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House of Commons Hansard #138 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was cpp.

Topics

SupplyGovernment Orders

4:35 p.m.

Liberal

Marcel Massé Liberal Hull—Aylmer, QC

Mr. Speaker, unfortunately a practice the third party uses is to try to confuse people with figures and with questions unrelated to the main subject.

What is really important is that we have made a reform that Canadians want. We have made it with the support of eight provinces representing the vast majority of Canadians. We have made it after public consultations that permitted all Canadians to express their points of view. We have finally reformed the Canada pension plan. We have made sure that young people like those who are in the gallery will be able to collect these pensions when the time comes.

That is what good government is about.

SupplyGovernment Orders

4:35 p.m.

Bloc

Paul Crête Bloc Kamouraska—Rivière-Du-Loup, QC

Mr. Speaker, before discussing the pertinence of the Reform Party motion, it might be worthwhile to point out that the Canada Pension Plan does not apply in Quebec, which has a parallel plan, the Régime des rentes du Québec. It compares very favourably with the Canada Pension Plan. Moreover, the current recommendations by the federal government take into account the way the Quebec plan has been administered, and the way it ought to be administered in future.

The Reform Party motion makes what seems to be a rather demagogic association between the Canada Pension Plan and the MP pension plan. If we must debate the matter of the MPs' pensions, fine, but these are two very different matters. What needs to be done in connection with the Canada Pension Plan is to assess whether the recommendations made by the government that are to be implemented are indeed necessary, pertinent and essential.

This pension plan has not been modified for some years, and today it differs greatly from what it was like initially. For one thing, the modifications to the plan must reflect our changing demographics.

Care must also be taken to ensure equity in the way the pension fund operates. At the moment, the plan covers the entire baby boom generation, those between 35 and 50 years old, like myself, and if nothing is done to change the plan, they will benefit from a far better plan than the one they have contributed to. Corrections are necessary. The people who are between 35 and 50 and who will be retiring in 10, 15 or 20 years will have to have contributed enough and we have to ensure, through increased contributions, that this is indeed the case.

On the other hand, an aspect of the government's position should perhaps be corrected and it will be perhaps at the stage bills are considered. We could have contemplated a significant reduction in unemployment insurance premiums and permitted a quicker short term increase in Canada pension plan contributions. As the result, today's young people would not have to bear the burden of the need to refloat the plan for so long.

Any reduction in unemployment insurance premiums would allow for an equivalent increase in Canada pension plan contributions. This approach would not create a negative impact on the total payroll or on payroll taxes, which can, as we know, have an effect on jobs. This morning, I read that a study by the Department of Finance estimates the cost at 26,000 jobs. There is a whole question of balance and common sense involved here. Demagoguery must be avoided.

Such a pension plan must provide for intergenerational continuity, that is, over time, as people contribute, each generation must pay its fair share to avoid having the younger generation paying excessively for the older one.

As you know, it is now much harder than in the past to join the labour force, to find a steady and well paid job. A number of considerations must be taken into account and, in my opinion, one way to make the system more equitable and to ensure that every age group contributes its fair share would have been to make up, in part or in whole, for the increase in CPP contributions by significantly reducing UI premiums.

We must also determine whether the rate of return of this fund, the Canada Pension Plan, is adequate. The government's proposal seems to be a step in the right direction, because it is patterned on the model developed in Quebec, where the fund is invested in options involving various degrees of risk, making for an diversified portfolio and an attractive rate of return.

By contrast, the Canada Pension Plan has been used to provide financial assistance to the provinces, which may be a good thing, but the plan's rate of return is totally unsatisfactory and partly explains why we currently have an inadequate reserve and why contributions must now be increased.

With a better rate of return, like that of the Régie des rentes du Québec, the increase in contributions might have been lower, although the demographics would still have had to be taken into account. So, one cannot say that, from that perspective, the government did something that was inadequate or inappropriate.

The Régie des rentes du Québec is an example which shows that, when Quebecers have control over their money, their investments and the management of their finances, they can do as well, if not better, than anyone else in Canada, North America or the world.

Quebec's expertise is such that several of the amendments being proposed by the federal government are already implemented in the Quebec plan, or are the result of suggestions made during the consultations with Quebec regarding its Régime des rentes.

It must be remembered that, in the 1960s, the Government of Quebec, which was then headed by Jean Lesage, had a certain expertise in economics. Experts like Jacques Parizeau and Bernard Landry were there at the time to advise the government. All these people helped develop a system whereby Quebec was able to accumulate a fairly large amount of money and, more importantly, a system Quebecers can now be proud of, in spite of a few minor flaws. With this system, a number of Quebecers start receiving a pension at a time when they are not yet eligible for an old age pension, so that Quebecers in general, at the exception of women at home unfortunately, receive directly a decent pension.

Quebec does have a reason to be proud. This is one system that can be held up as a model, and it is not the only one. The Caisse de dépôt et de placement, which manages these pension funds, and the Fonds de solidarité des travailleurs are other examples of various economic initiatives taken by Quebec that enable us to manage our money in a reasonable fashion.

These remarks are an indication that, were the Reform motion votable, the Bloc Quebecois would be voting against it. It says in part "that this House condemn the government for requiring Canadians to pay over 70 percent more in CPP premiums". Let us look at the reasons for this increase. Can we afford to ignore the problem and not to bail out this program, if this means the program will run out of money 10, 15 or 20 years from now?

I think this would be one way to go for Canadians affected by the plan because, as I mentioned at the start of my speech, Quebec is not covered by the CPP. It has its own plan, the Quebec pension plan. I think that, if the amount in the CPP dropped and was not replenished, Canadians would think that their government had acted irresponsibly and for this reason the measures tabled must be considered.

When people say it increases the impact on payroll taxes, and I mentioned this earlier, yes, it is true that it will have an effect. Care must be taken to ensure that this effect is minimal. My proposal to decrease UI premiums by a corresponding amount is perhaps something that could be considered and included as an amendment to the initial government proposal, so that the negative effects of the plan on employment could be kept to a minimum.

Comparing it to the MPs' pension plan begins to sound more like grandstanding, in my view. There is not necessarily any connection between the two. I think the CPP has to be looked at separately and care taken to ensure that it is an effective plan. In this regard, there are a number of points to consider.

Let us look, for example, at the proposed measures. They say that none of those now in receipt of survivors' and disability benefits or both, nor those aged 65 and older as of December 31, 1997 will be affected by the proposed changes. This is to protect the elderly. Is it being done with an eye to the upcoming federal election? The government may have had this in mind, but at least it

ensures some security for seniors and does not change the plan to which they contributed. I think this is acceptable.

In addition, they say that all CPP benefits will continue to be fully indexed to inflation. This is good news, because the federal government is following in the steps of the Quebec pension plan. The same is true for age of retirement. Whether it is the usual age, earlier or later, things will remain unchanged. Here again, they have followed the lead of the Quebec pension plan.

There is another similarity with Quebec. The fund now consists of two years of benefits owing. They want to increase this to a reserve of five years. That seems reasonable to us. Contribution or premium levels will also rise over the next six years, to 9.9 per cent in 2003, after which they will remain stable. This insures the viability of the plan. Certainly, it is never a big thrill to have to pay into a plan, but when people see the advantages it can have for them in future, in Quebec at any rate, this is something on which there is going to be a consensus, I believe, and something which people are quite prepared to live with.

There is, however, one aspect that is bad news and ought to be looked at by the government. It ought to try to find a new approach to this aspect, which is the new way of calculating to be applied to the combined pensions of people receiving both disability and survivor's benefits, or retirement and survivor's benefits. This is very bad news indeed, and I invite the government to examine it closely. This situation here is more or less the same as with the American pensions at the moment.

I will give you the example of a lady who receives a survivor's benefit because her husband is deceased. She becomes disabled, and is eligible for disability benefits. Under the present plan, this lady receives two full benefits, which is understandable, since a person who is experiencing such difficult circumstances does not deserve to have them made more difficult economically. Yet the new rules will place a ceiling on the amount this person can receive. That could mean receiving benefits of $800 a month, instead of $1,200.

I think this is a point on which we ought to do battle, in order to ensure that such an unfair situation is not created by the bill. It is unfair to penalize people who are victims of such misfortune in this way. If a person has lost his or her spouse, and then becomes disabled as well, I believe that he or she is entitled to a minimum of financial security, and cutting that person's income is not the way to go, in our view.

We are also told that eligibility for disability benefits will require greater participation in the work force. The person will need to have contributed for four of the six years preceding application for benefits.

In Quebec the plan is a little more generous: its requirements are for two of the last three years or five of the last ten. I think we will have to wait and see what the witnesses who appear before the finance committee will have to say about the consequences of this measure. It would seem to eliminate a number of contributors who will get nothing in return for what they paid. We must look into this.

