Mr. Speaker, I am very pleased to speak once more to the budget. I thought I would use my time to focus on two items in the budget, which have been the recent focus of attention, income trusts and the interest deductibility provisions. I also want to use part of my time to show the linkages between those two.
The first point to make, which has been made before but it is so fundamental that it cannot be said too often, is that the income trust tax was a massive broken promise. The Prime Minister said, in words that could not have been clearer, during the election that he would not tax income trusts. On the strength of that solemn declaration, hundreds of thousands of Canadians took the Prime Minister at his word, put their life savings into income trusts, knowing that there were market risks but confident that there were no political risks, because the Prime Minister of the land had committed himself in unequivocal fashion to not tax those income trusts.
On Halloween of last year, when he absolutely and totally broke that promise by imposing a draconian 31.5% tax, he cut all those people off at the knees, caused a $25 billion meltdown of the hard-earned savings of those Canadians, many of whom are seniors who depend on the proceeds of their savings to pay the bills. The error was not simply the broken promise, but it was the incompetence of the manner in which that promise was broken. This is the first parallel between the income trust decision and the deductibility decision.
The finance minister has a tendency to go nuclear. When he sees a problem that might be a little problem, his tendency is to drop a nuclear bomb on it. He does not consult, he just drops the bomb and then finds out afterward what happens. A far more sensible approach would be a surgical approach; look at the problem, isolate the problem, consult before acting and think before acting. He does not think it through, but drops a nuclear bomb, lets it explode and then deals with the consequences thereafter.
Just yesterday he said, on the subject of deductibility, that he would spend some time on it now, some weeks after the budget. Why did he not spend some time on it before he made that decision? Instead of destroying $25 billion of consumers wealth, why did he not spend some time on thinking it through before he took that ill-fated action last Halloween? It is a bit late to start to spend some time on it now.
My point about the surgical nature of the operation in the case of income trusts is that what he should have done, and he had the information at his disposal, was to follow the Liberal plan, which says not to impose a 31.5% tax. That is absolutely unnecessary, draconian and it causes a $25 billion meltdown in Canadian savings. What we would do, and what we will do if we come to power, is impose a 10% tax, not a 31.5% tax and our tax would be refundable to all Canadian residents except non-residents who would have to pay the tax to ensure that they would pay a reasonably full share of the tax burden.
There are three positive effects of this alternative Liberal policy. Some intelligent people in the finance department could have told the minister this. It is not rocket science. Had he done our much more moderate, surgical, non-nuclear approach first of all, some two-thirds of the $25 billion lost to ordinary hard-working Canadians would have been returned to them through the markets under this Liberal plan.
Second, seniors in particular, who have need of a high yield instrument in order to get a return from their savings to pay the bills, would not be deprived of this income trust instrument, which is what is in the process of happening under the government's budget.
Third, the energy trust sector, which was a vibrant sector contributing to the nation's productivity according to the governor of the central bank, would have been allowed to continue to thrive under the Liberal plan.
Before Halloween, the energy trust sector was repatriating foreign capital. It was a net acquirer of foreign assets. Right now, it is sitting on its back, at bargain basement prices, being gobbled up by U.S. companies that are still subject to the tax rules that our Canadian energy trust was subject to prior to Halloween.
This is hugely damaging to a vibrant, highly productive sector in Alberta and it is hugely counterproductive to thefinance minister's stated goal. The finance minister's stated goal was tax fairness, that ordinary Canadians should not pay more than their share of taxes.
Let us think through, logically, the consequences of his actions. It was imminently predictable at the time of his decision that these energy trusts in Alberta, and other income trusts, would be for sale at bargain basement prices and that foreign entities, notably private equity companies, would come in and buy them up.
What does that do to the necessity for ordinary Canadians to pay taxes? Logically, it means that ordinary Canadians will have to pay more tax, not less tax. Why? Because under the previous structure, income trust holders were paying a lot of personal tax. Now what has happened is these private equity foreign companies come in, buy the assets and structure those purchases in such a way that they pay no tax. How does that save tax money? It does not; it does the opposite. It is not rocket science.
Previously, income trust unit holders were paying a lot of tax. Now the foreign entities come in, buy out those income trust holders and pay no tax. The net effect is the income trust sector is paying way less tax, and in many cases no taxes, than they were before. The public at large is going to end up footing a larger tax bill, not a smaller tax bill. Therefore, the fundamental objective of the policy, as stated by the finance minister, the opposite is in fact what is going on today.
There is a second way in which this is not fair.
First, the ordinary Canadians pay more tax because of the policy. Second, in the good old days, the pre-Halloween days, ordinary Canadians had access to this relatively high flow of income arising from the energy trust sector. Now the government says, no, that ordinary Canadians can no longer go there, ordinary Canadians can no longer participate in this revenue stream that is so important for seniors. However, the people with deep pockets can. If we had enough money to buy an oil field, we could still get those same benefits. Large pension funds can acquire those assets. Large private equity enterprises from the United States can achieve those same income streams, without paying any tax at all. That is unfair.
It was a revenue stream that was available to all Canadians, some with modest incomes, some with less modest incomes, in a democratic way. Ordinary Canadians cannot go there any more. Only the entities with the deep pockets and the big wallets are allowed to go there.
I will now come to the important point about interest deductibility.
This is a very important parallel between these two policies. What the government is doing with the interest deductibility prohibition is it is tilting the playing field in favour of foreign companies and against Canadian companies. Whether we look at Europe, the United States or Japan, all those jurisdictions have equivalent policies. Their companies, when they go abroad, can deduct the interest on debt. Canada's companies can no longer do that. Our companies are weakened relative to companies from the U.S., Europe and Japan.
Why would the Minister of Finance and Prime Minister wish to tilt the playing field in favour of the foreign companies and against the Canadian companies? It is a totally erroneous policy. It is anti-competitive. It is exactly the same as what the government has done with the energy trusts. The U.S. equivalent of energy trusts have the same favourable tax treatment.
The government has tilted the playing field in favour of the U.S. companies both for energy trusts and in general. It has moved against Canadian companies. Canadian companies for competitiveness, for jobs, for prosperity need to expand abroad and the government has attacked that ability to the gain of foreign companies.
I do not have to remind the House of that great Progressive Conservative Peter Lougheed. He has spoken out against the dangers of the hollowing out of Canadian companies, a message that the government has totally ignored.