Mr. Speaker, I am pleased to participate in this debate, which I think has been with the House ever since I became a member of Parliament. The matter has been before the finance committee for a number of years. As members know, the finance committee has recommended that this tax be repealed.
In 1993 when the GST issue was raised we talked about some of the history of the manufacturers sales tax, which was replaced by the GST. I believe that the same arguments for replacing the manufacturers sales tax and converting it to a consumption tax were made, and for the same reasons, as to why this tax should be repealed, and this should have been dealt with at the same time.
It is a discriminatory tax in view of the fact that the offshore competition does not have that same burden. Additionally, we also have the situation of Internet commerce now, which makes it a lot easier for people to import jewellery items. We are not talking about just luxury items as someone might want to define them. We are talking about normal consumer goods, about people buying watches and about the general jewellery consumption that is part of everyday life. This tax has lost its relevance in terms of these somehow being the luxury tax items of jewellery.
We also have a merging of markets, even with regard to things like diamonds. Diamonds are an integral part of the jewellery business. I know that these kinds of taxes should never be a factor that is significant in terms of the consumption patterns of Canadians. If there are offshore competition products which can be attractive to Canadians, then I think that on their own merit they will get their share of business.
I know that the Canadian Jewellers Association has done what I believe is an objective paper to inform members of Parliament about this battle that has been going on for some time. Let me summarize the four points in which the association lays out why the excise tax kills jobs in Canada.
First, it discriminates against domestic manufacturing of jewellery in favour of imports. Second, there is increased cost of inventories to wholesalers and retailers. Third, it encourages Canadians to purchase jewellery abroad and bring it back tax free under the personal baggage allowance of up to $750. Finally, the tax is squeezing the profit margin of retailers and discouraging investment and employment in the sector.
There have also been other papers done on the excise tax, such as the one by Ernst & Young, which make the same argument: basically it is a tax that kills jobs. This is an important aspect to keep in mind, not only with respect to the jewellery tax, but with regard to taxation policy and philosophy, as it were, as to the best interests of all Canadians.
One of the aspects that entices me about the jewellery industry is in fact what I believe to be the large underground economy in the jewellery sector. In this regard I think we are talking about revenues somewhere under $100 million. The underground economy is a very nebulous matter to deal with.
This is hard to prove on a sector by sector basis, but I believe there is sufficient evidence to show that within the jewellery industry there is a vibrant underground economy. It will also be incumbent on us, should this tax be repealed, to make every effort possible to bring that business, that commerce, to the table, because it is as punitive for legal commercial jewellery enterprises as this tax is.
In fact, the underground economy attacks all businesses. It is well known that if everyone paid their fair share of taxes, all Canadians would pay less, so we have a vested interest in making sure that when we make changes like this, whether it be to this tax or to other taxes, we understand that if taxes are lowered there must be some benefits, that is, it is going to increase the economic activity and have other positive consequences.
I believe that this issue of the underground economy is something that Parliament should keep in mind. We have from time to time made some modest steps relating to the construction industry and to subcontracts, perhaps, but the underground economy has been estimated to be as high as some $30 billion of commerce. We can imagine the tax revenues that are forgone.
I am a big fan of private members' bills. I think they raise important issues for the House to consider, but we need to learn from each and every example. Jobs in themselves are not simply the focus of this bill. I believe it should also be a re-evaluation of the income tax practice and policy that we have to ensure that the inequities or maybe the unintended consequences are dealt with and dealt with in a prompt manner.
This one has not been dealt with promptly. There has been good argument for many years. I do not think the arguments have changed very much over those years, but there has been a reluctance.
I also want to comment on the process of private members' bills and their ability to affect taxation. The whole aspect of managing the finances of a country is very important. We have a bill here that is talking about eliminating perhaps $100 million worth of revenue. It has to come from somewhere. There is a balanced approach that has to be taken by governments to ensure that we continue to provide for the needs of Canadians and to support legislative programs. Members know that well over two-thirds of what we spend is mandated by legislation. I think it is over 70% in fact.
That means that every time we touch revenue dollars which are there for the support of programs and services for Canadians, it can accumulate to be a substantial amount of money. I would think that all private members' bills that in one way or another affect either the revenue flow or increase the expenses of the government affect the government's ability to manage the fiscal affairs of the country.
Therefore, we must be very careful not to use this as a model by which the fiscal affairs of the country can be significantly impacted individually or even cumulatively through bills.
We have substantial rules surrounding private members' bills. They are now all votable. However, there are those which are of a royal prerogative and would require royal assent. They would tend to push the envelope a little bit. I raise that from the standpoint that this is not simply a linear issue of a tax affecting jobs. It affects a government's ability to deliver its programs if it is not properly dealt with. It also affects matters like the underground economy, and the shaping of the philosophy and practice of income taxation in Canada.