Madam Speaker, I am pleased to rise in debate at third reading of Bill C-47, an act respecting the taxation of spirits, wine and tobacco and the treatment of ships' stores.
Let me begin by saying that Canada continues to lead the G-8 when it comes to taxing its citizens. In fact, has the Liberal government ever seen a tax that it did not like? Canadians are very concerned about the high rate of tax they pay. Certainly working Canadians are concerned about the high rate of tax they pay: All they need to do is look at their pay slips.
The bill would further increase the taxes on tobacco sold in Canada, which would include tobacco sold in Canadian duty free stores. However, because of the special status of duty free stores this legislation will have a disproportionate effect on them. Canada probably would be the first country to impose a tax on products sold in duty free stores, thereby undermining their reason for existence. It does not make any sense that we would tax duty free stores on the spirits and tobacco they sell when in effect their reason for being is to avoid having customers pay tax.
This new tax undermines the fundamental principle on which duty free shops were established in Canada, namely, that customers could shop there free of taxes and customs duties. Once customers' perceptions change, traffic patterns are affected. All provinces have duty free stores for Canadians who leave this country to visit other countries. Sales of all other products would be hurt as a result as a result of this tax, which would undermine the viability of the outlets and their key role in the local economies.
The federal government created and promoted the duty free industry to support small business, job creation and the sale of Canadian made goods. The outlets also provide an essential service for travellers, making vacations in Canada more attractive. The duty free industry has been profitable, allowing it to generate local economic benefits like jobs, purchases from suppliers and rents in commercial buildings and at airports. Most people who leave and return to the country by air shop in these duty free stores.
However, the imposition of a new tax on tobacco products threatens to undermine these economic spinoffs. Imposing this tax on duty free outlets in order to benefit health is symbolic. Duty free stores account for only a very small portion of tobacco sales in Canada. Moreover, applying this tax to duty free tobacco outlets would more than likely shift sales to another retailer rather than stop sales outright, thus the disadvantages of the bill far outweigh the benefits.
I will speak briefly about the business tax policy. Increasing taxes is a Liberal habit that is as harmful to the economy as smoking is to someone's lungs. Business taxes in Canada need to be reduced to the average rate of the OECD countries so that Canadian businesses can be competitive. This would mean a combined provincial and federal tax rate of about 35%. Allowing for various provincial rates of taxation, this means that the federal portion would need to decline to a little over 20%.
We should also target capital taxes, high sales taxes on business inputs and high personal taxes on business owners and their workers. A more progressive step would be for the government to shift from investment and savings taxes to consumption based taxes. This would only be fair to all wage earners in this country. In other words, one's taxes would be based on how one spends.
Canada could adopt a personal expenditure tax and more taxes based on the user pay principle. This would reform business taxes by reducing rates and eliminating distortions that impede the business sector from taking full advantage of the best economic opportunities.
The PC Party is the only party that advocates the complete elimination of the capital gains tax, not only because its elimination would free up capital for investment and make a difference in our actual economic performance but also because it would be a bold and symbolic act that would capture the attention of and send a message to the people around the world who invest. As we know, our country depends on overseas investment.
The bottom line is that there is strong evidence that lower capital gains tax rates induce higher revenues in the longer run, largely as a result of increased economic growth and subsequent payment of more personal and corporate income taxes. A study in the United States demonstrated that completely eliminating the capital gains tax in that country would lead to a $300 billion increase in national output. That amounts to nearly one million new jobs and an addition $46 billion in tax revenue due to economic growth. In other words, the more money the government leaves in the wage earner's pocket, the further it will go. We all know that money needs to go around in cycles in order to make the economy grow.
The United Kingdom, Germany, Norway and Sweden have all adopted more aggressive tax cutting strategies than Canada has. Germany reduced its capital gains tax by 50% and Great Britain by 75%. Norway completely eliminated all forms of double taxation of capital income.
President John F. Kennedy spoke disparagingly about the capital gains tax as early as 1963. That is a long time ago. He stated:
The tax on capital gains directly affects investment decisions, the mobility and the flow of risk capital...the ease or difficulty experienced by new ventures in obtaining capital--
Capital gains tax also creates economic inefficiencies because it encourages a locking in effect, whereby owners of capital hold on to their investments and miss more profitable investment opportunities. The United States has a very accommodating capital gains rate of approximately 20%. Last year Canada reduced the capital gains inclusion rate to 50%, putting us closer to the United States levels, but that parity is fleeting. We will soon be lagging behind again.
A deeper look reveals that even after our tax cuts, the U.S. tax on costs for industries is about 14.2 percentage points below the Canadian tax regime. This means that rather than making us a haven for jobs and investment, we are still at a competitive disadvantage when compared to the United States. The United States is Canada's only significant competitor for investment capital and it is beating the pants off Canada. Despite admittedly impressive growth in venture capital in Canada, the United States enjoyed a 170% increase in 1998-99, from $32 billion to $87 billion. In the first half of 2000, Canadian venture capital was $2.3 billion compared to $80 billion in the United States. That is quite a disparity.
Let us look at that statistic in a different way. New United States venture capital disbursements were 19 times larger than those in Canada in 1998 and 32 times larger in 1999. Although this gap is now starting to reduce, more needs to be done.
In the old economy the purpose of taxes was to redistribute income. In the new economy high taxes redistribute people. Over the last few years we have heard of people moving to the United States to work because the American rate of income tax is lower. When Canada's tax policy dictates that workers earning $100,000 must pay 52% of their income in taxes those highly valued workers will look elsewhere. We know of people who have looked elsewhere and moved elsewhere. This is particularly risky for Canada in the digital economy where valuable intellectual property assets, expertise and energy depart with every professional who crosses the border.
In the United States the highest rate of taxation does not apply until income reaches $400,000. An American earning $100,000 pays a rate of only 26%. That is quite a difference from the Canadian rate of 52%. It takes a considerable act of patriotism to choose Canada. The people who are tempted to leave are those with fewer roots in the country and fewer attachments to our lifestyle advantages like health care. They are often young people the country needs to grow and prosper.
Taxing income discourages people from earning, saving and investing, all of which are crucial to economic growth. If the government took 52% of every dollar people earned many would ask why they should earn any more. According to Jack Mintz, a professor of taxation at the University of Toronto's J.L. Rotman School of Management, the costs in terms of lost output are $15 billion to $140 billion a year, or from $500 to $4,500 per person per year. Replacing income taxes with sales taxes would be a drastic but beneficial move.
As I have illustrated, taxation has many negative effects on the economy, investment and job creation. It would certainly have a negative effect on microbreweries and tax free shopping. There is no doubt the microbrewery in Winnipeg would be negatively impacted by Bill C-47. Besides the fact that it would attack the tobacco industry by increasing taxes, Bill C-47 is another example of the distortionary and harmful effects of myopic Liberal tax policies.
Has the Liberal government ever seen a tax it did not like?