Madam Speaker, it is with pleasure that I rise to speak on Bill C-22.
The amendments to the Income Tax Act come as a result of the February 2000 budget and also as a result of the October mini budget, or economic statement or whatever semantics one would utilize to describe that pre-election document of the Liberal Party of Canada.
The amendments to the Income Tax Act represent a collection of baby steps. Some are in the right direction. Some simply represent a further complication of an already far too complicated tax code. Most represent the triumph of politics over public policy.
If we look at the general direction of these tax measures, we will find there is no general direction. In fact most of them have resulted from a flimsily put together pre-election document. The document is referred to as the mini budget and reflects a mini vision of Canada.
These baby steps and tinkerings do not reflect what Canadians truly need in an overall and significant broad based tax reform. Tax reform can be used as a vehicle to create greater levels of economic growth and opportunity. Instead of making tax tinkering part of a pre-election policy, we should seize the tremendous opportunity we have now with the budget surpluses to bring taxes down, but use tax reform and tax reduction in lockstep.
Typically with tax reform we always create winners and losers. However, if we implement tax reform and tax reduction simultaneously in lockstep, we can ensure that there are no losers created by significant tax reform. All Canadians then would be winners as we create a more competitive and less distortionary Canadian economy which is poised and positioned for significant growth and opportunity, particularly in new economic endeavours.
We have seen in recent years our competitiveness with our trading partners suffer. We have seen other countries like Ireland leapfrog over Canada and seize opportunities to grow and prosper while Canada languishes. Ireland had a 92% growth in GDP per capita over a 10 year period. During the same 10 year period Canada had a 5% growth in its GDP per capita. This is pretty anemic when we consider the extraordinary growth in Ireland, a country once referred to as an economic basket case. Now it is referred to as an economic lion. Ireland did that by utilizing significant tax reform, particularly focused on a reduction of capital and corporate income taxes.
One of my hon. colleagues opposite constructively offered her views on this. I appreciate her views, as someone with a profound understanding from her family perspective of Ireland, and I agree with her. Ireland's commitment to education over the last 20 years to 30 years has strongly helped position Ireland. That being the case, Canada has by and large with its provincial and federal governments over time made significant commitments to education, so I would argue that that part of the equation has been done quite well.
We could improve our commitment to education, as could any country. It could be argued that Ireland could improve its commitment. The greatest difference between the two environments at this point is not in their commitment to education, it is their commitment to tax reform as a lever to create greater levels of economic growth and opportunity. That is the part we have to address, and I am certain she would agree with me on that front as well.
If we look at the government's record on economic issues since 1993 and how international confidence has been demonstrated in the government's record since 1993, there is no better gauge by which to judge the government than the performance of the Canadian dollar. We have seen under this government a loss in the Canadian dollar relative to the U.S. dollar of about 11 cents. The dollar reflects the shareholder value of Canada has seen a significant decline under the government. Under the previous government there was a one cent decline over a period of nine years. This government has achieved an 11 cent decline in a period of about eight years.
Every time our dollar goes down it is effectively a pay cut for every Canadian. We depend on the U.S. to such a significant amount as our trading partners. From a consumer perspective, given the degree to which Canadian consumers buy from U.S. companies, it significantly reduces over a period of time their disposable income.
It also has a very negative impact on productivity. Canadian companies in the short term do not necessarily see the need to make productivity enhancement a priority if they can hide under this low dollar policy of the government.
The low dollar also damages productivity in the long term. Companies that purchase productivity enhancing equipment or technological advancement software, et cetera from the U.S. are less inclined to do so if the dollar is low. As a result it becomes a self-perpetuating prophecy that in fact the low dollar creates in the long term lower levels of productivity by actually reducing incentives for companies to do the right thing and build their productive capacity in Canada.
In general, what is particularly disturbing about the state of the Canadian dollar is that the Bank of Canada has in recent years pursued a high dollar policy, yet Canadians are suffering as under this low dollar result. The Bank of Canada under its policies has targeted inflation rates in Canada of about a point lower than those which are considered acceptable by the federal reserve in the U.S. Despite this high dollar policy, we are getting this low dollar result. We have to carefully analyze and respond to the fiscal inadequacies of the fiscal framework in Canada.
The government describes having a balanced approach. The fact is a balanced approach is not the appropriate approach if we have significant inherent imbalances in the economic framework, and we do have some significant imbalances. Some are with taxation, not only in terms of overall levels of taxation but particular types of taxation which in and of themselves have the most negative impact on economic growth. Unfortunately, some of the taxes which are most politically palatable to reduce are ones that will probably have some of the smaller impacts on economic growth and opportunity. Some of the tax reductions which would spur the greatest level of economic growth are those that sometimes are less popular politically.
In the short term, and particularly after an election, the government should take some risks and tackle some of the major issues and addressing tax reform and the reduction of some of Canada's most productivity damaging taxes. I will speak about a couple of them.
One is our dependence on capital taxes in Canada. Capital taxes reduce investments and the incentives for Canadians and people outside of Canada to invest in the country. If we look at any study on productivity, there is a strong correlation between productivity and investment. If we tax capital and investment to the degree we do in Canada, that will have a significant negative impact on productivity enhancement.
