Debates of Sept. 24th, 2003

Income Tax Act

[Peter Stoffer, NDP, Sackville—Musquodoboit Valley—Eastern Shore, NS]

Madam Speaker, I could not help but hear the hon. member's answer when he said that lower tax rates would benefit all Canadians and everything else. If that is indeed the case in the mining sector, then why would the government impose additional taxes on the natural health food products that were introduced last Christmas? Why is there an additional tax burden on the airline industry? Why are there additional tax burdens on the railway industry? Many other sectors have faced increased taxes.

If what he is saying is absolutely correct, if we take the bureaucratic notes that he has read verbatim to be the facts and this particular industry is going to get massive tax reductions and incentives to do its work, why does that same rule not apply to all other sectors of our economy?

[Bryon Wilfert, Liberal, Oak Ridges, ON]

I am sure, Madam Speaker, the hon. member is not suggesting that we should be supporting higher taxes. I am sure that if he talked to his friends in the Saskatchewan government in terms of the mining sector and the oil and gas sector in Saskatchewan, I think he might get a little different answer in terms of their support for this legislation.

The fact is that we are in the business of being internationally competitive. We are in the business of making sure that the tax structure responds effectively. I know my friend from Atlantic Canada would want to see that also, particularly for provinces like Nova Scotia.

[Brian Fitzpatrick, Canadian Alliance, Prince Albert, SK]

On a point of privilege, Madam Speaker, I asked the parliamentary secretary a question. I think it was a straightforward question, not complicated and the answer I received, if I am correct, was no comment. At the very least, I should be entitled to an undertaking from the parliamentary secretary if he is not familiar with this area to provide that information in due course. As a member of Parliament I think I should be able to get an answer.

[The Acting Speaker (Ms. Bakopanos)]

I think I gave you enough time but it is not a point of privilege. The Speaker cannot guarantee the quality of the answers or the quality of the questions. I think there was a question but if the member would like to ask a question again, there is still time.

[Brian Fitzpatrick, Canadian Alliance, Prince Albert, SK]

Madam Speaker, the question for the parliamentary secretary is could I have his undertaking to provide an answer to that question? Obviously he does not have the answer right now and I do not think that no comment is an answer. If he could give that undertaking to provide that information, that would be satisfactory.

[Bryon Wilfert, Liberal, Oak Ridges, ON]

Madam Speaker, it goes without saying but obviously it needs to be said. I will obviously provide the member with the relevant information if he could provide his question in writing to me.

[Dave Chatters, Canadian Alliance, Athabasca, AB]

Madam Speaker, it is a pleasure to speak to this bill.

It was a very interesting presentation that the parliamentary secretary made. Obviously it was a very technical presentation prepared by the department and I am sure that 90% of Canadians would have great difficulty understanding what he was talking about most of the time.

The reality here is that this bill is about correcting an injustice that was done to these resource industries back in the 2000 budget. The now leader of the Liberal Party in his 2000 budget reduced the corporate tax rate in Canada from 28% to 21% and he excluded the oil and gas industry and the mining industry from that reduction. That was clearly discriminatory. It was unfair. I stood in the House and I expressed that view then and I express it now.

[The Acting Speaker (Ms. Bakopanos)]

I am assuming that a member's cell is on. If any hon. member has a laptop or cellphone with music, please take it outside.

[Dave Chatters, Canadian Alliance, Athabasca, AB]

That was distracting, Madam Speaker.

To now send the parliamentary secretary in with the presentation that he made to sell this as some kind of a bold initiative by the government to make the oil and gas and mining sectors more competitive is offensive. Of course, all the arguments that the parliamentary secretary made were quite true. It will do all of the things that he suggested it will, but all of the things that he said were true when the corporate tax rate was reduced for everybody else back in 2000. This sector should have enjoyed that same reduction then because it will in fact make those sectors competitive with other countries around the world, in particular with the United States.

I know we are going to hear cries, and we have already heard some, that this is a tax break for that nasty oil and gas industry and all the other things that we hear over and over again in the House. The truth is that this is an extremely competitive industry. It is an extremely capital intensive industry, particularly the mining sector.

In the last number of years, the oil and gas industry has been reasonably healthy, but it can only stay healthy if it can stay competitive and certainly the mining sector has been struggling. In our mining industry, some of our best experts have been driven out of this country by these kinds of oppressive tax regimes and driven to other countries around the world. We are only now beginning to see some return.

That was a result of an insensitive government that did not provide a competitive tax regime where a company could attract investment to this country and produce our natural resources profitably not only for the companies but also for the governments involved in a major kind of way.

For the government to suggest now that somehow it is listening to the industry and it is going to do the right thing for the industry is offensive. That should have been provided to the industry when the other sectors received the same reduction. The parliamentary secretary did speak at some length about the importance of the industry and I would like to touch on that as well because the resource industries and the oil and gas and mining industries are extremely important to the economy of this country and huge contributors to our GDP.

The oil and gas industry alone produces overall, with the spinoff benefits, approximately half a million jobs in this country and produces untold wealth in the form of taxes to governments, which is a huge contribution to governments. Certainly if one cares to compare the resource industries, for example,--and I am just picking one that I think is an effective comparison perhaps--the automotive industry in Ontario is hugely important to the economy of Ontario.

The government pays a lot of attention when the industry speaks and when the industry has problems, but when we compare the two the natural resource industries are comparable in every way in terms of job creation and taxes they pay to government, and I would suggest a considerably higher return in the form of taxes to governments than the automotive industry. In terms of investment in the economy, one would find that the automotive sector invested about $22 billion, which is the figure I have, over the last 10 years.

When one looks at the oil and gas industry alone over the last 10 years, not even counting the mining industry where there has been huge investments in diamond mining in the Northwest Territories and some other sectors, there has been $80 billion of committed investment in the sector. It is important to the Canadian economy. I cannot understand why back in 2000 the industry was singled out for that kind of discrimination. It certainly affects industry when we are looking at projects.

