Madam Speaker, I welcome the opportunity to debate Bill C-92, the Income Tax Budget Amendments Act, 1996.
When I last addressed the House on Bill C-92 it was to recommend that it be sent to committee prior to second reading. It is important to note, therefore, that the House finance committee
recommended 13 amendments when it reported on the bill. All of them were technical in nature and were the result either of consultations or improvements in the wording of the relevant provisions. For example, there were some wording changes relating to labour sponsored venture capital corporations and resource properties.
There were also two amendments in the area of child support to help ensure that payments made after April 1997 were subject to the new system in accordance with the policy.
I would now like to make some observations about the context in which the proposed tax measures are situated.
In the present era of global changes, which have left many Canadians feeling insecure, the 1996 budget introduced measures in a number of areas that were designed to safeguard the future of Canada.
First were measures to safeguard our financial future, with guarantees that we would reach and even exceed our goals for public finances; in the same breath, we defined a role for government that meets the needs of the modern economy and of the federation.
We also took action to ensure the preservation of our social programs, including the old age security system and the offer of stable federal funding for programs administered by the provinces.
We invested in the future by reallocating money to priority areas for future jobs and growth, priorities like youth, technology and international trade. In the area of taxation perhaps the most noteworthy point is what we did not do. Despite the enormity of the fiscal challenge that faced us, a challenge we have continually handled with credibility and success, we did not increase tax rates in the budget, not personal, not corporate, not excise.
The government recognizes that taxes in Canada are higher than any of us would like. Fiscal turnaround is vital so that we can free up resources to ease the tax burden when it is responsible to do so. In the interim the government has made it a key priority to meet or better its fiscal targets without increasing personal income tax rates in any of the four budgets it has brought before the House.
Taxation is not only about generating revenues. It is also a matter of economic efficiency and fairness. That is why the 1996 budget undertook a number of important tax initiatives to enhance the fairness of the system and to ensure that it operates as effectively as possible.
Let me briefly outline a number of measures we are proposing in the bill before us today. In the area of personal income taxation several important changes concern the system for providing tax assistance to retirement savings. Specifically the budget proposed three measures affecting registered pension plans, RPPs, and registered retirement savings plans, RRSPs.
As the finance minister said at the time of the budget, Canada's retirement assistance program is effective and the government is firmly committed to its preservation.
The proposed changes will help to ensure the sustainability of the program by limiting its costs while at the same time better targeting assistance to modest and middle income Canadians.
First, RRSP limits are to be frozen at $13,500 through the year 2003 and then increased to $14,500 in 2004 and $15,500 in 2005. To provide comparable treatment to define benefit pension plans, the maximum pension limit for these plans will be frozen at the current level of $1,722 per year of service until the year 2005.
This change will keep the cost of the tax deferral for retirement savings in line and more fairly targeted. The federal revenue cost of this assistance is significant, amounting to nearly $16 billion in 1993.
Even with the changes the system will remain a generous one extending to twice the average wage. This means that only individuals with incomes over $75,000 a year will be affected in any way.
The second measure relating to retirement savings is the reduction in the age limit for maturing RPPs and RRSPs from age 71 to 69. In other words, individuals will not be able to contribute to RRSPs or accrue pension benefits after age 69 and will have to start drawing income out of these plans by the end of the year in which they turn 69. This change will help move the maturation age for retirement savings and pension plans closer in line to the ages at which most Canadians are retiring.
I pause here to say that contrary to the assertion that some have made about this change, it does not remove incentives to save in RRSPs, private pension plans or other retirement income vehicles. Canadians will always be better off saving for their retirement and using these vehicles as one way to do so.
Third, the bill proposes the elimination of the seven-year limit on carrying forward any unused portion of maximum allowable RRSP contribution. I am sure most of us can relate to the fact many younger Canadians have difficulty making significant RRSP contributions, especially during the years when they are raising families. This proposed change will improve the opportunity for all Canadians to benefit from the RRSP system. People will now have an unlimited time, within age limits of course, to make up for years of lower contributions. That is an important change.
The bill addresses another vital area for saving for the future, registered education savings plans or RESPs. Canadians know that a better education means a better job and the Government of Canada knows that to prepare Canadians for the 21st century we must support their efforts to secure a good education. Hence in both the 1996 and 1997 budgets the federal government increased tax assistance to students and their families. RESPs are an important mechanism that assists parents or grandparents to save for children's education. They do so by exempting the growth of assets
within the RESP from taxation. Eventually this growth is distributed to students who are typically taxed at a low marginal rate.
The bill before us proposes to increase the annual contribution limit from $1,500 to $2,000 per beneficiary. It will increase the lifetime limit from $31,500 to $42,000.
As most hon. members will recall, the 1997 budget proposed to enhance tax assistance delivered through RESPs further still, notably by doubling the annual contribution limit to $4,000 per beneficiary and by improving the potential flexibility of these plans.
