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House of Commons Hansard #140 of the 39th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was animal.

Topics

Questions on the Order PaperRoutine Proceedings

3:20 p.m.

Some hon. members

Agreed.

Motions for PapersRoutine Proceedings

3:20 p.m.

Regina—Lumsden—Lake Centre Saskatchewan

Conservative

Tom Lukiwski ConservativeParliamentary Secretary to the Leader of the Government in the House of Commons and Minister for Democratic Reform

Mr. Speaker, I ask that all notices of motions for the production of papers be allowed to stand.

Motions for PapersRoutine Proceedings

3:20 p.m.

Liberal

The Speaker Liberal Peter Milliken

Is that agreed?

Motions for PapersRoutine Proceedings

3:20 p.m.

Some hon. members

Agreed.

The House proceeded to the consideration of Bill C-40, An Act to amend the Excise Tax Act, the Excise Act, 2001 and the Air Travellers Security Charge Act and to make related amendments to other Acts, as reported (without amendment) from the committee.

Sales Tax Amendments Act, 2006Government Orders

3:20 p.m.

Liberal

The Speaker Liberal Peter Milliken

There being no motions at report stage, the House will now proceed without debate to the putting of the question of the motion to concur in the bill at the report stage.

Sales Tax Amendments Act, 2006Government Orders

3:20 p.m.

Conservative

Peter Van Loan Conservative York—Simcoe, ON

moved that the bill be concurred in.

(Motion agreed to)

Sales Tax Amendments Act, 2006Government Orders

3:20 p.m.

Conservative

Peter Van Loan Conservative York—Simcoe, ON

moved that the bill be read the third time and passed.

Sales Tax Amendments Act, 2006Government Orders

3:20 p.m.

Calgary Nose Hill Alberta

Conservative

Diane Ablonczy ConservativeParliamentary Secretary to the Minister of Finance

Mr. Speaker, I am pleased to introduce Bill C-40 at third reading. This bill contains a number of amendments to Canada's sales tax system.

Although largely technical in nature, the bill reflects the goal of Canada's new government to improve fairness in our tax system and ensure it functions smoothly for individuals and businesses alike.

With that goal in mind, last November, along with the economic and fiscal update, we announced advantage Canada, an economic plan to give Canada and Canadians the key advantages needed to compete today and succeed for years to come.

Before getting to the specifics of Bill C-40, I think it prudent to remind the hon. members of the key elements of our plan, a plan put into action in budget 2007. The plan focuses on creating five key advantages, one of them being a tax advantage.

The government wants to create new opportunities and choices for people. Lowering taxes, creating a tax advantage for Canadians, will help do that. It will also help to keep our best and brightest here at home, while attracting the people our country will need to build a strong economy in the 21st century. It all starts with a lower tax burden.

Before coming to office, and practically every day since, we have said that Canadians simply pay too much tax compared to other countries we compete with for talent, skilled workers and foreign investment and so we did something about it.

In our first budget last May and the months that have followed, Canada's new government began to reduce taxes. We reduced the GST rate. We increased the amount Canadians can earn without paying federal income tax by permanently reducing the bottom rate. We introduced the Canada employment credit and brought in a host of targeted tax relief measures.

The tax fairness plan we announced on October 31 went even further for Canada's seniors. We increased the age credit amount by $1,000 and introduced pension income splitting for pensions to increase the rewards from retirement saving.

Budget 2006 and our tax fairness plan took significant steps to get this country back on track and to begin to create a tax advantage for Canada.

We need to go further, and we did that in budget 2007. To create a greater tax advantage for Canada and Canadians over the coming years, we reduced taxes even further. In budget 2007, Canadians come out ahead through real tax relief that benefits working families.

Bill C-40 would help create a Canadian tax advantage. It would improve fairness and efficiency in the sales tax system and ease compliance and administration for businesses and government.

The bill consists of three parts, the first of which pertains to the goods and services tax and the harmonized sales tax. The second part of the bill relates to the application of taxation of wine, spirits and tobacco. Part three concerns the application of the air travellers security charge.

First, the GST-HST measures. These measures are principally aimed at improving the operation and fairness of the GST-HST in specific sectors of the economy.

It is important to point out that in some cases adjustments have been made over the course of time to the legislation as originally proposed in response to representations from tax and business communities. We listened.

The principal GST-HST measures encompass important areas for Canadians. One such area is health care. Canadians know that our health system is one of the best in the world but we need to work to keep it so it continues to meet the needs of Canadians.

Bill C-40 contains a number of measures that would improve our health system. For example, the bill would cement in place the continued GST-HST exemption for speech-language pathology services. The bill also proposes to add the services of social workers to the list of health care services that are exempt from the GST-HST.

These amendments are consistent with the government's policy criteria for inclusion of a particular health care service on the list of those that are GST-HST exempt in all provinces.

The criteria is as follows. First, if a service is covered by the health care plan in a given province, it is exempt in that province. Second, if a service is covered by the health care plan of two or more provinces, it is exempt in all provinces. Finally, if a profession is regulated as a health profession by at least five provinces, the services of that profession are exempt in all provinces.

Canada's new government is also very aware of the challenges faced by individuals with disabilities. Budget 2006 fully implemented and went beyond the policy recommendations put forward by the technical advisory committee on tax measures for persons with disabilities.

In the spirit of that action, Bill C-40 broadens the specially equipped vehicle GST-HST rebate for individuals with disabilities. This measure will help those individuals to participate as fully as possible in Canadian society. Moreover, this measure reflects the government's continuing commitment to ensure that all Canadians are treated in a fair and equitable manner.

Also, on the health front, the bill proposes to make the sale and importation of a blood substitute, known as plasma expander, free from sales tax. It would also restore the tax free status of a group of drugs commonly used to treat a variety of conditions, such as seizure control, anxiety and alcohol withdrawal.

The measures in the bill illustrate the government's commitment to ensuring that Canadians continue to have access to timely and quality health care.

As I said at the outset, we have made it abundantly clear that Canada's new government is committed to reducing taxes for individual Canadians as well as for Canadian businesses.

High taxes not only discourage investment in Canada, they also impede businesses from prospering. However, there is more to it than that. Businesses do not need more government meddling. They need government to get out of the way and to free them to do what they do best: invest, expand and create jobs.

Budget 2007 proposes to reduce the federal paper burden on small businesses by 20% by November 2008. The budget also proposes to reduce the tax compliance burden on small business by decreasing the frequency of their tax remittance and filing requirements.

The measures in Bill C-40 reflect the intent of this action. These measures are technical in nature. I will not go into detail now but I will say that the measures contained in the bill would ease compliance for a wide range of businesses and other organizations by removing technical impediments and simplifying compliance with the GST-HST legislation. The bill also clarifies and confirms the government's policy intent.

