Mr. Speaker, it is my pleasure to speak to the bill on tax conventions. But first, I would like to make a digression similar to that of my Reform colleague earlier. I do not want to take away from this bill, which I consider very important. Tax conventions are always important, as are their provisions.
However, the precipitous drop in the value of the Canadian dollar, its effects on the economy, the three consecutive months of slower economic growth, the declining orders with businesses, all the composite indexes, including those released yesterday by Statistics Canada for the month of August, indicate that we are in a period of economic slowdown. However, the Minister of Finance keeps producing fantastic surpluses every month off the backs of the unemployed, the sick, the provinces, everywhere except his own back.
Instead of using these surpluses to stimulate economic growth, he most unwisely prefers to pay off part of the debt, whereas he should be setting up reserves and using them right now to stabilize the economy. I would like this to have been debated in this House.
It seems to me important that we do not find ourselves in ten months facing the delayed effects of a recession, in a full recession with the loss of thousands of jobs, because the Minister of Finance failed to carry out his responsibilities and failed to use tax revenues wisely to stimulate economic growth, create jobs and reverse the trend we have seen in recent months.
That said, I would have liked such a debate, but I would like to devote the next few minutes to Bill S-16, which I consider very important. It is aimed at implementing three tax conventions, which I will explain later and which were signed between Canada and three countries: Croatia, Chile and Vietnam.
What are these tax conventions? They are agreements Canada has signed with the countries I just mentioned to prevent Canadian companies, for instance, that have branches in Croatia, Chile or Vietnam from having the revenues, capital or profits from their branches abroad taxed twice when these revenues are brought back into Canada.
The opposite is also true. Chilean companies also have branches in Canada. These tax conventions ensure that the same revenues are not taxed twice. This would not make any sense and would be both unfair and devastating at the economic level and in terms of job creation in Canada as well as in Croatia, Vietnam and Chile.
Tax conventions are based on a very good principle. This practice has been in effect in Canada and throughout the world for many years now. Canada has signed dozens of tax treaties with various countries, and that is all very fine.
The problem with the tax treaties or tax conventions we sign with other countries arises when the tax rates in these countries are very different than our own. The difference may be so great that, if revenues are taxed in the other country and not in Canada, there is a terrible fiscal distortion. Also, Revenue Canada stands to lose a lot of money in tax revenue.
Let us take as an example a country like Barbados. Barbados is considered a tax haven, just like Bermuda, Liberia, and other countries. In these countries, the rate of taxation is so low that it is almost non-existent. In Barbados, the maximum corporate income tax rate is 2.5%. For your information, the maximum tax rate in Canada for businesses is about 40%. The tax rate ranges from 25% to 40% depending on the nature of the industry and the tax expenditures applicable to each business.
Therefore, when Canada signs a tax treaty with Barbados, it means that a Canadian company with a branch in that country will pay only 2.5% tax on its profits there and can bring the rest into Canada without having to pay a cent to Revenue Canada. This makes no sense at all. The gap is too wide between the taxation rates in these two countries.
For the Bahamas, it is even worse: the taxation rate is zero. If Canada signs a tax treaty with the Bahamas, Canadian companies that have a branch in that country will pay almost zero tax on their profits there. They will then bring that money into Canada. Since the profits will have already been taxed in the Bahamas, no tax will have to be paid in Canada by the parent company. This creates a substantial imbalance.
That is why, when Canada signs a tax treaty with another country, we have to make sure that the tax rates are comparable, that Revenue Canada will not lose tax revenues and that this tax treaty will not encourage companies to open bogus or even legitimate branches in countries considered to be tax havens simply because tax rates there are very low and because there is a tax treaty. The Canadian company pays tax in that foreign country and does not have to pay tax in Canada, which means a loss of tax revenues for Revenue Canada.
Those who are watching us today should know that it is the people of Quebec and Canada who have to foot the bill for this loss of tax revenues, for those taxes that are not paid in Canada by Canadian companies because of these kinds of tax treaties with countries that are considered to be tax havens. It is the people of Quebec and Canada who have to pay the taxes that these businesses avoid paying through the existence of reciprocal taxation agreements also known as tax treaties.
That is why we have to avoid signing such agreements with countries that have taxation rates that are very different from ours.