For example, there is an environmental hearing process going on in Fort McMurray right now on one of the latest proposed projects in the tar sands. Some $8.7 billion of investment is being proposed. That investment was in some doubt for some time because of this kind of discriminatory tax regime that the government was imposing on it, and proposing to impose on it through the Kyoto accord.

I am delighted to see that both the process and the project is moving forward. It will return in spades the investment that those who boldly took to invest that kind of money in a project that will not return any of their investment for up to five or six years.

We have heard and will continue to hear criticisms of the industry. Every time the price of gasoline spikes we hear the outcry that big industry is gouging consumers. The reality is that over the last few decades the oil and gas industry has provided us with some of the lowest priced energy in the world in the form of gasoline. If government taxes were taken off gasoline, Canadians would enjoy some of the lowest prices in the world. Until recently, the security of supply has been unquestioned. However the supply is always available at a reasonable price.

These resources are non-renewable resources; they are a finite resource. Unquestionably, the price of those resources and the products produced from those resources will rise over time. They will continue to do that, and that is not unhealthy to our economy. As those prices rise, because of the scarcity of the resource and the rising demand for the resource, that will allow us to seek out other cleaner forms of energy and more reliable sources of energy. The truth is that around the world the supply of fossil fuels has probably peaked and is in decline. Even the huge resources of the Middle East have probably seen their peak and are in decline there as well.

There are growing concerns in Canada and around the world about the effect of fossil fuel use on our environment, and a lot of other concerns are coming forward. We are beginning to look elsewhere for other forms of energy. Without the wealth and the jobs, and the standard of living that fossil fuel resources have allowed this country and other countries around the world to enjoy, we would not have the ability, the resources, or the wealth and the brains to explore and find other newer and cleaner sources of energy.

I expect that even as we move to those newer and cleaner forms of energy that fossil fuel energy resources and the mineral resources of this country will continue to be used more and more in value added products and all kinds of things that affect the everyday lives of Canadians all the time. Therefore, the future is probably bright not only from an environmental point of view but certainly from an energy supply point of view.

However, getting back to Bill C-48, our party will be supporting it. I would have wished that there would have been the kind of support in the House because of what the bill is trying to do. A grave injustice was imposed upon those industries some years back. I would have hoped that the House would have dealt with this issue at all stages in one day and passed the bill.

I am afraid, because of the time it took for the government to introduce this initiative and to bring the bill forward in the limited time we have before the government decides to prorogue and make the transition to a new Prime Minister, that the bill could get caught up in that process. That would be a terrible shame. It needs to be done quickly because it is a matter of fairness. It is not a matter of giving anyone anything that the rest of the country does not have. We should do it quickly and we will be supporting the bill.

[Pierre Paquette, Bloc, Joliette, QC]

Madam Speaker, as the two speakers before me have said, it seems at first glance that Bill C-48, the purpose of which is to reform the taxation structure in the natural resource industries sector, is an extension of what was contained in the February 2000 budget. That was when the federal government decided to take seven percentage points off all taxes being paid by the industrial sector except the natural resources sector.

Hon. members will recall that this reduction was announced in the February 2000 budget, to be spread over five years. This meant a drop over the five years, ending in 2005, from 28% to 21%.

Initially, Bill C-48 may seem interesting. I say initially, because the bill also contains other measures to partially offset the lower taxes to be paid by companies in the natural resources sector.

We have not been able to gain a very clear idea of the overall effect on all sectors and all provinces. In this connection, I hereby announce in connection with this second reading that the Bloc Quebecois will be voting against Bill C-48, in hopes that we may get some answers in committee. I hope we do get them.

Bill C-48 clearly announces, as was done in 2000, that these companies will see their taxes reduced by 7% over five years, from 28% to 21%.

There are other measures, however: three others. What interests us is the overall effect of the four.

As far as the second one is concerned, after the tax cut, there will be a gradual application of the deduction for royalties paid to the provinces, to the Crown, in connection with mining taxes. Thus, royalties to the provinces will be deductible.

The third measure is a gradual elimination of the 25% resource allowance. So, on the one hand, there will be the deduction for Crown royalties, and on the other, the resource allowance, currently 25%, will be eliminated. Everything will be done gradually, spread over that five-year period.

The fourth measure is the implementation of a new non-refundable tax credit exclusively for diamond or metal exploration.

The issue is not simply the tax rate dropping from 28% to 21%, but the impact of all four of the measures in Bill C-48 on the different sectors of the natural resources industry and each province.

In response to our question about the net impact, we did not obtain a clear answer from the Minister of Finance or his department. As I mentioned, we want answers. If we are shown that the net impact of these four measures will, in fact, result in an overall decrease in the tax rate on all these sectors and in each province, we would probably support the government's position. But, currently, we have no guarantees. On the contrary, our initial estimates indicate that some sectors will benefit from the reform proposed in Bill C-48, and others will be penalized.

The winners will obviously be those with high royalties, such as the oil and gas sector in the west. The losers will be those with lower royalties, particularly mines, but other sectors will also be affected.

Quebec, unfortunately, does not have much oil. However, it does have a number of mines. So, our interest in knowing the impact on each sector is understandable.

Since the provinces have tended, for a number of years, to foster competition, particularly in the mining sector, and to decrease royalties—the royalties paid by oil companies remain extremely high—the proposed reform in Bill C-48 is unfair to a number of industrial sectors.

I am not the only one saying this; the Mining Association of Canada and Quebec Mining Association Inc. are too, in a press release issued in February 2003, immediately after the Minister of Finance tabled his budget.

The release read as follows:

When all is said and done, the disappearance of the Resource Allowance will likely result in higher taxes paid by the mining industry, even if we are able to deduct provincial royalties and mining taxes.

