Mr. Speaker, I will continue the speech that I commenced two days ago in this place.
We were terribly disappointed by the way the government handled the air security issue with the budget. Clearly all Canadians are concerned about the issue of air security. No one in the House and no Canadian would argue with the importance of that issue.
The government is putting a $2.2 billion tax on Canada's most vulnerable industry, the airline industry. This is an industry that has seen a remarkable level of consolidation in the last couple of years, the disappearance of almost all competition to Air Canada, a reduction in the level of services and a commensurate increase in the price that Canadians must pay for those reduced services.
We have seen what has happened to the CanJets, the Canada 3000s and Royal Airlines. At a time when some of these entities are trying to finance a return to air spaces the government is putting a $2.2 billion tax on this industry and forcing airlines and airline passengers to bear the complete responsibility in terms of paying for the air security tax. As many members have articulated on the floor of the House and in committee the benefit of secure air travel is received by society in general. There is a collective benefit to secure air travel. That is why in the U.S. there is only a $2.50 charge per flight as opposed to the $12 charge per flight that the government is putting on air travel.
It is a competitive disadvantage from a tax perspective for Canadian businesses and individuals compared with the U.S. The long term trend of the government relative to its management of the Canadian dollar may mean that at some point in the future $2.50 U.S. would be approximately equivalent to $12 Canadian, but we ought not to wait for that form of equalization to occur.
The fact is the U.S. recognized there was a collective benefit and while user charges and fees would cover some of the cost, there was a recognition that these fees should not be used to cover all of the costs, particularly at a time of economic tumult that impacted the airline industry more so than perhaps any other industry right now.
It would be bad enough if the government was simply charging Canadian air travellers and passengers to cover the complete cost of air security, but the government is going one worse. The government is charging $1 billion more over the next five years than that which would be required to cover the basic cost of security.
Finance officials have provided their methodology for having come to the $24 round trip fee and it is based on highly specious data. It is based on data that reflects a passenger count that is considered far lower than what would be the case over the next several years. This was based on an almost immediate post-September 11 passenger count and some extrapolation of that reduction which occurred after September 11, but certainly does not reflect what most observers and analysts of the travel industry feel to be a more realistic assessment of air travel in Canada over the next several years.
The government seems to be exploiting fears around September 11 to create a $1 billion tax grab in order to pad the books to improve general revenues in other areas. Not only is this bad public policy, it is morally reprehensible that the government would take such a terrible tragedy and use it as another way or means by which to wring an increased surplus out of Canadians. It is clearly wrong.
This is like EI surplus two which was an income security package or program designed to improve labour market flexibility and help unemployed Canadians by providing a cushion during bad times. The government used that program to pad the books of general revenue. Now it is taking an air security situation that emerged out of a tremendous tragedy and is using this situation to extract more tax revenues out of Canadians for general revenue and Liberal spending in other areas.
When we think of that Liberal spending in other areas, nobody in the House would argue with increased levels of health care spending or transfers to the provinces for health care and education. Under the government we have seen a dramatic reduction in health care transfers and transfers to the provinces. In fact fiscal restraint for the government means tightening the belts of the provinces by cutting back on transfer payments. It rarely means tightening its own belt and its own program spending.
Those cutbacks to transfers have resulted in a health care and education crisis in every province in Canada and a growing gap between have and have not provinces. Certainly some wealthier provinces, Alberta for instance, have the tax base to, in some cases, pick up the slack when the federal government makes such draconian cuts.
In a province like mine, Nova Scotia or, for instance, the province of British Columbia with the difficulties that province is undergoing from a budgetary perspective, we simply do not have the tax base to pick up the slack when the federal government makes such draconian and unilateral cuts.
That is why the whole issue of fiscal imbalance between the provinces and the federal government is gaining such importance and why there is so much agreement across Canada by the premiers that this has to be addressed.
There has been a growing fiscal imbalance in Canada. The provincial governments have as their ultimate responsibility the providing of health care and education. The federal government has reduced its role in terms of the funding in those areas so the provincial governments in some ways have what Mark Twain would refer to as a bad job. They have all the responsibilities but no authority. The provinces increasingly lack the ability to have tax levers to raise the type of revenue necessary to cover growing costs in education and health care.
The federal government, by pulling back, has created a situation whereby it can then re-enter national programs like the millennium scholarship program or the Canadian foundation for innovation and some of these other programs and appear like a hero. It provides the cheques with the maple leaves on them and takes credit for returning with a teaspoon some of the money it previous took out with a backhoe.
It is offensive to see this type of destructive federalism, this brinksmanship of provinces by the jurisdictional power grab of the federal government. There has been a trend by the government to again take over a lot of the traditional jurisdictional areas of the provinces by starving the provinces of the revenue necessary to deliver the services and then reappearing like some sort of fiscal super hero with giant federal cheques.
This is bad politically for a country that depends on maintaining constructive federalism on an ongoing basis. It is also bad public policy, because ultimately the provinces and municipalities, as the government levels closest to the people being served, are in many cases better able to assess the needs of those individuals and of those constituents to ultimately deliver services.
