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House of Commons Hansard #127 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was taxes.

Topics

Presence In GalleryOral Question Period

3 p.m.

Some hon. members

Hear, hear.

Presence In GalleryOral Question Period

3 p.m.

The Speaker

On a point of order, the hon. parliamentary secretary.

Presence In GalleryOral Question Period

3 p.m.

Liberal

Paul Zed Liberal Fundy Royal, NB

Mr. Speaker, there has been some consultation among the parties regarding a committee report that we would want to be presented at this time. I wonder if there is unanimous consent to revert to Routine Proceedings under presenting reports from committees.

Presence In GalleryOral Question Period

3 p.m.

The Speaker

Does the hon. parliamentary secretary have the permission of the House?

Presence In GalleryOral Question Period

3 p.m.

Some hon. members

Agreed.

Presence In GalleryOral Question Period

3 p.m.

Some hon. members

No.

Presence In GalleryOral Question Period

3 p.m.

The Speaker

Orders of the day.

The House resumed consideration of the motion that Bill C-70, an act to amend the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the Income Tax Act, the Debt Servicing and Reduction Account Act and related Acts, be read the third time and passed.

Excise Tax ActGovernment Orders

February 11th, 1997 / 3:05 p.m.

The Speaker

I think the hon. member for Charlesbourg had 14 minutes left.

Excise Tax ActGovernment Orders

3:05 p.m.

Bloc

Jean-Marc Jacob Bloc Charlesbourg, QC

Mr. Speaker, I mentioned earlier that, with Bill C-70, the Liberal government was trying to make us forget the promises made by the Prime Minister and the Deputy Prime Minister.

I also drew a parallel between these and promises made by Liberal Party guru Pierre Elliott Trudeau, who, in the late 1970s, promised to abolish the gasoline tax. This most unfair and inequitable tax was hampering economic growth. But when the Liberal Party was elected, Trudeau, far from abolishing the gasoline tax, raised it.

It is clear that this Prime Minister and his government have taken a similar course of action with the GST. They had promised to abolish it and, with Bill C-70, they are trying to disguise it through the so-called harmonization process, thereby enabling the Liberal government to renege on its promises. This also creates some unfairness or inequity.

The agreement signed with the provinces provided for $961 million in compensation to be paid to the three provinces concerned, namely New Brunswick, Newfoundland and Nova Scotia. Since Quebec had harmonized its sales tax with the GST a few years earlier, Quebec Deputy Premier, Bernard Landry, asked for some compensation. He also wanted to know the specific formula used to work out this $961 million compensation package for the maritimes and what would be an equitable amount for Quebec.

Some mentioned $1.2 billion, while others pegged the amount at $1.9 billion or $2 billion. At any rate, it is clear that, in this case as in many others, when Quebec asks to be treated as fairly and equitably as the other provinces, its demands are inevitably denied.

Between 1972 and 1974, Quebec justice minister Choquette, a Liberal minister, asked his Liberal federal counterpart, who is now the hon. member for Notre-Dame-de-Grâce, for $1.3 billion or $1.4

billion to cover costs incurred for RCMP services. Costs were incurred in all the provinces for the services of the RCMP and these costs were paid by all the provinces together, even though Ontario and Quebec made very little use of that police force.

As we all know, the RCMP has, for years, been acting as the local police force in some municipalities. All Canadians pay for this service, but Quebec and Ontario have their own provincial police forces. A claim in excess of $1 billion was made. Again, Quebec's request was rejected, even though it had been made by a Liberal government to another Liberal government. It is clear to me that Quebec does not receive equal treatment. This is again very clear and obvious with the harmonization of the GST.

Why, when the maritimes decide to harmonize their tax with the GST, do they get compensation or a subsidy? This system, in a federation that is supposed to be fair, generates unfair competition.

Recently, during Team Canada's trip to Asia, the premier of New Brunswick used some of the tax benefits related to the $400 million in compensation his province will receive to attract Quebec and Ontario businesses to his province.

This, to me, is unfair competition. When federal money is used by a province to attract businesses from another province that does not enjoy the same tax benefits, it can only be called federal unfairness. And Bill C-70 is a good example of that.

I also want to discuss certain technicalities. It was mentioned that an harmonizing process had taken place and that there would be a four-month adjustment period, so that the tax could be integrated into the price of the goods or services being sold. You will remember that, around October or November 1994, when they were still saying that the GST would be abolished, that it was unacceptable to try to hide the GST in the cost of goods or services, that Canadians had to know how much tax they were paying, so they could see what the government did with their taxes.

