Mr. Speaker, I am pleased to speak to the budget implementation bill that is currently before us.
The Bloc Québécois will not support this bill to implement, among other things, the economic statement and the Atlantic equalization accord. The major sticking point is the fall economic statement that we opposed both because of what it contained and because of what it did not.
Throughout Canada, in Quebec and in our communities, people are experiencing a range of serious socio-economic problems. Even though the government has recorded significant surpluses despite tax cuts and all kinds of breaks for oil companies, it has refused to act. For a government that prides itself on taking action and keeping its promises, the mini-budget, the economic statement, was pretty pathetic.
I want to start by talking about the crisis in the manufacturing and forestry sectors. We keep hearing about more and more forestry and manufacturing businesses closing their doors and going through tough times. These are not just numbers we are talking about; these are lives and this is reality. These workers, their families and everyone around them are going through very difficult times. This kind of economic upheaval affects communities in cities where factories can improve quality of life, boost prosperity and keep them from becoming ghost towns.
The Bloc Québécois proposed a number of solutions to help the manufacturing industry, but the government has refused to take action and always hands us the same line. The optimist party of Canada's Minister of Finance says that everything is just fine. The optimist party of Canada says that employment has never been as low as it is now, that the growth rate is good, that profits in Canada are high and that companies are making lots of money. But the optimist party of Canada's minister is out of touch with reality. In both Quebec and Ontario, where manufacturing and forestry industries are major parts of the economy, things are not looking so good.
The figures from the optimist party of Canada do not take into account that reality is being obscured by the oil boom in Alberta. Here is a simple example. If you go to a bar in a small town where people have just lost their jobs, and twenty or so unemployed people are there when Bill Gates, the president of Microsoft, walks in, statistically everyone in the bar is a millionaire. Obviously, it is just statistics. Once Bill Gates leaves, everyone is still unemployed and facing the same problems.
The same thing is happening in Canada. While statistically there is an economic boom in Alberta, the situations are extremely difficult in Quebec and Ontario and economists are predicting a downturn because of the high dollar. Such is the economic reality and the effects and after-effects will not be felt until one, two, even three years down the road. If we do nothing about it right now, we will end up with even bigger problems in a few years. We need to take action right now.
Everyone who has come to see us in the Standing Committee on Finance lately, from employers, to unions, to representatives from society in general, has told us it is imperative to take immediate action in light of the high Canadian dollar and other problems the manufacturing and forestry sectors are experiencing.
In this context, it is rather sad to see that the government has preferred to push ahead with measures that have so little, if any, value added in terms of economic development. One need only think, for example, of the reduction of the GST. We will agree that it is certainly a popular measure. Of course, everyone is happy to pay less tax. In reality, however, all the economists who have spoken on this issue have said that reducing the GST will produce very little in economic terms.
The same goes for lowering corporate taxes for the big oil companies. They are already making exorbitant profits. The fact that they will now make even bigger profits will not help the manufacturing and forest industries because those companies are in trouble and are not making any profits. If they do not make a profit; they do not pay taxes. A drop in the tax rate is no help and does not improve their position.
However, they are starting to talk about it. The Bloc Québécois has been talking about this for a long time. Recently, we heard the minister say he recognizes that the manufacturing industry is having difficulties and that, perhaps, it may be necessary to act. Let us hope this change of heart will continue. The Bloc Québécois will continue to apply pressure.
That gets me thinking about the fiscal imbalance. At first, the Bloc Québécois was the only party talking about it. The other parties said there was no fiscal imbalance, it did not exist and we were inventing it. Finally, we succeeded in obtaining a significant amount in the 2007 budget for the fiscal imbalance, although the situation is not completely sorted out yet. There has been a transfer of money but still no transfers of tax fields. Yet, this was a situation that people thought was a fabrication by the Bloc Québécois. Now, we are getting some solid results.
We are in the process of doing the same work on behalf of the manufacturing industry. Only a few months ago, in fact, only a few weeks ago, the government was still saying here in this House that everything was fine, that there was no problem and the economy was doing very well. Now, we see that they are starting to change their position a little. We will continue to apply pressure to obtain measures for the manufacturing industry as quickly as possible.
One important measure that could have positive results, despite its rather technical nature, is refundable tax credits to companies for research and development. To offset the strength of our dollar, which makes our companies less competitive in the United States and elsewhere in the world, we need to encourage companies to invest in research and development, as well as new equipment to increase productivity.
Traditionally, in most advanced countries with strong economies, companies receive tax credits to encourage this. This is currently the case in Canada, except that these tax credits are non-refundable. So, companies that do not turn a profit cannot claim them. They bank them and when they do turn a profit, they can claim the tax credits. For the government, that is a future tax expense. In a few years, when a company turns a profit, it can claim those tax credits.
The Bloc Québécois wants these tax credits to be immediately refundable for a company that does not turn a profit, but that decides to invest in order to increase productivity, become economically viable and then make a profit. In fact, when a company is not turning a profit and is experiencing difficulties is when it needs that money, that cash, to compete and to invest in equipment and research and development. Later, when it turns a profit, it will pay the taxes.
The government argued that this measure would be too costly. Obviously, if tomorrow morning companies started claiming all these tax credits, even if they are not generating a profit, there would be an increase in claims. They say it would cost billions of dollars. However, the government's calculations are incorrect, because they were done on an annual basis. But if they are managing a country and claim to be running it, they need a more long-term vision.
