House of Commons Hansard #164 of the 37th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was peace.
David Collenette LiberalMinister of Transport
Mr. Speaker, as I have already explained, discussions have taken place with my counterpart, Mr. Ménard, regarding highway 30. As I have said publicly, this is a priority for the federal government. We will continue to work with the Government of Quebec to find a solution. Our party supports this highway.
Loyola Hearn Progressive Conservative St. John's West, NL
Mr. Speaker, my question is for the real minister of the environment. Despite that the minister of fisheries says the issue of overfishing on the Atlantic coast will not be addressed at the summit in Banff, practically every country that fishes on that coast will be represented there.
Will the minister confirm that he will raise the issue of overfishing on the Atlantic coast? He will be negligent if he refuses to do so.
Robert Thibault LiberalMinister of Fisheries and Oceans
Mr. Speaker, the Minister of the Environment is a past minister of fisheries and shares all our concerns for the fish off the nose and tail of the Grand Banks.
Like the rest of cabinet, the rest of government and hon. members of the House, he will not let an opportunity go by to promote proper management of our fishery resources.
Sarkis Assadourian Liberal Brampton Centre, ON
Mr. Speaker, my question is for the Minister of Finance. Statistics Canada has released its latest analysis of employment and productivity.
Could the Minister of Finance explain to the House the importance of the most recent reports on the performance of the Canadian economy with the creation of almost 88,000 new jobs in March?
Paul Martin LiberalMinister of Finance
Mr. Speaker, the question of the member for Brampton Centre is very much to the point. In terms of productivity on a year over year basis, Canada's productivity at 2% matched that of the United States for the first time in a long time but that is still not good enough. We have to do better than the Americans.
One area where we are doing better is in terms of job creation. In the first three months of this year over 170,000 new jobs were created. That is the best job record since 1987. In the month of March alone at 88,000 jobs it is the best record since we started keeping records in Canada.
The House resumed consideration of the motion that Bill C-47, an act respecting the taxation of spirits, wine and tobacco and the treatment of ships' stores, be read the second time and referred to a committee.
Lorne Nystrom NDP Regina—Qu'Appelle, SK
Mr. Speaker, I was in the process of answering a question posed of me by the finance critic in the Conservative Party about the Tobin tax, the tax on the speculation of currency.
I want to confirm to him that speculation on currency occurs on very small margins. A very small tax on the speculation of currency will sort out speculation around the world, which would be positive in terms of international development in the world community.
A tax on speculation would slow down speculation in the world on currency exchanges. Three years ago the House of Commons passed a motion agreeing that we should adopt the idea of the Tobin tax, a small tax that would slow down the speculation of currency and at the same time build up a huge international development fund. I am sure the finance critic of the Conservative Party, on giving it a second thought, would agree with my position
Scott Brison Progressive Conservative Kings—Hants, NS
Mr. Speaker, I have a question for the hon. member for Regina--Qu'Appelle regarding the Tobin tax. How would he propose that our floating exchange rate mechanisms would be able to work if we were to put a tax, a small tax albeit but still a tax, on currency speculation when the good kinds of speculation which we require to maintain a floating exchange rate mechanism have such minute, tiny margins? My difficulty with the Tobin tax is that it would not discourage the type of speculation that is focused on the hot money movements that lead to meltdowns. It would actually discourage the kind of good speculation which we need in order for countries like Canada to maintain an independent monetary policy. That is a real concern.
How would he propose that the Tobin tax would work when, if 200 countries agreed to it, all it would take is one country, 10 countries or 15 countries to not agree to it and all the money through electronic means would be transferred through accounts in those countries?
Lorne Nystrom NDP Regina—Qu'Appelle, SK
Mr. Speaker, I suppose I should let the member from Nova Scotia explain what is good and bad speculation, and what is big and small speculation. I am not sure if he can do that. It is a pretty arbitrary definition of speculation.
The member for Brandon--Souris would know the answer to that. I certainly could not help him there except to say that the vast body of opinion does not share the concern that he has. The vast body of opinion that is looking into this issue thinks that a very small tax would deter the bad speculation, the kind of speculation that wreaks havoc with the different currencies around the world.
We would need to have this tax to be an effective tax along with the co-operation of most of the major financial players in the world. There are only about seven or eight that are really major, such as the European Community, Britain, the United States and two or three others like Japan. This is a means of doing something to curb the speculation in the world, to curb the volatility of the currencies and also to help the international development fund.
Bill Casey Progressive Conservative Cumberland—Colchester, NS
Mr. Speaker, it is a pleasure to speak to Bill C-47. Based on the debate I heard from the member for Regina--Qu'Appelle and others we would not know it was Bill C-47 because they talked about the airport security tax, the Tobin tax and all these things. I will follow his lead and talk about something else myself.
Bill C-47 is a housekeeping bill that would do a lot of things to clean up the act as far as tax collection goes and to define things for people involved in the wine, spirits and tobacco industry. It would do a variety of things including increasing the tobacco tax by $240 million annually, which will be the lead-in to the subject I want to talk about.
I feel obligated to mention a few things about Bill C-47. It would change the framework governing taxes on spirits, wine and tobacco. It would make the duty charged on wine the same as the duty currently charged on spirits.
The bill would bring in licensing registrations and regulations for the transportation industry to prevent trafficking and control of the movement of spirits and wine. It would create new provisions for offences for those breaking the law with regard to wine, spirits and tobacco.
The legislation would merge some already existing taxes which should make it simpler for industry to handle. It would make the federal tax on cigarettes the same all across the country which it should have been all along in any case.
I was watching television the other evening and I saw a Health Canada ad that said 45,000 Canadians die from smoking cigarettes every year. I thought to myself that figure could not be right. That is 10 times the number of people killed in the World Trade Center attack, and according to the ad it happens every year. I thought it must be wrong.
I contacted the Department of Health to clarify the figure and to ensure it was not providing the wrong information to Canadians. The department sent me a report confirming that in Canada 40,000 to 45,000 Canadians die of smoking related diseases. That is the same as having a World Trade Center attack every month. It is absolutely incredible. If we were to think about this, 45,000 Canadians die every year, year in and year out.