The second part of Bill C-40 concerns excise measures; that is to say, measures related to tobacco and alcohol products. The measures in this part of the bill would amend the Excise Act, 2001 to implement minor refinements that would improve the operation of the act and more accurately reflect current industry and administrative practices.

The bill would also implement related and consequential amendments to the Access to Information Act, the Customs Act, the Customs Tariff and the Excise Tax Act.

The principal measures included in this bill, those related to the Excise Act, 2001 are as follows: First, with respect to tobacco, Bill C-40 would extend the requirement to identify the origin of tobacco products to all products, including those for sale at duty free shops or for export. This amendment is consistent with the Framework Convention on Tobacco Control, an international treaty on tobacco control.

The bill would also clarify which tobacco products may be supplied to the export market or the domestic duty free market. For example, cigarettes, tobacco sticks, fine cut tobacco or cigars may be supplied to those markets but not packaged raw leaf tobacco.

As the House may know, a spirits licence is required to produce alcoholic products using a still. There are some cases, however, where private laboratories, provincial liquor boards and vintners use a still to produce spirits for the purpose of analysing substances containing ethyl alcohol. Bill C-40 would authorize these entities to possess a still or similar equipment for testing purposes without holding a spirits licence.

To limit the possession of non-duty paid spirits, the bill would also require these parties to immediately destroy or dispose of those spirits once the analysis is complete.

Another proposed amendment to the act would defer payment of duty by certain small vintners selling wine on consignment in retail stores until the wine is sold.

The bill also contains a number of administration measures. One such measure has to do with the exchange of information between Canada and foreign governments. Specifically, the bill would permit the Minister of National Revenue to exchange excise duty information with foreign governments that are signatories to the Convention on Mutual Administrative Assistance in Tax Matters.

One other measure relating to the exchange of information adds a discretionary power under the act for the chief statistician of Canada to provide statistical information concerning business activities to the provinces. This is similar to an existing provision in the Income Tax Act.

The third and final part of Bill C-40 relates to the air traveller security charge, or ATSC. One of the principal ATSC measures included in the motion relieves the charge in respect of air travel donated by an air carrier to a registered charity that arranges free flights for individuals as part of its charitable purposes. This means that certain charities that arrange free air transportation services for persons who otherwise cannot afford the cost of flights for medical care would not have to pay the air traveller security charge. This includes “flights of a lifetime”, such as those provided by the Children's Wish Foundation of Canada and other similar charitable organizations that organize dream trips for physically, mentally and socially challenged children.

I said at the outset that tax legislation must be applied consistently. This proposed ATSC relief for charitable flights reflects that objective by being consistent with relief from other federal levies provided to registered charities. These measures are also consistent with other ATSC relief measures, such as that provided in respect of air ambulance services.

Summing up, Canada's new government understands that good government and good tax policy go hand in hand. Well-focused tax policies, such as those reflected in the bill, are a sign of a government with vision, which is what the government is all about.

We are looking ahead and planning the steps we need to take to build a stronger economy and a more confident Canada. In doing so, together we can make Canada a world leader with a long term, focused economic plan not just for today but for tomorrow.

Sales Tax Amendments Act, 2006Government Orders

April 25th, 2007 / 3:35 p.m.

Liberal

Jim Peterson Liberal Willowdale, ON

Mr. Speaker, it is an honour to speak once again in this great House of debate and innovative thought.

Our party is supporting Bill C-40. This bill is the natural evolution of a fiscal policy, the goods and services tax harmonized in certain parts of the country. It is a natural evolution as we gain experience with it. We find that it does not always cover every little contingency the way we would think is best.

I commend the government on coming forth with a number of amendments which harmonize and streamline, and deal with exigencies which could never have been envisaged from the very start. We must continue to always adopt this type of attitude to changes in the tax law because we can always learn from our experience as we move along, so that the tax code becomes a living organism, a living body of law.

There are some areas where I believe that the government could have gone farther in making changes to our goods and services tax. One is with respect to the exemption for housing. The original exemption was $250,000, but we have seen how prices have skyrocketed in some cities across the country such as Vancouver, Edmonton, Calgary and Toronto.

The idea was that we would help new homebuyers overcome the difficulties of purchasing a home by exempting them on GST up to a certain level, and that level has never been changed. We should be adjusting it, not according to the ordinary inflation rules, which are around 2% a year or slightly higher, but according to the inflation rates for actual housing in particular markets across the country. I am sure the government will want to consider this type of change in the days and months ahead.

The hon. parliamentary secretary talked about a number of other tax measures. I have no hesitation in moving from Bill C-40 to the general fiscal policy of this government.

Let me just mention a few particular issues. The first is the government's treatment of the GST in general. The government has reduced the GST from 7% to 6%, costing about $5 billion. That money could have been used to pay down the debt, to invest in new productivity measures in Canada, or to help those most in need in our country. What is worse, the government did so by increasing personal income tax by .5%.

There is not one economist in the country, let alone the world, who would say that the tax cuts given on the GST sales tax consumption level are preferable to overall tax cuts to the personal and corporate income tax rates, cuts which would make us more globally competitive.

We are in a global competition for capital. Capital knows no borders. It flows seamlessly around the world. We have to be able to be competitive unless we are prepared to introduce capital controls and barriers. No sane economist would advocate that as well. Therefore, in order to remain competitive, why did the government give up this great chance to lower personal income taxes as well as reducing our corporate income tax rates so that we could attract that capital?

Under the previousfinance minister and previous Prime Minister Jean Chrétien, the Liberal government took a very important step. Even when we were dealing with the whole issue of the deficit, we were looking at what we had to do to attract new capital investment and the best jobs to this country. One of those was to reduce the corporate income tax, and we did it.

We were headed on a course down to 30% combined with the provinces. That would have compared with 35% in New York State, 41% in Michigan and 41% in California.

That was a responsible way to attract jobs to this country. We have seen how under our leadership the unemployment rate in this country fell to a 35 year low. This is great because we all remember back in 1990-91 when unemployment hit 11.4%. The toughest thing as an MP was to meet with constituents who had lost their job, who had used up all of their savings, had used up all their RRSPs, had lost their home, their car, their self-respect, and often their families.

We must never be content with a system which allows that level of high unemployment and this is why we must on an annual basis check our global competitiveness. The cut to the GST did not do that. It was stupid. It was obviously done for short term political gain, but Canadians are not stupid. They know when they are being had. The Canadian electorate is very smart and they recognize that the best politics is always the best policy.

Let me go on to a second area where I am very dismayed with the government in terms of its fiscal policy, income trusts. It is not just the broken promise where the Prime Minister said he would never touch income trusts, it is the fact that the measures taken were totally without tax foundation. They were totally without study. Did the government know it was going to cause a $30 billion meltdown in capital of investors who had put their money in savings, a lot of them seniors, a lot of them retired, as a result of the measures that it took?

