Madam Speaker, essentially, Bill C-92, which is aimed at amending the Income Tax Act and the Income Tax Application Rules, is intended to bring the Income Tax Act into line with the decisions in the 1996 budget.
In both the 1996 and the 1997 budgets, there is, essentially, nothing new. In fact, just recently, we learned that the anticipated $19 billion deficit will actually be far lower than that, after 11 months of operation. The deficit is, in fact, less than $8 billion, which means that the Minister of Finance will have an enormous amount of money to work with in the coming months.
Where does this come from, one might wonder. The announced objective of the cuts in government spending, in operating expenditures, not having been met, where does this enormous sum we are speaking of today come from?
We know that there are, essentially, two sources: the $4.5 billion in cuts in transfers to the provinces, or in other words $4,500 million, and the $5,000 million they garnisheed from collective wages via the unemployment insurance account. We know that these two, the cuts to provincial transfer payments and the lifting of wages from the unemployment insurance fund, essentially account for 84 per cent of the deficit reduction. So it is the unemployed, the sick, the welfare recipients and the students who will bear the brunt of this deficit reduction.
With reference to the cuts in transfers to the provinces, we will remember the commitments made by the Prime Minister on Canada AM on October 20, 1993. I am translating what he said in English, which we can presume means the same in French. Here is what he said on October 20, 1993: ``We said in our platform we do not intend to reduce the transfer payments. What I said in the program, and I intend to keep my word, is we do not intend to cut further''. That was said less than a week before the last election.
A few months after the election, on April 19, 1994, the Minister of Finance told the Toronto Star that the next federal budget would include drastic cuts to assistance to the provinces for such things as health, welfare and education. This is exactly the opposite of what the Prime Minister had said.
There will be an election shortly. I hope people will remember that, when this government makes promises, even just a week before an election, it has no intention whatsoever of keeping them. The cuts to the transfer payments to the provinces mean, for Ontario as well as for Quebec, that drastic cuts are now being made in health care, payments to welfare recipients, and education.
It must be clearly understood that these cuts are inevitable, and are the result of cuts to transfer payments from the federal to the provincial governments. I know that some of my fellow Quebecers are still saying: "Yes, but the federal government gives us money". There have been no cuts in federal funding, for what the federal government is doing with its transfer payments, in actual fact, is returning to us part of what we send to the government in Ottawa, $30 billion annually.
As well, the government dips into the unemployment insurance fund to the tune of $5 billion, when it contributed not one red cent of that.
As you know, the money in the unemployment insurance fund is basically the money put into the fund by workers and their employers. There is not one cent of the government's money in the fund. However, $5 billion was taken out of the unemployment insurance fund to balance the books, and that is why the Minister of Finance now has this extraordinary flexibility. That flexibility exists at the expense of the little guy, the sick, people on welfare and the unemployed, the unemployed whom the Prime Minister not
so long ago described as useless beer drinkers sprawling in front of the TV. And the result has been to create massive poverty in Canada and Quebec.
They know perfectly well that thousands of people will no longer be eligible for unemployment insurance and will have to go on welfare. But before they go on welfare, they have to exhaust all their resources, everything they have, until they have nothing left. This is now happening to thousands of people in Canada and Quebec. This wage grab and cuts in transfers to the provinces have caused poverty levels to rise dramatically.
Meanwhile, the government is doing nothing to reduce tax expenditures. Nothing was done in 1996 and nothing has been done in 1997. Perhaps I may explain, as I did recently, what a tax expenditure is.
Obviously, if tomorrow the government decided to send a cheque for $100 million each to 10 different companies, people would hit the roof. There would be headlines in the newspapers, and the public would know the government is doing something that makes no sense at all.
A tax expenditure occurs when instead of sending a cheque for $100 million, $50,000 or whatever to a company, the government tells the company it owes so much in taxes but does not have to pay them. It amounts to the same thing for the company, which will save $50,000. And it amounts to the same thing for the government, which instead of receiving a cheque for $50,000, will have a shortfall of $50,000. However, there will not be the same public outcry.
Sure, if the government wrote cheques to companies every day, it would be in the headlines. But if it is a tax deduction on a company's more or less confidential tax return, the public does not see that. In other words, tax expenditures represent money that is not collected, although it should be, from companies or the public.
The Auditor General of Canada gave a good example of a tax expenditure not long ago when he revealed that a family trust went to the United States with the blessing of Revenue Canada under very dubious circumstances. The Auditor General said at the time, very diplomatically, that the company and those who made the decision to let the trust go, had, as it were, frustrated the intent of the legislator. In other words, they were breaking the law. That was the opinion of the Auditor General of Canada.
So a family trust left the country with $2 billion on which no income tax was paid. It is estimated that between $400 million and $500 million in taxes should have been paid. Of course, if the government had written a cheque for $400 million or $500 million in this country and sent it to this family trust or to the two trusts which, in fact, belong to the same person, the public would have been outraged. The Auditor General explained how this happened, the details were published, it was in the headlines for one day, but no one talked about it again. Why? Because tax expenditures are so complex.