The Liberals are now singing a different tune; they want to hide the GST in the price of goods, which is just the opposite of what they used to say. In any event, from what we can see, this government often does the opposite of what it says, and here we have the proof once again. I like to think, I am even certain, that when another election is held the public will remember false promises, hollow commitments that are not being respected.

All we have to do is look at the distinct society issue, the wonderful declarations of love at Verdun just before the referendum, this promise to scrap the GST, how the government is being run, and so on.

Or even look at the Somalia inquiry, and their assurances that they would get to the bottom of things. This even came up in oral question period. It is certain that we will never get to the bottom of things in the little time remaining, because the Department of National Defence and the armed forces have boycotted this inquiry for almost a year so as not to provide it with information. They are boycotting the inquiry. They are getting ready for an election. They hope to bury the promise to scrap the GST. They are winding up the Somalia inquiry. They tried to cover up the tainted blood scandal. They are spending millions to solve the Pearson Airport problems. They even settled out of court with the former Prime Minister in the Airbus affair.

They are busily getting ready to bury all the issues they have not really delivered on, or that involve promises they want Canadians and Quebecers to think they have kept when they have not.

I do not think these misrepresentations or supposed solutions are going to wash with the public.

I would like to add in closing that companies such as Sears Canada, Canadian Tire, Woolworth and others in the maritimes which also do business across Canada point out that, if Bill C-70 is passed as it is, despite the Liberals' becoming aware at a certain point that the bill had been prepared in such a rush that 113 amendments had to be made-and even then there was not enough consultation, it was done too quickly-they will have to prepare a product pricing system for provinces where there is harmonization and another for those where there is not.

When we think about the fact that the Canadian federation was supposed to have a certain efficiency across its entire territory, how can it be that, within different areas, standards are established which do not apply to all locations? That is somewhat what we are experiencing with this bill. When these companies attempt to have a price with tax and a price without tax for the period of transfer to the provinces where there will be no harmonization, they will be forced to make new catalogues or to set up some new system.

We should not forget, when this measure comes into force, that the government mentioned a transition period of four months with respect to services. When a lawyer, a notary or a labourer advertises an hourly rate, like a notary who works for $100 an hour, he may include the HST, the harmonized sales tax. In that case he would indicate $115, while his competitor, since he has three or four months to adjust to the situation, can simply advertise a fee of $100 an hour.

There are other examples. A plumber or an electrician who works for $25 or $30 per hour has the option of including or not including the tax, for a certain period of time. Imagine the

administrative headaches for all these small businesses, and meanwhile, the consumer who tries to make sense of it all.

I am sorry, but I think this bill was drafted far too quickly, without sufficient consultation. Large companies like Sears say that it will cost them several million dollars more to make adjustments in the catalogues that are distributed across Canada. Parliament should at least think twice before adopting this kind of legislation and make sure that all intervenors agree.

The Bloc Quebecois has repeatedly pointed out that not enough time was allowed for debate. Just 24 hours before we started second reading, 13 amendments were brought in. Now we have 113 amendments. We had only three days of public hearings. The government decided that was enough. Enough said about the GST.

It is time the public was aware of all the so-called promises that were not kept. And when they are not prepared to admit they made a mistake, they create a diversion and try a different strategy.

In concluding, I want to say that the public will judge this government on the commitments it was not prepared to keep and its lack of respect for all intervenors who came to discuss this bill but did not have sufficient time to express their views.

Excise Tax ActGovernment Orders

3:15 p.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, the member who has just spoken on behalf of the Bloc has raised the issue which the Bloc has raised since the outset of the discussion on the harmonized sales tax, which is the demand for compensation.

I want to ask the member if he is aware of the input tax credit situation with regard to the provincial component. The fact is that Quebec effectively harmonized its federal and provincial taxes some time ago. By moving toward a common base it has effectively broadened the tax base for the provincial side and is now taxing more at a provincial level which means that it has the same impact as tax points or the transfer of tax points to the ability to tax.

On that basis alone, it would appear to me that the taxing authority within the province of Quebec because of the harmonization move has generated it billions and billions of dollars of additional revenues which it otherwise would not have received. Would the member not agree that the harmonization in Quebec, which was done some time ago, has generated billions and billions of dollars to the provincial coffers which were not available to other provinces?