The report goes on to say that this impacts on the cost of living in our society of $15 billion a year. It is $2.5 billion directly to our health care system at a time when it is strained to its very edges, and yet we have this extra burden that does not have to be there.
The report from the Office of Tobacco Control, Health Protection Branch, stated:
According to this analysis, smokers cost society about $15 billion while contributing roughly $7.8 billion in taxes.
If it is killing 40,000 to 45,000 people a year it hardly seems like good value. A rough calculation indicates that at 41,000 people dying per year with a $7.8 billion tax revenue, that amounts to $190,000 per person. This is crazy. It is absolutely ridiculous that 45,000 people a year die from tobacco related diseases.
I commend and encourage the health minister to use these ads more that tell us about the dangers of smoking and about the incredible costs incurred. I encourage her to do more of these ads and make them clearer. I want her to point out the number of people who die every year in Canada is the same as 10 World Trade Center attacks. In the U.S. it extrapolated into an unbelievable number, but we are not talking about the U.S. we are talking about Canada.
The Canadian government, the military, everybody in Canada has turned a focus on the horrible terrorism act in New York which killed 4,000 people, but we have 45,000 people dying every year from smoking related diseases. It seems to me a misguided focus. If we are to address this issue the government has to come up with more ways to discourage people.
In the documents provided on Bill C-47 the government says it would increase the taxes on tobacco by $240 million annually. It claims that this would discourage tobacco consumption. I do not think that $240 million will discourage tobacco consumption enough. It does not provide educational material for young people, for smokers and does not help people get off the smoking habit. That is not nearly enough based on the numbers available and based on the study on the costs of smoking in Canada.
The numbers are absolutely incredible. They just go on and on in this report about the damage. It says that in 1991 approximately $2.5 billion in health care costs was attributable to smoking. That was 4% of the total health care budget in Canada.
That is just the beginning. There are extra costs for hospitals, physicians and absenteeism, and all other costs attributed to the smoking habit, which in 1991 was estimated at $15 billion. If we were to think about that, the whole health care budget was only $66 billion and the smoking attributable costs were $15 billion.
While we are talking about Bill C-47 and extra taxes on tobacco I raise the alarm bell and encourage the Minister of Health to increase those ads and put them into perspective for people so they can understand how dramatic the damage is that smoking is doing to our health, especially to young people, based on the charts and information that Health Canada supplied me. I hope we can raise the level of public awareness on this.
I compliment the Minister of Health for placing these ads. I have spoken to her today about how effective they were on me. In fact, they were so effective I thought they were wrong. The numbers are so high, they are hard to believe. I hope the Minister of Health will continue those ads, maybe even broaden them out and put them into perspective for people.
When I say that 45,000 people a year die in Canada people shake their heads and say that it is a lot. However, when I put it into perspective and say that it is 10 times the number of people that were killed in the World Trade Center they are flabbergasted. That is almost a World Trade Center catastrophe every month in Canada.
We should not accept this. We should not stand for it. We should do everything we can to bring this awful disease or addiction or whatever we want to call it to a minimum level at all costs because the real cost in money and in lives is incredible, especially at a time when much of the time we spend in the House is talking about health care.
Here we are spending $3, $4 or $5 billion on health care costs which could be controlled or reduced. I hope we do that in this case. I want to say those numbers again. That is $3 or $4 billion in health care costs because of smoking related and smoking attributable ailments.
When the government is talking about raising an extra $240 million in taxes as opposed to the cost directly attributable to our health care system of $4 billion, it is incredible. We should all be aware of this and the government should be doing more to raise public awareness of the situation and push for a correction.
I will now go back to Bill C-47 which is what the bill is about, although the bill does mention tobacco. It has several clauses with respect to tobacco, tobacco controls and tobacco taxes. I would like to see much more of that restriction. I would like to see a more concentrated, focused and increased effort on controlling tobacco and helping people get off the tobacco addiction.
Does Bill C-47 have some positives? We think it does. Bill C-47 would merge taxes which already exist to make it simpler for businesses to handle. It would make the taxes on tobacco the same right across the country, which is what it should have been all along. It would change the form of penalties resulting from excise tax, and we support the move in that direction. The increase in the export duties should discourage smuggling Canadian cigarettes back into the country which has been a problem in the past although it is reduced now.
On the down side, Bill C-47 increases the taxes but again does not specify where the taxes will go. Will it go toward helping people to understand their addiction to tobacco and the terrific price it costs in human lives, sickness, dollars and the strain on our health care system? Will that be where the money goes or will it go into general revenue like the EI fund? It is absolutely wrong for the $40 billion surplus in the EI fund to be going into general revenue. I consider that to be fraud. Every employee in Canada who gets a paycheque pays an EI premium but it is not an EI premium. It is an extra tax. If the government wants to take this money and put it into general revenue as a tax it should be marked extra Liberal tax, but it is not. It should be designated as a Liberal tax and not an employment insurance premium.
I appreciate the chance to speak to Bill C-47. We will be supporting Bill C-47 but I do hope my comments have not fallen on deaf ears. I hope the Minister of Health understands that I appreciate what she has done in the direction of raising public awareness of the damage smoking does to health and the costs to our health care system but I hope she will enhance that. I hope she will put more money into that budget and maybe take some of this money and put it into a budget to increase public awareness and help people get off the addiction to tobacco.
Jason Kenney Canadian Alliance Calgary Southeast, AB
Mr. Speaker, I would like to take the opportunity to ask my colleague from Cumberland--Colchester to clarify his position. Am I to understand that he is in favour of raising the excise tax on tobacco products significantly above the level proposed in this bill? If so, to what level would he propose to raise it?
Does he base this on any scientific or empirical data about the correlation between tobacco use and prices? If so, I wonder if he could make reference to that because I have heard competing information. Some data suggests that while tobacco prices have increased over the past three decades so in fact has teen tobacco use. I wonder if he could comment on that.