These are not my words but that of The Mining Association of Canada. Bill C-48 will put these people at a disadvantage, as l will explain later, and I have a big problem with that.

The same is true for the provinces. All natural resources are not distributed the same way, naturally, depending on whether you are in western Canada, the maritime provinces or Quebec. If we look at the application of Bill C-48, as far as we can see, there will be winners and losers among the provinces.

Alberta will be among the winners, of course, because royalties are high in that province; on average, it is estimated that actual tax rates will be reduced from 42.12% to 30.12%, if we factor in both provincial and federal income taxes.

It is therefore obvious that, as far as Alberta is concerned, and particularly its oil industry, as well as natural gas in western Canada, Bill C-48 is very advantageous. But when it comes to Quebec, Saskatchewan, Manitoba and the Maritimes, it is not obvious, far from it, that the change proposed in Bill C-48 will be advantageous because, as I indicated, the resource allowance will be eliminated and crown royalties will be made deductible.

In this context, the overall actual tax rates, taking into account federal and provincial income tax, will increase. According to financial analysts, in Manitoba, the actual tax rate for the entire natural resource sector will increase by 2.9%; in the Maritimes, the increase would be between 3.25% and 4%; in Quebec, it will be 2.25%; and in Saskatchewan, 4.5%.

You will therefore understand that we cannot support a bill that will result in an increase in actual tax rates—and even accounting analysts say it will—taking into account all of the measures, and not just the reduction of the tax rate to 21%, to match the other industrial sectors.

I am therefore waiting for answers from the Department of Finance about these figures. As I pointed out earlier, I am not making these figures up; they come from accounting firms, associations such as the Mining Association of Canada.

What I am presenting here is average rates that can vary according to industrial sector. In the case of mines, PriceWaterhouseCoopers used two mining models and compared the current system with the reform proposed in Bill C-48.

Excluding the progressive elimination of tax on large businesses announced for all the sectors—a measure that will benefit all Canadian companies—the reform proposed in Bill C-48 means an average tax increase from 39.9% to 42.8% for gold mines and from 35.8% to 46.6 for copper mines.

This does not just concern Quebec; it concerns all of Canada. Nonetheless, since there are many gold mines and copper mines in Quebec, we are sensitive to this argument and I do not see what we—as representatives of Quebec's interests—would gain from supporting a bill that would increase the effective tax rate for a certain number of natural resources sectors in Quebec and in other regions of Canada.

We expected the federal government to propose a much more equitable reform for all the sectors. These figures are very worrisome, all the more so since we would have thought that, in addition to wanting to reduce corporate tax rates, the federal government might have wanted to leave room for the provinces, in order to correct the fiscal imbalance.

The provinces could very well use some of this room in one way or another.

I should say that many of the figures I have used come from a study published in CAmagazine —CA for chartered accountant—in May 2003. This study by Neil Smith is entitled, “Energy update: following its taxation review of the resource sector, Finance has come up with recommendations on crown royalties.” In his conclusion, the author says:

It would appear that the federal administration will also be keeping a close watch on provinces to ensure they do not attempt to shift tax revenue from the federal government to the provinces by increasing provincial resource royalties or mineral taxes that gave rise to the 1974 rules they are eliminating.

I think that is extremely serious. Not only are some sectors and provinces being put at a disadvantage, but once again, the federal government is interfering in the real autonomy of Canadian provinces, of Quebec in particular, by unilaterally changing the rules of the game. Unfortunately, that is exactly the criticism the Bloc Quebecois and many Quebeckers have of Canadian federalism. The federal government acts as if it were the only important or worthwhile level of government, with the others being at best, big municipalities or, in the case of Quebec, big regional boards.

I would point out that royalties were deductible until 1974. In Bill C-48 we are not looking at something brand new. They were deductible. But that was an era when royalties were increasing in all provinces. Thus, the federal government saw its revenue declining. When it saw that, in 1974, it changed the rules of the game. It said that royalties would no longer be deductible and that it would introduce a 25% resource allowance instead.

Now, because of international competition and the difficulty our industry has in competing with a number of developing countries, royalties are declining. This is the moment the federal government has chosen to change the rules of the game because the current rules are not bringing it enough revenue.

Thus, there is this desire on the part of the federal government not only to change the rules, but also to ensure that the provinces are unable to change their own tax structures. I am not saying that they are going to do so, but they might want to. The federal government has already reworked the tax structure of the natural resource sector through its reform as seen in Bill C-48. As I said, I was quoting from a study found in CAmagazine that confirms my point.

Going still further, in the mining association press release I have already referred to, they not only state that, when all is said and done, the disappearance of the resource allowance will likely result in higher taxes paid by the mining industry, but they add:

At the very least, the federal government is undercutting the good work by many provincial jurisdictions to make mining investment more attractive.

Once again, the Bloc Quebecois is not the one saying this, it is the Mining Association of Canada and Quebec Mining Association Inc. They feel that Bill C-48 is revisiting a whole series of measures available to them from the provinces. WIth Bill C-48, something is being created that will not only disadvantage the mining industry, but will also force the provinces to behave in a certain way as far as their natural resources taxation schemes are concerned. I consider this federal interference in areas of provincial jurisdiction and in the jurisdiction of Quebec.

Such interference does not always involved direct spending by the federal government. Often, it is done with the creation of rules that tie the hands of the provinces and Quebec.

As I have said, some sectors gain and some lose. I think this needs to be acknowledged. There are winning provinces and losing provinces also. We feel this inequity is unacceptable. When it comes to winning sectors, of course the oil and gas industry is among.

What is needed is one fair rule for all industries. It is not a matter of ganging up on the oil and gas industry, but of noticing that, curiously enough, it is being systematically favoured by the federal government. We see this, for example, in the refusal by the industry minister to carry out a proper investigation into the possibility of collusion among the major oil companies. We know that the prices are changing at the present time. A blackout in New York raises gas prices in Joliette, as unlikely as that may seem. The federal government is refusing to look into the real situation of competition in the oil and gas sector.