For instance, someone who paid contributions for three years of the last six before his application for benefits is not eligible, which means he paid contributions but is not eligible for the plan's benefits. I think that is intolerable, and the same applies to the employment insurance reform the Liberals introduced.

This reform means that people who regularly pay their employment insurance premiums, especially those entering the labour market who have worked less than 910 hours, these people, after paying 600, 700 or 800 hours worth of employment insurance premiums will not be eligible for employment insurance.

This is intolerable, and I think that as far as the Canada pension plan is concerned, the government would do well to avoid making the same mistake.

A good thing about the Canada pension plan is the fact that Canadians will receive an annual statement of their Canada pension plan account. I think this is a way to make people responsible. They can see how much money they put in, they can plan for their retirement and ask how much they will get in benefits, how many years they still have to contribute and what impact this will have on their budget. I think this kind of specific information will be very useful to the various users of the plan.

It seems there will also be a federal-provincial review every three years instead of every five. This is a good thing. In fact, the Quebec government agrees. It means we will be able to keep a close watch on how the plan evolves and make adjustments as problems arise.

What we learn from the history of these funds-the Quebec pension plan and the Canada pension plan-over the past 20 years, is that from year to year, from one government to the next, there has been a tendency to postpone any decision making. Today, we are forced to accept a major increase in premiums. If there had been the same obligation in the past to review the plan every three years, we might have had a chance to make adjustments more regularly and it might not have been necessary to make such drastic changes. I think it would be useful to be able to operate this way.

The Reform Party's motion may have its merits as an attention getter, but it should be examined in greater detail. This is not about minor details. We are talking about some very important issues, about a pension plan that has existed for many years and will have a future for many more decades, about important decisions, and to

associate this directly with the way members of Parliament are treated smacks of grandstanding, in my opinion.

We need to turn a critical eye on the Canada pension plan. Among other things, we must ensure that performance is improved and that, if performance is improved and if the funds created perform well, the plan contributors benefit.

In this regard, even though the minister assured us earlier that this plan accrued separately, we cannot have a surplus of billions and billions of dollars accumulating as in the unemployment insurance fund. We will end up with $12 billion, $18 billion or $20 billion in an insurance plan where people contribute and employers and employees have no control over the surplus. What happens to the surplus? Will premiums be reduced?

The same thing must not happen in this plan, if its economic situation is improved.

In conclusion, the Canadian retirement income system has three pillars: the Canada pension plan, the old age security and the guaranteed income supplement. We have no strong reason for opposing the proposed reform, on the contrary, except for the points I mentioned earlier, including the benefits for persons on disability and survivors. It must complement the other pillars, like the guaranteed income supplement and the tax incentives for retirement savings.

A person earning $100,000 and paying into an RRSP will save $313 in federal tax, whereas a person earning $30,000 will receive $175, which we do not consider much of an incentive. We proposed a standard tax credit of $268.

In conclusion, the motion is not votable, but we do not think it is acceptable as it stands. If there had been a vote, the Bloc would have voted against the motion, because it lacks the sense of responsibility needed in the development of a plan like the Canada pension plan.

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4:55 p.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, I would like the opinion of the member. He twigged something for me when he made a statement about ensuring that various groups do their fair share in contributing to a plan.

I read one statistic in the Financial Post which indicated that today's pensioners are receiving $8 benefit for every $1 they put into the plan. Clearly this raises questions about what is fair and for whom. I will leave that very simple question and ask the member if he could put it in the context of his speech.

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4:55 p.m.

Bloc

Paul Crête Bloc Kamouraska—Rivière-Du-Loup, QC

Mr. Speaker, with a pension plan such as the one before us, in order to see if it is fair we must consider two main criteria, one of which is fairness, based on the type of people who benefit from that plan, because all kinds of situations must be anticipated. Some people will receive their pension benefit simply because they have reached pensionable age, while others will receive benefits because they are in a particular situation, including people with disabilities and surviving spouses.

For example, when one member of a couple dies and the surviving member keeps the house, the costs involved are the same as before, even though there is only one occupant. So, there is an issue of fairness that must be taken into account, based on the social values of a country such as Canada, in Quebec or any other province.

The other criterion regarding the fairness in the rate of return is whether or not the plan grew adequately. If people contributed to the plan, but the government did not manage to get optimum benefits from such contributions, it will not be in a position to pay an adequate amount. This is why sending statements to each contributor to the plan, so they know what is going on, and receiving progress reports on efficiency and profitability are part of the assessment process of the rate of return. The $1 to $8 ratio does not automatically mean the gain is satisfactory.

It may be that better management of the plan would have resulted in $10 being paid to the member, instead of $8. Or was $8 the maximum achievable? We must look at these factors.

Fairness and efficiency are definitely the two criteria that must be taken into account when determining whether the plan is satisfactory.

A major consideration for 1997, and for future years, is the issue of intergenerational fairness, of fairness of treatment between young people and older people. This issue involves many aspects. I discussed it with the hon. member for Témiscamingue, who is lucky enough to be part of the first group, the young people. He told me that, as things stand, a 25 year-old person will have to contribute during all his productive years at a rather high rate. That person will always pay a rather significant amount. However, if the government had reduced UI premium rates, while rapidly increasing contributions to the Canada pension plan, people who currently contribute to the plan, but who are 40, 45, 50 or 55 years old, would have shouldered a greater burden, because they would have contributed more than young people.

So, these considerations must be looked into. We must not forget that those who already receive benefits under the plan will not be adversely affected. They are entitled to the plan, and this is fine. However, we could do more for young people.

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5 p.m.

Reform

Ian McClelland Reform Edmonton Southwest, AB

Mr. Speaker, I am always touched by the irony when members of the Bloc stand up in the House of Commons and defend the right to take a pension from Canada, "but by the way we want to take the province of Quebec out of Canada". It may escape members of the Bloc but I assure you, Mr. Speaker, it does not escape the people where I come from.

The point I want to make to my colleague from the Bloc is that in order to have the moral authority to ask other Canadians to tighten their belts, we as Members of Parliament must first tighten ours. We are asking Canadians to pay twice as much for less. Yet we think it is quite all right for us to go along merrily as we have in the past.

My question relates to the different vision that we have of Canada. This does not make one right or another one wrong. It is just different; the collective nature of Quebec and the fact that Canada pension plan premium increases have not struck a resonant chord in Quebec. I would ask my colleague to think about the 45 per cent of Canadian businesses, as reported by the Canadian Federation of Independent Businesses, that say payroll taxes are a major disincentive to hiring. Unemployment, particularly among young people, in Quebec is a disaster. What affect will this payroll tax increase have on employment in Quebec?

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5 p.m.

Bloc

Paul Crête Bloc Kamouraska—Rivière-Du-Loup, QC

Mr. Speaker, I must say I have no problem with members of the Bloc Quebecois receiving a pension from Canada, because I was elected by the people, by 54 per cent of the voters in my riding. They voted for me thinking that sending me here was the best way to have a voice in the Parliament of Canada.

As far as I know, Quebec is a part of Canada and I have an employer in Canada. The plan does allow members who wish to do so to opt out of the plan. This is an optional plan. Therefore, I do not think this should be challenged.

My first allegiance is to those who elected me, who chose to be represented by a member of the Bloc Quebecois. The fact that 53 or 54 of us were elected to this place seems to indicate that things are not all going well in Canada. I think that it will be up to the people to tell us, in the next election, whether they are still happy with the job we are doing here. Everything is out in the open, and they will decide accordingly.

To answer the second part of the question, about unemployment, I would like to point out to the hon. member that, in my remarks, I suggested that UI premiums could be reduced very quickly and this reduction compensated in whole or in part by an increase in CPP premiums. In Quebec, choices will have to be made in that regard and there is a need to be able to assess the actual impact of such a measure, whether it will be 1 per cent, 2 per cent or 3 per cent.

In both Quebec and Canada, one thing is sure: when people grow older, they want to know that they will have a decent pension and so will the younger generations. Younger people too want to be able to count on getting a pension. A balance will be struck through appropriate consultation. More work remains to be done, and I do not think it would be appropriate, at this time, to condemn the proposed changes. Close scrutiny is required to ensure the plan is the best it can be, so that 15 or 20 years down the road, we can look back and say that the governments acted responsibly on this issue.

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5 p.m.

The Deputy Chairman

Before turning the floor over to the member for Edmonton Southwest, it is my duty pursuant to Standing Order 38 to inform the House that the questions to be raised tonight at the time of adjournment are: the hon. member for South Shore, the economy of Atlantic Canada; the hon. member for St-Boniface, the CBC; the hon. member for Lambton-Middlesex, the Pest Management Regulatory Agency.