Finally, would he not agree with me that if the government is to raise additional revenues through the excise tax on tobacco that these revenues should be offset through commensurate tax reductions in other areas?
Bill Casey Progressive Conservative Cumberland—Colchester, NS
Mr. Speaker, somehow I could tell he was going to ask me a question by the way he was looking at me.
Increased tobacco taxes could be part of a strategy, but certainly not the only part of the strategy to discourage smoking especially among young people, to decrease the terrible cost to health and health care in Canada in actual dollars. It could be part of the strategy but it has to be a wide strategy of education, restrictions, maybe higher taxes and a variety of other things.
Much of the revenue from Bill C-47 could go toward preventing tobacco smoking and toward encouraging people to quit smoking. Should the revenues be offset by others? I do not think that is necessary at this time. I think the revenues should be dedicated to fighting tobacco addiction.
Rahim Jaffer Canadian Alliance Edmonton Strathcona, AB
Mr. Speaker, I would like to follow up on the question posed by my colleague concerning taxes on tobacco.
One of the fears in raising tobacco taxes has to do with the problem we had the last time when taxes were at an all time high. The increase in black market sales became a significant problem in the provinces of Quebec and Ontario, and even in the west. The government's response to that was to reduce the taxes on tobacco so it could be sold at a reasonable price and then hopefully the government could then, as the hon. member said, look at directing those taxes into more meaningful programs. However the government did not do that.
I am curious to know what his response would be in the event of significantly increasing taxes on tobacco, especially if the black market continues to grow and people are still accessing tobacco through underground routes, something which I think is a significant problem.
Bill Casey Progressive Conservative Cumberland—Colchester, NS
Mr. Speaker, I do not believe that was a tax problem. I believe that was a law enforcement problem. Just because the law enforcement systems in the country were not successful in enforcing the law does not mean the circumstances change. I think the system has been improved but I do not think it has been totally addressed.
The hon. member referred to selling tobacco at a reasonable level. I am not sure what a reasonable level is if tobacco sales generate 40,000 or 45,000 deaths per year even though it generates $7.8 billion in taxes. I divided 41,000 deaths into $7.8 billion and it came out to $190,000 per person. For every person who dies the government generates $190,000 in tobacco taxes.That is an awful way to generate tax revenue.
Peter Adams Liberal Peterborough, ON
Mr. Speaker, I listened with great interest to what the member for Cumberland--Colchester had to say. I also listened to the question and there clearly is a balance here.
I am pleased to see that taxes on tobacco products are rising in various jurisdiction in the United States. I think it helps us with the question which the member addressed before.
I wonder if the member would give us his thoughts on the other side of the question. Like him I am very concerned about it. I am involved with groups in my riding that are actively working to reduce tobacco consumption among young people. People often ask me why the government does not completely ban tobacco. I have some thoughts myself. I am in an area very close to tobacco growing and I sort of know the answer to my own question.
I wonder what the member's thoughts are on banning tobacco products all together.
Bill Casey Progressive Conservative Cumberland—Colchester, NS
Mr. Speaker, if the hon. member for Peterborough were to bring in a petition to ban tobacco I think we could do it.
I am not a smoker and never have been so I cannot share the feeling of an addicted smoker. I do not know what is involved. I have to couch my words because it is not fair for me to say we should ban cigarettes and everybody should stop smoking. I know it takes a tremendous effort to stop smoking.
However, if the hon. member for Peterborough were to consider that according to the Department of Health numbers we have the equivalent of one World Trade Center disaster every month, year in and year out, then there is a strong argument that we should take a lot of action to deal with it.
As a country, in partnership with other countries all around the world, we have taken strong action to fight terrorism which resulted in the 4,000 or 5,000 person deaths, the horrible tragedy and attack in New York City. Here we have one happening every month in our own country. I should not say that we make very little effort to do anything but I do think we should do more.
I do not know if banning tobacco is the answer. I would probably try to go in the direction the government has gone with some success but I would go further. I would put more pressure on the industry, provide more help for smokers, more information for young people and more ways to discourage people from smoking.
Darrel Stinson Canadian Alliance Okanagan—Shuswap, BC
Mr. Speaker, I have grave concerns when it comes to taxation on any product. I find it rather strange that we want to talk about taxation instead of education. I think we are missing the boat here.
The government can tax cigarettes, tobacco and spirits all it wants but an underground market will be created. I think it is time the government started to look at education in the schools to inform the young people of exactly what happens. What is wrong with showing a cancerous lung or someone suffering from asthma or a similar condition? What is wrong with showing the school children exactly what happens?
The government can tell young people not to do it but chances are they will do it. The more costly the government makes it the more it will be in demand.
Bill Casey Progressive Conservative Cumberland—Colchester, NS
Mr. Speaker, the member may not have heard me earlier say that taxation should be part of a strategy to help people with this addiction and that education would be a big part of it. Industry pressure and public awareness would also be part of it.
I was startled when I saw the government ad on television that said 45,000 people a year die from diseases attributable to smoking. I thought it was so wrong that I asked for the report. The report showed that it was right. That is the equivalent of one World Trade Center attack every month in Canada.
We can do more in the House and the government can do more. It is a wide range of things from taxation to education, pressure and public awareness.
Peter Adams Liberal Peterborough, ON
Mr. Speaker, I would like to answer my own question. I tend to agree very much with the member's point of view. I think I have the sense about education, that if we tell kids to do something they very likely will do it.
I think the answer is that prohibition did not work. I mentioned that I live close to a tobacco growing area. I also live close to Lake Ontario. If we look back at what prohibition did for alcohol consumption, it did the opposite to what it tried to do. In fact it glamorized alcohol and made the situation worse, and we are still recovering from it.
I appreciate my colleague's interest in this matter and that would be the point that I was trying to make.
Bill Casey Progressive Conservative Cumberland—Colchester, NS
Mr. Speaker, seeing as how the member answered his own question it is difficult but I feel obligated to respond. I understand that the member comes from tobacco growing area and that is a big part of the agricultural industry in his area. That is always a problem. We need to create balance or help that industry as well if there is a big effect. I understand that position but I think we can do a lot more.