If the Conservatives knew that, then they have to be condemned. If they did not do the studies as to what the impact on the capital markets was going to be, then they must be condemned. Why can they not admit a mistake? We had numerous witnesses before the finance committee who showed that the tax leakage figures suggested by the government were totally exaggerated, totally out of sight. They did not have to go from a zero tax to a 31.5% tax on income trusts in order to kill them.

We listened to those witnesses. Some of them said the government was even making more money by having in place income trusts where the distributions were taxed usually at high personal rates rather than the same amount of money coming out of a corporation being taxed at about 6.2%. As members know, personal rates go up as high as about 45% in Canada and that is why the tax leakage was not there. It might have been there with respect to some non-residents, but if we take a 6.2% tax equivalent at the trust corporation and compare that with the withholding tax on dividends going to foreigners, often we would find there was no loss.

Then take the money going into the tax exempt such as the pension funds here in Canada. Granted that dividend going into the pension fund was not taxed at that time, or the trust distribution, but those pension funds were very quickly distributed to individuals in this country because retirement depended on them and were again taxed at the full corporate rate.

Our Liberal government looked at this after having talked to the experts and we were convinced there was a better way. We said leave the cap on no new income trusts being created for the moment. Put a 10% distribution tax on funds going to non-residents and it will more than make up for any tax leakage that there might have been, if there was any in fact.

Meanwhile, the issue should be studied. Do we really want to blow away investment instruments such as income trusts, which were providing a decent rate of return to our retired citizens? If they are investing in bank instruments or government bonds, what rate do we think they are getting, 4%? That is only 2% above inflation. How can retired people live on that and how can they live on it when the government caused a meltdown of some $30 billion to the value of their savings?

Do the right thing. We are prepared to study it further. Why is the government afraid to study it further? My God, is it a sin to be wrong? We all make mistakes. The sin is in failing to admit that one is wrong and doing something about it. Everybody knows the government is wrong on this thing. Everybody knows that the emperor is wearing no clothes. Why does it not just admit what everybody knows and be prepared to look at this thing and give it a second thought?

Another area where I have great concern with what the government is doing in terms of fiscal policy is this issue of interest deductibility. It has said that if a Canadian investor or company borrows money to buy a company abroad in order to expand its global operations, in order to be globally competitive, it cannot deduct the interest on the money it borrows to acquire the shares in that foreign entity.

This last budget was not the first time that we in Canada have seen that particular measure. It was a measure brought in following the Carter commission many years ago, brought in by a Liberal government, where we said if the dividends coming back into Canada are not taxable, why should there be a deduction for the interest to acquire those tax free dividends? We established that measure and found out how stupid it was. We very quickly reversed that measure.

Why is it stupid to do this so-called type of non-interest deductibility? It is stupid because our foreign competitors can deduct the interest they pay on money borrowed to buy up our companies and foreign entitles, to grow, to become powerful, to become Canadian and global champions in terms of the competition that we face. This measure was not thought out in terms of the practical realities of this world.

Again, why would the government want to handicap Canadian companies? Why would it want to handicap our competitiveness? Why would it want to divert jobs out of Canada? I can say from experience what will happen. This is what a government in Canada tried before and the result was that Canadian multinational corporations were not going to continue to exist. They would simply move their global operations and headquarters out of Canada.

This is what we need in order to have the high level, high paying, good jobs here in this country. We want Canadian head offices here. We want the global champions to be based in Canada because that is where the best jobs are.

If anyone needs an example of what has happened, let us take Hong Kong. In the early nineties it was going downhill because of the fear of what would happen when it would revert back to China. The cover of Fortune magazine said, “Hong Kong is dead”. At that time Hong Kong had an 80% manufacturing economy. Anything that anyone picked up had “Made in Hong Kong” on it.

Today Hong Kong is no longer manufacturing. It is an economy that is about 90% service, with all of its manufacturing operations in foreign affiliates in the Pearl River Delta in China. Hong Kong, by being the headquarters for the multinational corporations, is producing the great jobs and the great wealth. It is booming.

We cannot be afraid to change. We have to be open to change in this global economy or we are going to lose the best jobs here.

This is another blatant mistake in fiscal policy by the government. Again I say, my God, we are all human and we all make mistakes, but the government must admit it and do something about it. We will work with the government to do something about it. We will make it possible to for us to have a strong, competitive economy here in Canada, producing the best jobs, with Canadian champions that are reaching out around the world.

Are we not proud of our Canadian banks and insurance companies that have offices in almost every other country in the world? They are showing the Canadian flag and the Canadian name. They are helping Canadians invest there, acquire things there and do business there.

We want more of these Canadian champions. The measures that the government has brought in are simply going to drive those Canadian champions out of this country.

I saw that back in the days of Carter, when we wanted to tax all dividends from foreign affiliates. For foreign entities, a buck earned in a low tax jurisdiction such as Singapore would be taxed at the same rate as a buck earned in an affiliate in a high tax jurisdiction such as France, the United States or even Canada. That may be great economics if one is an economist, but if one is a business person, one has to compete with other entities where they say that the rate of tax one pays globally is the rate set by the country in which one earns the income.

It is the host country where the activities are carried on that sets the tax rate. If a big corporation from the United States could do business in Hong Kong, for example, and pay a 12% tax rate, and a Canadian company had to pay a 50% tax rate, who was going to win? Who was going to get the jobs? It was going to be the American competitor of the Canadian company.

Therefore, that tax policy brought in by a government many years ago had to be reversed. It meant that we stemmed the flow of Canadian-based multinationals leaving this country. I beg of the government, which knows it is wrong, to just admit it. We will work with the government to fix this.

In closing, let me say that the tax fairness bill brought in by the government was not a tax fairness bill. It was a wealth-stealing bill. I am very pleased that our finance critic, the member for Markham—Unionville, has taken such a vigorous stand in taking the tax fairness bill to task right across this country. We will continue to do so until we get justice for all those people who lost their savings because of the idiocy of the government.

Sales Tax Amendments Act, 2006Government Orders

3:55 p.m.

Bloc

Thierry St-Cyr Bloc Jeanne-Le Ber, QC

Mr. Speaker, in his speech, my hon. Liberal colleague spoke a great deal about taxation and international rules. I would like to know his opinion on something that should be very familiar to the Liberals, that is, tax havens, and especially those in Barbados.

When his party was in power, the government established a series of measures intended to restrict the use of tax havens. However, they created a wide-open loophole for one country in particular, Barbados. Naturally, this offended many people in my riding, many people in Quebec and indeed many Canadians, I am sure.