Two further elements of today's legislation recognize the increasing importance in the cost of education. First, the bill proposes to increase the amount on which the education tax credit is calculated from $80 to $100, an amount that the 1997 budget has proposed to increase still further.
Second, the bill will increase from $4,000 to $5,000 per year the limit on the unused tuition fees and education amounts that students may transfer to spouses or parents. Once again this measure would be enhanced by the proposals of the 1997 budget which would allow students to carry forward those unused amounts.
Many of the individuals who need training or retraining to make the most of the opportunities in today's economy already have young families to care for. For many of them, especially single parents, school is not an option without day care for their children. That is why today's bill proposes to broaden eligibility for the child care expense deduction by allowing parents who are full time students to claim the deduction against all types of income.
I should mention that the bill would also raise the age limit for children for whom child care expenses may be claimed from age 14 years up to age 16 years, thereby providing increased tax savings for families with older children.
A further measure in the bill that will benefit taxpayers with children is the change to the rules governing child support. Specifically the bill provides that child support paid under a court order or written agreement after April 1997 not be deductible by the payor or included in the recipient's income. This change reflects the widely held view that the old system of deduction and inclusion was not working to benefit children.
I remind my hon. colleagues this tax measure is one element in the larger child support package which recently received parliamentary approval. In addition to the tax changes in the bill, the package includes guidelines to set fair and consistent support awards, new measures to enforce child support orders and, as announced in the 1997 budget, an enrichment of the child tax benefit. Education and child care are important components of the economic and social infrastructure for tomorrow.
I will now turn to to another keystone of Canadian society, the charitable sector. That sector is playing an increasingly important role in meeting the needs of Canadians. The government recognizes the importance of giving charities the tools they need to accomplish their important work. For that reason the 1996 budget increased from 20 per cent to 50 per cent the annual limit on the amount of taxpayer net income eligible for tax assisted charitable savings. Once again I remind hon. members that the 1997 budget has gone further, substantially increasing tax incentives for charitable giving.
I will skim over some of the other major measures included in the bill beginning with labour sponsored venture capital corporations. These funds sponsored by labour organizations help improve access to capital for small and medium size businesses and thereby contribute to job creation. Generous federal and provincial tax credits have helped LSVCCs attract large amounts of venture capital, so large in fact that by the time of the 1996 budget they had a more than three-year supply of capital. Given this level of capital accumulation, measures were warranted to keep the level of special tax assistance in these funds in line with current fiscal realities.
Consequently today's bill proposes reducing the federal LSVCC tax credit from 20 per cent to 15 per cent, reducing the maximum purchase eligible for the credit from $5,000 to $3,500 and not permitting a taxpayer to claim the federal LSVCC credit for three years after he or she has redeemed an LSVCC share.
The bill also includes important measures for the energy and resource sectors, for the oil, gas and mining industries. The bill modifies rules relating to the resource allowance thereby resulting in a more stable and consistent tax structure. For the oil, gas and mining industries the bill proposes significant improvements to the flow through share regime.
Flow through shares are an important mechanism for financing exploration and development programs in these resource industries, as they can be used to accelerate deductions for such expenses. Companies issuing flow through share which incur exploration and development expenses within the first 60 days of a calendar year can renounce those expenses which are then treated as having been incurred by the flow through share investor in the previous calendar year.
Consultations with the industry have indicated that the 60-day limit was too restrictive and encouraged corporations to make economically inefficient decisions. Accordingly the bill would allow the issuing company a full calendar year to incur and renounce the exploration expenses. In return for this accelerated
deduction, however, the issue will be required to pay a monthly financing charge to the government.
Among the other provisions of the bill is a change to the accelerated cost allowance rules for new mines including oil sands which will ensure that all types of oil sands recovery projects are treated more consistently. The bill also includes measures to designed to promote sustainable development of energy resources by providing an essentially level playing field between certain renewable and non-renewable energy investments.
One measure is to create a Canadian renewable energy and conservation expenses category in the tax system. The second measure is to extend the use of flow through share financing currently available for non-renewable energy and mining and similar costs for certain renewable energy and energy conservation projects.
With this, I will conclude my overview of the measures addressed in the bill under consideration today. These measures are equitable and will make it possible to improve the effectiveness of the tax system. Several of these measures, by their very nature, eliminate constraints, and many Canadians have already benefited from the provisions of this bill.
These measures will help Canadians prepare for the future in a world that is constantly evolving, by stimulating job creation, education and charitable donations, among other important sectors of activity.
The measures in the bill under study reflect the values and expectations of the Canadian people. As their elected representatives, it is our responsibility to respect these values and expectations.
Accordingly, I have no hesitation in urging my colleagues to support this bill in its entirety and to give it speedy passage.