Madam Speaker, it is a pleasure to speak to Bill C-24.
As my colleague in the party formerly known as reform said, it was my party that actually brought in the GST. I am proud to say it was my party which had the foresight to replace a counterproductive tax called the manufacturers' sales tax with one called the GST. In fact, it has been recognized as not only one of the fairer taxes, but as one of the least negative in terms of its impact on the economy.
Members of the party formerly known as reform, the party that dare not speaketh its name, and the Liberal Party seem to have embraced that previously opposed tax because it was and is the right policy.
It took a party that was willing to take a significant amount of risk and which had a high level of vision and focus on the future of Canada, not simply a focus on next week's polls but instead on the challenges and opportunities facing Canadians well into the 21st century. That was the Progressive Conservative government of Brian Mulroney. It is to his credit that that policy has ultimately aged very well.
It is clear that Canada needs a significant level of tax reform. There has not been a significant level of tax reform since the time of the GST going back to I believe 1989 when the tax proposals were first discussed and debated. Ultimately the GST was implemented in the early 1990s. That was a major shift in tax reform in Canada, primarily because it enabled the country to move from a purely income based tax system to a consumption based system. That in itself is recognized by most free market economic theorists around the world as being more sensible in taxing income.
The fact is we have to raise revenue. Oliver Wendell Holmes once said that taxes are the price we pay for a civilized society. The question is how we tax people and the amount to which we tax people. Those questions determine largely the degree to which we have a productive and viable economy capable of producing the level of economic wealth and prosperity to sustain the very social programs, benefits, health care and education that we value as Canadians. It is very important to consider the degree to which tax reform can be a great vehicle in creating economic growth.
Other countries have leapt ahead of Canada in this very critical area. Ireland for example has had a 92% growth in its GDP per capita over the last 10 years, largely based on an aggressive and innovative tax reform strategy. Ireland's tax reform was based largely on creating a corporate tax strategy which attracted a significant amount of investment from around the world.
When the finance committee studied the issue of productivity last year, it was clear from a number of economic minds that there was a significant link between investment and productivity in the new economy. Clearly productivity gains are critical and exceptionally important in creating economic wealth and prosperity in the new economy.
The question is: How do we do that? Clearly there is a strong linkage between capital and productivity. The types of productivity enhancements that are necessary to create economic growth today require significant levels of capital and investment. Tax policy that encourages investment, that attracts capital, will ultimately lead to greater levels of productivity. Greater levels of productivity will ultimately lead to greater levels of economic growth and competitiveness for Canada.
Our productivity growth or lack thereof, or the degree to which our productivity growth has lagged behind our trading competitors, particularly the U.S., threatens the standard of living that we value as Canadians.
We have seen during the 1990s a significant decline in our disposable income relative to the U.S. We have had about an 8% decline during the same period that Americans have enjoyed a 10% increase. Our productivity growth has lagged behind the U.S. while other countries—and I cited Ireland a few minutes ago—have had extraordinary growth, 92% growth of GDP per capita. In the last 10 years the U.S. has had around 15% to 20% growth in GDP per capita. Canada has had about a 5% growth in GDP per capita.
As other countries and individuals and businesses in other countries are getting richer, Canadians in a relative sense are getting poorer. That in part is the reason we have seen our dollar lose almost 10 cents under this government since 1993. A dollar that lost only a penny during the nine years of the Mulroney government has lost under this government almost 10 cents.
The Prime Minister's response was that a low dollar is good for tourism as it reduces the cost for Americans to come to Canada. His theory is that Canada can devalue its way to prosperity. The logical corollary of his illogical argument is that ultimately if we continue on this trend we could reduce our dollar to zero and thus would become the greatest trading nation in the world because we could give all our products away and things would be very productive and beneficial from that perspective. Obviously the Prime Minister's theory on monetary or fiscal policy is as sound as his theory on most policy issues.