Excise Tax ActGovernment Orders

3:15 p.m.

Liberal

David Walker Liberal Winnipeg North Centre, MB

Mr. Speaker, on a point of order.

Excise Tax ActGovernment Orders

3:15 p.m.

The Speaker

Before giving the floor to the hon. member for his point of order, I want to ask whether he heard the question?

Excise Tax ActGovernment Orders

3:15 p.m.

Bloc

Jean-Marc Jacob Bloc Charlesbourg, QC

Yes.

Excise Tax ActGovernment Orders

3:15 p.m.

The Speaker

The hon. member for Winnipeg North Centre.

Excise Tax ActGovernment Orders

3:15 p.m.

Liberal

David Walker Liberal Winnipeg North Centre, MB

Mr. Speaker, the parliamentary secretary to the House leader started off after question period and there was confusion about reverting to Routine Proceedings. We just got that confusion cleared up. There is a committee report to be presented which now has the unanimous consent from everybody to be presented. There is a committee meeting starting in a few minutes.

I wonder if I could have the indulgence of the House to revert to Routine Proceedings with the consent of the House and present the committee report now.

Excise Tax ActGovernment Orders

3:20 p.m.

The Speaker

With the consent of the House we can do anything. You understand what the hon. member is requesting. Does the hon. member have agreement to put the request?

Excise Tax ActGovernment Orders

3:20 p.m.

Some hon. members

Agreed.

Excise Tax ActGovernment Orders

3:20 p.m.

An hon. member

No.

Excise Tax ActGovernment Orders

3:20 p.m.

The Speaker

The answer is no.

Excise Tax ActGovernment Orders

3:20 p.m.

Bloc

Jean-Marc Jacob Bloc Charlesbourg, QC

Mr. Speaker, in response to the hon. member's question, I must say it is, once again, going overboard a bit to say that harmonization has generated billions and billions of dollars for Quebec's coffers.

Yes, I am aware that some input taxes are reimbursed, but as he said himself, Quebec had to raise corporate taxes to compensate. Businesses have been taxed more heavily than in the other provinces, contrary to the situation in the maritimes, thanks to the compensation and subsidies they are given.

Furthermore, I think it is completely wrong to say, as the hon. member has, that harmonization has generated billions and billions of dollars for Quebec's coffers. What has happened is that all of this harmonization has been done at the expense of small and medium sized businesses, with no financial assistance, as well as at the expense of the Government of Quebec.

I would like someone to give me an explanation. The GST was, and still is, 7 per cent, and that portion goes to the federal government, as in the maritimes. When there is talk of having harmonized the GST, that is not totally true. It is still 7 per cent, except that the provincial sales tax has been harmonized with the GST. If we look at Newfoundland as an example, its sales tax was 13 per cent, which was brought down to 8 per cent in order to make a harmonized tax of 15 per cent. The shortfall in provincial tax will be made up with equalization payments.

Is this what they call harmonization? The federal government will make up the shortfall in provincial taxes with equalization payments. That did not happen in Quebec with respect to input taxes, because there were exceptions in that area.

I believe it is totally erroneous to state that harmonization has generated billions and billions of dollars for Quebec's coffers. To be fair, since $961 million was paid to the maritimes, the same compensation would have to be offered to Quebec. Moreover, last August, when the provincial premiers met in Jasper, they were all in agreement that, if there were harmonization, compensation would have to be equitable for all provinces, but that is not what is being done.

Excise Tax ActGovernment Orders

3:20 p.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

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.

Excise Tax ActGovernment Orders

3:35 p.m.

Progressive Conservative

Elsie Wayne Progressive Conservative Saint John, NB

Mr. Speaker, I have a couple of questions for the hon. member.

Just today I received a number of phone calls in my office here in Ottawa from people in Saint John, New Brunswick about the HST. The one that I received prior to coming to question period was that this gentleman, Mr. Phillips, had received a bill already for his HST on his safety deposit box which he never had to pay before.

I would like to know from the hon. member how the government can justify charging this when the bill has not been passed in the House, when the premier of the province of New Brunswick has not agreed. They have not reached an agreement and yet even with having not reached an agreement with our premier they have already given to him X number of millions of dollars. That was done a long time ago and the auditor general said that this is not proper, this is not right and this should not have been done. Yet we are still doing it.

I would like to know from the hon. member if he is aware of the anger that exists. The hon. member referred to anger about the GST. Is he aware of the anger that exists? Is the hon. member aware that people are very upset in Nova Scotia, New Brunswick and Newfoundland?