Ever since the Bloc Quebecois was elected to this place five years ago, every time a bill to implement a tax convention has been introduced in the House, we have taken these conventions very seriously, as they could ultimately result in tax losses for Canada, which would have to be covered by individual and corporate taxpayers in Quebec and Canada.
Every time, we have carefully considered the conventions on a case-by-case basis to determine whether the countries entering into a tax agreement with Canada had comparable tax rates.
In this particular case, when we checked in the International Tax Summaries, 1998, at first glance, based on the analysis contained in this document and our own analysis of the situation, comparing tax rates with tax expenditures, supply, etc., tax rates in Croatia, Chile and Vietnam seemed to be relatively the same as in Canada.
Personal income tax rates varied between 20% and 35%. As such, a maximum tax rate of 35% is fairly similar to what we find in this country. The maximum corporate tax rate was also 35%. Canada and Croatia basically have comparable rates.
Turning to Chile, again, the maximum tax rate was 35%. So, it is really comparable to Canadian rates. There is no big difference.
In Vietnam, tax rates vary between 0% and 60%. Compared to our 35% to 40%, a maximum rate of 60% may be making this convention slightly unfavourable to Vietnam, as far as individual taxpayers are concerned at least. It all depends on the type of relationship and the subsidiaries that will be established in Vietnam by Canadian interests and vice versa. All in all, as a basis for assessing comparative tax rates, let us say we do not see any problem with this tax convention and we will support the bill.
Since April 1994, when the Bloc Quebecois first intervened with respect to a tax convention bill, we have been asking the Minister of Finance and the government to tidy up some long-standing tax conventions with countries whose tax rates differ radically from Canadian tax rates and, if need be, to set them aside because they create imbalances in fiscal exchanges between Canada and the parties to these conventions, which are considered tax havens.
We have asked the Minister of Finance on countless occasions to update these conventions. As I mentioned earlier, the tax rates in conventions signed with Liberia, Barbados and Bermuda are so low that there is a real shortfall for Revenue Canada. When Canadian companies with branches in these countries realize profits that are taxed at anywhere from 0% to 2.5%, instead of the 25% to 40% they would be taxed at here, depending on the nature of the tax, there is a substantial imbalance.
Distortions are created and there is also a shortfall that can be substantial for individuals and for Quebec and Canadian companies. They must make up this shortfall.
Every time we asked the Minister of Finance to do something about this, we received a completely detached and unconcerned reply, just as each time we asked him to really reform taxation he told us that we had done a good job, that our analysis was correct, but completely side-stepped the fundamental changes that should have been introduced in 1993 after the election. Behind a veneer of equity and fiscal fairness, the Liberal Party talked about overhauling taxation. Once this government was elected, what happened to its concern for tax fairness, for tax equity, and what happened to the promised reform of the Canadian tax system, which is still full of loopholes? Our tax system still includes tax conventions with countries with which we should not have such treaties, because it is very costly for Canada.
Whenever we ask the Minister of Finance to review these conventions with countries considered to be tax havens, he tells us that it is not an urgent matter. He also tells us that, over time, the government will make a few minor reforms here and there.
Yet, it would have been so simple—as we suggested to the finance minister back then and have kept suggesting every year, whenever we have had the opportunity to do so when dealing with other bills involving tax conventions—to correct the situation. A few years ago, the United States and the European countries were quick to react and make adjustments, in light of these imbalances.
Let us say, for example, that Canada has signed a tax convention with a country that has a 2.5% tax rate, as is the case for Barbados, or where taxes are practically non-existent, as in the Bahamas. But let us assume a 2.5% tax rate.
The United States solved the issue by providing a tax credit to companies that have already paid some taxes on profits made by subsidiaries in countries such as Barbados. So, a tax credit is given to American businesses that have already paid a 2.5% tax on their profits. These companies are given a credit equivalent to what they have already paid in taxes to Barbados, but they have to pay regular taxes to the American government.
In other words, if you paid $10 in taxes to Barbados and would normally have to pay $40 in the United States, you now owe $30 in taxes on your corporate profits. The amount already paid in the foreign country is taken into account. This makes it possible to continue to have tax conventions with countries whose tax rates are much lower than ours. A tax credit is granted to companies that have subsidiaries in countries considered to be tax havens, for the portion—however small—of taxes already paid abroad. These companies then pay to the American government the full amount of taxes that they would normally have to pay.