SupplyGovernment Orders

5 p.m.

Reform

Ian McClelland Reform Edmonton Southwest, AB

Mr. Speaker, this is a particularly important debate for all Canadians, particularly younger Canadians. During the course of the debate, I hope I will be able to make five points. The first point would be that the Canada pension plan, even as it has been restructured, which admittedly is better than it was, is a poor investment for all contributors but it is particularly poor for younger Canadians.

I would also like to make the point that payroll taxes are, in the words of the current Minister of Finance, a cancer on job creation. They are a cancer on job creation to the most vulnerable people in our society, the last hired and the first fired. It is a cumulative effect of payroll taxes. I do not care what name we use to disguise it, if it is a contribution or a mandatory payroll deduction it is a tax and it is a cancer on job creation. It is something that we, as members of Parliament in this legislature and all legislatures across the country, have to mitigate. It is our responsibility.

I would also like to make the point that the plan continues to be irresponsible. It continues to be a pay as you go plan. It is a defined benefit plan that defines the benefit that contributors will receive but the benefit does not have a direct relationship to the amount that is paid into it.

I would also like to make the point that unless the contributions to the Canada pension plan receive a substantially higher return, and in view of the changes to pension planning for all seniors brought about by the change to the seniors benefit, the change to OAS and GIS, old age security and the guaranteed annual income

supplement, which will now be the seniors benefit, virtually everyone will see half of their Canada pension plan taxed back.

In the year 2001 when the seniors benefit takes effect all single seniors in our country turning age 65 will receive $11,420 per year tax free. However, any additional income, including pension income and the Canada pension plan, will be taxed back at 50 per cent. That means that unless pension income over the working life of the taxpayer generates a much better return on investment, it is going to be virtually totally taxed back anyway.

The last point I want to make is there is a direct relationship between the pension plan for members of Parliament and the Canada pension plan and the increases to the Canada pension plan.

I thought long and hard before I opted out of the MP pension plan. It is a very lucrative pension plan. My being here is going to cost me and my family down the road. However, I thought we as members of Parliament were in a particularly difficult time. We all knew it and everybody in the country knew it. It was only way that we could have the moral authority to say to Canadians that it is necessary for all of us, every single Canadian, young and old, to make a sacrifice because we must leave our country in better shape for our grandchildren than we found it.

The only way that we could have the moral authority to do that would be to be the first people to take a hit. We had to demonstrate that we were not going to ask people to do as we say. We were going to demonstrate that we would ask people to do what we have done and to show leadership. That is what this is all about. It is not a question of being holier than thou and wearing a hair shirt. It is a question of having the moral authority to ask Canadians to tighten their belts because we have a responsibility in our generation to leave our country in better shape for our grandchildren than we found it.

When our children and grandchildren have the opportunity to pay a Canada pension plan tax of 10 per cent of their income, they will at the same time, as we all know, also have the opportunity to pay taxes to support a $600 billion national debt.

This is the legacy that we leave our children and our grandchildren. We leave an unfunded tax liability on the Canada pension plan of $600 billion, and the very generations of Canadians that put that responsibility on the shoulders of their children and grandchildren are also leaving future generations of Canadians with a $600 billion debt.

Unemployment in our country is at historic high levels. We have had the highest sustained levels of unemployment since the depression. At the same time we are greatly increasing payroll taxes. Payroll taxes, by every objective standard and by every commentator, are acknowledged to be killers of jobs and employment.

If we were to collapse the Canada pension plan today, current and future taxpayers would still have to pay approximately $600 billion in accrued pension benefits which we are liable for that have not yet been paid. That unfunded liability is equivalent to our $600 billion national debt. It is something that parliamentarians for the past 30 years have been very uncomfortable in addressing. Instead, we have increased the contribution rate to build up a fund over five years instead of two, while maintaining a pay as you go dimension to the plan. Pay as you go means that each succeeding generation will pay the benefits of the generation which preceded it.

Somewhere down the line, at some time, someone is going to have to make good on these pension promises.

We overlook the fact that in Canada, if the pension plan were to collapse tomorrow, annual premiums would still be required to pay for the $600 billion of accrued benefits. When we view a proposed 6 per cent premium in 1997, 6.4 per cent in 1998, 7 per cent in 1999 and 9.9 per cent in 2003, we should be aware that the promise that premiums will be frozen at 9.9 per cent must be considered suspect. After all, if full funding of the benefits of a completely collapsed plan would cost 8 per cent or 7 per cent annually, how can 9.9 per cent be viewed as stable when the unfunded liabilities will continue to increase?

During question period over the last couple of weeks I have put that question directly to cabinet ministers. Of course the question has not been answered. I have asked cabinet ministers when the CPP premiums hit 9.9 per cent, will the government guarantee that there will be no further increases in pension plan premiums or decreases in benefits. The reason that question was not answered is they cannot answer it. They have no idea. I suspect, however, that we will see that happen.

When the plan started in the mid-sixties the contribution rate was 3.5 per cent. Then it went to 5.65 per cent and it will go to 9.9 per cent. Therefore it is reasonable to assume that rates will continue to increase.

Also at issue is the timing of the increase. Is our economy sufficiently healthy that employers will be able to pay the increased premium of $1,300 and continue to increase employment? At the same time, the employment insurance fund has a great surplus. This is the link between the payroll taxes of employment insurance and the Canada pension plan premiums that kept Ontario out of the mix for so long.

I know the government says Ontario came on board because it managed to wrestle from the government a 10 cent decrease in unemployment insurance premiums for a corresponding $4 increase in Canada pension plan premiums. I doubt very much whether that is a victory people will hear the Ontario government crowing about very long.

I point out once again that this is being done at a time when one in 10 Canadians are unemployed, when many are under employed and 17 per cent of young Canadians are unemployed. They are the people who will be hurt most.

Whether people call the increase in the Canada pension plan premiums a tax or a pension contribution, it is still a compulsory cost to the employer which raises the cost of creating a job.

The government insists that the 9.9 per cent tax is not a tax but an investment. Therefore, the government believes it is not reasonable to speak of the disastrous effects the Canada pension plan rate increase will have on employment. I submit that it is a false argument.

Unless we, as members of Parliament from all sides, are able to look at the problems that face the country honestly, unless we are able to deal with things as they are and not as we would wish them to be, how can we ever make them right? How can we possibly fool ourselves into thinking that a mandatory deduction that must be taken and paid by every working Canadian is not a tax?

Only two people in the whole country believe it is not a tax. Unfortunately, those two people are the Prime Minister and the Minister of Finance. Perhaps the Parliamentary Secretary to the Minister of Finance who has worked so hard at putting the changes to this Canada pension plan together, does not believe it is a tax either. I hope history will judge him fairly and with considerable compassion.

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5:15 p.m.

Reform

Leon Benoit Reform Vegreville, AB

He will need the compassion.

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5:15 p.m.

Reform

Ian McClelland Reform Edmonton Southwest, AB

He will need it. Much of the political and social disagreement concerning the Canada pension plan could be addressed through creating options. This is the area where the Liberal government has let us down. The government has the responsibility of leadership, not just patching over the cracks.

If it took over 30 years to get where we are on this road with the Canada pension plan, with the $600 billion deficiency, why in the name of heaven would we spend another day going down that road? Why would we want to patch over a plan that was flawed right from the beginning? People knew it was flawed. Why would we not use our best efforts to make this plan work much better for succeeding generations? That has to be the elemental question. Why put a band-aid on it? Why not do what needs to be done to fix it properly?

I mentioned earlier in questions and comments to other speakers that the Canada pension plan became a honey pot of money and entitlement that politicians found irresistible, rather like flies to honey.

The disability take up on the Canada pension plan has been surprisingly high over recent years. That is not terribly surprising because the take up rate on Canada pension plan disability has a direct correlation to the job market. When jobs are scarce people do what they have to do to survive.

One of the things that people have done, and that is why the take up rate on the disability side of the Canada pension plan is so high, has been to use it to provide an alternate source of income. Once this availability was established, government cannot turn on a dime and tell people it is sorry but the plan is no longer available.

Since the auditor general's report identified this as a particularly difficult problem for the Canada pension plan, the policing of the disability entitlement has been much more severe. As I mentioned earlier, over a 10-year period the Canada pension plan had a 92 per cent increase compared with the Quebec pension plan which had only a 2 per cent increase.

The disability community, persons who have long term, systemic disability, did not want the Canada pension plan disability tampered with because, quite rightly, it said that it has problems enough protecting itself from the ravages of the cuts to the Canada health and social transfer. To the credit of the government, the report on persons with disabilities by the member from Fredericton addresses some of the concerns very well.