You may recall certain tax commitments in the red book. On page 19, we read:
A number of government programs and tax expenditures-some of which have been identified by the Auditor General-are inefficient, poorly managed, or driven for purely political reasons. Just as we are proposing new measures to grow the economy, we will examine such programs with the objective of reducing waste and inefficiency and promoting economic growth.
That was the commitment.
And then there was the report of the auditor general on family trusts and the Liberals' reaction in the finance committee. Each of them took a turn sniping at the auditor general for having criticized the fact that the trusts had hot footed it out of the country without paying taxes.
That is precisely the role of the auditor general. He is the public watchdog. When we criticize the government, we are partisan, clearly. When the auditor general does so, we can assume generally that he is non partisan. The Liberals took pot shots at the auditor general for criticizing the family trusts I referred to earlier.
So, as we realize, there is no deficit problem in Canada. We are reducing the deficit far faster than we had anticipated in our objectives. The Minister of Finance has a lot of manoeuvring room. We therefore have no deficit problems in the short term. We even expect to bring the deficit to zero by the year 2000. However, there is a question of fairness, since it is the middle class that is paying off the deficit. It is becoming increasingly poor. The government is creating huge poverty in Canada, leaving untouched those who are in a position to benefit from the tax laws. It is the middle class that is getting it.
That is why the Bloc Quebecois decided in November 1996 and February 1997 to table two studies on taxation: corporate taxes, first, and personal taxes, second. This sort of study has never before been prepared by the official opposition.
The Minister of Finance reacted to our first study by saying: "The Bloc Quebecois tabled a sober report yesterday. I consider it a very professional one. I thank the Leader of the Opposition and the members here for their work. There are many things in the report we agree with", and I quote him exactly. Yet, it was shelved and will probably gather dust there for a number of years. It is some one hundred pages long and was prepared with the means available to us, because the official opposition has far fewer means
available to it than the government. This is the first time such a thing has been done, up to now.
The last time the tax system was totally revamped was in 1962, as a result of the Carter Commission. According to the Carter report, tax criteria had to be followed. The system had to be fair and different incomes taxed the same way, regardless of source or recipient. That, basically, was the philosophy of the Carter report.
Many of the report's recommendations were never implemented in the Income Tax Act, which was to be expected, but we used the report as a reference work in terms of both principles and approach. It covered the whole Income Tax Act and was 2,575 pages long. It was six years in the preparation, and its recommendations were never fully implemented.
In 1966, the Liberal government, which had been given the report, decided not to use it. It asked the Minister of Finance to produce a white paper on taxation-this government's usual solution is to produce white papers or red books as appropriate- and a watered down version of the Carter report led to the 1971 amendments to the Income Tax Act.
We had to wait until 1981 for the next changes. However, the Minister of Finance at the time, Allan MacEachen, underestimated the resistance of the financial community and had to back off on a number of amendments he had wanted to make to the Income Tax Act. The final tax reform was Michael Wilson's in 1987. He too had to retreat on some of the reforms, because of major pressure from lobby groups to limit the extent of reforms.
The principles underlying the Bloc's two reports on taxation are those found in the report of the Carter commission, principles everyone can understand, principles of fairness, efficiency, neutrality and stability.
Under the principle of fairness, the tax system must ensure a fair distribution of the tax burden among taxpayers. We appreciate that everyone should pay taxes. The taxation system must not only be fair but also be perceived as such, that is to say, people should feel that everyone is paying their fair share.
We can assess how equitable a tax is by one of two yardsticks: it must either reflect the ability to pay of those who are subject to it-that is what we call vertical equity-or match the benefits to the taxpayers, a principle called horizontal equity. The implementation of a progressive tax system is consistent with the principle of vertical equity.
In a vertical equity analysis, one has to use the concept of diminishing returns John Stuart Mill described in his book, clearly defining it in terms of a single taxpayer's equivalent sacrifice. This is taken, of course, from Principles of Political Economy with Some of Their Applications to Social Philosophy . I think it is not widely known, but the majority of leading economists in the early days were in fact philosophers preoccupied with ethical concerns or wondering why, and the question is still valid today, there was such a huge gap between the rich and the poor.
This means that each taxpayer does not pay the same amount of taxes proportionally to make an equal marginal sacrifice. It would clearly not be as much of a sacrifice to pay $2,000 in taxes for someone earning $500,000 per year as for someone earning $12,000. That is why, in the interest of equity, there is a so-called tax progression.
But the facts tell quite a different story. Just think of family trusts that were transferred to the U.S. tax free. Clearly, the public realizes there is nothing fair about that.
Think of the Liberal member for Gander-Grand Falls, who, every 12 or 18 months-he must spend most of his time at Revenue Canada-issues the list, withholding names of course, of dozens of millionaires who not only never pay tax but actually receive money from the Government of Canada in the form of additional tax deductions. They actually receive money from the Government of Canada. In fact, I think the hon. member for Gander-Grand Falls does a fine job. What I find extremely distressing in all this is that, the next day, it is all but forgotten.