This is not hard to understand. It is logical and it is fair. That is called tax fairness, tax equity, which involves the payment of the money owed, no more, no less, to the government by individuals and businesses.
If a business owes the government money, but through a subsidiary in a country considered to be a tax haven it does not pay its fair share, it is the responsibility of the Minister of Finance and of the Liberal government to recover this money. It does not mean threatening the survival of a business, it means ensuring that all businesses receive the same treatment.
A Canadian business operating on Canadian soil without a subsidiary in a tax haven pays its share of taxation at a rate varying between 25% and 40%. Why then would a business with a subsidiary in a tax haven be required to pay only 2.5% or even 0%? It makes no sense.
There are distortions. There are major injustices. Representatives of business ask us why the Minister of Finance has failed to act in this matter up to now.
The Department of Finance provides little information. It keeps no record of financial losses that occur as a result of these tax conventions. Nor does it keep a record of the number of businesses set up each year so very carefully in countries considered to be tax havens. However, the information we have indicates that nothing has changed. Quite the contrary, the situation has worsened.
Let us look just at the six major Canadian banks. A number of criticisms may be levelled at them, but this one is well founded. The six major Canadian banks have 119 branches abroad, including 57 in the Caribbean, where tax havens abound. There are not a lot of people, and there is not a lot of wealth. What are the 57 branches of the six major Canadian banks doing there? Banking, no doubt, but enough to justify maintaining 57 branches in the West Indies? We need some hard answers.
Earlier I explained how tax havens worked. The tax rate is very low. Revenues and tax losses are allowed to circulate between head office and the subsidiaries abroad. There are tricks to saving taxes and perhaps the banks use them in the West Indies. Of the 119 branches abroad, 57 are in the West Indies. Now that is really something.
On the Cayman Islands, a typical example, the situation has not changed, it has worsened. Around the mid 1990s, in 1994-95, there were 28,000 companies on the Cayman Islands, a tax haven par excellence, for a population of 30,000. That is just about one company per inhabitant. We can see it makes no sense. However, these are the countries we have relations, this sort of tax convention, with. It makes no sense at all.
This is why we keep asking to have things cleared up and a simple rule applied, as the Americans did recently. There should be a tax to be paid in Canada, the usual business tax, and a credit given for the tax already paid abroad—whether it is 15%, 20% or 25%—and the tax payable less the credit comes to something close to zero. That is the way it should be. This way we could say there was no problem for countries we have tax conventions with, if their tax rate is the same.
The credit amounts to the tax they paid there, and the tax payable here comes to zero on calculation. However, when really ridiculously low tax rates are involved, there should be an amount payable covering the difference in tax rates with Canada's higher rate so these businesses do not rob us. I repeat. What they do not pay, the taxpayers pay for them. This is indirect robbery by means of a tax convention that is legal and has the approval of the Minister of Finance.
I have often asked myself why we have a Minister of Finance if he does nothing, if he does not review taxes, if he does not plug tax loopholes and review tax conventions as we ask and if he allows hundreds of millions out of the country as the auditor general pointed out in 1992. Why do we pay him? Why is he there?
My second question was this: Why is he doing nothing? I had my answer less than one year ago. We already knew this, but since it came from sources other than the Bloc Quebecois, we were not going to let it slip by. Why does the Minister of Finance do nothing about tax havens, given the discrepancies I have just mentioned? The simple answer is that, since 1981 when he acquired Canada Steamship Lines, he has opened ten subsidiaries of that company in other countries. These ten subsidiaries are located in Bermuda, Liberia and Barbados, three so-called tax havens.
Prior to 1981, before the Minister of Finance took possession of Canada Steamship Lines, these subsidiaries did not exist. He organized his international shipping activities—because everyone knows he is involved in shipping, it is public knowledge—by opening subsidiaries in tax havens, with preferential tax rates, with great flexibility regarding environmental policies, for instance. In some of these countries, very little is respected. There was also quite a bit of give in the labour policies. These are not necessarily countries with stringent labour laws.