With Bill C-48, the Minister of Finance estimates that, when fully implemented, the reform will cost in all some $260 million in uncollected taxes.

That is the department's estimate, and I challenge it. I would appreciate it if we were provided with all the data used to come up with such an estimate. A significant portion of this $260 million, assuming that is the right amount, will go to the oil industry, the one in Alberta in particular. In that particular instance, the tax rate will actually drop 12 percentage points.

It is important to note that, for once, the tax rate of oil companies will be 5% lower in Alberta than in Texas. I do not think that Texas, as a state, can be accused of being inclined to overtax its industries, and its oil industry in particular. The actual tax rate will be lower here than in Texas.

I said earlier that it seems to me that this amount of $260 million estimated by the Department of Finance as the total cost of the reform once it has been fully implemented is underestimated. The latest financial statements of major oil companies state, as this one from Petro-Canada for the second quarter, on page 1:

Petro-Canada announced today second quarter earnings from operations of $455 million, which include a positive adjustment of $96 million for Canadian income tax rate changes.

Extensive reference is made, of course, to Bill C-48.

The quarterly report to shareholders of Shell Canada Limited for the second quarter states, on page 1:

Shell Canada Limited announces second-quarter earnings of $178 million... Earnings included a one-time benefit of $54 million from a future income tax revaluation following announced income tax changes.

Again, reference is made not exclusively but in large part to Bill C-48.

The quarterly report of Esso Imperial for the second quarter reads as follows, on page 1:

During the second quarter of 2003, tax rate reductions enacted by the Federal government and the provincial government of Alberta and settlement of various tax matters benefited results, mainly in the resources segment, by $109 million.

Overall, when we look at all the estimates made in the major oil companies' annual reports, we can see that there is already approximately $250 million in tax savings. Yet we are told that, when all is said and done, the reform will only cost $260 million. it would seem to me that there is a discrepancy there. There would be, at best, $10 million left in tax savings for all other sectors.

I think that this debate lacks transparency. For this reason, during the committee stage, I hope we can hear not only from public servants, but from representatives from all the natural resource sectors so as to get to the bottom of Bill C-48.

In closing, I want to say that we are not especially surprised by this kind of situation. However, it is still great cause for concern when we see, for example, a dramatic drop in the effective tax rates for mining companies in other countries competing with Canada.

Brazil's rate of 43% will drop to 34%. Australia has a current rate of 36%, soon to be 30%. South Africa's will drop from 35% to 30%. Finland's will go from 29% to 25%. Canada will increase its effective tax rate to approximately 40% or 43% for mining companies, many of which are located in Quebec. The measure proposed in Bill C-48 will have a negative impact on their ability to compete.

As I was saying, I am not surprised. Just think of the fiscal imbalance or the debate on the GST, with school boards in Quebec or Ontario claiming victory over the federal government, which then changes the rules of the game and backtracks to avoid paying $8 to $10 million to the school boards.

Just think of the gasoline excise tax of 1.5¢ per litre introduced to fight the deficit. There has been a surplus for six or seven years now, and this tax still exists.

I could mention yesterday's vote, when all the opposition parties voted to terminate the tax agreement between Barbados and Canada. Barbados is where the future prime minister had many holdings and where he took advantage of substantial reductions in income tax.

The Bloc Quebecois' mistrust is understandable. As I said, at second reading we will be voting against Bill C-48.

[Dave Chatters, Canadian Alliance, Athabasca, AB]

Madam Speaker, that was an interesting presentation by the member. I am disappointed that he would choose to target Alberta in his remarks because I do not think the adjustment in the corporate tax rate was intended to benefit Alberta's industries any more than all Canadian industries.

As he pointed out, the resource depletion allowance was intended to be a direct compensation for the payment of resource royalties to the provinces. To now drop that 25% resource depletion allowance and replace it with a direct deduction for the actual amount of royalties paid to the provinces seems to me to be the only fair way to deal with the issue.

Certainly there are some distortions in the system with some of the mining companies when we take that into consideration but I would suggest that if we are going to start examining those distortions with a microscope we should also look at how the receiving of equalization payments affects the royalties that provinces chose to charge their resource development companies. I would suggest there is a distortion there as well because certainly for every dollar increase in resource royalties that a province charges a company that develops that resource, it means a reduction in a dollar of equalization.

I would suggest that it has had an effect over the years in the resource royalty income of the provinces from those resource developments.

It is a complex issue but I would urge the member to consider the fairness and instead of an arbitrary allowance for the payment of those resource royalties that the actual deduction is a much fairer system. I would not argue with the member that we still need to look at fiscal instruments in a number of resource sectors that will help make them competitive globally and help them to develop, to be successful, to create jobs and to pay money into the provincial coffers.

However I would express my disappointment that the member would single out some provinces being favoured by Ottawa and some not. I do not think that it is fair nor do I think it is the intention of the legislation. Quite frankly, I think it is a bit petty.

[The Acting Speaker (Ms. Bakopanos)]

It is my duty pursuant to Standing Order 38 to inform the House that the question to be raised tonight at the time of adjournment is as follows: the hon. member for Cumberland—Colchester, Persons with Disabilities.

[Pierre Paquette, Bloc, Joliette, QC]

Madam Speaker, it is not that I want to single out Alberta or the oil industry. If there were oil in Quebec I would say the same thing.

What I find unacceptable is that Bill C-48 puts natural resources sectors at a disadvantage, mining in particular, while other sectors will benefit. I expected equitable reform with an impact on taxation for all the sectors that was at least neutral.