Rahim Jaffer Canadian Alliance Edmonton Strathcona, AB
Mr. Speaker, I am pleased to rise in the House today to speak to Bill C-47. At the outset, I would like to say that I will be splitting my time with my friend and all around great guy, the member for Medicine Hat.
Bill C-47 attempts to amend the Excise Tax Act. I will begin my remarks by taking this opportunity to first of all thank my leader, Stephen Harper, for entrusting me with the responsibilities of critiquing the government as the senior opposition critic for national revenue.
As we know, the Canadian Alliance is dedicated to reducing the size and scope of the federal government in order to deliver meaningful tax relief to hard-working Canadians. As a small business owner, I have firsthand knowledge and experience in dealing with the difficulties inherent in complying with CCRA regulations and remittance schedules. I look forward to being an advocate on behalf of millions of Canadian small and medium sized businesses that prosper in spite of the federal government's insatiable appetite for tax revenues.
Bill C-47 addresses excise tax. Although I am opposed to the government's intervention into the freedom of choice of Canadians through taxation, I will be supporting the legislation as it has been endorsed by industry stakeholders and modernizes the framework of excise taxation on wine, spirits and beer.
The proposed excise tax 2001 aims to replace the existing old and antiquated administrative and enforcement structure governing alcohol and tobacco products with a modern regime reflecting current practices. It does not address the tax rate and base matters other than to ensure equitable treatment between domestic and imported products.
The proposed act shifts compliance and point of taxation from a sales levy to a production levy for the production of wine. This is already the case for distillers.
The changes introduced for spirits and wine are regulatory in nature and tax neutral. The primary purpose of these changes are to modernize how these products are taxed to allow distillers and vintners the greatest flexibility in their production practices and to ensure an internationally competitive tax regime.
From an industry perspective the proposed legislation also provides for an appeal and assessment process. Previously industry had no recourse against the government if it felt unfairly treated.
The motion also contains significant enforcement tools to crack down on contraband products. This is a major feature of the proposed legislation and is welcomed by industry.
Changes in the act make it easier to enforce existing laws and provide stiffer penalties for conviction. For example, under the proposed legislation the maximum fine for producing contraband alcohol would be up to $1 million and up to five years in jail for indictable offences. These are industry-led, spirits and wine, and supported changes. There are no losers because of this legislation with the exception of contraband producers.
It is the second aspect of Bill C-47 with which I personally have problems. The bill also seeks to increase the federal excise taxes on tobacco products and to re-establish a uniform federal excise tax rate for cigarettes across the country of $6.85 per carton. The stated purpose of this tax increase is to improve the health of Canadians by discouraging tobacco consumption.
The federal excise taxes on cigarettes will increase $2.00 per carton in Quebec, $1.60 per carton in Ontario and $1.50 per carton in the rest of Canada. This will bring the total federal excise burden on cigarettes to $12.35 per carton. Federal revenues will increase by approximately $240 million per annum through this tax hike.
We all want Canadians to live a healthier lifestyle, especially our youth. The reduction of smoking is a big part of that. My problem with this legislation is philosophical and based on the process. The past decade has proven that high levels of excise tax on cigarettes do not reduce consumption. It only creates an underground market. The role of government is to provide information for consumers to ensure that citizens have an informed choice. Make no mistake, it is the right of individuals to choose whether or not they want to smoke.
It is my belief that the government is increasing the tax levels simply to increase revenues. It is the only politically correct tax increase at its disposal, and the finance minister has never found a tax he did not like.
There are many Canadians out there who believe that excise taxes are dedicated to specific spending, that tax revenues on cigarettes and alcohol are spent on health care and that gas tax revenues are spent on roads. The truth is that while federal excise revenues have increased, transfers to provinces for health care have decreased.
What are Canadians going to get in return for this blatant tax grab? I challenge the government opposite to detail what its plan is for the revenues.
Contrary to what the government thinks, Canadians are not stupid. The tax increase is of the same ilk as the airport security tax. The Liberals are manipulating the concerns of Canadians to finance their next election campaign. The government opposite cannot escape its past nor its record. The transitional jobs fund, Shawinigan, Groupaction and everything Alfonso Gagliano ever touched raised doubts in the minds of Canadians regarding Liberal accountability, ethics and fiscal restraint.
The Liberals have once again piggybacked meaningful legislation and political opportunism. The Prime Minister in the past has appointed a qualified Canadian and a Liberal hack to the other place at the same time. When one criticizes a patronage appointment, the Liberals defend it with the credentials of the qualified candidate. Today they are hiking taxes under the guise of tax fairness, and that is unethical. The Liberals are politically savvy and ethically devoid.
I will support the legislation because it is in the best interests of Canada's emerging industries. However through this piece of legislation, the government has added another chapter to the red book of Liberal shame.
Monte Solberg Canadian Alliance Medicine Hat, AB
Mr. Speaker, it is my pleasure to rise and address this legislation today. I want to take a little different tack than my friend just took a moment ago, but I am very sympathetic to a lot of the things he had to say.
The reason the government is proposing to raise the excise tax on cigarettes is it believes that if it raises the tax on cigarettes young people will be sensitive to that price increase and therefore will not smoke as much. The proposals are to raise the excise tax, I think $2 in Quebec, $1.60 in Ontario and $1.50 in the rest of Canada.
I would like to go from there. If the government believes that raising taxes on cigarettes will discourage a particular kind of activity, I simply point out that raising other taxes also discourages activity.
For instance, right now the government is in the process of raising CPP premiums. In other words, raising payroll taxes. What kind of activity does that discourage? It discourages the hiring of employees because when we raise a tax we create a tax wedge between the price that employers would typically pay to hire an employees and what goes beyond what they would be willing to pay. In a case like CPP, and sometimes between the CPP and EI premiums, it gets to a point where employers say that it is simply just too much tax and they will not hire particular employees.
I wanted to point that out because the government cannot have it both ways. It cannot say that higher taxes on cigarettes will discourage smoking for young people but raising CPP premiums will not discourage hiring. In fact it is the same in both cases.