There is a very real difference between Canadians who are in systemic, long term disability into which they are born or have suffered a tragic accident and people who take up disability because it is part of the pension plan privileges. We have combined the two. In hearings with persons with disabilities they would prefer not to be combined but they do not want to rock the boat now.

In my view, it is our responsibility to protect persons with disabilities. That is part of our common wealth. That is part of our responsibility one to another. That is how through our own independence our interdependence is strengthened. However, the two should not be confused. Insurance is insurance. The Canada pension plan is a pension plan. By allowing the Canada pension plan to become something that it was never designed to be puts increasing stress on its ability to fund what it was supposed to do in the first place, which is to be a pension plan.

If, as a society, we need to look at funding persons with disabilities, then let us also deal with that honestly. Let us put it on the table and see how it can best be done economically and ensure that people who must take up the provisions of disability insurance get into and out of the program.

That has been duplicated already because every province has a workers' compensation board. The provincial and federal governments need to work together to ensure that every single citizen gets the best return on the common investment. However, they should not trickle down responsibilities from one order of government to another. Citizens should not have to shop to see where they can get support. They should not have to make a disability premium payment to an insurance company only to find that the insurance company will not pay until after they have been able to collect from the federal program.

I anticipate some well thought and well founded questions from members opposite. I hope that when they ask the questions they will keep in mind that this is a particularly poor return on investment for young Canadians who must bear the burden of the debt that they will inherit also.

I would ask members opposite to get their calculators out and tell Canadians what return would come on a 40-year investment of $1,000 per year at an average rate of return of the equity markets in Canada and tell me that is not better than the CPP deal.

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5:25 p.m.

Liberal

David Walker Liberal Winnipeg North Centre, MB

Madam Speaker, it gives me great pleasure to join this debate. I have never seen an opposition party so willing to open up its weakest flank by declaring a day to debate an idea that does not actually exist. That is one of the great travesties in this debate.

This is a very serious debate. Members are very concerned about it. One of the core issues facing our society is that of economic insecurity. The eight provincial governments and the federal government have finally answered the question of economic security in the Canada pension plan. It is a great achievement. Only three political leaders in the country would not join in: the premier of Saskatchewan, the premier of British Columbia and the leader of the third party. What a group of scoundrels. None of them are willing to live up to his responsibilities. What do they have in common? Their unwillingness to deal with the arithmetic reality that is involved in the reform of the Canada pension plan.

People have begged us from the outset to please do something about this plan.

SupplyGovernment Orders

5:25 p.m.

Reform

Ken Epp Reform Elk Island, AB

Starting in 1966 they did.

SupplyGovernment Orders

5:25 p.m.

Liberal

David Walker Liberal Winnipeg North Centre, MB

Yes. Guess who was the proudest defender of the plan? Guess who wrote to the famous John Kroeker, who the member brought up in the House of Commons yesterday, to say this is the best thing for Canadians? Ernest Manning wrote a private letter to him which said that this plan should be defended by Canadians, that this is the best way to protect workers in a modern society. It was the father of the member's leader. He should go back to his papers to find out where he was in 1965-66. The member should do his research and he will understand how this plan works. He should start telling Canadians that at 7 per cent, what will happen to that $600 billion if we do not have a Canada pension plan. What will they do, raise income tax? Will they put their hands over their eyes? What will happen to that?

Canadians will have money for their Canada pension plan by keeping their contributions down to 9.9 per cent, by sharing the cost between the employers and the employees. Do Reformers mention employer contributions in their superfund? Of course they do not. The great travesty in this whole thing is that the workers pay the 10 per cent plus they pay 7 per cent for the outstanding obligation. For 17 per cent, what do they get? A high risk mutual fund run by the Reform Party. Is the member crazy? Is he nuts? I would like to hear a response.

SupplyGovernment Orders

5:25 p.m.

Reform

Ian McClelland Reform Edmonton Southwest, AB

Madam Speaker, allowances must be made for the hon. member opposite because he has had this file for the past year and surely must be weary of it. You can tell because of the cobbled together package he has brought to Canadians.

The member opposite makes great political capital of the fact that the provincial premiers have joined them. Jesse James and his gang have come together to rob taxpayers by foisting this despicable, expensive program on the younger generation of Canadians. It is a darn good thing the Liberals foisted off the gun control first because there is no defence against the Liberals when they come charging up and start putting their hands in your pockets, you know they will go deep and it will hurt.

The government has known for 30 years that the Canada pension plan would not work. Circumstances finally forced it to cobble together the unholy alliance with the provincial governments to continue the funding for another 20 years of moneys at the long bond rate, which is what it came to us with. The government members should be hanging their heads in well deserved shame.

SupplyGovernment Orders

5:25 p.m.

The Acting Speaker (Mrs. Ringuette-Maltais)

It being5.30 p.m., it is my duty to inform the House that proceedings on the motion have expired. The House will now proceed to the consideration of Private Members' Business as listed on today's Order Paper.

Underground EconomyPrivate Members' Business

5:25 p.m.

Liberal

Brenda Chamberlain Liberal Guelph—Wellington, ON

moved:

That, in the opinion of this House, the government should continue and enhance its efforts to address the underground economy, which costs Canadians anywhere from $23 billion to $156 billion in lost revenue and wages, by working with other levels of government, industry and unions in developing a plan of action, which includes a national education campaign and increased enforcement.

Madam Speaker, Reformers came to this place stating that they would do things differently, but as we see you have to keep order and I thank you for it. When we do go to the trouble of making speeches and working hard it is nice to be able to make them and for our constituents to hear.

I am pleased to speak to my Motion No. 243 calling on the government to enhance its efforts to combat the underground economy. My motion asks that the government consider a plan of action which includes a national education campaign and increased enforcement.

As part of my work as chair of the national Liberal caucus committee on economic development I recently chaired a subcommittee which studied the issue. I was pleased to have the opportunity to work with the hon. member for Brampton, the hon. member for Vaudreuil, the hon. member for St. Catharines and the hon. member for Lambton-Middlesex who is here and will speak later to the motion.

We made a number of recommendations to the Minister of Finance prior to the 1997 federal budget and we entitled our report "Our Future at Risk". The effects of the underground economy truly place our future at risk. What is perceived by some as an anti-GST activity is in fact costing every Canadian in lost revenues for social programs, deficit reduction and worker benefits.

What is attractive to some because of what they perceive as an unfair tax system is unfair to the honest tax paying Canadian. The underground economy places our social services, our deficit reduction efforts and our very future at risk. It is easy therefore to complain about taxes and to try to avoid them. Certainly our taxes are high. However it is important to remember that taxes support health care, education, social services and public pensions.

When we participate in the underground economy we are not taking money away from government. We are taking services away from the sick. We are taking education away from our children. We are taking pensions away from our elderly. Revenue Canada believes that the causes of the underground economy includes high taxation, the perception that government does not spend its money and efficiently, the GST, and the perception of unfairness in the taxation system.

No one really knows how much the underground economy actually costs Canadians, although it is estimated somewhere between 2.9 per cent and 3.5 per cent of GDP to anywhere around 10 per cent to 20 per cent of GDP. Whether we accept the low end or the high end, government must take a more active role in combating the underground economy.

One of the most important efforts that can be accomplished immediately is education. Canadians are unaware of the actual costs of the underground economy. Many do not appreciate that it places our future at risk. Certainly no one enjoys paying taxes.

However government must work to ensure all the money owed to it is collected. We could only imagine the benefit that would be accomplished if suddenly the money lost in the underground economy were used to pay down the deficit, used to fund hospitals, used to support post-secondary education, used for our police and used to support our infrastructure. That money rather than the irresponsible promise of tax cuts could do what we need to do much faster.

Combating the underground economy will ensure tax fairness. By offering support to the honest taxpayer it will ensure the preservation of our social programs. It will speed the deficit and debt reduction demanded by Canadians in Guelph-Wellington and in every other part of this great land.

A number of federal government departments are actively working on the problem. I commend the work currently being accomplished by the Department of National Revenue under the leadership of the current minister and the former minister, the hon. member for Victoria. Eight hundred additional auditors were announced in the 1996 federal budget. The work of the department has yielded more than $1.7 billion in additional revenue for the government since November 1993, revenue that would have been lost without these efforts.

Human Resources Development Canada has undertaken a study and the Department of Finance continues to look for ways to protect the integrity of the tax system.

One of the most important ways we can combat the underground economy is through partnerships. I am fortunate to have in Guelph-Wellington a number of concerned individuals and groups, especially the building trades that are ready and able to work with government and others to help reduce the effects of the underground economy.

The federal government must work with all levels of government, industry, labour and others to find new and innovative solutions. There are, for example, a number of key associations that are directly affected, including the Canadian Jewellery Association, the Canadian Dealers Association, the trade unions, chambers of commerce, the Canadian Automobile Dealers Association, local construction associations and tourist associations.