I did not say that. I will read a paragraph from CAmagazine from September 2003:

However, in such provinces as Saskatchewan, Manitoba, Quebec and the Maritimes where rate changes have not been proposed or the reduction in rates are minor, the elimination of the resource allowance deduction for companies that benefited from the resource allowance results in an increase in the overall effective rate.This occurs because of the loss of the resource allowance on the provincial component of the company’s overall tax rate.

I do not take issue with the fact that Alberta or the oil industry will benefit, but that the provinces and the natural resources industries will be disadvantaged. Officials at the Department of Finance could have been more imaginative and made sure that the reform was at least neutral for all the mining sectors. Nonetheless, I agree—and here the member and I see eye to eye—with the fact that reducing the tax rate from 28% to 21% is also a question of equity with all the other industrial sectors.

[Brian Fitzpatrick, Canadian Alliance, Prince Albert, SK]

Madam Speaker, I would like to raise the same concern, the targeting of the oil and gas sector, and probably Alberta in turn.

Under the equalization system in Canada we are talking about $10.5 billion. I believe the member's province has been receiving about $5.5 billion in equalization and transfer payments, and that has been going on for a considerable period of time.

On the other hand, the province that has been carrying the ball on equalization to the tune of about $6 billion a year has been the province of Alberta. It just seems to me that the winner in this scenario, a healthy Alberta economy, means $5.5 billion for the province of Quebec in its equalization program.

If the Alberta economy is not healthy and it is not able to pay this $2,000 per capita every year into the equalization fund, and the oil and gas industry is in trouble, where in the world does the member expect this $5.5 billion to come from that they take for granted in the province of Quebec?

[Pierre Paquette, Bloc, Joliette, QC]

Madam Speaker, I think the hon. member has raised a serious issue. We have never wanted to have equalization payments or assistance from the federal government. What we want is to be able to take charge of our own affairs, to have all our taxes, including income taxes, and to make our own laws and international treaties.

I do not see how Quebeckers—especially those in Abitibi-Témiscamingue where there are many mines—would benefit from our passing a bill that would make their mining sector less competitive, which would lead, in turn, to business closures and job losses.

We are going to be told, “We will be nice to you; we will send you some employment insurance.” That would be the same employment insurance that this government has been cutting in recent years.

That is not what we want. We want a fair reform of the tax structure in the petroleum sector, and if Alberta benefits, that is all to the good. Still, this reform must also be of some benefit to the businesses and mines of Quebec, particularly in areas like Abitibi-Témiscamingue.

[Rex Barnes, Progressive Conservative, Gander—Grand Falls, NL]

Madam Speaker, before I get into the topic of debate, I want to say that when we talk about taxes and tax fairness most Canadians understand it in a very simplified way. They know they are paying too much in taxes, regardless of where they live, whether they are a business person or an individual citizen. As a result, they only know that governments take more money out of their pockets for taxes than what they have been able to spend.

It is a pleasure to rise in the House this afternoon to talk about the issue of tax fairness with respect to the natural resource industry.

Today we heard how in the budget of 2000 the government announced a cut in the rates of general corporate income tax for all industries, except the resource industry, from 28% to 23%, and soon to be 21%. Cutting the tax rates now is an undertaking that I support. Canada needs lower tax rates for our industries to remain competitive.

It is important for the House to recognize that we do not live in a vacuum. Canada is a member of the international community and, in a world of increased international trade and globalization, it is important for us to position ourselves in a way where our people and our organizations can grow and bring greater prosperity to Canada.

We cannot afford to place our people and our organizations at a disadvantage by clinging on to tax rates that remain among the highest in the OECD, which is the Organisation for Economic Co-operation and Development.

We cannot afford to drive away investment and savings, which is exactly what high tax rates do. They drive away investment and savings. They punish success and encourage our entrepreneurs to move to places where tax rates are lower.

I support the cut in general corporate income tax rates from 28% to 21% but I also support the tax cut for all industries, not just selective ones. I simply do not agree that the resource industry should have been left out of the initial tax cut in the budget of 2000.

The resource industry has to compete for the same investment dollars as other industries. We know investors are looking for the highest rate of return on their dollar. It seems to me rather unfair to discriminate against the resource sector by taxing that sector higher than we were before. It is unfair to the resource based corporations and their investors. It is unfair to deny them the same opportunity to grow and expand by subjecting them to higher taxes than other corporations and investors would face. However, more important, it is unfair to workers in the resource industry, workers who indirectly rely on that investment for the industry to grow, to create jobs and to grow with the economy.

Therefore I am glad to see that Bill C-48 would address this unfairness by extending the cut in the rates of general corporate income tax to the resource industry.

Still there is more that the government can do. Canada needs a major overhaul of its tax system. Cutting corporate income tax rates is a start but to create a more competitive climate for economic growth we should also eliminate the capital gains tax.

Alan Greenspan, chairman of the U.S. federal reserve, said:

--if the capital gains tax were eliminated, that we would presumably, over time, see increased economic growth which would raise revenues for the personal and corporate taxes...its major impact is to impede entrepreneurial activity and capital formation.

The Ottawa Citizen had this to say:

The capital gains tax doesn't raise much money, isn't fair to people who've worked hard, and does more harm than good. [The right hon. member for Calgary Centre] is right. It should be scrapped.

Another way to help the economy is to reduce job killing payroll taxes such as EI premiums. With a surplus of around $45 billion, it is clear that the federal government has ignored the original purpose of the EI fund. It was set up to be an employment insurance program, but instead of simply providing Canadians with insurance coverage, it is contributing to the general government coffers by taking a large chunk out of the paycheques of ordinary Canadians.

These tax moneys would be better spent by the Canadian people and organizations. Canadians know better than the government how to determine their spending priorities and Canadian businesses have a better track record than the government does of choosing between winning and losing ventures.

Speaking of losing ventures, if the federal government could somehow learn to stay away from the spending scandals in HRDC and the public works department, considerable amounts of money could be freed up and redirected toward overhauling our tax system.