This is a problem not just with CPP premiums. It goes well beyond that because although income taxes are not going up in Canada right now they are still much higher than they are in other jurisdictions. Therefore the same principle applies. If we have taxes that are higher in Canada than they are for instance in the United States, our largest trading partner, people then will say that they cannot afford to do business in Canada but can afford to do business in the United States. Even having taxes that are mildly lower for instance in some areas in Canada than they are in the United States will not do the job because business people and investors look at the total package.
The government has made much about the fact that corporate taxes are mildly lower in Canada than they are in the United States. However what it neglects to understand is that people who are casting about for a place to invest want to have access to the U.S. market. They used to come to Canada because they had pretty much assured access to the American market. That has changed now since September 11, so we have to go well beyond just having one tax mildly lower than it is in the United States. I am talking about corporate taxes. We need to have the whole basket of taxes much lower than they are in the United States, if we ever are going to fulfill our potential as a nation.
Again, the same principles apply to corporate taxes, income taxes and other taxes as apply to excise taxes. We cannot have higher taxes without discouraging particular kinds of activity, and the same thing applies on income taxes, capital gains and corporate taxes. The government has to realize that.
I cannot believe that the government has been able to stare a 62 cent dollar in the face and not have some kind of a vision or strategy to start to attract investment back from the United States and other parts of the world and to keep investment already in Canada. We know there is a huge capital outflow in Canada today. This is partly driven by high tax loads. As a country, we have to have a strategy to attract some of that investment back. Why? Is it because we just want good numbers or we want to have a bunch of money pour into the country to benefit a few people? No. It benefits the entire nation.
When investment flows into a country, it can be used to purchase equipment to make it more productive as a nation. Talented individuals can be hired to improve one's business, to produce new products, to be innovative and take initiative. When that is done, good paying jobs are soon produced and one comes up with new markets for the products. All of a sudden more people can be hired and there is a demand for good people.
If we were to keep that up, there would soon be enough activity in the economy that the unemployment problem would not exist any more. Instead of the old story of three people chasing one job, it would become three jobs chasing one person. Ultimately the entire country would benefit. We would not have a situation like the one we have in Canada today.
Although we have a relatively low unemployment rate compared to where it was a few years ago, we still have an unemployment rate that is completely unacceptable. Millions of Canadians still cannot find work. If we had a job market that was absolutely on fire, businesses would go into areas of unemployment to offer people on the job training and the skills and abilities necessary to succeed. It has happened in other jurisdictions.
In Alberta the economy is heating up again. The Alberta economy in the last number of years has been so hot we have attracted people not only from all over Canada but from all over the world.
In Brooks, Alberta where I live there is a meat packing plant and an oil industry which attract people from all over. Many people have come from Atlantic Canada because they cannot find jobs in Atlantic Canada. We have low taxes in Alberta. We have an environment that is conducive to business. Businesses start to look around for people to hire. They advertise in the newspapers across Atlantic Canada.
People come from all over the world to my little town. It is an amazing place now. What used to be a farming and ranching town made up of a couple of generations of people who came in the 1920s is now a very cosmopolitan place. There are people from all over the world. People come from Asia, Africa and eastern Europe to our little town because we have lots of jobs due to the prosperity that has been created by a climate that is conducive to business.
I simply want to point out the inconsistency between what the government is doing on excise taxes for cigarettes and its overall approach to taxation. In this case it understands that raising taxes on cigarettes may dissuade young people from buying cigarettes but it does not seem to understand, or at least we do not see it in budgets, that lowering taxes invites people to invest in the country. That is obviously a very serious problem.
As our dollar continues to plummet, more and more people are coming to the understanding that their standard of living is in peril. The industry minister a couple of years ago pointed out that Canada's standard of living had fallen below that of Mississippi and Alabama, the poorest of the poor American states. That came from the industry minister on the government side.
It is time for the government to wake up and address this serious issue which impacts every single Canadian today. If it finally does wake up and starts to address it, I can guarantee that the official opposition will support it.
Pauline Picard Bloc Drummond, QC
Mr. Speaker, I am pleased to address this bill on the taxation of spirits, wine and tobacco and the treatment of ships' stores.
Let me say from the outset that the Bloc Quebecois supports this bill. However, I would like to draw attention to an issue on which the bill is silent, namely the tax imposed on Canada's small regional breweries and called the excise tax on beer.
There are several small regional breweries in Quebec. I know that there are also some in Ontario and in other regions of Canada. These small businesses are called microbreweries. I would like to name a few from Quebec: the Brasseurs de la chasse-galerie, in Candiac; the Brasseurs RJ, in Montreal; the Brasseurs du Nord, in Blainville; the Brasserie McAuslan, in Saint-Henri; Unibroue, in Chambly; the Brasserie Saint-Arnould, in Saint-Jovite; and the Seigneuriale, in Boucherville. I am sure that I forgot some. I just wanted to point out that there are several such breweries in Quebec.
The Brewers Association of Canada represented these people before the Standing Committee on Finance, in October. They told us about the difficult situation that these microbreweries are currently facing. They submitted a very good brief and they presented strong arguments in favour of a reduction of the excise tax imposed on Canada's small breweries.
I want to mention that both the Minister for International Trade and the Minister of Finance were approached. They were informed of the problems currently faced by small breweries. The ministers promised to look at the matter, but we have yet to hear from them. However, it is important that the government look at the situation of microbreweries. We want to export our products—because we are proud of them—both from Quebec and Canada, but we must give our producers the means to develop them.
Let me explain the situation and the context. In the context of globalization, these small businesses called microbreweries must compete with foreign businesses that have a much smaller tax burden than Canadian companies.
In an increasingly open market, competition is not necessarily coming from within but, rather, from established breweries abroad. These businesses often enjoy preferential tax treatment, which allows them to sell their products at more competitive prices. The Canadian parliament must keep this in mind when legislating.
Currently, France, Germany, Belgium and our U.S. neighbour grant their small breweries a reduction on excise taxes. Canada is one of the few industrialized countries that refuses to give what could be called a privilege, a fair treatment or excise tax parity to its small breweries.