To anyone who says that the underground economy does not affect individuals, let them speak to people like Joe Maloney and Phil Benson of the building and trades department. They know that some of their members are unemployed as a direct result of underground economic activity. In these cases the underground economy hurts us two ways. It takes away legitimate government taxes and contributions for the Canada pension plan, workers' compensation, income taxes and employment insurance. It also places the worker, someone willing and able to work, on employment insurance, adding burden to the EI system.

There is also the toll that a monetary value can never replace. It takes away the dignity of work that the individual feels when he or she is contributing to supporting themselves or their families.

Every time someone paves a driveway, installs new windows, repairs the car or gets their hair cut through the underground economy they may very well be taking a job away from a friend, a family member or a neighbour, and a job necessary to provide support for a family.

There is a human face to the underground economy and there are no simple solutions to ending the underground economy. No one has the answer that would solve this problem. Any effort requires teamwork. That is why I am suggesting a Team Canada approach to solving the problem.

Like my community of Guelph-Wellington we have to work together in order to seek solutions and, most important, to find answers. In Guelph-Wellington our problems are solved through co-operation. Recently, for example, we needed a CT scanner for the General Hospital. It was purchased because hundreds of Guelph-Wellington residents, supported by the generosity of our corporate community, worked together to raise the necessary funds for equipment that will save lives.

In Guelph-Wellington solutions are found when labour, industry, politicians and citizens work together to find them. There is no doubt that the underground economy is fuelled by a lack of trust for the way that governments spend money. Certainly there was some justification in the lack of confidence in the way taxpayers' dollars were managed.

In the nine years prior to the election of the Liberal government Canadians watched Conservative finance ministers make 33 projections of deficits. We also watched them be wrong 33 out of 33 times. Canadians watched the debt nearly triple in those nine years. All of that has changed. Confidence has returned. There is still much work to do but sanity has returned to the management of the federal government treasury. Canadians can be confident that their money is being spent on their priorities and that we are no longer sacrificing our future by overspending.

The present finance minister has listened and we are now spending within our means. A balanced budget is in sight and the debate will soon change from how much is the annual deficit to where do we apply the surplus.

I ask those who participate in the underground economy because of mismanagement to reconsider. We have turned our finances around. We have listened. Their money is being spent building the greatest country on earth.

Combating the underground economy will require building on partnerships. Once Canadians realize it is in our best interest-and I mean each and every Canadian-to ensure tax fairness we can begin to eliminate the problem. Partnerships must include all levels of government, industry, labour, community associations and individual citizens.

The industries most affected such as the building trades are the first to want to volunteer for any effort that will be successful in reducing not only the underground economy but also unemployment and underemployment among their members.

Ultimately the underground economy has a human face. It causes hardship among hard working, able workers whose jobs are taken away because some Canadians choose to avoid paying taxes. All honest taxpayers must participate in any effort to end the underground economy.

As our colleague from Hillsborough, Prince Edward Island, said to me in a letter as we were preparing the report of the subcommittee on this issue, "we should not just increase enforcement but we should address the underlying causes of the underground economic activity".

The underground economy is caused by attitude as much as anything else. We all remember when drunk driving was either accepted or we chose to close our eyes to the problem. It was a slow process to change attitudes. Groups like Mothers Against Drunk Driving that has a chapter in Wellington county helped to raise awareness to the level where drunk driving is no longer acceptable. None of this happened overnight. These efforts took time but we are now living in a society where driving drunk is not tolerated.

So it is with the underground economy. Ending the problem will not be done overnight. Vigilance must prevail. A long term strategy is required. Patience is necessary.

One of the more successful tools we have to reach out and inform is education. Some people may offer simple solutions. Certainly any promise of across the board tax cuts may be attractive in the short term but tremendously unrealistic in the long run.

I have urged both the Prime Minister and the Minister of Finance in their roles as leaders to speak on the issue. Many Canadians are simply unaware of the size of the problem. Some believe their participation in the underground economy does not really make a difference because they are only one person. They fail to understand that when their participation is joined with that of others the problem becomes compounded. Others see the whole issue as too complex and too overwhelming to comprehend.

Recently the government of the province of Quebec undertook a major education campaign. The campaign focused on the fact that participation in the underground economy took away from our children's future. In one of the television ads we see a number of people hunched under a table making financial transactions. At the end of this long table we see a child sitting alone. The message is simple. The child receives none of the benefits of underground economic activity. Simply put, it is another message that our future is at risk.

As I said earlier, we need a Team Canada approach to the problem. Nothing could be more positive than a poster at a building supply depot from the Canadian Construction Association. A message sponsored by a local chamber of commerce or a reminder at a company bulletin board would have a positive effect.

Again, I ask that we remember the example I gave about drunk driving. It took persistence on behalf of a few to change the minds of many.

I want to touch briefly on the issue of the cashless society. There is no doubt that our system of paying for goods and services is changing.

Shop at most stores in my community and someone can probably pay by cash, credit card, cheque or perhaps Interac. Guelph is also home to Mondex, a fascinating cashless experiment. Certainly this will have an impact on the underground economy. Debit cards like Interac are traceable like a cheque. Transactions can be followed.

There is no doubt that the cashless society, whether it be a Mondex system or something even more fascinating will in the next few years change the way we purchase goods and services. I urge the federal government to monitor this situation closely.

The cashless society should benefit any effort to reduce the underground economy. I hope we work with those implementing this future technology for efforts that will discourage underground economic activities.

This issue is complex. We argue over the size of the underground economy and we can debate over which sectors are most affected. We can search for solutions. However, one thing is clear. As long as Canadians participate in the underground economy, they place our future at risk. It is easy to believe that we are avoiding the GST or simply not giving the government more money to mismanage.

However, participation in the underground economy does not hurt the government. It has a negative impact on government services and it increases the deficit and the debt. Participation in the underground economy takes beds out of hospitals, teachers out of schools and puts veterans' benefits in jeopardy.

It further burdens our children whose share of the debt increases each time someone avoids paying taxes. It prevents governments at all levels from offering all the services to taxpayers that they can and it puts honest, hardworking men and women on the unemployment line or makes them turn to social assistance in order to feed themselves and their families.

We must all work together to end this problem. A lack of confidence in government and its ability to spend money wisely and efficiently was perhaps a reason. We have turned the corner.

Participation in the underground economy only makes the situation worse. It hurts every single Canadian, particularly those most vulnerable.

Governments must reach out further to find partners, work on solutions and end this problem which clearly places our future at risk.

Underground EconomyPrivate Members' Business

March 5th, 1997 / 5:45 p.m.

Bloc

Richard Bélisle Bloc La Prairie, QC

Madam Speaker, the member for Guelph-Wellington has tabled Motion M-243, which reads as follows, and I quote:

That, in the opinion of this House, the government should continue and enhance its efforts to address the underground economy, which costs Canadians anywhere from $23 billion to $156 billion dollars in lost revenue and wages, by working with other levels of government, industry, and unions in developing a plan of action, which includes a national education campaign and increased enforcement.

I would like to begin by congratulating the hon. member on her initiative in calling on the federal government to step up its fight against the underground economy, even if it must be pointed out that this initiative has come on the heels of numerous requests by the Bloc Quebecois and of action undertaken by the Government of Quebec in this connection.

Quebec has once again been a step ahead of the federal government. An education campaign is already under way in Quebec. Viewers will recall the television ad showing a young child sitting on a table while adults exchange money underneath it.

The Bloc Quebecois has often asked the federal government to step up its fight against the underground economy, in its analysis of the auditor general's reports for instance, and again quite recently in the paper setting out our expectations with respect to the finance minister's last budget.

In this paper, we estimated that, for the federal government alone, the underground economy represents annual tax losses as high as $6 billion; this figure comes from a Statistics Canada estimate, and we argued that the government could easily recover at least $500 million by hiring more inspectors.

The auditor general has already pointed out that his inspectors cost an average of $35,000 each in salary, and that each one brings in on average almost half a million dollars in additional tax revenue annually.

Economists would advise the government that it should hire these workers as long as their training and salary costs are offset by what they bring in in additional tax revenue.

Right now, they are bringing in ten times more than they cost, which suggests that the revenue minister would do well to hire more of them.

It goes without saying that concerted action by the provinces, industry and unions has a better chance of succeeding than unilateral action by the federal government. We think that Quebec will very likely co-operate with the federal government in this endeavour, because this is a phenomenon that has a negative impact on the tax revenue of all levels of government, while there is only one level of taxpayer. If the federal government indeed acts along with the others involved, instead of harshly imposing its views and interests in this area, we consider this plan to be extremely viable and highly desirable.