While these people work hard to make a living and pay their taxes—and most citizens are willing to do so, because they know they must contribute to society—they are also disenchanted, and rightly so. The Liberal government of the day and its finance minister voted in favour of tax shelters for businesses, so that businesses could transfer home, tax free, the profits generated in tax havens.

Can my hon. colleague explain why his party never acted to put an end to this tax exemption, this gaping tax loophole?

Would the Liberals be willing today—now that they have had some time to reflect on this from the opposition standpoint—to put an end, once and for all, to all existing tax havens, tax agreements and tax treaties, especially Barbados, thereby truly respecting the people we are supposed to be representing?

When the Liberals signed this tax treaty with Barbados and retroactively changed the legislation, they were not doing their job as representatives of the people. It is about time for them to make amends, admit that they failed in their duties for 13 years and henceforth support the complete elimination of all tax havens.

Sales Tax Amendments Act, 2006Government Orders

3:55 p.m.

Liberal

Jim Peterson Liberal Willowdale, ON

Mr. Speaker, I have a question for the hon. member. He seems to know a lot about the tax haven situation.

Let us take the example of a Canadian corporation that has direct operations in Europe, and the tax for the corporation is roughly 25%. If this income came directly to Canada, would it be taxed here, in Canada, or at the rate of 25%? If the European corporation had a corporation in Barbados and then the income came to Canada—from Europe, through Barbados on to Canada—would the tax rate be 25%, or the rate in effect in Canada?

If the hon. member can answer that question I will continue to discuss this with him.

Sales Tax Amendments Act, 2006Government Orders

3:55 p.m.

Liberal

Michael Savage Liberal Dartmouth—Cole Harbour, NS

Mr. Speaker, I listened with great interest to my learned colleague's dissertation. One thing he mentioned was the GST cut. He described how it is a foolish reduction in taxes. I have long said that it is both dumb and mean. It does nothing to improve the productivity of the nation, whereas we could have invested that money in post-secondary education and in making sure that children from lower income families, disabled Canadians or aboriginal Canadians had a chance at education.

Instead, the government took $5.5 billion, or whatever the number was, and did it so that supposedly it benefits all Canadians. One of the fallacies that we often heard from the government was that it was a tax cut that would help all Canadians, including those with the lowest incomes who do not pay income tax.

However, there are all kinds of ways to help low income Canadians. The child tax benefit is an example. Even providing child care spaces that they otherwise would not get is a way to help. There is a whole host of ways to invest that money so that we could better help Canadians who actually need the help.

Saving a penny and a half or two cents on a double-double just does not make a big difference. I ask my colleague about the unfairness of that 1% cut, which took approximately $5.5 billion out of the economy that could have been used to better help Canadians who could use the help. Would he agree with me on that?

Sales Tax Amendments Act, 2006Government Orders

4 p.m.

Liberal

Jim Peterson Liberal Willowdale, ON

Mr. Speaker, I think the hon. member has put it in a way that every Canadian can understand. I could not agree with him more. What is worse is that the government has pledged to another percentage point reduction in the GST. How the hell is it going to pay for that? It is going to be coming out of the pockets of those who need it most.

Could I just add to the eloquent words of my colleague? Looking around the world, we see that we have one of the lowest consumption tax rates of any nation in this world, and the government is bent on lowering it further. We have seen how other countries that are competing with us in the global marketplace have enhanced and raised their sales taxes, their consumption taxes, with some of them approaching 20%. This means they can lower their income taxes and be more globally competitive.

How do we protect the weak if we raise our sales taxes or consumption taxes? We do it through a tax credit. We already have that in place. We have a means, if sales taxes are raised, of compensating those least able to cope with increases at the consumption level.

In our global economy, this is the type of fiscal policy that is responsible. It is the one that allows us to deliver the services that are so critical for the least well off in our country.

Sales Tax Amendments Act, 2006Government Orders

4 p.m.

Bloc

Thierry St-Cyr Bloc Jeanne-Le Ber, QC

Mr. Speaker, I have been in the House for just one year and this is the first time during a period of questions and comments that I have had to answer a question from a colleague who was supposed to answer my question. This is a funny situation.

Nevertheless, what is not so funny is that I did not get an answer to my question on tax havens. I do not see what the systems for taxing interest paid abroad have to do with the fact that, when they were in power, the Liberal Party and their Minister of Finance signed a tax treaty with Barbados. This was a tailor- made agreement to allow companies that were doing business in Barbados and generating profits there, to transfer their profits, exempt from taxation, to Canada.

This situation was denounced five times by the Office of the Auditor General. This was this case on February 22, 1994, and again in 1996. The Auditor General returned to the charge again in 1998, a fourth time in 2001, and finally a fifth time in 2002. Frankly, and I am not the only one to say so, I think we can trust the Auditor General.

Now that they are in the opposition, are the Liberals prepared to come their senses and support the end of tax treaties with Barbados?

Sales Tax Amendments Act, 2006Government Orders

4 p.m.

Liberal

Jim Peterson Liberal Willowdale, ON

Mr. Speaker, I will answer the question because the hon. member obviously does not know the answer.

In the event that a Canadian company has operations or does business in Europe and that the tax rate in Europe is 25%, then the applicable tax rate in Canada for any income returned directly to Canada is nil. Zero. The income tax paid is still 25%. If the same income goes to a subsidiary in Barbados, the tax rate in Canada is zero. The rate paid remains 25%. It is exactly the same. What is the problem with that?

Sales Tax Amendments Act, 2006Government Orders

4:05 p.m.

Bloc

Thierry St-Cyr Bloc Jeanne-Le Ber, QC

Mr. Speaker, when I heard my colleague start his remarks by saying, “I will answer the question”, I was pleased, thinking that he was actually going to answer my question. Instead, he answered his own. That is pretty strange in terms of transparency.

I would now like to speak briefly about the bill before us, namely Bill C-40. This is a very technical bill. I have already had the opportunity to go into the details at a previous reading of this bill. I will sum up our reasons for supporting it.

We believe that Bill C-40 addresses various shortcomings associated with the GST and the excise tax. Bill C-40 removes taxes from certain medical services, which will facilitate access to these services. Bill C-40 reduces the burden of taxation on charities, something we are very happy about. Bill C-40 provides for measures that will help small wine producers, which is worthwhile. It also contains legislative provisions surrounding the sale and production of tobacco, to counter smuggling. Finally, Bill C-40 adjusts the air travellers security charge to reflect the Quebec situation. For all these reasons, we will be supporting this bill.

Naturally, this bill deals with only one part of taxation in Canada. Recently, in the budget, there were a certain number of measures that changed the tax rules and I imagine we will soon see them before us. Some of them are already being examined through a ways and means motion. They will come before us again. They are not contained in Bill C-40, of course. However, the Bloc Québécois has been fighting for some of these measures for a long time. For example, there is the matter of refunding the GST to school boards. For quite some time, the Bloc Québécois has found that it was curious, to say the least, for a level of government to impose a consumption tax on another level of administration—school boards—that provide such an essential service in our society as education.

