Madam Speaker, it is with pleasure today that I rise to speak to this motion. I think it is a very important issue that the member from the Bloc has raised. I want to point out some aspects of this issue that I do not think have been adequately addressed so far in the discussions today.
Everyone recognizes that tax treaties exist to avoid double taxation. As such, the notion of tax treaties is not the issue here. The importance of us having tax treaties is unarguable.
The tax treaty with Barbados is a special case because of the fact that there is a disproportionate percentage of Canada's foreign direct investment in Barbados that does not make sense given the size of its economy and the nature of the investment.
I would argue that we should be talking about a multilateral effort, working particularly with the OECD, which has done a lot of work in this regard, and with our other trade and economic partners to eliminate this kind of negative use of tax levers to create tax havens which ultimately take from the Canadian economy and other industrialized economies significant wealth and ability to invest in some of the programs that are important to ourselves domestically.
I would argue that it would make more sense to renegotiate the tax treaty with Barbados rather than to unilaterally scrap it. I think we ought to do that with other countries, including the United States. One of the difficulties with simply scrapping the treaty is that companies that have made significant borrowing and investment commitments based on the current tax laws would only have six months' notice. I do not think that termination notice of six months would be adequate.
We also cannot ignore that as a country we do not live in a vacuum. Barbados has tax treaties with other jurisdictions, including the United States, so we need to work with those countries, the other countries with whom Barbados has tax treaties. I think unilateral action in this matter rather than a more multilateral effort could result in Canada losing a lot of its ability to work effectively.
The other thing that could happen as well with unilateral action is that we could see a lot of corporations in Canada that currently have relationships based on the tax treaty with Barbados conceivably moving operations from Canada to the United States, as an example. To pursue this unilaterally without discussion with other countries with whom Barbados has tax treaties I think would be folly. There is a lot of work that needs to be done beyond simply cancelling our tax treaty with Barbados. I think Canada has a very important role we can play, working with our trading partners. Pursuing this under the auspices of OECD and other international organizations, I think we could actually achieve a lot more in really addressing this issue.
I think it is also important when we are talking about tax treaties to consider tax policy in a more macro sense and thus consider the impact that tax policy has today on investment decisions. Twenty years ago, tax policy was not as important as it has become today as a lever to create investment, growth and prosperity. In the old days before more economic integration globally and in a time when there was less competition, high taxes tended to redistribute income. Today, high taxes can redistribute people, talent and capital.
People, particularly talented people, and capital have never been as mobile as they are today. If we look at the economic success stories of the last 10 to 15 years, it is hard to ignore the degree to which tax policy has played a critical role in shaping those successes. Ireland had a 92% growth in GDP per capita largely based on an innovative and aggressive tax strategy. Ireland is a relatively small country on the edge of the second largest market in the world. Canada is a small country, by population and economic perspective, that is on the edge of the largest market in the world.
I believe that as a country we should stop simply talking about northern tiger when our tax policy means that we are likely to remain a northern kitten for a long time. It is time for us to actually become that northern tiger, to earn our stripes by presenting a bold, new, innovative tax strategy focused on making Canada a magnet for capital and talent, as opposed to a repellent, by having a tax system that rewards hard work and investment instead of attacking ambition and initiative.
The kinds of ideas I would like to see incorporated in that tax reform would be to eliminate the capital tax immediately, not phase it out over a period of time, and to eliminate capital gains taxes in Canada, which we did not have before 1971 when they were brought in to replace the inheritance tax. Bringing in the capital gains tax to replace the inheritance tax made Canada a good place to die but not a good place to live. The fact is there is no tax that does more to hurt investment and, as such, hurt productivity. Whenever anything is done to reduce levels of investment, it is an attack on productivity. Whenever we attack productivity, we attack the standard of living and the capacity to develop a better standard of living for Canadians and our capacity to afford the kinds of social programs that Canadians value.
I would also propose a significant overhauling of our corporate tax system. The government boasts that we have a lower corporate tax regime in Canada than many other countries. I have even heard the Minister of Finance claim we have lower corporate taxes than the U.S. That is patently false. The fact is that if we are only comparing statutory rates and ignoring effective rates, we are not actually talking in the real world. Our effective corporate tax rates are still among the highest in the OECD and need to be addressed if we are going to be serious about attracting levels of investment that can improve productivity and the standard of living of Canadians.
The dean of the Rotman School of Business at the University of Toronto, Roger Martin, has proposed, among other things, the idea of radically changing our capital cost allowance structure to in fact allow corporations to write off on a cash basis investments in new equipment and productivity enhancement immediately as opposed to more gradually over a period of time or amortizing the benefit over a period of time. It would be a radical step that would provide a huge advantage for Canadian companies and a tremendous incentive for Canadian companies to invest in productivity enhancement. That is one idea.
I propose that we eliminate corporate welfare in Canada, that we take the money currently going to Canadian companies through HRDC or Industry Canada or regional development programs, and use that money to reduce in a significant and broad based way corporate taxes in Canada. One example would be in Atlantic Canada, where the budget of ACOA, the regional development program, is $447 million per year. The total federal corporate taxes for Atlantic Canada are $380 million per year. The capacity exists without costing the federal treasury any money to actually eliminate federal corporate taxes in the region and at the same time have $70 million left over to invest in important infrastructure.