The government has made some reduction in capital gains taxes. The government says that the effective rates of capital gains taxes are lower than in the U.S. That is not the case. We are still higher in Canada than in the U.S. However, the most important thing to recognize is the missed opportunity of the government to eliminate personal capital gains taxes. In this one instance we would be ahead of the U.S. in a very critical area of the economy, that of taxing capital gains and encouraging investment as opposed to discouraging investment innovation.
The government is losing this opportunity because of political reasons, the same reasons why the Liberal opposition fought vociferously against the GST. It was a case of politics then and it is a case of politics now. That is why it is not moving more aggressively to address capital taxes in Canada, specifically capital gains taxes.
I am focusing my comments today on tax reform, but we also need to see a greater commitment to debt reduction which in time would strengthen the Canadian dollar through fiscal policy.
In short, we are asking the Bank of Canada with one blunt instrument, the interest rate, to try to strengthen the Canadian dollar. We are ignoring in many cases the fiscal policy issues that could be addressed by the government, but it refuses to talk about the dollar. It also refuses to talk about some of the concrete measures it could take through fiscal policy to address the dollar.
We could also utilize tax reform in lockstep with equalization and other policies as part of our economic development strategy. I mentioned earlier the tremendous success that Ireland has enjoyed over the last 12 years. Some would say that comparing Ireland to Canada is not the best possible comparison because of the degree to which Ireland received EU transfers in order to allow it to invest so significantly in tax reduction. That argument is not necessarily a bad one. However if we want to look at the best possible comparison, we could compare Atlantic Canada today to Ireland 10 years ago.
Today we have a hodgepodge of economic development policies and agencies such as ACOA for Atlantic Canada. We also have our equalization policy which is the only constitutionally enshrined spending program of the government. I would suggest we should develop a tax policy in consideration of some of our economic development strategies.
In Atlantic Canada for example, the total budget for ACOA is a little more than the total amount of federal corporate taxes paid in Atlantic Canada. If we were to try to think in a more imaginative and visionary way about this, we could see the possibility exists with some assistance to eliminate federal corporate taxes in that region of the country to spur economic growth and opportunity. Quite possibly this could have a greater level of impact on economic growth than would result from the activities of ACOA.
I am not saying that ACOA has not had a positive impact in some areas. My personal belief is that in many ways it was probably a more appropriate instrument in the old economy than it is in the new economy. In the new economy tax measures have demonstrated far greater traction in achieving results in targeted areas than have direct investments by agencies such as ACOA.
We need to invest in infrastructure. If the Atlantic innovation fund focused on infrastructure, universities, technology transfer strategies and commercialization, those sort of initiatives could be very beneficial. I have great concerns about government agencies making direct investments in individual companies.
Another potential role for ACOA would be for it to take part, through the Atlantic innovation fund, in syndicated investment. Effectively the participation of ACOA would not be as an individual investor in a company, it would be part of a syndication of investors, the majority of which would be private sector investors.
That could help by reducing overall risk and encouraging private sector investment in particular geographic and sectoral areas, so that is a potential role. However, we need to get far more creative about how we encourage tax reform as a vehicle for economic growth. We must also consider other public policy priorities, such as economic development, and work more creatively in that regard.
On a technical issue, Bill C-22 would allow tax deferred rollover treatment for Canadians who hold shares of foreign corporations that have been subsidiaries to the parent shareholders. Some companies do not qualify because the bill would require distributing corporations to have their shares listed and actively traded on a stock exchange. That is inherently unfair. It is my understanding from the Parliamentary Secretary to the Minister of Finance that the issue will be addressed in future amendments and legislation. I would be supportive of that and would encourage the anomaly to be addressed.
In terms of general tax reform, the government would do well to dust off the Mintz report on corporate taxation and implement its recommendations without significant amendment. That would go a long way to improving competitiveness and reducing the distortionary nature of our tax code.
We must move aggressively not just to reduce taxes in totality but to reduce those which have the most negative impact on economic growth and opportunity. Jack Mintz, in his report to the Minister of Finance, went a long way toward doing that. However the report has collected a lot of dust and has not garnered the respect it deserves. The significant changes that should have followed the report never occurred.
To compare the way the current Liberal government deals with the erudite reports of great Canadians like Jack Mintz to the way the Mulroney government dealt with such reports, we need only look at the great report of Donald MacDonald on free trade.
Donald MacDonald had been a Liberal cabinet minister yet the Mulroney government recognized the inherent benefits of following the recommendations of the MacDonald commission. The Mulroney government pursued a controversial free trade policy, fought an election on it and did what was at the time relatively unpopular. In the 1988 election over half of Canadians voted against free trade yet the Mulroney government had the courage, vision, foresight and wisdom to pursue innovative policies and do what was right.
That is what I hope to see from the current government. I hope it has the courage, vision and foresight to pursue an aggressive policy of innovative tax reform and thereby create greater economic growth and opportunity for all Canadians.