This is a government that is a government of sound and original ideas. Unfortunately its sound ideas are seldom original and its original ideas are never sound. The degree to which the government has relied on the sound fiscal policies of the previous government and the structural changes made to the Canadian economy by the previous government to fuel its economic growth has been unprecedented. There has never been a government that has fought as vociferously against the very economic policies it ultimately ended up embracing as this government.
As we discussed, those policies included the GST, free trade, deregulation of financial services, transportation and energy. Liberals members opposite fought every one of those structural reforms tooth and nail until they were elected, at which point they embraced the policies because they were the right ones.
In some ways we should commend Liberal members opposite for swallowing themselves whole upon being elected in 1993, sacrificing their principles at the altar of reality, doing what was right for Canada and embracing the sound policies of the previous government. For that I commend them and thank them because they were willing to put aside principle in the interest of doing what is right for Canada, which is adopting the right policies that they vigorously opposed in opposition.
My colleague from the New Democratic Party spoke at length of the soundness from an economic perspective of eliminating the GST or reducing the GST with a goal of eliminating it. There would be nothing worse in terms of our tax policy reform than eliminating or reducing the GST at this point. The GST raises about $22 billion worth of revenue, which is a greater level of revenue than what we draw from corporate taxation in Canada. Raising that revenue actually has a less negative impact on the economy than any other form of taxation. I did not have the opportunity to ask the member for whom I have a significant amount of respect about it. I disagree vehemently with many of the policies of the New Democratic Party, but I do respect its consistency as opposed to the flip-flop party in the government opposite or the party formerly known as Reform. Its members have adopted one policy of the Liberal Party to change its policies at whim to try to appeal to the populist winds that blow not just across the prairies but anywhere in Canada where they feel they may be able to buy the odd vote.
Even though I vehemently oppose the economic naivete that permeates NDP policy, I do respect its principles that remain fairly consistent in opposing things like the GST. The New Democrats to their credit were opposed to the GST and continue to be opposed to the GST. The New Democrats to their credit were opposed to NAFTA and continue to be opposed to trade.
I am supporting their consistency in maintaining what I believe to be bad policies. However I would prefer a party and individuals in a party that for principled reasons maintain policies that I disagree with than parties that simply embrace the latest political whim or populist leaning out there. Government by populism is an abdication of leadership.
Leadership means not just simply doing what is popular but it means doing what is right. Leadership means not just responding to today's polls but in fact looking ahead of where Canadians are today and trying to determine where the country is going relative to other countries. Leadership means looking at global trends and putting in place a policy framework that responds very strongly to the future opportunities and challenges facing Canadians.
With the abdication of leadership to a large extent that has occurred in political service, there seems to be almost a vacuum of vision, foresight and courageous leadership in today's political environment. On the other hand the Progressive Conservative Party continues to bring forth visionary tax reform policies, including the elimination of the personal capital gains tax. Certainly this is not because the elimination of personal capital gains tax is a populist idea that would resonate across the main streets of Canada necessarily but because it is the right policy.
If we want to create the greatest level of economic growth and prosperity for Canadians sometimes we have to say and do what is right. In terms of its impact on the economy there is no tax that has a more deleterious impact on the new economy, on wealth creation and on capital formation for the new economy than the capital gains tax regime.
We have a 13% disadvantage over the U.S. in areas of capital gains taxation, even after the recent budget which was a step in the right direction but a baby step when other countries are taking gigantic leaps. Elimination of the personal capital gains tax would give us a 20% advantage. For the first time in a long time Canada would actually have an advantage in a very important area of taxation. In the most critical and fundamentally important form of taxation in terms of its impact on the new economy Canada would have an advantage over the U.S. We would become a magnate for investment in the new economy as opposed to the repellent we have become under the listless, rudderless leadership of the government.
In another area of tax reform we need a redefining of the middle class in Canada. Clearly our current tax brackets penalize success in a very unfair way. Americans do not hit the top marginal tax rate until $420,000 Canadian. In Canada we currently hit the top marginal tax rate at about $60,000. After full implementation of the recent budget that figure would be $70,000. At $70,000 Canadian, even after the full implementation of that budget, we would still see Canadians hit the top marginal tax rate.