Education represents the future of our entire society. We found it hard to understand why school boards should pay the GST. We have always believed that this tax should be reimbursed and that the federal government should not tax school board funds, which already come from taxes.

School board revenues consist of the monies received directly from the provinces for education as well as school taxes. Paying a tax with a tax was quite a unique situation. For some time, the Bloc Québécois fought to change this. Naturally, we were pleased to see that the Minister of Finance had made this correction in his last budget. In the past, there was a series of events where the Liberal government refused to follow court orders and amended the legislation. We are now in a situation where this is being sorted out. We are pleased and it motivates us, in the Bloc Québécois, to continue our work and to submit constructive proposals to the government, and often to apply the necessary political pressure because, unfortunately, things do not just happen if we do not exert constant pressure on the government. When we see such results, it shows the relevance and usefulness of our work even though sometimes, over a period of a few months, there are no immediate results. However, we see that, over time, this fundamental work produces results.

There is another area where we would have liked the government to take action. It did not, though, and we will continue to exert pressure on it to do so. I am talking about the GST on books.

In Quebec, books are exempt from provincial tax. Culture is one of the foundations of our society. Books should be considered our main source of knowledge, culture and imagination. Our societies are based largely on books, at least from a cultural standpoint. The production and sale of books should be encouraged. Quebec, which does not tax retail book sales, is a model in this regard. The Bloc Québécois will continue to call on the federal government to exempt books from the GST.

There is a connection with my previous remarks about education. Most books are consumed—this may not be the most appropriate word to use in referring to culture—or used for educational purposes. They include textbooks and other educational materials, and many students use these books for research in literature and other fields. We will continue to press the government, in the hope of convincing it that this is a good thing and that it should act quickly.

Abolishing the GST visitor rebate program is another blunder by the government. Last year, the government suddenly announced that it was doing away with the GST rebate for visitors to Canada. Previously, on leaving the country, visitors could obtain a refund of a portion of the tax they had paid. The Bloc Québécois immediately said that this made no sense, because it would hurt our tourism industry.

It makes no sense to tax tourism, which is an export industry. Although tourist activities take place in Canada, we are exporting products: Quebec, Canada, the Rockies, our culture, our knowledge, our cuisine, Gaspé and the Magdalen Islands. We are exporting all that to the rest of the world to show them the beauty our country has to offer. No country taxes consumption of its exports, including tourism.

It was absolutely necessary to backtrack because this measure was wrong and unjustified. The figures presented by the government meant nothing. At the time, we were told that only 3% of travellers asked for GST refunds when leaving Canada. This figure is biased. It does not take into account the fact that most people travel in groups, or family units. This can be two, three or four people. Let us take the example of a family of four returning to the United States. We can assume that mom, dad, junior and his sister will not make individual claims. One person from the family unit will make the claim. So clearly not everyone makes a claim, and that partly explains the figure of 3% of travellers.

Moreover, this figure was calculated based on all trips, including those shorter than 24 hours. It makes sense that many people did not make a claim for a one-day trip, simply because there was nothing to claim. The fact that a person who comes to a business meeting, eats and returns to the United States the same day does not use this service does not prove that the program is worthless. It only shows that this does not apply to that person.

Once again, the calculations were biased because they did not take into account the fact that the target clientele, the real tourists, are not business people who spend one day here or Americans who cross the border to have dinner with their in-laws.

That is not tourism. That was not the goal envisioned when this rebate program was created. The program targeted real travellers. For a clearer indication of this program's effectiveness, they should have compared the amount of money claimed to the amount of money that all travellers could have claimed. Before becoming a member of Parliament, I spent some time working on this kind of thing—measuring productivity and effectiveness—and I think this is a better way to evaluate the program's effectiveness. I was hardly surprised when I was told in the Standing Committee on Finance that this comparison was never made and that these numbers were unknown. This decision was made arbitrarily, with no thought of the consequences.

The government did not evaluate the impact of this measure on marketing, either. Offering tax reductions or rebates can encourage travellers to make Canada their tourism destination of choice even if they never claim rebates at the end of their trip. Companies that provide mail-in coupons and rebates for their products know this. Electronics companies do this all the time. Consumers are told that if they buy fantastic printer X, they will get $20 or $50 back in the mail.

Many of the people who buy such products do so because they are entitled to the mail-in rebate, but they never claim it because they forget, they lose their paperwork, or they lose their receipt. This is a good deal for retailers, because the promotion means they get another sale. If consumers do not claim what they are entitled to, the retailers win in all respects. This kind of psychology also applies to tourism in Canada.

We, the Bloc Québécois, have worked very hard and I know that other opposition parties have also worked to urge the government to reconsider its decision. We now have a partial solution. For organized groups, the rebates will be maintained. However, the program will not be reinstated for individual travellers or for families who are travelling alone. Frankly, we find this unfortunate and we feel it is a mistake, especially since the tourism industry and the industry that deals with those rebate applications were willing to do so at their own expense, meaning at no cost to the government. We will continue to work on this.

Continuing in the same vein, the GST and fiscal policy, I would like to talk about the fiscal imbalance issue. When the Séguin commission completed its report on the fiscal imbalance, one of its recommendations was, in fact, to transfer the GST, currently collected by the federal government, to the governments of Quebec and the other provinces. It should come as no surprise that the fiscal imbalance must be corrected by a fiscal measure, something which is often forgotten here in the House. Before oral question period today, during members' statements, a Conservative colleague tried to cheerfully and naively insist that the fiscal imbalance has been corrected, while no party in the National Assembly would agree that the fiscal imbalance issue is completely resolved.

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4:15 p.m.

An hon. member

Not even their leader.

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4:15 p.m.

Bloc

Thierry St-Cyr Bloc Jeanne-Le Ber, QC

There you have it. We must face the fact that even the Conservatives who claim to understand the fiscal imbalance, in reality, obviously do not.

When the Séguin commission introduced this concept of fiscal imbalance, it did not randomly pull these two words out of a hat. It did not open a dictionary and with eyes shut point at two words at random. It chose the words to mean something. It said there was an imbalance.

Obviously something is not right between all the money that is in Ottawa and its constitutional responsibilities, and all the money in Quebec City and the constitutional responsibilities there. There is an imbalance and it is a fiscal imbalance. It is a fiscal matter. Ottawa, the federal government, charges too much tax with respect to its responsibilities. The tax base is not unlimited—there is a limit to what they can take out of taxpayers' pockets—and the Government of Quebec is not able to raise enough tax money to meet all its obligations, especially since the cost of its obligations increases much faster than the cost of the federal government's obligations. We need only look at health and education, which involve the bulk of the expenses. These two sectors represent the biggest portion of the budget of the governments of Quebec and the provinces. Everyone knows that these budgetary items are increasing much faster than the cost of living, faster than inflation and so require revenue to increase much faster. That is why Quebec is calling for a transfer of tax fields, hence the name, fiscal imbalance.