The underground economy has two components: there are activities which are fundamentally legal but not reported for taxation, like moonlighting, and then there are illegal and criminal activities, like drug dealing and fencing stolen cars.

We believe that an education campaign ought to focus particularly on people liable to get involved in the first category of activities, and that increased enforcement-stricter legislation and inspection, for instance-need to be looked at for both categories, with particular attention given to controlling and eliminating the second category of activity.

We fully subscribe to the notion that, in a country where the community decides to provide public services, crooks and deadbeats who deliberately avoid paying taxes, who will do anything to avoid paying their fare share of tax, are guilty of antisocial behaviour. That is why we must first of all make people aware of the social significance of underground activities, while at the same time setting up active control measures in areas where such activities are more frequent.

We must, however, avoid going too far and considering everyone a potential crook and deadbeat. We live in a system where people are presumed innocent until proven otherwise, and this must continue. Ways must be found, however, to get at those who are knowingly behaving as bad citizens.

The public must be educated and informed about what their taxes are used for, so that they do not get the impression that they are paying them for no purpose. This implies that the government must first and foremost set an example, and prove that this is true. The public needs to be convinced that the rich, and the big corporations, are paying their fair share of taxes.

Our young people do not need the auditor general telling them that stock mismanagement costs them $1.25 billion, that the federal government spent $30,000 to move a ship in order to save $71 on a repair bill, that the RCMP ordered 4,000 too many hats.

The federal government still has a lot to do in this connection. There are two types of approaches to eradicating moonlighting and tax evasion: deterrents and incentives. The main deterrents are to increase controls and monitoring and to increase fines and penalties. We believe that the federal government should stress incentive measures including lower taxes, deregulation, simplifying the task of taxpayers and government officials faced with the complexities of the tax system, continued improvements in public administration and finally, tax amnesties, which, however, remain an exceptional measure.

In concluding, I believe that education is also helpful, as is the degree of visibility of consumer taxes and increased employment, which might reduce the pressure on taxpayers.

All these measures should be part of a comprehensive plan to fight the underground economy. Unfortunately, from what we have seen in recent months, including latest budget brought down by the Minister of Finance, there can be no doubt at all that the Liberal government is not really interested in fighting the underground economy, in spite of the efforts of the hon. member for Guelph-Wellington.

Underground EconomyPrivate Members' Business

5:55 p.m.

Reform

Herb Grubel Reform Capilano—Howe Sound, BC

Madam Speaker, I would like to congratulate the member for Guelph-Wellington and her colleagues for engaging in a serious effort to understand the nature and the size of the underground economy and come up with some suggestions on how we could reduce the size of this unfortunate development in our economy.

As an academic economist I have a long tradition of studying this subject. I have attended a number of international conferences. I was first attracted to it when I met a professor from the University of Wisconsin, Ed Feige, telling of his experience when he stayed with a relative who came home one evening with a brown paper bag. He asked him naively what was in the bag. He opened it up and inside was cash. That person had a small retail store and he had taken a lot of his profits that day home in cash. They did not go through the banks.

It also brought back my own memory from childhood in Germany where my father had a grocery store. In the evenings he would draw all the shades and make sure that nobody could see in when he punched on the cash register a new tape reflecting a much lower cash receipt of the day that went into the official books. I know, and everybody seems to know, that these kinds of practices are very widespread. However, I found out at these conferences there is a very wide range. There was a very wide range of estimates of the size of the underground economy. It all depended on the methodology that was used by the people who studied it. On the one hand there was Ed Feige who said we have so much more cash floating around in the economy than we did before for a given national income that it must be used for the financing of the underground economy. He was driven by this example of his relative bringing in a brown paper bag full of cash. He estimates that it may be as high 15 per cent of national income, if not higher.

However, to me the most impressive and persuasive argument was made by people from Statistics Canada and other national data keeping organizations. Let me have a quick taxonomy. There is the underground economy that exists of barter where a dentist in a small town might accept a supply of chicken for 10 weeks, one a week, in payment for dental services. That kind of a barter undoubtedly takes place. Every once in a while I run into people who say "you are so naive that you did not know we were doing this". But the estimate of the importance of this kind of activity, given the size of the economy, is trivially small.

The second source of underground economy activity arises in the context of smuggling. Here the most outstanding example relates to goldsmith jewellery which is burdened not only with GST and PST but also a very unfair 10 per cent luxury surtax which is totally inappropriate for this age. It has created a huge underground economy. In the finance committee we heard regularly pleas from the industry for the government to abandon this absurd tax. I hope the government, as soon as it has breathing room, will follow this advice. It might produce more revenue than is being lost because the return to smuggling is destroyed.

The persuasive argument as to size came to me from national income accountants who said they knew from episodal evidence that the biggest cheating takes place in the construction industry, car repair, tailoring, barbers and a few other such industries.

We have statistics on the size of those industries. They may be important to individuals but given the size of the economy, a refinery or an automobile manufacturing plant those industries are very small. They make up no more than 2 per cent of national income.

A large proportion of those activities is undertaken by a large firm and a large firm that engages in car repair cannot cheat. Furthermore, let us look at home repairs where they might give a deal if they do not have to pay GST on building an addition to a house. Let us remember the person has to buy windows, doors and all materials that go into it. The addition may cost $10,000 but the value added by the person who does the work is probably about $1,500 or $2,000. GST is paid on all the inputs because the person cannot claim back a rebate on the input.

I am persuaded that it is a relatively minor problem. I believe the hon. member for Guelph-Wellington was overstating the case when she said that Canada's future was in danger because we had an underground economy. That is a vast exaggeration of the problem.

In the moments remaining to me I will talk about some possible solutions. The first solution would be more education. How can anyone be against education? How far can we go when the message being sent goes against individual self-interest? We know that in the end self-interest pays and dominates.

We should also remember especially in those cases that it is a victimless crime. The victimless crime morality is very hard to argue. The hon. member might say that other people will have to pay more taxes and services are down. That is remote. The amount of money being cheated is so small that the average person can rationalize very well the effect on society as a whole of minute actions. Nevertheless, let us have more education by all means but let us not spend too much money.

The next thing is to have more enforcement by the Department of National Revenue: more audits, more rat lines and all those kinds of things. Surely they will produce some benefit. Not only am I worried about the cost. I am also worried about the other side of the coin, that we are increasing the power of the state. We are letting human beings who are imperfect, who could fail and who

could abuse power go out and chase down a few individuals. This involves a great deal of risk.

Let us build partnerships. It is like education but I doubt that it will go very far. The conclusion I reached having looked at the subject is that the only sure way to do it is to lower the returns from cheating. How do we do it? It is by lowering taxes. There is a risk of being caught and a risk of social disapproval. The higher the rate of return from engaging in illegitimate activities and carrying the risks, the more will be undertaken. The converse is the lower the rate of return, the less will take place.

That is just another argument in a long line of arguments in favour of lower taxes which can only be brought about by Canadians accepting somewhat smaller government and going back to self-reliance rather than on any occasion possible screaming "Ottawa help me". That is the way to deal with the problem the hon. member has addressed in her resolution.

Underground EconomyPrivate Members' Business

6:05 p.m.

St. Paul's Ontario

Liberal

Barry Campbell LiberalParliamentary Secretary to Minister of Finance

Madam Speaker, I begin by recognizing my hon. colleague from Guelph-Wellington for her work as chair of the subcommittee of the national Liberal caucus committee on economic development. In late December 1996 the subcommittee held hearings to examine the underground economy, taking the first of many important steps in the government's efforts to address the underground economy.

I welcome the opportunity the motion presents to review the government's continuing efforts to address the underground economy. The issue is fundamental to the integrity of the tax system. The government must ensure that taxes owed are taxes paid so that Canadians have faith in the fundamental fairness of our tax system.

The Canadian tax system is based on the principles of self-assessment and voluntary compliance. Most Canadians are honest and pay the taxes they owe. In fact about 95 per cent of tax revenues are collected without any direct enforcement action. There are areas of the economy where there is lower compliance and where the government has had to focus its efforts. The underground economy is one of those areas.

The underground economy we are talking about are those transactions, often cash transactions, on which income is not reported or is only partially reported for tax purposes.

There is nothing romantic or harmless about the underground economy. The simple fact is that all of us benefit from the economic and social programs funded by our governments. When some individuals do not pay their fair share of taxes to support those programs it is the rest of us who have to pay more.

The underground economy comprises business competing unfairly with honest firms, because they can offer consumers lower prices, as they pay no income tax and do not contribute to the Canada pension plan, the employment insurance plan or to workmen's compensation.

In this context, the honest firms paying their fair share of taxes may be forced to accept smaller revenues, indeed to lay off employees and even, in some cases, to close their doors.