The Minister of Finance himself, who is involved in shipping, is at the helm, has subsidiaries of Canada Steamship Lines in so-called tax havens. Is he both judge and jury here? One might well wonder. The public also has a right to wonder why hundreds of millions of dollars are allowed to float away to so-called tax havens, why this is allowed to hang fire—for that is what is happening—, why tax conventions are maintained with countries with tax rates ridiculously close to zero. We are the ones who foot the bill for taxes not paid by Canadian subsidiaries in other countries. We are probably footing the bill for Canada Steamship Lines as well.
This is unfair. It is inequitable. There is something about it that bothers me and that greatly bothers the public. On December 10, 1997, a bill was introduced: Bill C-28. I can tell you that we will not drop this matter. We asked that special committee be struck to look into Bill C-28.
Perhaps I should remind those who have forgotten what Bill C-28 was about that its provisions supplemented somewhat tax treaties between Canada and countries considered as tax havens.
Bill C-28 is a big, massive bill. When it was introduced at first reading on December 10, it went almost unnoticed. At second reading, however, when it was first debated in the House, on February 2, 1998, the Bloc Quebecois went over this bill several hundred pages long with a fine-tooth comb. We dissected the bill and, toward the end, we found this rather short passage—three little paragraphs, 12 lines altogether over more than 400 pages of legislation—which proposed a tax change with respect to taxes paid by steamship holding companies. The Minister of Finance owns such a company.
What was the purpose of this change? It provided for holdings involved in international shipping operations in countries like Liberia, Bermuda and the Bahamas, where the finance minister's ships and companies operate, to be exempt from paying taxes to Revenue Canada. And no action would be taken against any of the international shipping companies involved. There are only five such companies in Canada, and the Minister of Finance owns one of them. Revenue Canada cannot retroactively prosecute these companies for unpaid taxes.
When we pointed that out at second reading, we were told we were wrong, that it was not the case, that it was not true. The Minister of Finance tore up his shirt. For example, when he left the House, he had a hard time providing an explanation for five minutes. He was stuttering, which is unusual for him. You have seen him during oral question period. He is so confident, he is so sure of himself that he gives us the short shrift. Even though every economic indicator points to a downturn in the economy, even though all the experts are talking about a major slowdown, and even though an increasing number of them talk about a recession in a year from now, as far as the minister is concerned, there is no problem. Things are just fine.
In the last two days, he has been using old quotes from the experts, and from the Quebec premier, Mr. Bouchard, during oral question period. These quotes are old ones dating back to the Saskatoon meeting, a month ago. The minister uses old quotes from experts that date back to last month, when the Bloc Quebecois raised the alarm by saying “be careful about the dollar free falling . The Prime Minister and the Minister of Finance are wrong to take this lightly, to play golf and to continue to say there is no problem, that there is no adverse effect on the economy”.
There is a risk of a slowdown in the economy. The number of jobs could decrease. We pointed that out in early August, and they made fun of us. Now, all the indicators point to a downward trend. For the past three months the economy has been slowing down, the growth rate and the GDP have been decreasing, and the Minister of Finance is still quoting what the experts said when we raised the alarm.
The situation has changed since then. The experts now agree with the Bloc Quebecois. They have asked the minister to use the surpluses generated at everyone's expense to, first, reduce taxes, second, increase social transfers and, third, lower employment insurance contributions, so as to give businesses and workers a break. But no, everything is just fine, said the minister with assurance, no problem.
On February 2, when this apparent conflict of interest was brought out—one that still exists—the Minister of Finance left the House, and his assurance left him as well. He did not have much in the way of explanations to offer, since he was the sponsor of a bill which offered tax advantages and protection against any recourse by Revenue Canada for payment of income and other taxes by his shipping subsidiaries located in countries considered to be tax havens. He was stuttering.
He referred us to Len Farber—and I recall it as if it were yesterday—his main man for tax policy, but also what I would call his main man for shady dealings. That same Len Farber who told us there was no problem with the family trusts condemned by the Bloc Quebecois as well as by the auditor general two and a half years ago.
