Mr. Speaker, I am pleased to speak on Bill C-28, an act which will allow our government to implement the tax policies and provisions introduced in the 1997 budget.
I cannot help but be continually amazed by the Reform Party's flavour of the month. It was some time ago that it argued that what the government should be doing was tackling the deficit. When we tackled the deficit and started to win the fight and have won the fight against the deficit, it switched to tax reductions. Very recently it moved from tax reductions to eliminating the federal debt. We will have to stay tuned to see what the next flavour of the month will be.
As I said, Bill C-28 allows the government to implement the tax changes that we brought in, in the 1997 budget. There are a number of important provisions in the bill which facilitate a number of detailed changes to the Income Tax Act. I will not go into them today but I would like to address a few key areas. The first area is the Canada health and social transfer, a critical part of the bill.
We as a government have said that we will limit or put a floor on the cash transfers to the provinces at $12.5 billion. This responds directly to the recommendations of the National Forum on Health which stated that we should increase the cash floor from $11 billion to $12.5 billion. It would have triggered in, in 1997-98. It responds to the concerns expressed by Canadians about the delicate nature of our health care system.
It is important for Canadians to understand the amount of funding we are providing through the CHST. In addition to cash payments there are tax points. In total in 1997-98 it will amount to some $25 billion that we will be transferring to the provinces to deal with health care, education and welfare.
Under the old system the funds and the tax points were transferred under established programs financing or EPF and through CAP which was the Canada assistance plan. Established programs financing was meant to cover health care and education and CAP was a cost shared program with the provinces to cover welfare.
CAP was not a very efficient program at either the provincial or federal level. For the provinces it was really using 50 cent dollars. For every dollar the provinces spent they recovered 50 cents from the federal government. As a federal government we did not have the kinds of controls that we desired in a program where we were spending Canadian taxpayers' money. At the provincial level CAP was sometimes not managed in a fiscally prudent way, so moving away from CAP is a wise decision.
As far as established programs financing is concerned, it has always been a challenge in Canada to ascertain where the funding is going directly, whether it is going to health or education. Essentially it goes into the consolidated revenues of the provinces and it is very difficult to establish that trail.
What we as a government are doing and will be doing more of is ensuring that we set standards and guidelines in terms of the delivery of health care, education and welfare. Some of those are already enshrined in the Canada Health Act in terms of accessibility of programs, the affordability of programs and implicitly the quality of programs.
We need to do a better job of establishing those criteria notwithstanding how difficult the task is. To measure outputs in a health care system, an education system or a welfare system is a challenge at the best of times because these systems are changing constantly.
First we have health care, from acute care to community based care. How is wellness measured? How do we measure whether people are getting quality care? How do we measure whether people have access to an affordable system?
It is these areas we need to focus on because the block funding is transferring en bloc to the provinces not much differently what than we did under EPF. We need to do a better job as provinces begin to grapple with their fiscal positions.
Many of my colleagues and I are concerned that we do not erode these very important programs within Canada. That is a very important part of the bill. I am sure that most members will support it.
I would like to touch on another key area of the bill, that is the registered education savings plan where we increased the limits from $2,000 to $4,000. This begins to make education more affordable, more approachable for middle income or low income Canadians. Money can be put away for the future education of their children and they will be able to afford quality education when they get to either school age, university age, or both. That is a very progressive part of this undertaking. I am sure it will be supported by members of the House.
There is another area I would like to touch on briefly. I will come back to comments made yesterday in the House by the Bloc finance critic, the member for Saint-Hyacinthe—Bagot. He made some assertions to which I am sure the finance minister will be responding in much more detail as the days and hours ensue.
I would like to comment on them briefly because I think the member has his facts in error. Before doing that I would like to talk about another provision in the bill that is very important, the provision to deal with transfer pricing.
As organizations become multinational and have companies and subsidiaries around the world, they start to move products and services within their own subsidiaries across national boundaries. Corporations have the ability to transfer the profits from high tax jurisdictions to low tax jurisdictions. This happens all the time.
If a company, for example, is incorporated in the United Kingdom and is selling products worldwide, it might set up a wholly owned subsidiary and tax haven and move product through that tax haven to companies around the world. It will essentially change and adjust its pricing to ensure that most of the profit margin is transferred to the low tax jurisdiction.
We have always had rules. Canada has had rules about transfer pricing and fair market value pricing so that if a Canadian company sets up a similar subsidiary in a place like Bermuda it has to sell that product to the Bermudian subsidiary at a price that approximates fair market value. We do not want the profit margin sitting in a tax free jurisdiction based on some transfer pricing decisions that are made at head office.
The difficulty has been that quite a range determines fair market value. Tax authorities worldwide have been struggling with this. It needs co-ordinated effort so that if companies in the United Kingdom, Germany or in South America are selling products through intermediaries in low tax jurisdictions they are selling them at fair market value. This is a very positive aspect of Bill C-28.
I turn very briefly to comments made yesterday in the House by the Bloc member for Saint-Hyacinthe—Bagot about international shipping because I think he misrepresented the facts.
The changes reflected in Bill C-28 are not creating any new situation. They are basically reinforcing the fact that if a company is shipping 90% internationally and 10% in Canada the same rules would apply that have been agreed to countries around the world.
Shipping really knows no boundaries. It is not like a mine in Chile or an oil and gas pipeline in Russia. There is really no national boundary for airlines and shipping. The rules have always been that if a company is conducting 90% of it business outside the country it is not considered to be a resident of the country in which the head office might be. That facilitates the fair taxation of shipping companies around the world.
Over the past few years companies have set up individual corporations for individual ships not driven necessarily by tax but by liability issues. The holding company would fail to qualify for these agreed to international rules if it held 100% of these subsidiary corporations. It would be perceived as an investment company and would not qualify under the rules as being an international shipping company in the primary business of international shipping.
These rules had to be changed to maintain that level playing field. Otherwise we could create a competitive disadvantage for shipping companies that happen to be located in Canada.