Some progress was made in the recent budget on the monetary aspect. Monetary transfers exist; they are there. However, these transfers are not permanent. There is nothing stopping a future government from backtracking. I am not the only one saying so. The Conservatives say so in their advertisements. Who knows how much money they spent to remind Quebeckers that there was absolutely no guarantee that the money they gave could be available in the future? The Conservatives paid for advertisements to tell Quebeckers that if the Liberals returned to power, they could take away this money. If we read between the lines, even the Conservatives, in the next budget or in a possible majority government, could take away this money.

I posed that question to the Department of Finance officials just yesterday in the standing Committee on Finance. They confirmed what I already knew, what all experts already know, that there is nothing to stop this money from not being included in the next or future budgets. In short, the current solution, the monetary solution, keeps Quebec financially dependent. We continue to remain subject to the wishes and whims of the federal government. That is what we find unacceptable. That is what Quebeckers wish to leave behind. They want to have real revenues that their state, their government will control completely and that it can invest as it chooses, based on its priorities.

The second problem with a monetary transfer is that its value decreases over time because it is eroded by inflation. However, the value of tax revenues increases over time because, with the collection of GST or transfer of tax points, the value of these tax revenues increases as economic activity increases.

Remember what I said earlier. Because of its constitutional responsibilities, Quebec needs an increasing amount of money. A simple monetary transfer is only a very short-term solution to part of the problem; in the medium to long term, we find ourselves in the same pattern, the same situation. That is in the best-case scenario, if future governments do not backpedal and go at it again as the Liberals did in 1995 with the draconian and deep cuts to transfers for social programs and education.

Clearly, the Bloc Québécois must continue its efforts to explain to the Liberals, who have yet to acknowledge the fiscal imbalance, and to the Conservatives, who acknowledge it but still do not understand it, what we are talking about. We must continue our efforts to find a true solution to the fiscal imbalance through a tax transfer.

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4:25 p.m.

Bloc

Raynald Blais Bloc Gaspésie—Îles-de-la-Madeleine, QC

Mr. Speaker, first of all I would like to congratulate my colleague from Jeanne-Le Ber for his excellent speech. He covered a number of very interesting points, and I would like to comment on two of them in particular.

He talked about tourism. It stands to reason that I am interested in the subject, since I represent the Gaspé and the Îles-de-la-Madeleine region, which is a top tourist destination. There need to be incentives, points, something to improve the situation. The current government has not been listening. It is doing the same thing the previous Liberal government did with respect to aid for different issues. In particular, there is the issue of transportation in the Îles-de-la-Madeleine. During a certain part of the year, the islands find themselves in a baffling situation. For 10 months, there is a maritime transportation service. However, for the other two months of the year, there are some problems and they are faced with inadequate service.

Nevertheless, I thought my colleague's presentation was very interesting in terms of tourism. There is a way of assisting tourist regions. And although the bill before us today is in some ways quite interesting, there are some things missing. Some parts need to be improved.

So it is important to remember the rigorous and responsible work that the members of the Bloc Québécois are doing as members of the opposition. These opposition members are people who, in a way, represent democracy. And the member for Jeanne-Le Ber covered a key point: rigour and responsibility generate positive and constructive elements to improve bills, such as the one we are debating today.

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4:25 p.m.

Bloc

Thierry St-Cyr Bloc Jeanne-Le Ber, QC

Mr. Speaker, this is indeed the work that we do. It is always a great satisfaction when, in committee, through our representations and the pressure that we put on the government, we succeed in getting results that serve the interests of Quebeckers and of our constituents. That is very satisfying.

It is all the more interesting for the Bloc Québécois, because its loyalty lies strictly with Quebeckers. Our hands are not bound by a Canada-wide caucus, or by a government which all too often, unfortunately, uses its Quebec members to target Quebeckers, to carry out its deeds and to get its message across. This is deplorable.

Our daily efforts are yielding results. Personally, I had evidence of that last week, in my riding. I have been working since the beginning of my mandate to have the land of the Canada Post's mail sorting facility located on Ottawa street, in Montreal's southwest end, transferred to the Canada Lands Company which, in turn, is prepared to cooperate with stakeholders to develop projects on this land. This is beautiful land along the Lachine canal. It has a high value, but it must be developed with the citizens' best interests in mind. I have been fighting for this. We sent letters to the minister, who told us that this matter was the responsibility of Canada Post, that it was not his business, and that he did not want to get involved.

I put questions to the minister in this House, and I got the same answer. We continued the fight in the media. I also introduced a bill in the House to force Canada Post to sell the land to the Canada Lands Company. At last, my representations, along with those of all the members of our community, are producing results.

Last Friday, the Minister of Transport, Infrastructure and Communities finally decided to listen to reason and announced that these lands would be transferred to the Canada Lands Company, even though he had said in this House that he had no business getting involved in this. That is what can be achieved by a member of the Bloc Québécois who works hard to put pressure on the government without having to bow to the will of a national caucus or of a government caucus.

Of course the fight is not over yet because these lands always belonged to the government and they are heavily contaminated. They will have to be decontaminated, and stakeholders are asking that it be done by the government—the polluter for many years. If the Canada Lands Company was forced to decontaminate these lands itself and include this in its development costs, the project that the community is proposing would be neither economically viable nor feasible. They want to use this site to build affordable housing, family housing, private housing, businesses, light industries, tourist attractions, parks and green spaces. It is a fantastic project.

The next step is to ask the government to pay for the decontamination of this site. It polluted the site, therefore it is its responsibility to clean it up. However, following last Friday's announcement, I am very happy about what we gained through my work and that of the community that supports me. It motivates us to go further, to continue our work and to put pressure on the government for the decontamination of these lands.

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4:30 p.m.

Bloc

Raynald Blais Bloc Gaspésie—Îles-de-la-Madeleine, QC

Mr. Speaker, I would like to point out another small aspect and ask the hon. member if he agrees with me. Regarding the fiscal imbalance, there are some recognized, known factors concerning the revenues of Quebec and the provinces, but there is another factor concerning a specific imbalance, which is ever increasing. Let me illustrate it this way.

The fisheries sector is going through a crisis that remains unresolved. I am referring specifically to the crisis in the shrimp industry. The federal government—the Department of Fisheries and Oceans—could manage this crisis, but it refuses to act. Its recent decision in this file involves only consultations.

