Mr. Speaker, I am pleased to rise on behalf of my constituents of Don Valley East and represent them in this debate of Bill C-28, an omnibus bill that would implement certain portions of budget 2007 and the recent economic statement.
In particular, the bill covers personal income tax rates, corporate tax rates, interest deductibility, and the GST. Therefore, I would like to begin with the so-called personal income tax cuts announced in the October 2007 economic statement.
These cuts are no surprise to my colleagues in the Liberal caucus because they were contained in the last Liberal budget in 2005. The Liberal budget proposed to lower the personal income tax rate for those who earned the least in society from 15.5% to 15%. The effect would be to take 20,000 low income Canadians off the tax rolls and deliver tax relief where it is needed most.
Lo and behold, when the Conservatives assumed office, their first budget eliminated these tax measures. What did the government do instead? It increased the personal income tax rate from 15% to 15.5% and claimed it was reducing income tax.
Canadians are not foolish. They understood this.
Instead of giving a personal income tax cut, the government cut the GST by 1%.
Let us look at what effect this Conservative budget had on average Canadians in 2006.
For a single-income taxpayer earning $35,000 a year, the Conservatives increased his or her personal income tax by $122, so that the same person could then save a penny on a cup of coffee by the GST cut. But the devastating impact is that if the personal tax rate is increased so that a person is paying $122 more, that person would need to earn $12,200 more in order to get the same benefit in a GST cut.
The Conservatives were making no sense. They were not helping the people that we are here to help, the very low income earners.
This GST cut makes absolutely no sense. Most economists at that time agreed that the first Conservative budget suffered from a certain lack of fiscal sense.
Now, after almost two years, the Conservatives still suffer from confused priorities. The October economic statement effectively restores the Liberal tax cuts announced in 2005, yet the finance minister again refused the advice of leading economists and once again implemented a 1% reduction in the GST.
Let us be clear on this. The reason why a personal income tax cut makes more sense than a reduction in GST is quite simple. Canadians would far prefer a larger paycheque over a minuscule cut to the GST.
The GST is a consumption tax. I have already given one example. Another is that a Canadian who earns $300,000 and buys goods valued at that amount would benefit from probably a $3,000 saving. However, a person who does not earn that amount of money and wants to have a $300 benefit from a GST cut actually would have to spend $30,000, and that does not even guarantee anything. This really impacts low income earners.
The Conservatives could have gone a lot further with personal income tax cuts, yet they have chosen to squander another opportunity. Canadians would benefit if the Conservatives reduced personal income taxes.
There have been a lot of deputations by economists, poverty groups, community groups and tax groups. They all state that the consumption tax is not a good economic strategy. As well, the GST rate reduction represents a significant loss of federal tax income, which will have an impact on our fiscal future.
Therefore, the question is very simple: why not reinvest the approximately $12 billion in lost GST revenue in municipal infrastructure?
I recently met with the Federation of Canadian Municipalities, which is warning us that our crumbling infrastructure, most of it constructed in the 1950s, 1960s and 1970s, must be addressed now. The FCM estimates that we currently face a $123 billion infrastructure deficit across the whole country.
Without a significant federal investment, we will face a catastrophic loss of critical infrastructure at a significant cost to the taxpayer. As my mother always used to say, a stitch in time saves nine, and this is why it is very important to have a strategy now rather than wait to replace the whole of our capital works.
The FCM recommends that we adopt a national strategy to address this deficit. We in the Liberal Party were in the forefront of the cities and communities agenda and we believe that cities and communities must have stable and predictable long term funding.
The cities and communities agenda put forth by the Liberal government had municipalities at the table with the federal government and the provinces in order to address this problem. Unfortunately, the Conservatives are choosing to ignore this advice at the expense of our future.
Let us now turn to corporate taxes. The previous Liberal government reduced the federal corporate tax rate from 28% to 19%. The Conservatives are now talking about taking a bold step by further reducing the tax rate to 18.5% by 2011.
It is clear that Canadian firms need a corporate advantage on the international stage. That is why the Liberals argue for significantly lower corporate tax rates in order to compete at the global level.
That therefore brings me to another curious misstep by the Conservatives with respect to interest deductibility. Budget 2007, the second Conservative budget, contained what the former chairman of the Canadian Tax Foundation, Allan Lanthier, called “the single most misguided policy” to come “out of Ottawa in 35 years”.
I am not referring to the disaster caused by the Conservatives in the income trust sector in October 2006. Rather, I am referring to the tax measure tucked away on page 242 of budget 2007 regarding interest deductibility and foreign affiliates. It would have essentially thrown a major hurdle in front of Canadian firms that want to make foreign acquisitions by removing the interest deductibility from money borrowed to carry out those transactions.
While the Conservatives may fancy themselves as the party of free enterprise, the fact is that the finance minister is no longer a welcome face on Bay Street, nor is he any longer considered a friend of industry in Canada.
Tom d'Aquino of the Canadian Council of Chief Executive Officers commented that the proposed policy “may seriously undermine the competitiveness of Canada's homegrown champions--the companies that are most active and most successful in building global businesses from head offices” in Canada.
What the finance minister called a tax loophole is actually a competitive edge for Canadian firms to compete globally on an even playing field with firms enjoying similar tax measures in the United States, Japan and Europe.
Therefore, it was beyond belief why the minister was so determined to hobble the Canadian economy. According to tax specialist Neal Armstrong: “it is typical for a Canadian parent company to arrange most of its borrowing in Canada, then use the funds to invest in foreign acquisitions”.
Yet the Conservatives wanted to take this tool away from business. This policy proposal made no sense whatsoever. As Mr. Armstrong pointed out, the result is that “Canadian banks will lose the income from those loans, and the government in turn will lose the tax benefit from that income”.
Mr. Armstrong went on to say “that doesn't do us any good, because the bank in a foreign country isn't paying any [Canadian] tax”.
Tax specialist Karen Atkinson predicted that many companies would have had to “jump through hoops” to create financing structures, calling the finance minister's proposal a “make-work project” for lawyers and accountants.
Fortunately, thanks to a determined effort by the Liberal caucus, and especially the work done by my colleague, the hon. member for Markham—Unionville, the finance minister was forced to flip-flop on this issue and order a full retreat last May.
The finance minister was compelled to announce that interest deductibility would be preserved for Canadian companies investing abroad and that the policy would now target so-called double-dippers, or those companies that claim the same deduction in multiple jurisdictions.
Again, this confused leadership at the Department of Finance is not appreciated by the business community in this country. This is the same minister that brought on the income trust debacle and Canadians have had enough.
In conclusion, one has to wonder why the Conservatives so desperately lack an economic vision for the country.