For example, let us take the case of one microbrewery in Canada and another in the United States. In Canada, a brewery producing 6.5 million litres pays federal excise tax of 28 cents a litre, for a total of $1.8 million.
In the United States, the same entrepreneur in Boston, for example, would pay $585,000 rather than $1.8 million, or a tax of 9 cents a litre. So, as hon. members can see, the excise tax in Canada is 28 cents, while in Boston it is 9 cents.
These figures, I think, speak for themselves. For the same production, there is a difference in taxes paid of $1.2 million. What, Mr. Speaker, would you do if you were planning to develop a microbrewery? It would be in your interests to go to the States, because otherwise all your profits would be swallowed up. A company cannot survive such a tax.
This is why the Brewers Association of Canada is calling upon the Government of Canada to make a 60% reduction in the excise tax on the first 75,000 hectolitres produced by Canadian breweries producing a maximum of 300,000 hectolitres annually. In this they have the support of the four largest Canadian breweries belonging to the association. Speaking of major Canadian breweries, I would like to name a few, but I know very well that everyone knows their names.
It must be mentioned that between them, the 53 breweries that pay excise taxes shell out $19 million per year. That is not small potatoes. A study done in 1995 of Ontario breweries demonstrated that the excise tax is nine times greater than profits in the sector, profits estimated to be $2.1 million. Therefore, $19 million was paid in excise taxes by 53 breweries with estimated profits of $2.1 million. Something is not right with this equation. Excise taxes are disproportionately high compared to revenues. This kind of approach leads to bankruptcy. Something really must be done.
There are also repercussions in the regions. These small breweries can be found in just about every region. They are small businesses set up in small communities, which contribute a great deal to their development. They are tourist attractions, which generates employment, and consequently, more financial resources.
Unfortunately, as I explained earlier, this unfair and untenable situation that the industry is up against constitutes a very real threat. Only three months ago, there were 19 small scale breweries in Quebec. Now there are six. They are handing over their profits and them some in excise taxes. These breweries are often being forced into bankruptcy or dire financial straits. Only six of 19 are still in business because five went bankrupt, three closed their doors, two were sold and three are experiencing temporary difficulties.
The situation demands to be rectified. The government must now make decisions that will help these small entrepreneurs.
I am referring to Quebec, but I know that you being a Franco-Ontarian, Mr. Speaker, are surely experiencing the same problem in the regions of Ontario. I spoke of Franco-Ontarians, but the situation also applies to all of Ontario, English speaking Ontario. There are microbreweries for which I could probably quote similar figures.
It begs the question: given the current state of affairs, why should microbreweries continue to invest in Canada, when there are incredible benefits to setting up shop in the United States? I mentioned the example of Boston earlier. Clearly, if I were an entrepreneur wanting to make a profit, by doing an impact or feasibility study, I would see that staying in Canada is not to my advantage.
The excise tax represents a very heavy burden for these small Canadian businesses. It is therefore urgent that the excise tax program be amended.
In other sectors of activity, small businesses investing $1 million in land, equipment and facilities are successful. They hire fifteen or so people and have sales of $1.5 million to $2 million. They make a profit and shareholders take a profit. They are successful.
For microbreweries, it is a completely different scenario. With sales of $1.5 million to $2 million, they barely break even; no clear profit, but a requirement to pay a little over $200,000 in excise taxes to the federal government. The excise taxes are unrelenting. Let us be clear: excise taxes are higher than labour costs. There is no logic to this; the excise tax makes no sense.
The government must recognize that small breweries are distinct and should be taxed accordingly. The government is the only party that still does not recognize this. The amendment requested is minimal compared to the revenues generated by the general tax. The proposed tax break would represent only 2% of what the government collects in excise taxes. Let us be clear that this concerns a small sector which is highly labour-intensive, manufacturing-intensive, with heavy investment, a sector which plays a vital role in small communities and in their provinces.
The current fiscal regime simply does not correspond to the reality of microbreweries. Today, the taxes in this sector add up to 58% of the sales price; excise taxes represent 16% of the sales price, compared to only 4% in the United States. The conclusions are simple: a small brewery operating in Canada pays four times more in excise taxes than one operating in Boston, U.S.A.
If we look at competition within North America, beer sales are considerable between Canada and the United States. For there to be fair competition, it is imperative that the cost structure in both countries be as harmonized as possible.
On both sides of the border, small breweries are manufacturing special products and are competing in the same market. The international situation is such that all distributors in Canada now stock imported beers, which account for 8% of the market. Generally speaking, imports have more than doubled during the last ten years, while the market share of Canadian microbreweries has remained almost unchanged. They are not competitive, particularly as far as the giant U.S. companies are concerned.
One of the reasons for this is that Canadian producers—this is the reason—must pay nearly three times as much in taxes as their American competitors. South of the border, small U.S. breweries are better able to strengthen their trade activities because they shoulder a lighter tax burden, they are able to open new markets and expand their territory.
In 2000, the number of American breweries with an annual production of less than 75,000 hectolitres with exports to Canada doubled compared to 1995, climbing from 6 to 14. Something is not fair. The Americans are able to double the number of companies doing business here, yet we cannot even operate because we pay too much in excise taxes.
For more than eight years now, Canada has been complaining that the U.S. does not respect NAFTA rules and has adopted protectionist measures for its small breweries. NAFTA allows the free trade of goods, but in the current context, the result is catastrophic for small breweries. They are unable to fend for themselves on an equal footing with small American breweries.
The North American Free Trade Agreement is not the problem; the problem is our neighbours, who are not respecting it. They are using discriminatory tax provisions to give their microbreweries an advantage, and as a result, they are penalizing ours. We know they are good at respecting rules when it suits them. We have seen this with softwood lumber; in that case, it does not suit them.
Moreover, what we have to say today, the Minister for International Trade has already heard, as I have said. The minister had no objection to extending the same privileges to small Canadian breweries. As I said, nobody has yet moved on this. Even the Minister of Finance has been informed of the situation, but we are still waiting.