A family today making $70,000 per year is not rich. It is naive to think that someone making $70,000 per year in Canada, and particularly a family with dependants, would be rich. This creates a huge disadvantage when Americans do not hit that top income threshold until $420,000.
This means that a technology worker, a software engineer for instance in Vancouver who is making $72,000 per year, is paying 52% of his income in federal and provincial taxes. The same individual at the same level of income in the same industry an hour and a half away in Seattle would be paying about 26% of his income in taxes. We need to redefine the middle class in Canada. We need to adjust our tax bracket significantly to recognize that there are many people in that very critical area.
I see my colleagues from Quebec here. Quebec's policies on the new economy have been very successful in creating a greater level of economic growth whether it is in biotech, e-commerce or knowledge based industry. Quebec has done a commendable job in terms of growing the economy in these areas, but it has been without the assistance of the federal government and with a lack of leadership in terms of the types of tax policies that would attract knowledge based industry to Canada in general.
I would hope that my colleagues from Quebec would share with us their vision of the new economy. It is extraordinarily important for all regions of Canada to develop policies that attract the innovators, not just keep the innovators in Canada which is probably the wrong headed place to start. Instead of the notion of trying to keep the people here, why do we not develop policies that actually attract the best and the brightest?
Whenever we shoot for a fairly low goal we end up achieving a lot less. We should be developing the types of policies that attract innovators to Canada. Quebec has been quite successful in developing provincial policies that have been helpful in terms of doing so.
The federal government made a recent announcement of another $400 million for ACOA to invest in a technology fund in Atlantic Canada. There is some discussion about that, as nebulous as it might be. Governments and government agencies have been inconsistent and continue to be notoriously bad at picking winners and losers. There is a no more complicated area of the economy in terms of the difficulty in separating winners and losers than the new economy.
As much as I think ACOA has done some very good work at various times, we would be far better served to see a reduction in corporate and capital gains tax in Atlantic Canada by the amount the government is proposing to increase the ACOA allotment for new economy investments. Reducing taxes in Atlantic Canada, particularly those taxes that have the most negative impact on the new economy, would be far more sound than increasing the budget of an agency for direct lending and grants to the new economy. That is my feeling.
In a general sense we need to reduce and ultimately eliminate the personal capital gains tax in Canada if we want to speak to the new economy entrepreneurs and create a greater level of economic growth in the sectors we need to be competitive in. We need to reduce our corporate tax levels to at least OECD levels. While the government has made a pathetic, anemic, little baby step in the right direction, other countries are leaping ahead of us far more quickly.
We need to redefine our middle class by adjusting our tax bracket significantly, but not to the extent that is being suggested by the party formerly known as Reform in its flat tax proposal. Steve Forbes fought two U.S. elections on the flat tax. He was unsuccessful in both cases because the flat tax was too right wing for U.S. Republicans. The flat tax is too right wing for the government of Mike Harris and Ernie Eves. It has been cited by individuals including Mr. Eves, the finance minister in Ontario, as being unfair overall and not being appropriate. I would argue that for very sound reasons it will be less saleable in Canada than it has been in the U.S and, from a principle perspective, it is not an appropriate policy.
We should be building our tax policies around growth and not greed. We should be focusing on reducing the types of taxes that most negatively impact on our ability to compete in the new economy. We have to recognize that lower taxes in some cases do not necessarily result in lower revenue. In fact, reducing capital gains taxes would create such a significant level of unlocking of capital in Canada that we would ultimately raise significant levels of revenue in other areas.
Alan Greenspan, the federal reserve chairman in the U.S., has recommended the elimination of personal capital gains tax from the perspective that it would unlock a significant level of capital and help entrepreneurialism and economic growth in the U.S. That is the very same priority we should have in Canada.
In closing, the legislation is a collection of tiny little baby steps on tax policies by a government that is incapable of the broad sweeping changes and courageous vision that the previous government had. After the next election, I look forward to, being in position as part of a Progressive Conservative government, making the types of changes Canadians need.