We can ask ourselves the question, or more important, we can ask Atlantic Canadian business people in small, medium sized and, in some cases, large businesses. Which would be more beneficial in terms of increasing their capacity to create jobs, wealth and prosperity for Atlantic Canada: 500 ACOA bureaucrats telling people how to start small businesses or one of the lowest corporate tax regimes in North America and in fact in the world? If we were to leave just provincial corporate tax rates in Atlantic Canada, we would in fact have corporate tax rates in the 12% range, which would be very close to those of Ireland, just as an example.
It is self-evident that tax levers create greater opportunities for wealth, prosperity, growth and opportunity than direct subsidies, because businesses, business people and entrepreneurs will make the decisions where to put the money. It will not be politicians and bureaucrats. Politicians and bureaucrats do not do a very good job of selecting winners from losers. Actually, that is not completely fair. Usually they do a good job of picking losers. It is just on the winners' side of the ledger that they do not seem to do as well.
As someone who started his first small business in Atlantic Canada at the age of 19 renting compact mini-bar fridges to students and building a business with over 1,000 refrigerators, by the time I graduated from university I could have been called a fridge magnet. Nobody on the other side of the House got that; maybe I should explain it.
The fact is that we can create more growth and opportunity across Canada if we have the courage to reform our tax system. That cannot be done unless we, in lock step with that, address our regional development strategies and our strategy in terms of investments in business through Industry Canada and HRDC.
I would also propose on the personal side that we eliminate RRSP limits in Canada. That would create huge opportunities for tax deferred savings, not tax write-offs but tax deferred savings. It would create a situation whereby a lot of the tax revenue would be deferred to the future when there is a demographic issue, when Canada will need significant tax revenue at a time when there will be less people working, more people retiring and more burden on the health care system. Eliminating RRSP limits would shift a lot of the tax revenue to the future at a time when it is going to be extremely important.
It would also eliminate a lot of the incentive for young Canadians, talented Canadians and educated Canadians to move to other tax jurisdictions, including the United States, again without giving up tax revenue over their life cycle but simply deferring it to the future. I think we would do a lot to address the brain drain issue with that kind of approach. It makes a great deal of sense when we consider the types of people we are losing to the United States. It is not just the numbers; it is the quality of the talent we are losing. Also, we are not just losing them for three or four years. We are losing people at middle and in a lot of cases higher income levels, who are going to the United States, starting off their careers and in many cases planting roots, becoming established and staying there.
I lived in New York between 1991 and 1996, when I returned to Canada. Many of my friends in New York were expatriate Canadians and most of them are still there. Sadly, I will inform the House that I do not believe they are coming back. They are now rooted there. In many cases they have established families and are enjoying a standard of living in the United States superior to that which they could afford here in Canada. Even when we talk in terms of the advantage of our health care system, these people, through their companies, have private health care insurance, so in many cases they have not just lower taxes but also a better health care system in terms of the degree to which the health care system exists for their own families and their own situations.
I think that we as a country have to become very strategic, not just in terms of our tax policy but in terms of our social investment policy. We have to be smarter about how we spend money.
We hear of the levels of waste that exist in the federal government. This week, just as a tip of the iceberg, one ministerial aid has spent something like $30,000 on meals over a period. I am sure if the Canadian Restaurant and Foodservices Association had a political staffer of the year award, it would probably go to this individual. That is just tip of the iceberg stuff.
Anyone in the House who would deny that there is no waste in government is delusional. There is an opportunity for us to reduce waste, to target government activities in areas where there is a real reason for the government to be participating and there is an ability for government to play a constructive role in improving the lives of Canadians and to get out of the rest of those areas, to stop interfering with provincial jurisdictions, as a federal government, to help provide provinces with the fiscal tools they need and the fiscal capacity in taxing power that is required to provide the constitutionally mandated services of health care and education and to stop micromanaging as a federal government.
There are a number of areas where not only on the expense side can we spend more wisely but on the tax side we can tax more wisely. Renegotiating tax treaties is one part of the equation. Again, we should be renegotiating tax treaties and working with our trading partners in a multilateral approach to Barbados and other tax havens. Beyond that I cannot over-emphasize the need, in lockstep with that approach, for Canada to introduce the kinds of tax reform that can truly revolutionize the Canadian economy and create the kind of growth, prosperity and opportunity Canadians deserve. To fail to do that and to simply go in a hyper-competitive billable economy where talent and capital have never been as mobile as they are right now would be folly.
I hope I have been able to bring a different approach to this debate and I hope that in consideration of this motion all members consider the need to reform Canada's antiquated tax system that is currently hurting opportunities for Canadians here. It is holding us back. Let us consider just for a moment the opportunity we have as legislators to make decisions today to reform Canada's tax system in a way that we can look back in 5, or 10 or 20 years at our having played an important role in making Canada truly a northern tiger instead of simply talking about Canada's desire to be a northern tiger.
