Mr. Speaker, the hon. member who just spoke has laid out a couple of points that I want to address and put on the record. I will deal with three elements.
The first has to do with the concept of the input tax credit as it relates to the provincial taxes. Under the GST system there is an input tax credit available so that businesses which incur GST in the conduct of their business get to reclaim it when they file their GST returns. Therefore in the system of a consumption tax, it is only the end purchaser, the end user of the service who ultimately pays the tax.
Under the provincial tax scheme, for instance in Ontario, there is no equivalent input tax credit. There is provincial tax levied on tax paid provincial items. In Ontario approximately 30 per cent of the provincial taxes collected by the province are layered taxes. They are taxes on taxes. As a consequence, when we shift to a harmonized basis where both taxes are applied against the same base, the provincial tax becomes eligible for an input tax credit. That means the provinces involved will lose about 30 per cent of the revenues they received under the former system.
This is a very important point that hon. members should be aware of when discussing a consumption tax. Provinces are going to lose the compounding or layering of provincial taxes. It amounts to some 30 per cent in Ontario. That means if the provincial governments are losing revenue, somebody is picking it up. Who is picking it up? The businesses.
Businesses no longer have to absorb all the additional provincial sales tax costs. Now they will be eligible for input tax credits not only on the GST federal component of the harmonized sales tax but also on the provincial. There will be a larger input tax credit for businesses.
The relevance here is with regard to the Quebec situation. Quebec basically scooped the nation in terms of harmonization. Quebec went forward with a fully parallel system provincially and federally for its consumption taxes. It broadened the base and started to apply and basically mirror the same elements.
This means that businesses have a lower cost of inputs because of the input tax credits. It means they have been able to pass on lower pricing to the ultimate consumers. Because exports are zero rated that means this lower cost has translated into lower export selling prices. It has made Quebec exports much more attractive than the competition from other provinces.
It is one of the realities of a harmonized consumption tax system that it is going to make Canadian exports much more competitive than the competition abroad. Right now Quebec has a serious advantage. The province of Ontario is going to have to deal very quickly with the fact that Quebec is scooping up the export marketplace because of the competitive advantage it has by getting an input tax credit and effectively having harmonized its taxes already. That is the first point I wanted to raise.
The second point has to do with a related matter, the underground economy. Members will know that the government has made substantial progress in concert with the provinces by entering into information sharing agreements and by working closely with a number of other agencies to ensure that every attention is being given to the underground economy.
When the GST was introduced, there was a strong feeling that the introduction of a consumption tax forced a lot of businesses underground. That was because the 7 per cent tax which was now visible to people was an inducement to offer an under the table economic transaction without tax on it. It basically gave a 7 cents on the dollar advantage over purchasing in the retail outlet for instance. Under a harmonized basis, federal and provincial, the amount of the input tax credit will no longer be 7 cents in Ontario because the combined rate is 15 per cent. It is going to be 15 cents.
Upon analysis there is a strong view that the underground economy in fact will shrink because there are many many businesses out there that have not claimed economic activity to claim back the 7 cents on the dollar because there is not enough inducement for them to go after it. To add the additional 8 per cent and say that 15 cents on the dollar of every sale that is made is recoverable, at least with regard to the costs on the input credits, there will be as a result of this harmonization a significant impact on the underground economy. And Canadians know that if we all paid our fair share, we all would pay less.
Finally I want to comment on the whole element of tax inclusive pricing. I know it is very easy with a twist of words to make issues sound or look like something they are not. I can recall when the discussions first took place about tax inclusive pricing, the indict-
ment was that the government was trying to hide the tax so that we would never know when it raised the amount of taxes. Let me reflect on what happened when the GST replaced the former manufacturers sales tax and introduced the federal sales tax.
What happened there was a real ironic situation in my view. Under the former manufacturers' sales tax in the last year of its operation it generated about $18 billion worth of revenue. In the first year that the GST came in, it generated only $16 billion worth of revenue which was a $2 billion decrease in revenue to the Government of Canada.
It made me wonder that if taxpayers got a $2 billion tax break, why is it that people were so upset with this consumption tax? We know all the arguments about why the FST was unfair and penalized corporations that in particular were involved in exports.
However, one of the most interesting things was that there was an anger generated by Canadians that we have not seen on almost any other issue to do with the taxation or operation of government, a real anger to do with a commodity taxation.
Members have to try to understand why people were so angry when the Mulroney government brought in this tax. It started off suggesting that it would be 9 per cent but it ultimately reduced it to 7 per cent.
The one reason I can think of why people were so angry about the GST was that when they went to a store to make a purchase, when they looked at the shelf and saw the price there, their traditional reaction was that there was where they made their purchase decision. The anger came at the shock they got at the cash register when the price they saw on the shelf was not the price that they had to pay. It was not the amount of money they had to take out of their wallet.
The purchase decision was made on one price and the amount of payment was based on a totally different scenario. Through all the hearings that the finance committee held, this issue came up time and time again trying to eliminate that in your face agitation and the aggravation of seeing one price on the shelf and more added on at the cash register.
To deal with that, the consensus of the broad majority of those who appeared before the committee over those 35 weeks was to use tax inclusive pricing. That means the price people see on the shelf is the price they pay at the cash register. It addresses the fundamental aggravation and concern that consumers had expressed when the GST first came in.
Many who want to be provocative in this place will say "you are hiding the tax and burying the tax". The full recommendation and implementation of the harmonized tax specifies that there will be the full disclosure of the taxes included on the invoice or the sales slip that the consumer receives. They will know precisely how much is included in that purchase.
Still the fact remains that if it says $10 on the shelf, it will be $10 at the cash register. The composition of that may be something different, but it is still $10 out of the person's pocket.
That is certainly a very important aspect that Canadians should understand. That is not burying anything. Tax inclusive pricing is really an effort on behalf of parliamentarians to say that this is a way of getting the tax out of people's faces.
Nobody wants to pay more taxes. We all want to pay less. We have to work at ways of improving our funds so that there is a basis for tax reduction, which is the ultimate goal of any government. It is to have an efficient government operating and have the amount of taxes that we pay lowered as much as possible while still providing the services that Canadians would like to have.
I am happy to speak in support of Bill C-70 at third reading. It has been with us almost every day, as it were, since the House commenced. Although there will be continued debate and continued questioning of the issues, the most important thing right now that members should consider is the experience of Quebec.
As a result of harmonizing its taxes, Quebec exports have resulted in significant improvements in its export sales relative to the rest of Canada simply because it has had the provincial input tax credit component as financial leverage over other competitive areas, including the other provinces of Canada.
Quebec knew what the right thing to do was. It made this system more efficient. It made it simpler and it made sure that Quebec had every advantage of a streamlined tax system, which is precisely the objectives of the harmonized tax.
I simply would like to close by saying that I believe notwithstanding that we will continue to see the debate, that the proof will be in the streamlining of a system, one system, one set of books, one set of records, one base and an efficiency which Canadians in fact want to see within our government. I think it has been proven time and time again by every provincial government that streamlining the systems within our government is the best policy and in the best interest of all Canadians.