However, there are things that could be done. For instance, the cost of licences could be reduced considerably. Currently, they cost between $24,000 and $26,000 per business and per boat. Given the very particular situation facing the shrimp industry, there are things that could be done. The government has constitutional responsibilities and it refuses to act. Instead, another level of government—the Quebec government—has been forced to take action, for a second consecutive year, to help the shrimp industry and sort out the problem. The Government of Quebec just announced $8.5 million in assistance.

This demonstrates once again that the fiscal imbalance does, in fact, have to do with revenues. I could give other examples from what is happening at the moment.

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4:30 p.m.

Bloc

Thierry St-Cyr Bloc Jeanne-Le Ber, QC

Mr. Speaker, the situation raised by my colleague does speak for itself. It demonstrates two things.

First, it demonstrates that the federal government is spending a great deal of money in areas of responsibility that are not federal. It interferes in areas under the purview of the governments of Quebec and the provinces. But when it comes to taking care of its own responsibilities, it is often nowhere to be found, as we have seen in fisheries and international issues. When asked to take action to protect the manufacturing industry, it is nowhere to be found. On aboriginal issues, it is nowhere to be found. It is somewhat odd to have a government meddle in the business of Quebec and the provinces, but not look after its own.

Second, it demonstrates how impotent this government and the members of its caucus are, particularly those from Quebec. This is a government that does not take action; it does nothing and is only spurred into action when it is up against the wall, after every pressure possible has been brought to bear. Any results delivered by this government—as we have seen in the last budget with the cash transfers to Quebec and the provinces—are due to the fact that a minority government has to cooperate.

This goes to show the important role played by the Bloc Québécois. If it were not for the Bloc pressuring the government, nothing would get done.

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4:35 p.m.

Conservative

The Acting Speaker Conservative Andrew Scheer

It is my duty pursuant to Standing Order 38 to inform the House that the questions to be raised tonight at the time of adjournment are as follows: the hon. member for Saint-Bruno—Saint-Hubert, St-Hubert Airport; the hon. member for Don Valley East, The Environment; the hon. member for Thunder Bay—Rainy River, Foreign Affairs.

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4:35 p.m.

Liberal

John McCallum Liberal Markham—Unionville, ON

Mr. Speaker, I first want to thank my hon. colleague from Willowdale, who took the floor about an hour ago, because I was delayed. He spoke very well, and I thank him for his remarks. I was with visiting students from a school located in my riding.

It is a pleasure for me to rise a little later than originally planned to speak to Bill C-40. This is largely a housecleaning bill on which I do not think there will be any significant disagreement among members of the House.

The bill deals with measures relating to the GST in the first part. The second part has amendments to the Excise Tax Act. Finally, the bill has measures affecting the air travellers security charge.

I was thinking I would use my time, since there is not a great deal of controversy, to talk a bit about the GST, in particular the differences in fundamental economic policies between our party and the government. One of those differences involves the GST.

However, before I get into that, I will deal with one element of the bill, which is worth raising. It has to do with the GST rebate applying to motor vehicles that have been used subsequent to being specially equipped for use by individuals with disabilities. There is a GST rebate for large vehicles for individuals with disabilities.

My party certainly supports this measure. However, it reminds me of something else that was in the recent budget, and this is an item which consequences the government has maybe not thought about. I am talking about the green levy on gas-guzzling vehicles.

In general, this may not be a bad policy, but I wonder if the government has thought about the unintended consequences of this new tax, in particular the fact that many disabled families need to buy vehicles that are appropriate for their use and have no choice but to buy larger vehicles, which might be the gas-guzzling vehicles attracting this additional charge.

On the one hand, the government is giving a GST rebate. On the other hand, it is taking more than all of it back by imposing this gas-guzzling tax on vehicles that need to be large for the use of people with disabilities.

While the Jeep Patriot may be a fine vehicle, it is not big enough to move around the sort of equipment that these families need to help transport their disabled children. As a result, these people now have to pay a few thousand dollars more out of their own pockets to cover the increased costs of these larger vehicles. I do not see how it is fair that these families should be forced to pay a large tax levy on their vehicle simply because, in their circumstances, a larger vehicle is an essential need.

Could the government not have included something in the budget to acknowledge this set of circumstances?

Obviously the finance minister put some thought into the vehicle emission tax. He studied it enough to give the car manufacturing plant next to his own riding a break on the E85 ethanol vehicles it produces. He was willing to do this even though there is not a single gas station available to the Canadian public where they can buy the 15% ethanol content gasoline.

I hope, as the budget moves through the House, the point about large vehicles for people with disabilities will be given serious attention.

Let me now turn to perhaps the broader issue I want to address, which relates to the GST. It also reflects the fundamental difference in overall economic approach between the two sides of the House.

On our side of the House, we start with the premise that the world does not owe Canada a living, that Canada has to be competitive in this modern world. We have to compete not only against the emerging giants like China and India, but established giants like Europe, the United States and Japan. In this context of competitiveness and fairness, the last thing any country like Canada needs to do is raise income tax in order to pay for a reduction in GST.

I do not think there is an economist on the planet who would advocate such a policy. On the one hand, we have an aging population that needs to save for their retirement and the government is cutting the GST which encourages people to buy more and save less. At the same time, the government is raising income tax, partly to pay for the GST cut, and by raising the income tax, it is discouraging saving, investment and productivity.

While other countries with which we compete, such as Australia, have been cutting their income tax and company tax in broad based fashion, we, alone in the world, are cutting the GST and raising income tax. That is the opposite of what our party would do in government. This is an extraordinarily foolish policy, which I do not think commands the support of a single economist.

The other thing one has to understand is that to compete in the modern world, we will not compete with India and with China on the basis of our low wages. We would not want to do that. We really have only our people with whom to compete and we have to provide those people with ideas, education and research funding.

Fundamental to successful, internationally competitive economic policy is support for research, education and commercialization. This is the second area in which we part company. The government has actually slashed funding to research and has not given a penny to students in the most recent budget. Our plan would be to significantly increase research funding, including support for taking ideas from the lab to the market, commercialization, as well as putting substantial sums into the pockets of students.

The third difference, and the final difference that I will mention today, is that we are internationalist in our outlook. We believe Canada has to take on the world. We have to expand our investment and trade opportunities around the world, whereas the government is incredibly domestically inward looking. What is the evidence of that? If we take the world's biggest emerging economy, China, the government insults China. If we take the second biggest, and in some ways equally important, India, the government ignores India. A few weeks ago I could have said it had not sent a single minister there in more than a year in office. I think a week or two ago, the first minister went there. However, the government has insulted China and has ignored India. It is also closing consular positions in Europe, in Milan, in Japan and around the world.

This is not a sign of a government that wants to expand international trade, expand investment, take on the world. This is the policy of an inward looking government that seeks only to get votes to win the next election.