Our businesses are capable of producing products that compare very favourably with others. Our entrepreneurs want to be able to manufacture or sell them at competitive prices. Yet a bad taxation system prevents them from holding their own with foreign competition.
In 1992, Canada made a court challenge on non-compliance with the agreements of the GATT, now known as WTO, or World Trade Organization. A committee mandated to analyze the complaint found that the imposition on eligible producers by the U.S. federal government, as well as some of the state governments, of a lower excise tax on beer sold outside the country, combined with some other practices in place in various states, was not in compliance with U.S. obligations under the GATT or WTO, in that imported beer did not receive the best national treatment.
Ten years have now gone by. Not only has the American government maintained its position, but a number of states have implemented new measures giving their producers favourable treatment. This constitutes real discrimination against the importers of Canadian beers to the U.S.
In conclusion, I feel it is urgent to take steps if we want to see this small brewery sector survive. A reduction in the excise tax on small Canadian breweries, the microbreweries, would respect the policies adopted by the majority of the world's beer producing countries.
Our microbreweries have now been waiting more than eight years for duty parity. The impact on government revenue would be minimal, but the advantageous impact on the sector is undeniable. The government has a duty to do everything in its power to ensure the success of companies and individuals. Reducing the excise tax for Canada's small breweries constitutes one approach to encouraging their growth. This is part of a policy aimed at enhancing the country's productivity and the standard of living of Quebecers and Canadians.
In closing, I would again make the Minister of Finance and the Minister for International Trade aware of the situation so that they will keep the promise they made to the brewers' associations of Canada to reduce the excise tax on microbreweries.
Jason Kenney Canadian Alliance Calgary Southeast, AB
Mr. Speaker, I am pleased to rise in debate on Bill C-47, an act respecting the taxation of spirits, wine and tobacco and the treatment of ships' stores. Members of my caucus have already addressed the principal aspects of the bill, which we intend to support, while I note that we have certain very pertinent concerns. My colleague from Edmonton--Strathcona outlined them as they relate to the provisions of the bill dealing with the excise tax on tobacco products, which will increase revenues to the federal treasury by at least $240 million.
It is our concern that this could lead to an increase in the black market in tobacco products and furthermore that the $240 million will find its way into general purposes in the general revenue fund. We believe that any targeted tax increases of this nature, which are designed to achieve a certain social outcome such as the reduction of tobacco use among youth, ought to be offset by a commensurate reduction in general tax rates elsewhere. To do otherwise is to fail to recognize that Canada continues to have an inordinately high tax burden, which disadvantages Canadian industry entrepreneurs and reduces the amount of capital available in the country for investment in job creation. I share those concerns with other members of my caucus.
I would like to take most of my time to join with the member who just spoke in addressing a pertinent issue that did not find its way into the bill, namely, the treatment of microbreweries, which are an important part of Canadian industry. The bill would have been the perfect place in which to address the inequity of taxation of microbreweries. Indeed, the government has received representations from the Brewers Association of Canada, as has the House of Commons finance committee, to rectify the discriminatory application of excise taxation on these very small, entrepreneurial, craft style breweries.
The House of Commons finance committee heard from the Brewers Association of Canada last October, when it recommended in a very compelling submission that the government reduce by 60% the excise taxation for the first 75,000 hectolitres of production for microbreweries, which the association defines as those that have an annual production output of less than 300,000 hectolitres per year.
Currently small breweries pay $19 million a year in excise taxes. Those are the 53 breweries in Canada that produce less than 300,000 hectolitres a year. That $19 million in federal excise tax exceeds by nine times the $2.1 million of collective profits reported by those 53 companies. In other words, the amount the federal government is taking from these struggling entrepreneurs outstrips by nearly a factor of 10 the profits they are able to retain to reinvest in their companies to purchase capital assets that are necessary for these companies to continue. This is a very grave situation for the microbrewery industry in Canada.
Several provinces have addressed this. British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia and Newfoundland have all adopted a lower rate of provincial excise tax to be applied to microbreweries. Indeed, this reflects international precedents throughout the world and among our major economic competitors in the United States.
About 21 million hectolitres of beer are sold and consumed annually in Canada. Of that enormous amount only 3.4%, and I admit to having contributed to a small part of the figure, has been produced by small breweries, namely those with a production of less than 300,000 hectolitres per year. This gives us an idea of how small a piece of the overall market they are.
I am a partisan of microbreweries. I am a big fan of what I think is Canada's finest microbrewery and finest brewery, period. It is known as Big Rock and it happens to be in my riding. It produces tremendous products like Traditional Ale, Grasshöpper Wheat Ale, Warthog Cream Ale, and my favourite, McNally's stout. Its products are famous throughout Canada. It is an award winning microbrewery founded by distinguished Calgary lawyer Ed McNally. It has done very well notwithstanding the discriminatory tax regime it finds itself fighting against.
It is interesting. There are only four companies responsible for 93% of the beer sold in Canada, and they support the proposal for the government to adopt a lower rate for smaller breweries. They are not threatened by the small microbreweries. They see microbreweries like Big Rock in my riding and Unibroue in Chambly, Quebec as an opportunity to increase their market share by increasing beer consumption. They are not afraid of this kind of competition. They see that the application of one excise tax to all companies of all sizes is not fair.
Total excise duty revenues to the government for beer currently amount to about $580 million. If the government were to adopt the recommendations of the Brewers Association of Canada, remembering that they produce only 3.5% of the product and pay about $19 million in excise tax a year, the reduction would represent only 2% of the total excise for beer collected by the federal government. A 60% reduction in the excise rate for small brewers on the first 75,000 hectolitres would be a tiny reduction in government revenues. As the brewers association points out, “the impact would be no greater than could be felt from the market effects of poor summer weather”. It would have no significant impact on the federal treasury.
Were we to allow these breweries to generate a small profit and reinvest it we would see them expand their market share and exports. Even at a lower excise rate the federal treasury would see an increase in the total amount paid by the companies. It would likely see total excise tax revenues for microbreweries increase at a lower rate given the incentive it would create for new investment, production and consumption in the industry.
