afraid of? The member should ask his finance minister. What is he afraid of? What does he fear if his case is so strong? He should submit this case to the committee of experts.
I want to make a last brief comment. He referred to a former finance minister; I know he referred to Mr. Bourbeau. I would tell you that this is no reference. He is the one who left Quebec flat broke with an unprecedented deficit of $5 billion. So this is no reference.
Tony Valeri Liberal Stoney Creek, ON
Mr. Speaker, once again the manipulation of information is becoming an art form.
Since it is a fact it should be quite clearly on record that harmonization resulted in an increase in revenues for the province of Quebec. The formula put in place that deals with structural change to a tax system speaks to giving compensation to provinces that suffer a reduction in revenue. More specifically, any province with a loss exceeding 5% because of harmonization would qualify for assistance.
Quebec revenues went up after harmonization. Essentially as part of this formula it would not qualify, as British Columbia would not qualify, as the province of Ontario would not qualify, and as the province of Alberta would not qualify. If they were to harmonize they would not qualify just as Quebec does not qualify given that they are partially harmonized and not fully harmonized.
Gerald Keddy Progressive Conservative South Shore, NS
Mr. Speaker, having listened to the hon. member's comments I do not know where to start. Because of time restraints in the House it is obvious we will not have time to meet all the concerns raised by the hon. member.
I have a couple of questions. He spoke about the foundation of the HST. For the rest of the members in the House, when the tax was originally brought in it was called the blended sales tax in Nova Scotia. However the initials BST were a little tough for the government to swallow so it was changed to the HST.
The hon. member made a lot of suggestions about partisan politics. We listened to a certain amount of Liberal propaganda. Does the hon. member understand how on a workhorse the reins go up through the hames and attach to the horse? Does he understand the commands gee and haw or droite and gauche? Does he understand why those commands are given, that they are given to a horse because it is wearing a set of blinders? Therefore the horse listens to the commands. If the blinders are taken off the commands do not seem quite as specific.
You said that when the HST was brought in it lowered the tax rate to 15% in Nova Scotia. That is not entirely correct. It lowered it to 15% on some things, 18% on automobiles and on second hand cars the tax is still there. The tax is not revenue neutral. It gathers more tax than the two combined taxes used to gather. What is the government prepared to do about that?