Medicare evolved out of a provincial experiment in Saskatchewan. A visionary premier saw a way to approach health care in a more egalitarian and thorough way and in a way that has come to define us as Canadians. Over a period of time and working with the federal government and with the support of parliament, medicare evolved to a national program. In some ways the provinces represent the best laboratories to experiment with and to develop social policies which ultimately will make better policies in other provinces as well as nationally.
When a province experiments with health care and is faced with significant federal cuts and is put in a position where it has to do something to maintain some reasonable level of service delivery and tries to be creative about it, the federal government brings in politics by doing public polling. Instead of working with the province to ensure that the principles and values we treasure as Canadians are met in potentially new, creative and cost effective ways, the government fights the province.This is constitutional brinkmanship at its absolute worst.
There are so many areas the government ought to have focused on in its budget. In recent days we have read statements by the Deputy Prime Minister blaming Canadian businesses for not being competitive enough. He is the same individual who as industry minister said that high taxes were good for business because they make businesses work a little harder. The only other person I can think of in the House who exemplifies economic buffoonery as much as the Deputy Prime Minister is the Prime Minister. Perhaps that is why they are getting along so well these days.
Instead of the government blaming the private sector for not doing enough, it should acknowledge its role in helping the private sector do more. May I suggest a couple of modest initiatives the government could undertake to help the private sector do more.
One initiative might be the elimination of capital taxes in Canada. We are one of the few industrialized nations that taxes companies simply for having capital, not for profit, but for capital. When capital is taxed, it pummels investment. When investment is pummeled, initiative is pummeled and this defeats and destroys productivity. That is one modest example of what the government ought to do and something I am offering constructively to members opposite.
Another initiative would be the elimination of the capital gains tax. Canada did not have a capital gains tax before 1971. There is no other tax that has a more pernicious impact on the growth of individual and family capital in order to ensure savings and growth of investment required for individuals and families, but also entrepreneurs, many of whom have their entire net worth tied up in a business. Reducing further capital gains tax with the ultimate goal of eliminating it would make a great deal of sense.
I have heard the government claim that our capital gains tax is lower than that of the U.S. This is a patently false statement. The fact is the inclusion rate and the ultimate effective capital gains tax is still significantly higher than that of the U.S. It would be an affordable area of taxation. We could not only equalize our level of taxation with the U.S., but for once we could be ahead of the U.S. if the government chose to eliminate personal capital gains tax in Canada.
I suspect that very little in the way of revenue is collected from personal capital gains tax given the tumult in the capital markets over the last year. Even during the bull markets the year before last, only about $3 billion was collected in capital gains tax.
The government can send $500 million worth of cheques to dead people, rich people, prisoners and students who do not heat homes with heating oil. If it can blow $500 million in a pre-election spending spree designed not at heating homes of Canadians but at trying to heat up Liberal prospects in ridings across Canada, I would suggest it could go a little further. It could give Canadian investors, Canadian families, Canadian individuals and Canadian entrepreneurs an advantage over the U.S. by eliminating the capital gains tax.
There is one other statistic with which I suspect most members may not be familiar. Over 60% of personal capital gains tax in Canada are paid by individuals who make less than $50,000 per year. The degree to which individuals in Canada from a wide range of income levels and socioeconomic areas now participate in the capital markets has never been as great. Part of this is mutual funds as a vehicle through which to ensure diversification with fairly small levels of investment, but the long term trend is that more Canadians than ever before from a wider range of income levels than ever before are investing. Canadians are making these types of investments. It would make a great deal of sense to assist Canadians a little more. A further capital gains tax reduction would make a great deal of sense.
When we hear the discussion of productivity, clearly it is not just tax levers and tax reform that are required. It is not just tax reduction that is required. I would argue that we need significant broad based tax reform in Canada focused on productivity. We also need regulatory reform. We need to work with the provinces across Canada on a national agenda addressing productivity issues in our tax system and in our regulatory system.
Beyond that we need to address issues of government spending. Clearly when taxpayers' money is spent on items that do not necessarily reflect the values of Canadians, the needs of Canadians or the long term best interests of Canadians, that money being wasted as such can actually have the perverse impact of reducing productivity. It encourages individuals to pursue activities that may not only not be in their best interests, but also may actually foster worse productivity.
I mentioned earlier the issue of fiscal imbalance. We have to readdress the issue of equalization in Canada. Equalization is an extraordinarily important social program. It is the only constitutionally enshrined social program in Canada. As it is now, our equalization system is broken.
The original goals of equalization in 1958 were to provide approximately equal levels of taxation and services across Canada. Clearly with the growing disparity between provinces both in services and in tax levels, that needs to be addressed. We should address it by reconsidering our economic development strategy as well. We should develop more effective tax based levers as other countries have utilized to develop more effective economic development strategies which would ultimately address some of the fiscal imbalance issues.
I have tried to cover a fairly wide range of issues, those which the government covered in the wrong way, but also those that the government ought to have covered but failed to cover. I hope that during questions and comments members of parliament will ask questions that will allow us to discuss some of the other issues we may share an interest in but which are difficult to cover in such a short period of time.