I will illustrate the magnitude of the tax and address the impact it would have on small brewers. Excise is the highest federal tax paid by the brewing industry. It is the highest cost borne by microbrewers. It is currently $27.98 per hectolitre. That means the excise duty equals the average cost of operating a small brewery. The cost is estimated to be about $30 per hectolitre. Direct labour costs are estimated at about $27 per hectolitre. This means the excise tax, which is insensitive to profit and is charged and collected even if a brewery is losing money, equals the total cost of running a small brewery in Canada.
A benchmark study conducted by the brewers association in Ontario in 1995 found that taxes represented the largest category of costs, amounting to the equivalent of total production costs including raw materials. The study said the tax burden was extremely high “particularly considering that microbrewers are effectively small businesses often competing with large companies”.
Most of the companies reviewed in the study lost money. Normal rates of return fell short by $17 per hectolitre. The companies are producing a great product, they are working hard and they are entrepreneurial. Yet they are not able to generate a profit. That is why many of them are going under. There is a high bankruptcy rate in the microbrewery industry in Canada.
The findings suggest the federal excise rate places brewing companies at a significant disadvantage compared to other small business in Canada. The Income Tax Act sets out a preferential lower rate for small businesses as opposed to large businesses. We do not expect family owned corner stores with capitalizations of a few hundred thousand dollars to be able to compete while paying the same fixed level of taxation as a Safeway or Loblaws. It is not possible given their much smaller economies of scale and higher costs. That is why I think all parties in this place support the principle of a lower small business tax rate.
The brewers association is simply asking that the same logic be applied to the brewing industry. This would allow us to recognize that the costs of producing microbrewery products in small operations are much higher than for Labatt or Molson, companies which retain profits and have huge factory operations across the country, enormous economies of scale and great capitalization. They can afford to pay a higher excise tax rate. Indeed, they have endorsed the idea of a differential rate.
Another important factor is international competitiveness. The United States has a much lower federal excise tax rate on microbrewery products. It charges only $9.35 per hectolitre for products sold in the United States while Canada charges $24.06. That is a difference of 146%. When Big Rock Brewery in my constituency, Granville Island Brewery in Vancouver or the brewery in Chambly, Quebec try to export their products into the United States they are at a 146% cost disadvantage because of the difference in federal excise tax rates. That means we will never be able to penetrate the U.S. market with our superior products as we should.
This has been raised at the GATT panel. In 1992 Canada filed a complaint to the panel of the General Agreement on Tariffs and Trade. The panel reported that the U.S. was violating free trade rules by not permitting national treatment in terms of excise tax on microbrewery products sold domestically.
However the United States has not corrected the problem. Most countries in the European Union have adopted separate lower excise tax rates on the output of small breweries notwithstanding trade action that has been taken against the European Union. They have retained the differential as a matter of policy, which makes it difficult for Canadian microbrewers to sell their product in the European Union.
It is interesting. Adopting the proposal of the Brewers Association of Canada would reduce the premium paid by Canadian brewers from $16.30 per hectolitre over like sized U.S. competitors to $1.26 per hectolitre, or 11% as opposed to the 146% I quoted earlier. The suggestion the Canadian Brewers Association is making would not bring us precisely in line with the domestic excise tax rate in the United States. It would simply bring us into the ballpark so Canadian brewers could sell their product in that country at much higher levels without the penalties we impose on them in Canada.
Canada currently receives microbrewery products from about 95 different breweries throughout the world. About 60% of the companies that sell microbrew products in Canada receive favourable excise tax rates in their domestic markets. We are putting our companies at a competitive disadvantage. The trade actions we have taken have not resulted in national treatment for our products in those countries. We have only one policy option left, and that is to do what the Americans and Europeans have done. We must come up with a second, lower rate for small brewers.
I will quote from the submission of the Brewers Association of Canada to the House of Commons finance committee. It said:
Over time, as other countries have failed to introduce trade compliant policies, the industry has concluded that competitor neutrality within the small segment can only be achieved by introducing a tax measure that has come to be accepted internationally as a means of supporting small brewers.
The official opposition calls on the government to take up the matter urgently in the strongest possible terms. There is no sound policy or fiscal reason why the recommendation of the brewers association ought not be accepted with due haste to allow the microbrewing industry in Canada, an important fledgling value added industry, to survive and prosper both here and abroad.
Once more, the recommendation we and the brewers association are making to the government is a 60% reduction in the rate of duty on the first 75,000 hectolitres of production for brewers producing not more than 300,000 hectolitres annually. An excise duty reduction for small brewers in Canada would be consistent with policies adopted by major beer producing nations like the United States, Belgium, Austria, Denmark, Germany and the Czech Republic. The countries providing the benefit account for about a third of worldwide beer production. The reduction's impact on government revenues would be minimal but the benefit to the small brewer segment would be significant.
There is a precise reason the Brewers Association of Canada came up with a figure of 60%. A 1994 study indicated average Canadian small breweries were falling behind in the amount of money they should be reinvesting to purchase new capital assets, by $16.89 per hectolitre. The study said a 60% reduction in excise tax for such breweries would return about $16.80 to the sector.
There is a clear symmetry here. The reduction in excise tax would not be a giveaway to the industry. It would allow small struggling breweries to run just enough of a profit to invest in needed capital assets so they could sustain themselves and grow in the future. It would create thousands of new jobs. It would generate prospectively tens of millions of dollars in revenue to the federal treasury. It would help our country become more export oriented in this important industry.
I hope the government takes heed and soon introduces legislation to adopt the recommendations presented at the finance committee.
Geoff Regan LiberalParliamentary Secretary to the Leader of the Government in the House of Commons
Mr. Speaker, there have been consultations among the parties and I believe if you seek it you would find unanimous consent for the following motion. I move:
That the debate pursuant to Standing Order 52 this day shall continue until no member rises to speak, provided that, after 10 p.m., the Chair shall receive no quorum calls, dilatory motions or requests for unanimous consent to propose any motion.