If we look over time, what is going to happen? In terms of the tax credits and refunds that the companies are calling for now, even if they are incurring losses, they would claimed those tax credits in the future. So it is a measure that has virtually no effect. I will come back to this. There are costs, certainly. However, we have to take into account costs that will have to be covered in any event, in terms of tax revenue and tax spending in future.
Perhaps the example that is best known among the public and even members here is RRSPs. RRSPs are not income tax exemptions. They are deferred taxes. The money is deducted from the tax payable during our working years. When we reach retirement and withdraw the money from our RRSP, then we pay taxes.
That means the tax is simply moved to a later time. It is the same thing for converting these research and development tax credits into a refundable tax credit. You are doing the same thing, but you could really say it is the opposite. The principle is the same, however: giving an immediate tax refund that might have to be paid back later.
If we take a model over 10 years, or over a longer period of time, and exclude cases where companies go bankrupt, and compare the two systems, non-refundable tax credits versus refundable tax credits, the cost should be zero, because over time, for the taxes we are refunding now, they would have to be paid back later in any event. Obviously, the cost is not zero, because inflation is going to eat up some of the difference. That is because a 2007 dollar is worth a little more in 2008, a little more in 2009, and a little more in 2010. But it is a cost that is ultimately marginal, in terms of the measure as a whole.
The second case where there would be a cost is obviously if a company that did not make a profit went bankrupt. In the existing system, a company that does not make a profit accumulates non-refundable tax credits, never claims them, builds them up, but when it goes bankrupt, it loses that bank of tax credits, and that represents a tax savings for the government.
If we had a system of refundable tax credits, as the Bloc Québécois is proposing, obviously, the government would have to pay back the refundable portion to the companies, as they incurred research and development expenses, and that would mean that this system would cost slightly more.
We are not saying there is no cost involved in this measure. Obviously there is a cost, but it has to be assessed in comparison with the benefits to society. When the manufacturing industry representatives and research and development people appeared before the Standing Committee on Finance, I was struck by the testimony of one person in particular.
We were told that manufacturing industries can be divided into three broad categories based on their position in this crisis. The first involves companies that are doing well, that are strong and that will get through the crisis no matter what, regardless of whether we help them or not. At the other extreme, obviously, there are companies that are in serious difficulty, that have major structural problems. Whether we help them or not, those companies are not going to get through the crisis. In the middle, obviously, is a category of companies that are promising, that are having problems at this point in time, and that could get through the crisis if the government took the trouble to give them the hand they need.
Let us take a closer look at the effects of the measure proposed by the Bloc Québécois, namely, to make the research and development tax credit a refundable credit for these three categories of businesses.
As for the companies that are doing well, that are making huge profits and getting through the crisis, our measure would have absolutely no effect, no impact, and would change nothing. It would be business as usual. In other words, they are already making a profit and claiming their tax credits. Whether they are refundable or not, this would not change anything; they would get them immediately.
This is an interesting point. Indeed, a general tax cut, like the one brought in by the Conservatives, helps businesses that are making a lot of money, but does not help those that are not turning a profit. Our measure does the opposite: it does not help those that have lots of money—it is status quo for them—but it helps those that need a hand to make it through this crisis.
Consider the second category of businesses, those that are having difficulty, but can make it through the crisis. It is precisely this kind of measure that can give them the boost they need to get through this crisis, because, among other things, this would give them cash assets by making the tax credits refundable. This would then give them the money they need to get through the crisis, while, under the current system, they will not get the money they need until later, although they need it now. How ridiculous.
In this case, as I mentioned earlier, this would not cost the government very much. It would basically mean the cost of inflation, since the tax credit would be postponed. If we take into account the fact that the boost will allow businesses to remain open, to pay taxes, to pay their employees who will also pay taxes, one can see how this measure would be beneficial for the entire Canadian tax system.
Take finally the last category of businesses, those that will probably not survive the crisis. If these tax credits are immediately refunded to them and they end up going bankrupt, the costs will be greater than what we have under the current system. If a company goes bankrupt now, these accumulated unused tax credits are just lost, which means more income for the Canadian tax system.
We certainly hope that this category of businesses that do not make it through the crisis in manufacturing will be as small as possible. In the view of the Minister of Finance from the optimist party of Canada, which has a very positive view of our economy, not many businesses are likely to fall into this category. As a matter of fact, the more we help them, the fewer there actually will be.
All this is to say that the proposed measure to make research and development tax credits refundable is much less costly than the government claims. It would simply move up in time tax credits that in most cases would otherwise constitute an expense for the tax system if the companies earned a profit.
I have not mentioned accelerated depreciation yet for structuring investments, such as investments in machinery and equipment. The principle is the same. When accelerated depreciation is allowed at some point in time, there is a tax saving. However, as soon as the company has finished amortizing the equipment, it starts paying taxes. Once again, therefore, tax that is payable now is simply postponed until later. There is a cost to the government because inflation has to be taken into account, but the cost does not match the actual expense. The expense has to be spread out over a number of years and its total impact calculated.
As I said, we are opposed to this mini-budget because there is not much in it for our manufacturing industries. Other things are missing as well, but I did not have time to talk about them. I wanted instead to go into detail to explain our proposal on the refunding of research and development credits. There was no money to make the guaranteed income supplement fully retroactive, a promise that the Conservatives broke. There was no money for a program to help older workers. The government promised this in its first Speech from the Throne, but we have not seen the money yet. I also could have told the House about equalization, which is turning to Quebec’s disadvantage. I will certainly have other opportunities, though, to talk about these things.