I understand that the goal of the legislation before us is to simplify and streamline the tax system for the natural resources industry. I think we all can agree that reducing the regulatory burden for industry in Canada would be good for the economy. I agree with the principle of bringing taxes in the natural resources sector in line with other sectors, so I look forward to bringing this legislation before committee.

I appreciate the opportunity to speak to this. When our critic gets back to the House he will be speaking in more detail on what he feels is the right direction for Canada with regard to tax cuts.

[Pierre Paquette, Bloc, Joliette, QC]

Madam Speaker, I would like the hon. member to tell me if they have thoroughly analyzed all the repercussions of Bill C-48 on the various sectors and various provinces, and, if so, what will their position be on vote at second reading?

[Rex Barnes, Progressive Conservative, Gander—Grand Falls, NL]

Madam Speaker, I have not done an analysis of the whole bill, but for all intents and purposes we will be supporting the bill because we feel this is the right way to go. We firmly believe all people should be treated fairly under the tax system. If anybody can have more money in their pockets and there can be more money in the corporations' pockets, then we all hope that they will do the right thing and create jobs and grow the economy, regardless of what sector they are in. That is what our hope should be.

We cannot tell the corporations that this is what they are going to have to do, but if a corporation anywhere in Canada is looking to prosper, we firmly believe that with more money in their pockets they will create more jobs. The workers will be content and the corporations will be content. With people working there is more money being spent and the government gets the taxes anyway. Therefore, it basically helps to run the country.

[Peter Stoffer, NDP, Sackville—Musquodoboit Valley—Eastern Shore, NS]

Madam Speaker, since this is the first time I am speaking formally after coming back from the summer, I first want to send special congratulations to all our new pages in the House of Commons, those young people who come from across the country in order to help serve us in running the affairs of government. I am sure they will have a wonderful experience this year in the House of Commons. I look forward to working with them, as do all my colleagues in the House of Commons, in order to give them a wonderful experience while they are here.

Regarding Bill C-48, after consultation with my colleagues in Saskatchewan and Manitoba, although there is tentative support on an issue of this nature, we also have some very serious concerns, similar to those of my colleague in the Bloc Québécois.

Does the bill actually give us a level playing field across the country? I will be honest and say that I have not fully analyzed that aspect of the argument, but I will take under consideration the concerns of my colleague from the Bloc and I will study his notes and do further study in this regard.

We in the New Democratic Party are extremely supportive of the mining industry and know its value, especially in rural areas. As a person who lived in Watson Lake, Yukon for nine years, I knew the value to the economy of the Cassier asbestos mine and the Canada Tungsten mine. When those mines closed down for various reasons, we knew the economic impact it had on the small community of Watson Lake and, for that matter, the entire Yukon territory. We can extrapolate that to other mines throughout the country when they close down. A good example is in British Columbia at Tumbler Ridge and what happened to that community after the mine shut down. There are myriad reasons why they do shut down.

The issue of mine extraction and a fair taxation rate for the corporations and companies that do it is an extremely important one, especially for rural Canada. We know the aspect of the economy that it has for us. We know the role that it plays for people throughout the country. For example, in Nova Scotia we know the role that mining played in the development of Cape Breton and, for that matter, our country. It is something we should never lose sight of.

One of our concerns is this. If indeed the government is absolutely correct that further tax considerations, further tax reductions and further tax allowances are beneficial to those in the mining industry, then certainly that avenue should play to other sectors of our economy. We can cite many examples where the government has laid additional levies and additional taxes on other aspects of other areas of our economy and seemed to focus on this particular one. We would encourage the government to be at least a little consistent in its taxation policies.

Like my colleague from the Conservative Party, we also agree with having a regulatory framework that is more simplified and less bureaucratic and has less red tape so that everybody knows, right through from the applicant to the mining company to the environmentalist and to the community and the workers involved. If everyone could have clear instructions as to the direction we are taking in a particular area, what the costs are and what is involved in the entire process, I think that would be very helpful to move our economy along.

We have a few other questions in this regard. One is the concern about a mine shutting down. Who is responsible for the ultimate cleanup? These are questions that are still left unanswered. Although not specifically pointed to with this particular bill, these are issues that need to be addressed. We can look, for example, at the Taku watershed in northern British Columbia. The Tulsequah Chief mine, which shut down in the 1950s, is still leaking effluent into that watershed and still everyone is standing around wondering what we are going to do about it and how we fix it up.

We can look at Cape Breton and the effects of Devco mining and what has happened to the steel corporation there. In fact, one of the most polluted sites in all of North America is lying right in our backyard and we are still talking about how to clean it up and who will eventually pay for all these things.

When we discuss activities when it comes to royalties and costs in the mining sector, we should look at the overall picture from the start-up to the cleanup. I think if we were to do that we would have a fairer and more honest picture. The company would benefit and the community and the workers would benefit, but the environment would benefit as well, which is extremely important.

Another point is the concern we have in Nova Scotia: the perception that our natural gas and oil is just being taken away. In fact, not one drop of natural gas is being burned in Nova Scotia. It is all being burned in New England states.

Our industries have to compete with those industries in New England. It seems quite ironic that foreign companies would come in, set up shop, extract the natural gas and ship it down south.

In terms of the actual benefits to Nova Scotia, it could be argued that they are very few and far between. Yes, it is true that some of our workers have had employment. Yes, it is true that there has been investment in the province. Yes, it is true that it has helped the province in a very little way. But we can compare it with what natural gas and oil did for the province of Alberta. Many of us in Nova Scotia were saying quite clearly that we should have had equal benefits.

In fact our own premier has asked for equality and fairness on this file and is asking the federal government not to give us handouts. We are not a have not province. We are a province with a tremendous ability and those resources should be more controlled by the province. We should be able to maximize those benefits, similar to the province of Alberta.