Members will recall the two family trusts that moved from Canada to the United States. Two family trusts with total capital evaluated at $2 billion, transferred over to the U.S. without a cent of tax deducted. That same Len Farber, the great tax expert and organizer of shady dealings for the Minister of Finance, told us there was no problem, that everything had been done in accordance with the taxation rules, even if the decision at midnight to let these two trusts go without any problem had been made on December 23, 1990. At the end of the debate, Mr. Farber was taken down a peg because the Minister of Finance had been obliged to table a bill to block the loopholes that had allowed this near-illegal transfer of two two-billion dollar trusts to the United States.
That same Len Farber is given us as a reference by the Minister of Finance for an explanation of why there is no problem with Bill C-28. I met with him personally, along with one other person, in my office on the fifth floor, and it was explained to us that there might be a problem one day.
A minister introduces a bill which has an impact on a business in an area in which he works on the international level. Then a person referred by him tells us there could be a problem, a potential conflict of interest, that we need to be careful. We therefore began to wonder, and the fact is that the appearance of conflict of interest remains.
The minister then referred us to his ethics counsellor, who testified before the Standing Committee on Finance. Not only did he say there might be an appearance of conflict of interest, but he put it in writing. It was repeated time after time that a public inquiry was necessary for the sake of the Minister of Finance, that all appearance of conflict of interest needed to be taken away, because it made no sense to maintain the situation as it was. The minister always maintained that there was no problem, despite all the arguments to the contrary that were put forward.
Not often have we seen all four opposition parties present a united front. However, on this issue, members of the Bloc Quebecois, the Reform Party, the New Democratic Party and the Progressive Conservative Party held a joint press conference to demand an inquiry because of the appearance of a conflict of interest.
Not only was their request turned down, but when motions were tabled at the Standing Committee on Finance to call witnesses to shed light on the impact of Bill C-28 on the Minister of Finance's shipping companies, all Liberal members on the committee voted against these motions.
The minister and the government keep arguing that there is no conflict of interest or even the appearance of a conflict of interest. Yet, the Minister of Finance, who is sponsoring a bill dealing with international shipping, is the sole owner of an international shipping company that operates in tax havens.
How can you expect changes to the tax system? How can you expect the people opposite to be willing to review those tax conventions signed with countries whose tax rates are much lower than ours, and where tax evasion is possible?
I think we know the answer to that question. There is no willingness on the part of the government. The people opposite may be acting as judge and jury. We will not know for sure—and there is still some doubt in my mind—until we shed some light on Bill C-28, its impact and the appearance of a conflict of interest involving the Minister of Finance.
Is it any wonder the minister is unwilling to review the tax system? For five years now, we have been asking him to review the whole tax system in order to make it fairer. But he knew that the tax rates of shipping companies and our relationship with tax havens would fall under the scope of such an extensive reform, which is why he did not seem too eager to carry it out.
When we realized what was happening, we, in the Bloc Quebecois, decided to release starting in November 1996 two series of studies, some 350 pages, including very serious analyses and recommendations. In our studies, we suggested several changes to the personal income tax system to make it fairer and to give a tax break to middle-income Canadians who, need I remind you, have paid most of the $20 billion in new taxes the Minister of Finance has imposed since he was appointed in 1994. A large part of this $20 billion was paid by middle-income Canadians. Businesses in Quebec and Canada absorbed the other $17 billion in tax increases.
We presented a document on personal taxes which included critical analyses as well as recommendations. When we presented this document, the Minister of Finance praised us in the House. He said: “I praise the opposition for the serious work it has done on personal taxes and for its approach to this issue. I recognize there are problems and I recognize this document contains some good solutions”. He then took the document and put it at the bottom of his desk. When his desk was cleaned at the end of the summer, the document was put away in the circular file. We got no tax reform proposal from him.
Then we presented another document on corporate tax expenditures in Canada. It was an analysis of the main tax loopholes used by large businesses in Canada. Our analysis showed that some of these were outdated but cost billions of dollars a year to the Canadian treasury, and they still do, with the people of Quebec and Canada having to pay the difference in personal income tax.
We proposed abolishing certain tax expenditures and transferring these savings to small businesses to encourage job creation: for example, reduced payroll taxes and tax breaks for businesses that create jobs year after year.
The Minister of Finance said: “Another serious exercise”. Right. We can do without his praise. What we want is tax reform, and we never got it.