Our economic policies are fundamentally different. We see Canada as taking on the world. We would have lower income tax, not lower the GST. We would fund research, commercialization and students, not slash funding for these things. We would seriously take on trade and investment opportunities with the emerging and established world, contrary to the opposite direction in which the government is heading.

Let me now move on to a second theme, which is another extraordinarily foolish thing that the government has done, and it relates to the subject of income trusts.

We all know the government broke a solemn, serious election promise, an unconditional election promise, made to all Canadians. The Conservative government promised it would not increase the tax on income trusts. What did Canadians do? They put more and more money into income trusts, secure in the knowledge that their Prime Minister had promised to them that he would not tax them.

Canadians knew there were market risks in income trusts, but they thought the political risk had been removed because their newly elected Prime Minister had promised several times, and unequivocally, never to tax those income trusts. Therefore, the market grew because Canadians took the Prime Minister at his word.

Then what happened? On Halloween, the finance minister cut those Canadians off at the knees, broke that promise and imposed a draconian 31.5% tax on income trusts. What happened? The market collapsed the next day.

In a single day, Canadians who had taken the Prime Minister at his word lost $25 billion of hard-earned savings. It went up in smoke. As if that were not bad enough, the manner in which the government executed this broken promise was extraordinarily further damaging to the Canadian economy, because the draconian 31.5% tax essentially destroys the income trust sector.

Income trusts are very valuable savings vehicles, particularly for seniors who need the proceeds from their savings to pay the bills. Seniors had been heavily invested in income trusts and now that vehicle has been taken away from them by the government's policy to destroy the income trust sector.

Not only that, Alberta in particular--but also elsewhere--had a thriving energy trust sector that, in the words of the Governor of the Bank of Canada, was contributing to productivity, to the repatriation of foreign capital and to financing other branches of the energy sector. That was before Halloween.

After Halloween, the sector has been decimated. It is sitting there at bargain basement prices. Instead of repatriating foreign capital, it is being gobbled up by foreign capital.

This policy has destroyed $25 billion of Canadians' hard-earned savings. It has deprived all Canadians, especially seniors, of the valuable savings vehicle in the form of income trusts. It is decimating an industry that was thriving before this highly inappropriate action by the government.

All of this is neither fair nor contributing to government revenue. This is why it is so particularly foolish. It is called the tax fairness plan, but it should be called the tax unfairness plan. It is supposed to tax corporations more so that individuals pay less tax. It does the opposite. Let me explain those two points.

On fairness, what does the government's so-called tax fairness plan do? It deprives ordinary Canadians of access to income trusts. They can no longer get the benefits of these income streams if they are ordinary Canadian investors, but what if it is a deep-pocketed Canadian pension plan or a deep-pocketed private equity foreign venture? Then it can still derive the benefits of an income trust because it can buy the underlying assets directly and receive that flow of money.

The income trust vehicle is still open to the deep-pocketed pension plans and the foreign private equity companies, but the government has disallowed that vehicle to ordinary Canadians. That is not tax fairness. That is tax unfairness.

To further compound that, instead of getting more tax revenue out of this policy, the government is getting less tax revenue, because the previous owners of the income trusts pay a lot of tax. It is personal tax, but it is still tax. What about the new owners? The pension plans pay no tax, except by the pensioners when the money is ultimately distributed, and the private equity companies pay little or no tax because they have ways of leveraging themselves so that they will end up paying no tax.

We have the irony here of the tax fairness plan being the tax unfairness plan, depriving ordinary Canadians of investing in income trusts and welcoming with open arms the investments in income trusts by the fat cats. In so doing, the government is in fact depriving itself of revenue because those fat cats, the Canadian pension plans and the private equity companies, pay little or no tax compared to the previous income trust holders.

It is a disastrous policy. It is an ill thought out policy. It is a policy to drop a nuclear bomb on a problem when what was needed was a more surgical approach. Indeed, the Liberal Party's approach is just that: the more surgical, sensible approach. We would immediately repeal this illogical, irrational, draconian 31.5% tax and replace it with a 10% tax which would be refundable to Canadian residents.

That would be enough to deal with the tax leakage. At the same time, according to experts, two-thirds of the value lost, the $25 billion, would be returned to savers who had lost their money, the income trust savings vehicle would still be available, and the energy trust sector would be able to return to its thriving former self. This policy cannot entirely put the toothpaste back in the tube, but it would eliminate the worst features of the government's illogical and unfortunate income trust policy.

I will deal with one last issue, because it is the third foolishness of the government. The first is the whole economic thrust, particularly the GST cut and the income tax hike. The second is the income trust fiasco.

The third is the stupendously foolish proposal on which, thankfully, the minister is now flip-flopping, and which involves interest deductibility. He said this measure would give $40 million a year in revenue. The experts say between $1 billion and $2 billion per year. That is only out by a factor of some 3,000%. That does not show great competence to begin with.

However, the real problem here is that we are forcing our own homegrown Canadian companies to compete with foreign companies with one hand tied behind their backs. If a company from Europe, the United States or Japan buys a foreign asset, it can tax deduct the interest that it has to pay on debt. Canadian companies, under the government's proposal, will not.

Let us take an example. It has been in the news. I do not know if it will happen, but it has been in the news. It is the idea that Magna might buy Chrysler. Let us say that Magna is in competition with a U.S. or European company to buy Chrysler. Purely as a consequence of the government's interest deductibility measure, those foreign companies would be able to pay 37% more for Chrysler than Magna would be able to pay. That is purely because of the government's measure. Obviously Magna or any other Canadian company bidding against a foreign company would be at a huge disadvantage in buying any foreign company. That particular number is based on a fifty-fifty debt equity ratio in the financing.

Why does that matter? That matters because companies grow beyond the Canadian borders. If companies are to continue to grow, they must grow beyond Canada. This foolish measure of the government is tying the hands of Canadian companies behind their backs and sending them out in the big wide world to compete against foreign companies at a huge disadvantage.

As a study by KPMG has said, this will result in weaker Canadian companies, a weaker ability to acquire assets and more foreign takeovers of Canadian companies.

The whole financial world, anyone who knows anything about these things, is up in arms. We have had an expert say that this is the worst tax policy in 35 years. The Conservatives are out on their revenue estimates by 3,000%. There was a Deloitte Touche conference of about 1,000 experts yesterday who were surveyed and 90% of them said it was a bad idea. It is a disaster.

Our party and our leader announced nine days ago that we would not do this. We would scrap this idea because it is so disastrous for Canadian competitiveness, Canadian jobs and Canadian prosperity.

Fortunately, the minister came to his senses. Perhaps he heard our leader speak nine days ago and understood the wisdom of our approach. The minister said yesterday that he is flip-flopping. He will not go ahead with this. He will go ahead in a much more minor, small way and he has admitted that he did not do his homework, he did not think it through, and now he is adopting the Liberal policy--