I have always said, and I say this as a New Democrat tongue in cheek sometimes, that if we had had Peter Lougheed negotiating our natural gas contracts with the oil and natural gas companies, that I think we would have been much better off in terms of what benefit Nova Scotians would have received from their own resource.

We hope to have further debate on this at committee. We have many other questions that we need to ask. We need more clarification from the government on precisely how this goes along. We will also be consulting with our provincial colleagues throughout the country to hear their concerns as well.

[Pierre Paquette, Bloc, Joliette, QC]

Madam Speaker, if I understand the hon. member correctly, given the extremely technical nature of Bill C-48, there are more questions than answers.

Still, in evaluating the overall reform undertaken by the Minister of Finance, once this reform is implemented, it will cost taxpayers $260 million. This is still considered reasonable, especially when the federal government has had a very high surplus for several years.

But the annual reports of Shell, Esso and Petro-Canada are already announcing $250 million in tax savings. The mere fact that, out of $260 million, some $250 million is already going to these three oil companies, does that not pose a problem?

[Peter Stoffer, NDP, Sackville—Musquodoboit Valley—Eastern Shore, NS]

Mr. Speaker, I could not agree with my hon. colleague more. It is indeed a problem. We cannot on one hand ask for millions or billions of dollars in various aid concerns throughout the country such as West Nile and SARS, and at the same time foreign companies come in that are extremely profitable to begin with and they get much more generous tax allowances in terms of their considerations through the federal government.

Some of the questions we will be asking during the committee, is how do they justify that? The whole root of this question is, are Canadians getting maximum return on their resources? That is really the essence of it. We have inequities in this country right now. It appears, if it is looked at it from the eastern perspective, that Alberta is doing very well on the royalties from the extractions of its resources. But why is it then that other provinces like Newfoundland and Nova Scotia are not?

I realize the offshore argument in that, but these are some of the questions we need to ask the government when the bill gets to committee.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I am pleased to participate in this debate on some important tax policies the government is introducing.

I would like to go back to budget 2000, when the government introduced a phased reduction of the corporate tax rate from 28% to 21%, phased over a number of years. That to me was a very positive development. It brought our corporate income taxes more in line with those of our U.S. neighbours. Perhaps we can still do more, but once this is fully implemented many of the corporate taxes we are paying here in Canada will be very competitive and, in some cases, below the combined corporate tax rates in some of the largest U.S. states that border this country.

In the reduction of the rate from 28% to 21%, resource sectors were left out of the equation. There was a certain logic to that, because the oil and gas industry and the mining sector have some special provisions. For example, they have the resource allowance, special accelerated capital cost allowances or accelerated depreciation for tax purposes, and they also have other tax credits that apply, such as depletion allowances et cetera.

So there was a certain logic in the government not reducing the tax rates for those particular sectors at that time because those sectors had some other unique tax advantages. Although it is interesting to note there are other sectors of the economy that do have some tax incentives which are not available to industry as a whole, such as the film industry and others. Nonetheless, there was a certain logic to that.

What the government did undertake, though, was to review that with the oil and gas and the mining sectors to see if there was a way to bring the 28% rate in line with the 21% that applied to the rest of the sectors of the economy. The reason was that the oil and gas and the mining industries wanted to bring down the statutory rate, in line with other parts of the economy, for a very simple reason. If we are trying to attract investment from overseas, it is much easier to quote a statutory tax rate of 21%. If we quote the statutory tax rate of 28% but indicate that resource rents are deductible and investment tax credits, accelerated capital cost allowances and depletion allowances are available, it gets muddy and complicated.

The oil and gas and mining sectors said they would like to move down to the 21% tax rate. They understood that there might have to be some give and take in moving to that rate. The government agreed to look at that and the discussions started. Basically, it was a search for solutions. How could the government move from 28% to 21% recognizing that there are special tax incentives available to those sectors?

The government has come out with a paper and now legislation describing what it saw in its wisdom as some of the trade-offs. It is proposing to eliminate the 25% resource allowance and there are a few other measures. I would like to speak to this very briefly.

Some years ago, the government replaced the deductibility of royalties against tax otherwise payable with the resource allowance. For example, a mining company would pay royalties provincially. Those would have been under the old regime and will be under this new regime that is proposed deductible for tax purposes, but the government was concerned that the provinces could actually capture much of the resource rents through their own royalties and diminish the tax base available to the federal treasury. It decided to say that royalties were not deductible for income tax purposes but there would be a 25% resource allowance.

The government looked at getting rid of the resource allowance, which it wanted to do very much because it has become very complicated and administratively somewhat of a nightmare. In looking at that, it was appreciated and understood by the government that replacing it would cause some winners and some losers to be created.

As members can imagine, if the 25% resource allowance were greater than the amount that one was paying in royalties to a provincial government, then one would be happy with the resource allowance. Conversely, if the resource allowance were less than what one was paying to a province for royalties, then one would not be very happy to lose the resource allowance. The government went through a number of iterations, discussions and models with the mining and oil and gas industries. In fairness, one can never arrive at a perfect solution. Given this scenario, there were probably going to be some winners and losers.

In addition to the elimination of the resource allowance and the deductibility of royalties, the government also said that if the resource allowance were removed and there was an allowance for the deductibility of royalties, that would actually increase the tax burden of the oil and gas and mining sectors. It then asked how it could replace that with something that is somewhat comparable.

It looked around and basically came up with this exploration credit for qualifying mineral exploration expenditures. It said it would eliminate the resource allowance, allow the deductibility of royalties and, because there was still a little left over leaving the industry at a disadvantage, it would throw in this tax credit for qualified exploration.

On balance, that sort of nets out. The analogy I would use would be that if people have their feet in a freezer and their heads in an oven, on average everything is fine, but it does not always work out that way. We know, for example, there are more mature mining companies that have developed mines and are not engaged so much in exploration and development. This exploration credit would not be of much value to them. There are also many companies in loss carry forward positions.