The Minister of Finance was so embarrassed about not doing anything that he decided to establish the Mintz group, a working group presided by Mr. Mintz, a highly competent tax expert. This group produced a large document. It took them a year as the deadline kept being postponed.
Some recommendations are worthwhile. Others are absolutely worthless. But to ease his conscience, the Minister of Finance asked the Mintz group to produce an analysis of tax reform. The group submitted its report last year. The Minister of Finance probably put that report on a shelf or in his desk. It did the same with it as it did with our two analytical studies on personal and corporate taxes.
There is no political will on the other side of the House to reform our tax system for the reasons I stated earlier. I see what the minister has done over the last five years. If there is anyone who follows him closely, it is me.
I see that the minister was coasting. Business was good, so he surfed, he rode the crest of economic growth. Money was coming in—corporations and individuals have paid $37 billion in taxes into the federal coffers over the past four and a half years—and he collected it. He also took in surplus after surplus in the employment insurance fund, to the tune of $6 billion a year, during three and a half years.
He is still collecting and wants it to be legal. He will ask his fellow ministers to be his accomplices in robbing the EI fund. He has cut assistance to the poor and the sick. He has cut billions from transfer payments to the provinces; by 2003, he will have cut $42 billion from transfers for social assistance, higher education and health.
He pocketed the money. Everyone—the sick, the disadvantages, seniors, students—tightened their belts while he collected. A real money machine. Favourable economic conditions, combined with cuts imposed on the poorest of the poor and cuts to health transfers, that is what he calls sound management of our public finances.
He could have taken positive steps instead of achieving the exact same result through decline management. He could have reviewed the whole tax system five years ago, when we asked him to; it was in fact part of our platform. He could have plugged the loopholes in the tax system with respect to tax havens. He could have reviewed the reciprocal treaties, that is, the tax conventions with countries considered tax havens. He could have avoided voting in favour of bills promoting international shipping, where he has some involvement. He could have done a whole lot of positive things for employment, equity and tax fairness.
But no, the Minister of Finance took advantage of the economic situation. Money was coming in and everything was fine. He looked like a good manager, but he is one of the worst we have ever had. In the past, the economy was not so kind to finance ministers. We have had Ministers of Finance who were less draconian than this one. They would not have dared take money from the sick, the unemployed, those on welfare, students and the less fortunate. There was respect at that point, which the Minister of Finance no longer has for anyone.
Bill S-16 is a good bill, because the countries involved have comparable tax rates. But it has given us an opportunity—and we will seize it whenever we can—to criticize the inertia and the lies of this government along with the measures it has not taken but ought to have to improve the lives of people in Quebec and Canada. These measures could still be taken, because the surpluses generated could be used properly instead of to repay part of the debt in a context that is very uncertain at the moment.
I remind you that we do not oppose repayment of the debt. When things are more sure, we will be the first to advocate using a large part of the surplus to repay the debt. At the moment, however, we have had three consecutive months of economic slowdown. The Statistics Canada composite index tells us there was no growth in August, something we have not seen for two years. Businesses' orders are down and jobs are beginning to stagnate in the area of trade.
It seems to me that all this together with the fact that the Bank of Canada stupidly raised interest rates by one whole percentage point on August 27 sent considerable shock waves through the economy, which was already weakened after three consecutive months of reductions in the rate of GDP growth. We thus have all the ingredients for a major economic slowdown in the months to come. Let us not forget that such a downturn means fewer jobs created, a loss of wealth and less tax revenues for the government. In short, it means hardship.
The Minister of Finance now has surpluses he should use to stimulate economic growth. He should at least do that good deed, given that he has not done any in the past five years. Let us give him the honour and ask him to take our request for a special budget seriously. He should consider using the surpluses to stimulate domestic economic growth by reducing taxes for middle-income people—who have been paying a lot in the past four years—and by reducing EI premiums, so as to give a break to businesses and workers, who have contributed more than their fair share in the past few years.
The minister should listen to the unanimous plea made by the premiers. They are asking him to reinvest what he shamelessly took from federal transfers to the provinces, and to use that money to fund social assistance, higher education and health. That is all we are asking him to do.
Having said that, we will support Bill S-16.