Think also of the strong public belief that the current system is not fair, that the poor keep paying while the rich manage to get out of it.
The second principle on which these reports on the tax system were based is the principle of efficiency. To be efficient, any taxation system must be kept as simple as possible. It makes it easier to enforce, and the taxpayers waste less time making sure they have complied with the various tax regulations.
In addition, a simpler taxation system results in lower government management costs. When income tax time is upon us, we realize that, for most of us, it is no simple task to fill out a personal income tax return. As for corporations, we know they do not just file a regular income tax return. They have tax experts who dig into piles, three or four feet high, of tax documents. They go to great lengths to avoid paying tax.
All this to say that this is a very complex system. When we meet tax experts, whether at the Standing Committee on Finance or elsewhere, that is the first thing they tell us: the tax legislation is extremely complex and we lay people need their help to understand it. It is a fact that one needs very complex training to sort it all out. In a nutshell, the current taxation system lacks efficiency.
The third principle is that of neutrality. The taxation system must be neutral. This means that companies should make investments based on economic and financial considerations and not on tax considerations.
Yet, we are well aware that many companies make major decisions which are not based on economic or financial interests, but on the impact that these decisions will have on the amount of taxes they will have to pay. So, the system is not neutral.
The fourth principle is the principle of stability. A tax system must produce stable revenues over the years for the government, so that it can make consistent economic forecasts. Stability provides for a certain continuity in the level of revenues and expenditures.
Such stability currently does not exist, given that the government was forced to cut $4.5 billion in transfers to the provinces-which is not a source of revenue-and to garnish workers' wages by taking $5 billion out of the unemployment insurance fund, so it could reduce its deficit. This shows that the tax system is not stable.
All these principles, developed by the Carter commission and reiterated by Bloc Quebecois members with the very limited means available to them, show that a tax reform is in order. This is one of the reasons why such a reform is necessary, but there are many more.
As regards corporate taxation, our first document was essentially tabled because we realized that, over the years, corporations have been paying less and less taxes. I will show you figures which I already mentioned in the House, but which bear repeating every day. Let us take a look at the gap between taxes paid by corporations and individuals since 1951. I will show that gap for every 10-year period, that is for 1952, 1962, 1972, 1982 and 1992. Here are the figures.
In 1952, corporations contributed 51 per cent of the taxes paid to the government, compared to 45 per cent for individuals. In 1962, 10 years later, corporate taxes amounted to 36 per cent of the total; in 1972, it was 20 per cent; in 1982, it was down to 18 per cent, and, in 1992, it was a mere 7.6 per cent. We can see that, over the past 40 years, corporate taxes have steadily gone down, while personal taxes have increased.
So, over the past 40 years-and this is the second reason why we are asking for a comprehensive tax reform-the tax burden in Canada, has been supported less and less by corporations and more and more by the middle class and the poor, through cuts affecting services provided to them. This is the second good reason for a tax reform.
The taxation principles stated by the Carter commission are no longer being complied with. Moreover, for the past 40 years, corporations have been paying less and less taxes, while individuals have been paying more and more. Under the circumstances, it would be in order to go back to the conclusions of the Carter commission.
The third principle is a bit of a myth. It has always been said that corporate taxes should not be substantially increased, because corporations in Canada may already be paying too much tax, compared to companies in other countries. According to statements made by succeeding governments, both Liberal and Conservative, corporations pay too much tax in Canada. However, the figures show just the opposite.
I am referring to the figures from the OECD, which compared the corporate tax rates in various countries. We are talking here about corporate tax revenues, that is the taxes paid by corporations in relation to the country's gross domestic product. Let us look at the years 1965, 1975, 1985 and 1993, since the data for 1995 is not available. Let us see how Canada fares.
According to these figures, in the United States, for the year 1965, 6.48 per cent of tax revenues came from corporations, compared to 4.7 per cent for Canada, 12 per cent for France,7.23 per cent for Germany, and 5.81 per cent for Japan. In 1965, Canada, along with Spain and the United Kingdom, was the country with the smallest proportion of tax revenues being paid by corporations.
In 1975, ten years later, the percentage for Canada was 6.38, and for the United States, 7.16. On might expect lower taxes in the United States, but the opposite is true. Corporate taxes are higher in the United States. The same is true in France, Germany and Japan, all of which have corporate taxes several points higher than Canada's.
In 1985, it is even worse, and in the final year, 1993, Canada looked to corporations for less than 6 per cent of its revenue, the United States, 7.25 per cent, and Japan, almost 10 per cent. Japan is not a third world country. It looked to corporations for almost 10 per cent. Internationally, therefore, Canada is not facing impossible competition. It is even one of the countries-and we are talking about industrialized countries-with the lowest corporate taxes.
The same analysis can be done for tax revenue, but this time compared to overall revenue. Here again, Canada ranks lowest among all other industrialized countries, including the United States. We therefore see that Canada is one of the OECD countries with the lowest corporate taxes compared to individual taxes.
Do I have one minute remaining, Mr. Speaker?