In any case, if we look at the whole balance of the measures, we do know, for example, that the potash industry has benefited or will benefit from these measures significantly. Some of that is actually quite justified because, as I understand it, for many years the royalties that it was paying was in excess of the resource allowance that was available. There are other parts of the mining sector in particular that are disadvantaged by this proposal, especially the more mature, developed companies that are not engaged so much in exploration and where the saw-off with the resource allowance and the royalty deduction does not really compensate for that.

We must also add into the mix that the government recently introduced the measure to eliminate the capital tax over a certain number of years. For mining companies and oil and gas companies this is a positive development because they are capital intensive, as one could expect. That is a very positive development.

They and others in the corporate world are saying we should accelerate the elimination of the capital tax and that is one point of view, of course. Some of these things come down to what is fiscally possible, but what the mining industry has come forward with I think is an eminently fair proposition.

What it is asking is, given that we have some losers in this scenario that is proposed with this legislation could we not accelerate the measures? Could we not accelerate, for example, the move from a 28% statutory rate to a 21% statutory rate? Could we not accelerate the elimination of the capital tax? Could we not bring these measures forward so that on balance, even though there are some winners and losers, the mining sector as a whole could probably end up in a position that would be easier for it to accommodate?

Presumably the bill will pass the House at some point. I believe it will be referred to committee. I know the government wants to deal with it expeditiously, but I will be arguing for the mining industry to have its chance to come before the House of Commons finance committee to present its case and perhaps departmental officials as well so there could be a good debate and discussion around some very important issues.

We sometimes undervalue or underestimate the contribution the mining industry and the oil and gas industry make in terms of jobs and economic activity. We hear a lot about the new economy. That is very important. We need to develop that by focusing on more research and development and by being more innovative, but there is actually a new economy embedded in the so-called old economy.

We have some of the most high tech industries in Canada with oil and gas, forestry and mining. Some of the leading edge technologies are being employed in those industries and there are many spinoffs from those industries in terms of the outsourcing of services and in terms of the contracting of a whole variety of services from trucking to logging and drilling, etc. They provide a huge amount of jobs and economic activity in this country. We should be ever mindful of that.

We want to ensure that we have a competitive mining industry in Canada that can attract investment. Going from the 28% statutory rate to 21% is a good move. That will help. However, we need, in my judgment, a little more tweaking of this formula to make it more fair to certain sectors, in particular, the mining industry.

Left out of the mix is the forestry industry, but it has a slightly different situation in that the royalties and the stumpage that it pays are deductible from income tax. It gets the manufacturing and processing rates, the lower rate of tax. My understanding of the forestry industry is that it is reasonably comfortable with this type of legislation.

We do have an issue. The oil and gas industry is generally on side, but presumably it would like to see the measures accelerated. I am sure my colleague from Medicine Hat will speak to that point, coming from an oil rich province like Alberta. I will listen with interest to his speech. Certainly the mining industry would like to see the measures accelerated. It would like to see the capital tax reduction and the statutory rate reduction accelerated to create more of a level playing field within the mining industry. That way we will attract more jobs and we will be more internationally competitive.

We have a very environmentally responsible mining industry and oil and gas industry. Some would have us believe otherwise, but it is not the case. Both these industries have made enormous strides in becoming environmentally responsible in the way they conduct their operations and in the way they deal with the resources that they extract.

In conclusion, I will certainly argue at the finance committee that the mining industry and perhaps other sectors that will be impacted significantly by these measures have the opportunity to come and present their cases. Perhaps departmental officials could be there as well so that we could have a good solid debate around some very important tax issues that will affect jobs and economic activity in Canada.

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, I am quite pleased that the hon. member concedes that Bill C-48 poses certain problems, particularly for the mining sector, and that the Standing Committee on Finance will have to propose a number of solutions.

He mentioned various possibilities in order to accelerate reducing the tax rate to 21%, and accelerate the elimination of the capital tax. However, the Mining Association of Canada had proposed a simple solution, given that mining is a unique sector.

This association proposes maintaining provisions relating to the 25% resource allowance, and lowering the rate from 28% to 21%. In short, the tax rate must be the same as in other industrial sectors; I think we all agree on that.

The mining sector, however, faces unique problems. So, if the resource allowance is maintained, as is currently the case, this could be a very simple solution to the problem.

I want to know if the hon. member could consider such a solution, if he was shown the merits of this approach.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I thank the hon. member of the Bloc Quebecois for his comment.

I believe that this is what the committee is for, to discuss a number of different propositions. Certainly accelerating the implementation of the statutory rate of reduction and the capital tax elimination are some of the ideas that I have heard coming from the mining industry. However, we need to hear a whole range of different views. At the end of the day, the committee should have the wherewithal to deal with it in a constructive way.

I know the member opposite talks about keeping the resource allowance. It might be difficult to convince the government not to move away from the elimination of that, but it should be on the table. It should be discussed. The government is committed to moving from 28% to 21%. It is committed to maintaining a competitive mining industry in Canada, so within that there is probably room to manoeuvre and discuss these important questions.

[Bev Desjarlais, NDP, Churchill, MB]

Mr. Speaker, I want to acknowledge that within the resource industries, particularly mining, which affects a fair part of my riding, there is some satisfaction that there will be some benefit and some reduction here.

However, I want to touch on the hon. member's comment that from the environmental perspective, everything is fine. I would like to refer to the situation at Giant Mine when it closed down. Correct me if I am wrong, but was Indian and Northern Affairs Canada not left literally cleaning up the ground because the mine owners were not responsible? Could he reflect on whether or not it would be beneficial to have a community resource fund, a mining reserve fund or some type of fund in place to ensure there is environmental cleanup afterward?