Consumers themselves become part of the problem of the underground economy when they agree to pay cash in exchange for a better price, which enables the business or the tradesperson to hide the operation and avoid all taxes. This sort of behaviour hurts all consumers and all members of our society.

In fact, lost government revenues cannot be used for essential services benefitting all Canadians, such as health care, education and other social programs.

The problem of the underground economy is one we cannot and do not ignore. Let me expand on what our government and Revenue Canada have done and the progress we have made since 1993.

The action plan the government has developed and implemented puts heavy emphasis on voluntary compliance and the things that support it. It is a plan that balances partnership, education and service activities with enhanced enforcement. Let me emphasize that our strategy to deal with the underground economy is designed to promote the principle our tax system is based on, voluntary compliance.

From an economic point of view that is a smart strategy. It costs the government less to obtain taxes that are paid voluntarily than it does for Revenue Canada to go out looking for, auditing and investigating those who do not comply.

Given this context, education is a major tool in battling the underground economy. Through its education efforts Revenue Canada has raised public awareness of the consequences of the underground economy and tax evasion. Presentations have been made to local community and business organizations. Information sessions have been held at universities, colleges and high schools. Revenue Canada staff visits business people in communities across the country to inform them about their efforts to combat this problem and to encourage a level playing field for honest businesses.

During these visits they provide information on departmental services, answer questions and provide assistance to make it easier for businesses to comply with the various tax regimes. Overall I am glad to report that during the past two years Revenue Canada staff

has visited over 100 communities and met with more than 21,000 businesses.

Another important element of Revenue Canada's action plan is to inform individuals what happens if they have not reported all their income and they want to come clean.

Revenue Canada's voluntary disclosure policy enables all those who take part in the underground economy and those who have not complied with the law to correct any omissions in the income they declare to the department.

This policy is based on a simple principle: if a disclosure is made voluntarily, that is, before the department has begun an audit or taken other enforcement action, no penalty or sanction, such as prosecution for tax evasion, will be imposed. The individual will simply be required to pay the tax due plus interest.

It is has sometimes been suggested that a temporary tax amnesty would be useful in addressing the underground economy. The state of New York experienced some success recently with just such a program.

Revenue Canada's voluntary disclosure policy is better than any temporary amnesty program because it is permanent. Individuals who are drawn into the underground economy do not have to stay in hiding for several years hoping and waiting for an opportunity to change their ways without fear of criminal prosecution for monetary penalties. Revenue Canada's voluntary disclosure policy is a responsible approach to collecting the taxes rightfully owing to the government and has proven to be successful in recent years, borne out by the fact that voluntary disclosures have tripled since 1993. People can make voluntary disclosures by contacting any Revenue Canada office.

There is no question that enforcement has to be a fundamental element of our fight against the underground economy. That is why Revenue Canada has currently dedicated over 1,200 auditors to strengthen its efforts to identify non-filers and GST non-registrants and to conduct audits of small businesses in sectors of high non-compliance. Special audit teams have been established to focus on the construction, home renovation, jewellery, auto sales and repairs, hospitality and other service sectors, areas that can lend themselves to underground tax evasion.

Revenue Canada makes extensive use of state of the art technology to cross match data from numerous sources including municipal and provincial databanks to identify non-filers and GST non-residents. Last year this helped identify over 500,000 non-filers and GST non-registrants.

To enhance these activities the Minister of Finance announced in the 1996 budget that 800 more auditors would be devoted to Revenue Canada's audit program for unincorporated businesses and self-employed individuals. This will increase the audit coverage rate for these groups and bring it more in line with the continued growth in this sector.

I would add that this co-operative effort is not limited to audits for provinces that have concluded tax collection agreements. Quebec, for example, collects its own taxes, but we co-operate closely with officials in joint strategies and we co-ordinate our activities with their own business audit activities in the fight against the underground economy.

I would also point out that Quebec has invested significant resources in this problem and taken a very focused approach in the fight against tax evasion and the underground economy. These are positive measures that will add to our strategy in the fight against the underground economy.

What about the bottom line of our enforcement initiatives? I am glad to report that since 1993 our enforcement efforts have yielded more than $1.7 billion of additional revenue for the government.

Another important facet of Revenue Canada's audit activities is the information it gets from other federal departments and from the provinces and territories. Statistics Canada, Transport Canada, Public Works and Government Services Canada provide important information that facilitates audit selection and enforcement. Human Resources Development Canada works closely with Revenue Canada to identify links between employment insurance fraud and tax evasion. Revenue Canada also has an extensive network of provincial co-operation agreements that provide for information exchanges, joint enforcement action, shared experience and compliance.

These co-operative agreements are not limited to the public sector. During the past few years Revenue Canada has consulted with over 400 national and local industry groups and professional associations. These consultations are extremely effective in providing a common understanding of issues and obtaining private sector co-operation. These groups and associations include Canadian Institute of Chartered Accountants, the Canadian Construction Association, the Canadian Home Builders Association, the Canadian Jewellers Association and others. Each industry has its own unique character and issues. For that reason Revenue Canada is not applying blanket solutions. Instead, the department is working with industries on an individual basis to develop workable solutions.

One result of these partnerships was the announcement by the Minister of Finance in the 1996 budget of a new contract payment reporting system for the construction and home building industry.

Key industry groups and various trade unions are working in partnership with Revenue Canada to encourage these businesses to voluntarily report all payments made to contractors and to subcontractors.

For the small percentage of Canadians who feel they are above the law, Revenue Canada uses another effective tool, the widespread publication of successful prosecutions.

Bringing this information to the general public's attention has a major impact on the number of leads of potential tax fraud that the department has received. Since 1993, these have increased substantially to more than $28,000 annually.

Revenue Canada is taking an analytical approach to identifying and addressing non-compliance issues to ensure enforcement resources are used efficiently and effectively. The department is using technology to analyse data and assess the risk of non-compliance in specific sectors. Audits are then directed to those areas.

We have come a long way, but we still have a long way to go. Revenue Canada has developed a long term strategy for the fight against the underground economy, which strikes a fair balance between measures promoting voluntary compliance and enforcement action.

Certain elements are essential to the success of this strategy. We must make the public aware. We must work with industry and other levels of government. We must take effective enforcement action.

We must ensure that every Canadian understands the underground economy threatens government services and programs. It imposes an unfair burden on honest taxpayers.

In conclusion, I commend the hon. member for Guelph-Wellington for bringing this matter once again to the floor of this House, supporting the government in its efforts to address the underground economy.

Underground EconomyPrivate Members' Business

6:15 p.m.

Liberal

Rose-Marie Ur Liberal Lambton—Middlesex, ON

Madam Speaker, I am delighted to take part in today's debate on Motion No. 243, sponsored by my friend and hardworking colleague, the member for Guelph-Wellington, which calls on the government to develop a plan of action to counter the underground economy in Canada.

Participation in the underground economy and tax evasion represent significant loss of revenues to both federal and provincial governments. A precise estimate of the underground economy is not possible.

However, the most commonly accepted estimates of the size of the underground economy place it in a range of 10 per cent to 20 per cent of the GDP. That implies an economy of illegally hidden activities that is larger than the entire economy of Alberta and places the size of Canada's underground economy in a range of $75 billion to more than $150 billion.

Since taxes of all types represent nearly half of Canada's reported economy, this could represent a loss of anywhere from $35 billion to $75 billion every year. It also poses a serious threat to Canada's tax system which is based on self-assessment and voluntary compliance. This is not a victimless crime.

According to Revenue Canada, some of the causes of underground activity are recession, high tax levels, perception that government squanders tax dollars, perception of unfairness, high regulatory burdens, particularly for small business, perception that there is a low risk of being cause, perceived high cost of compliance and declining real incomes.

While too many Canadians will continue to view any of the above as legitimate reasons to continue operating in the underground economy, the fact remains we all need to be reminded of the implications of the underground economy to the country and to the Canadian way of live.

Huge revenue losses have many long reaching effects on the systems and programs that we take for granted. For example, essential programs and services are at risk. An unfair burden is placed on honest Canadians. Unfair competition occurs. Unfair access to tax credits and other social programs takes place and we are left with a legacy of higher deficit and a larger debt.

In November 1993 Revenue Canada concluded that the problem of the underground economy was so severe that its approach to solving the problem at hand must be different from the methods that have been historically employed.

In launching its underground economy initiative, the department chose to concentrate on the following three strategies: encouragement through education efforts of the underground economy to rejoin the legitimate economy, promoting voluntary compliance, and taking responsible enforcement action.

Under this strategy the department has been conducting a risk assessment to target its enforcement activities on identified areas of non-compliance and on files that are identified as high risk.

The department has also entered into co-operation agreements with all the provinces to exchange information, share audit strategies and co-ordinate audit and enforcement activities.