I could buy a fur coat cheaper today because of this bill that will be passed probably tonight but a mother who is having a difficult time and a mum and a dad who have to buy the little snowsuit for the child will pay more. This is what is happening and people are really hurting.

I do not know if the hon. member is aware that insurance companies which sell segregated funds, like mutual funds, and if they are headquartered in those three provinces, the fund management service will be subject to HST for the very first time in those three provinces. The cost in the first year is estimated to be $350,000. In subsequent years the cost will be $100,000 more. We are hearing from everyone that anyone who is now looking for mutual funds will go outside the three provinces.

I do not know if the hon. member is aware that my board of trade, my business people in Saint John, who are real responsible people, have gone to the province. They have gone all over the province talking to the other boards of trade members because they are so concerned.

Is this member aware of what was done when the last government was in power, when the House of Commons finance committee looked at the proposed GST in November 1989? The Liberals said in this House: "Since it would be easier for the government to raise the GST rate in the future, if Canadians were not aware of how much tax they were paying at the moment, it is imperative that the GST be visible. The Liberal members cannot support a hidden tax". Then they stated: "Canadian taxpayers have a right to know what taxes they are paying. Any reform of the tax system should be designed to help Canadians understand how much and to which level of government they are paying their taxes".

They stated: "The sign of the times is that so long as we have a tax that is hidden from the consumer we are going to have problems that are a lot more serious than we understand".

This is all in Hansard . Can the hon. member tell us how he can justify standing up and supporting it when his colleagues who were then in opposition opposed a hidden tax at all times?

Excise Tax ActGovernment Orders

3:40 p.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, there is a number of questions there which I thank the member for. I will answer them in reverse.

The first question is with regard to the hidden tax. The member may have missed the last half of my speech in which I explained tax inclusive pricing. I said that the invoice or the cash register slip would show the breakdown that she has asked for. That question has been dealt with. The information is there.

I personally oppose hidden taxation as the FST or the manufacturers' sales tax was. Now we have a perfectly visible tax. The member would agree that consumers make their purchase decisions based on the price they see on the shelf. It is important that consumers do not get that shock at the cash register. But I agree with the member that it is also important that the amount of tax to each level of government is currently shown on the documents, and that is what the bill proposes.

Regarding the second question, it depends on the mechanics. People in Newfoundland are presently paying a 19 per cent combined federal and provincial sales tax. That will be reduced to 15 per cent. That is a 4 per cent reduction, almost a 20 per cent reduction in the amount of taxes they will have to pay on each purchase.

On top of that, if the member had listened to the first part of my speech when I talked about the provincial input tax credit, which is now 30 per cent of all the provincial taxes collected-actually taxes on taxes-she would know that businesses are going to get a 30 per cent reduction in the provincial sales tax costs formerly included in their products. This means they should be able to pass on lower pricing.

The bottom line is if businesses are responsible and pass on the sales tax savings, the input tax credit savings on the provincial component to the consumers, not only will Newfoundlanders go down from 19 per cent to 15 per cent but that 15 per cent will also be applied against a lower base.

Concerning the final question of why there is HST on a bill, the legislation is effective April 1, as the member well knows. Pursuant to the legislation that means any services that cross over that period of April 1 will have to be charged the HST. The billings have gone out at the time because they are usually billed on an annual basis and it is a prorated amount from April 1. Should the legislation not go forward, that would not be payable or it would be refundable.

Excise Tax ActGovernment Orders

3:40 p.m.

Reform

Jay Hill Reform Prince George—Peace River, BC

Mr. Speaker, I cannot understand the attitude of this member of Parliament. During his speech he suggested that the reason the Canadian people are so upset with the GST is, as he said, this in your face taxation

where they were aware of it every time they went to purchase something.

If that is how out of touch this member and his Liberal colleagues are with the Canadian people then they deserve to get turfed out of office, as I am sure they will following the next election.

The simple fact is Canadian people are upset with the GST because it is another tax and they are taxed to death. They are upset especially in light of the fact that there have been promises associated with the GST ever since the Tory government brought it in. At that time the Tories said that they would only use it to pay down the national debt. They would create a debt retirement fund and all the GST revenues would go into that. Canadians now know that is not true. That is not what happened.

Therefore, I would submit to the hon. member that he has completely missed the point concerning why Canadians are upset with the GST.