Mr. Speaker, Bill C-259 proposes the repeal of the excise tax on jewellery. I am pleased to have the opportunity to respond to this proposal having worked with my colleague, the former parliamentary secretary to the minister of finance, as well as my colleagues on the finance committee and the Liberal caucus on this very important issue.
Jewellery and watch products are the only products that are subject to a hidden luxury tax. I agree with the Canadian Jewellers' Association, with which I have worked with for the last five years, including its former president, Mr. Pierre Akkelian, that the federal government is discriminating against this industry.
Some people believe that we are attempting to remove a luxury tax, yet this tax applies to inexpensive jewellery. Jewellery is not luxury. One in three households buy jewellery and the average household in Canada spends less than $130 annually, the hon. member said $170, on jewellery and watches. The average expenditure in fact for a female is actually $98 and for a male it is $36, according to statistics that were furnished by Ernst and Young.
Four million to five million households bought jewellery in 2001 and most of them are low and middle income households. Low and middle income households account for 50% of the sales of jewellery.
In my culture, being of Greek descent, we always buy jewellery for every newborn child. The grandmother tends to buy jewellery, under $100 normally, and gives this as a gift to the child. Looking at the statistics, it is very strange that we would in fact tax a wedding band that costs sometimes around $100 or $200, perhaps more, and we do not impose an excise tax on the wedding gown that costs maybe $1,000 or $2,000. So there is some incongruity in terms of our tax system.
A single mother, for instance, may buy a pearl necklace. It is important to keep in mind that it is not a luxury tax. It is in fact something that would help low and middle income families. As I said, in my culture, it is an automatic thing to do. We normally buy some jewellery for our children. The average receipt, even from a chain like Birks Canada, is under $400.
On the other hand, other true luxury items, and I have always pointed this out to both the present Minister of Finance and the former ministers of finance, such as yachts, expensive cars, designer clothing are all exempt from this tax. In my opinion this tax should be abolished.
As a starting point, I would note that this private member's bill is one of 15 such bills that have been tabled in the current session, each of which requests some form of tax relief in specific circumstances. The proposed measures cover a broad range of initiatives, such as the income tax treatment of adoption expenses, herbal remedies, and fees paid for participation in physical activity or amateur sport. I understand that additional private members' bills proposing tax relief are waiting to be tabled.
There can be little doubt that these proposals reflect genuine concerns about how Canadians interact with and are affected by the taxation system. At the same time, it must be recognized that each and every one of these proposals carries a cost to the fiscal framework. In fact, the 15 private members' bills amount to $2.5 billion per year.
In addition to the fiscal cost that is associated with these private members' bills, one must also consider the difficulties that they may pose for the integrity and robustness of the taxation system and fiscal framework that the government works under.
Taken in isolation, any one of the private members' bills may raise important issues and express intentions that deserve attention and investigation. I am already on the record that I agree with the removal of this tax.
What we should not lose sight of, however, is the cumulative effect that a series of such bills could have on the taxation system. Individual proposals, even those with a relatively modest fiscal cost, could result in an inequity vis-à-vis other taxpayers who would then need to have their circumstances reviewed. Proposals that are evaluated on a stand-alone basis may have unintended consequences or create difficult precedents. A series of such measures may well increase the complexity also of the taxation system or even create opportunities for tax avoidance and evasion, as the hon. member has stated.
On the basis of these considerations, I would suggest that a certain degree of caution is appropriate on the part of the government in terms of studying this bill lest the government lose sight of its longstanding commitment to fiscal responsibility. If there is something that we have come into government to do, it is fiscal responsibility.
One of the hallmarks of the annual budget process is the consultation that takes place with the government asking Canadians for their input to help determine the difficult choices that must be made among competing priorities. Every year, as the hon. member pointed out, the Canadian Jewellers' Association has come before the finance committee with at least two reports, if I am not mistaken because I am not a member, that have suggested that the government do remove this tax. Both the Liberal members and the chairs, who were Liberal, agreed and there was, I believe, all party agreement.
In its May 5, 2004 appearance before the finance committee, the Canadian Jewellers' Association reiterated its request for a repeal of this tax and raised several concerns about this tax. As the hon. member said, the act's $3 tax threshold suggests that the federal excise tax on jewellery is a remnant from a bygone era, something that was once considered a luxury but is no longer considered a luxury. It is the only remaining luxury tax still levied by the federal government
While taxes on alcohol and tobacco can be justified, rightly or wrongly, for health promotion reasons, there seems to be little justification for the excise tax on jewellery as a luxury tax, since other luxuries, as I mentioned earlier, do not face a similar tax. Furthermore, according to the association, because Canada's tax system largely moved away from excise taxes with the replacement of the complex manufacturers' sales tax with the more transparent GST, the CRA no longer has the ability to administer a tax as complex as the federal excise tax on jewellery.
In its presentation to the committee, the Department of Finance disagreed with the characterization of the federal excise tax on jewellery as a luxury tax, noting that “most jewellery sold in Canada is relatively inexpensive and purchased by average consumers”. The department agreed, however, with the Canadian Jewellers' Association that the tax favours imported jewellery over domestically manufactured jewellery and that deficiencies in the tax “make it prone to tax avoidance and evasion”. The department has agreed with everything that we have said so far. According to the department, if “the jewellery excise tax were not already in place, it is less than certain that Parliament would want to legislate one today”.
I would like to add a point that perhaps was not raised by the hon. member. The president of the World Jewellery Confederation, CIBJO, wrote to the Prime Minister and stated that Canada was the last remaining country to have a jewellery tax. Australia and Russia have removed it because of the diamond industry and we are the last remaining country with this tax. Canada cannot be competitive internationally because of this excise tax. As a member of Parliament, I have had the opportunity to make recommendations to the finance committee. The elimination of the jewellery excise tax is one of the issues that I have raised and supported.
To assist the government in its support for small business, following up on budget 2004, the Minister of Finance wrote to the chair of the finance committee asking that the committee take an active role in assessing the merits of a number of measures proposed to support business. The finance committee has recently delivered its second report dealing with excise duties and taxes as they affect vintners, small brewers and jewellers. The report from the committee recommends some form of tax relief for each of these three industries, including a recommendation to phase out the excise tax on jewellery over a five year period.
In delivering its report, the finance committee is mindful of the need to assess competing priorities and the fact that limited fiscal resources are available, but the committee is making a recommendation to the minister. The government supports small business and will continue to review measures to improve the environment for small business to succeed.
I note that the private member's bill also proposes to eliminate the excise tax on jewellery and makes particular note of Canada's role as a diamond producing nation. I want to put on the record that I agree with the hon. member's statement that Canada is a diamond producing nation and we must be competitive. We are known worldwide as having an exceptionally good diamond industry. I agree with his comments that we will continue to help, especially in aboriginal communities.
Mining exploration in Canada, including diamonds, should be supported by targeted income tax provisions designed to recognize the special operating environment of this capital intensive and high risk industry. Provisions include the write-off for capital costs and the carry forward of resource deductions. Exploration companies also derive considerable benefit from the ability to flow expenses that would not otherwise be claimable within the company to investors in flow through shares.
The government has taken several recent actions to improve the taxation of the resource sector. I will end by saying that I agree with the hon. member. Liberal members and other members of the finance committee have been supportive of the removal of this measure.