As part of its efforts to rehabilitate sectors that it has targeted as prone to non-compliance, Revenue Canada has consulted with more than 240 industry and professional groups to seek input from those concerned about underground economic activity.

While no single action is likely to markedly reduce the size of the underground economy in Canada, a series of actions to accompany Revenue Canada's initiative might prove to be more helpful.

For example, I believe we must attempt to link taxes more closely with the actual benefits enjoyed by taxpayers, who are more likely to comply when they can readily identify the direct benefit to them of the tax.

There is also much evidence that compliance, particularly for the small business sector, needs to be kept as simple as possible. This is a major issue for the GST and is related in part to a narrower base for the tax, a base which excludes some items and includes others.

This issue is even more important in provinces which have maintained a PST base that differs from that of the GST. The April 23, 1996 harmonization memorandum of understanding between the federal government and New Brunswick, Nova Scotia and Newfoundland suggests that we can make real progress in this area, but there still is work ahead before we can ever claim to have a truly harmonized tax system in Canada from coast to coast.

There is fairly good evidence that the underground economy in Canada has grown considerably in absolute size and relative to total economic activity. With this in mind, there is also a very good argument to devote more resources to the task of obtaining a better understanding of the underground economy's role in this country and the factors contributing to its growth.

I believe it is crucial that we not expend all our energies in merely attacking the symptoms of this very serious problem. To ensure success we must use creativity in addressing its underlying causes.

Underground EconomyPrivate Members' Business

6:20 p.m.

The Acting Speaker (Mrs. Ringuette-Maltais)

There being no further members rising for debate and the motion not being designated a votable item, the time provided for the consideration of Private Members' Business has now expired and the order is dropped from the Order Paper.

Does the House give its unanimous consent to call it 6.30 p.m.?

Underground EconomyPrivate Members' Business

6:20 p.m.

Some hon. members

Agreed.

A motion to adjourn the House under Standing Order 38 deemed to have been moved.

Underground EconomyAdjournment Proceedings

6:20 p.m.

Liberal

Derek Wells Liberal South Shore, NS

Madam Speaker, I am pleased to have the opportunity to rise again in the House to speak about cost recovery as it affects the fishing, fish processing and aquaculture industries of Nova Scotia.

On every possible occasion I have drawn attention to the vital role of the fishery in the region's economy and especially in my riding of South Shore. In Shelburne County, for example, the fishery directly or indirectly employs 80 per cent of the workforce.

I meet regularly with the fishing industry leaders and their organizations. Cost recovery has been a recurring topic for nearly two years. We have worked hard to document the impact of new and increased fees charged by government departments and agencies for different industry services. We have identified 14 categories of fees which directly affect the bottom line of fishing enterprises.

I have been asking for a cumulative impact study to analyse the combined and overall effects of these fees.

We have a fairly comprehensive picture of the impact of cost recovery at enterprise levels but we lack information about the combined or cumulative impact of fees at community or regional levels.

Last month the Standing Committee on Fisheries and Oceans heard testimony about cost recovery from fish harvesters and fish processors. Representatives from Treasury Board attended these sessions and we understood they took a very strong message back to the minister that cost recovery, if allowed to proceed unchecked and without a cap or ceiling, will have significant impacts on business competitiveness and the entire economy of Atlantic Canada.

I am confident the fisheries committee will be recommending, as I have, that a detailed study of the cumulative impact of cost recovery on the fishing industry be carried out and that no new fees or any increases to existing fees be imposed.

I also hope that serious consideration be given to scaling back fees in circumstances where it can be demonstrated that they represent an excessive burden on either the fishing enterprise or the community.

I commend the paper tabled in this House on February 20, 1997 called "Getting Government Right: Governing for Canadians".

This document states unequivocally that those who pay for services must have an effective voice in service design and delivery.

To date information sessions and consultations between fisheries and oceans and its principal clients have taken place, but opportunities to roll up the sleeves and work together to decide on essential services and program delivery have not materialized.

"Getting Government Right" also talks about a process which is available to mediate in situations where clients believe departments and agencies have not followed the mandate to work in co-operation with stakeholders. It has become increasingly clear that mediation between the fishing industry and the federal government is a real and very urgent requirement.

I hope and request that the new guidelines to be announced by the President of the Treasury Board will recognize the concerns that I have been expressing over the last number of months: requiring the department to hold meaningful consultations with industry; adopting the user pay, user say concept; providing a process which would allow industry to appeal the imposition of any new fees; requiring government departments to disclose their own costs to those who are being asked to contribute to those costs.

We need the commitment. We need the guidelines. We need the assurances that the guidelines will be followed and that what industry has endured over the last two years will not be repeated.

On behalf of my South Shore constituents and their counterparts from every other region of Nova Scotia and of Canada, I am today asking the President of the Treasury Board to say "yes, we recognize a problem with cost recovery and action must be taken to ensure the long term sustainability of Canada's fishing industry".

Underground EconomyAdjournment Proceedings

6:25 p.m.

St. Paul's Ontario

Liberal

Barry Campbell LiberalParliamentary Secretary to Minister of Finance

Madam Speaker, Treasury Board is responsible for establishing the overall policy and for providing general guidance to departments in its implementation. This includes the need for them to be sensitive to the cumulative impact of fees on their clients.

We view the assessment of cumulative impacts as a very important issue with respect to the introduction or amendment of user charges. Officials of the Treasury Board secretariat assemble an advisory committee of businesses and consumer groups to help them draft a revised set of cost recovery policy guidelines. We see this policy development as a first and important step toward ensuring that all departments and agencies work toward the same goals when they introduce or amend fees.

Program review has changed the way government conducts business. Many activities are being totally re-engineered to ensure Canadians get the best value for money spent. Scarce tax dollars cannot continue to be used to fund programs that provide specific benefits to clients which are over and above those provided to the general taxpayer.

In our efforts to improve the focus of government spending we are paying more attention to who receives benefits from government activities. Unfortunately shifting such costs to those who benefit will necessary involve fee introductions or increases in those areas which seem large when viewed outside this context. We all know nobody objects to paying their fair share, but those impacted by these changes want and deserve a voice in what happens. Departments and agencies must give clients an opportunity to provide input as to how services for which they have to pay can be improved.

However, this is not a one way street. Departments and agencies must keep an eye on their overriding policy objectives as they work with suggestions for change. The Treasury Board will not impose a ceiling on charges. However, it wants to ensure that departments carefully assess how such fees affect clients before they are put in place. Ministers of line departments are responsible for implementing cost recovery for programs under their area of responsibility and for assessing the economic impacts of specific initiatives.

I cannot over-emphasize the role that clients will have to play in any such exercise. The specific impact of user charges will vary greatly across clients, depending on their particular circumstances. Therefore, open dialogue between clients and departments is crucial to understanding and resolving inequitable situations which may arise.

Underground EconomyAdjournment Proceedings

6:30 p.m.

Liberal

Ronald J. Duhamel Liberal St. Boniface, MB

Madam Speaker, again, the question I asked on February 11 was the following:

What will the Minister of Canadian Heritage do to counteract budget cuts such as those made at Radio-Canada and more specifically those affecting the news program Ce soir . Could she expand on that?

The minister's response was, and I quote:

-Radio-Canada has decided to reconsider its decision to terminate programming of Ce soir . In fact, programming in Saskatchewan and Alberta would be maintained.

I hope that, after the government, or Radio-Canada in this case, has been persuaded to change its mind, the principle will have been established that, when a decision is made by an organization, this decision can always be overturned, reviewed, reconsidered if necessary.

This point of principle I just raised is an important point because the decision in question has widespread implications in terms of the services provided to francophone minorities outside Quebec and particularly in western Canada. In spite of the protection they

are afforded, these communities always have to fight for their basic rights, in this case, access to news in French. That is unfair.

I am very happy for francophone communities in western Canada that Radio-Canada decided not to terminate programming of Ce Soir . There is a need, however, for the government and Radio-Canada to understand their respective role, which is essential to Canadian unity. Radio-Canada is essential to the continued existence of the French language as a living language, spoken and written in western Canada and, to this end, it must do everything in its power to provide local programming and access to news programming to francophones across the country.

Does the federal government have a role to play in ensuring that Radio-Canada can go on producing quality programs in French? I think so. In fact, I am convinced that it does. I might add that, in my view, the government should provide the necessary financial support to its minorities, be it for television or radio programming, education, or whatever else is required to improve their well-being.

I do not want the government to save money at the expense of our French language institutions any more, those institutions that provide us with the infrastructure we need in order to be able to live and prosper in French. The government has a duty to make sure the necessary tools are in place so that our communities can not only live in French but also improve their quality of life. That is what I expect from the government this evening.