Mr. Speaker, our debate on this motion must take two different angles into account. This is an example of a terrible decision made by the federal government, which, systematically, year after year, sends conflicting messages to the business community and investors.
For example, in September 2005, the Liberal finance minister declared a moratorium on the creation of income trusts, under the pretext that the government wanted to limit the loss of tax revenues stemming from the conversion of corporations. In his economic and fiscal update in November 2005, the minister flip-flopped and lifted the moratorium that he had just declared in September 2005.
When the Conservatives said during the election campaign that they would not touch the financial vehicles known as income trusts, many investors found them to be a worthwhile investment. Big businesses and small investors all went ahead with them. The Conservatives must accept their considerable responsibility. Their actions caused the stock market activity that we saw in relation to income trusts.
But this tax avoidance had to be eliminated. When he was running for office, the current Minister of Finance should have been careful and said that he would look at the figures and announce appropriate measures once he was in power. Instead, he said that he would not make any change, but he reversed his position in the fall of 2006. Using a ways and means motion, he announced the introduction of a tax on the income distributed by trusts to companies, thereby going back on what he had said during the election campaign. This caused serious problems. However, if we take a close look at this issue, we see that the Conservative government practically had no choice. The finance department estimated that year in and year out, the different levels of government lost $400 million in revenue because of income trusts.
For example, Bell and Telus announced that they would convert to income trusts which, in and of itself, would have inflated tax losses to about $1 billion annually. This measure, which was allowing corporations to avoid paying significant amounts of tax, had to be eliminated.
The measure offered tax benefits, but no constructive benefit to the economy. The income trust structure practically forces a company to pay 100% of its profits to its shareholders at the end of the year, which is highly counter-productive in terms of economic investments. If the company keeps part of its profits for an investment project, for instance, it must pay the maximum amount of taxes on that non-distributed revenue. This structure did not promote investment. This is why, in addition to the tax leakage associated with the conversion of a growing number of income trusts for reasons that are strictly tax motivated, the potential loss of productivity in our businesses is a real danger when the manufacturing sector in Quebec and Canada is going through a serious productivity crisis.
For example, according to the World Competitiveness Yearbook, 2007, Canada was ranked seventh in 2005, but fell to 18th in 2006. Had the government not stepped in, a company such as Bell, for example, would have been forced to distribute all profits to its shareholders or be subject to substantial financial penalties. It makes no sense for this structure to be applied to a company such as Bell. Thus, Bell would have been forced to cancel its investments in order to ensure its growth and would have been condemned to die a slow death. Entire industrial sectors could have been forced, by shareholders wishing to maximize their short-term profits, to convert to income trusts merely for tax reasons. At the same time, they would have had to sacrifice long-term growth in our industrial sector. Action had to be taken to correct this situation. That is what the government did.
It was the way in which they did it that had a significant negative impact on the stock exchange and on the portfolios of small and large investors. First, it backtracked on its election promise made to citizens and investors that it would not change the tax treatment. After it came into power, it suddenly changed its mind.
The Bloc would have liked the Minister of Finance to have taken more care in making his decision. He could have arrived at a conclusion that would have avoided using this solution. The Bloc Québécois did make constructive suggestions in this regard.
Nevertheless, in the end, we have to come to terms with the government's position as expressed in the budget and the bill to implement the budget, which is currently before the Standing Committee on Finance. The Bloc Québécois does not believe that this budget corrects the fiscal imbalance. It merely corrects the financial imbalance without dealing with the underlying fiscal imbalance. All the same, we think that the budget deserves our support, and the people of Quebec agree with us on that. As part of its budget, the government will be transferring adequate funds to Quebec. In light of our current financial situation and the fact that often, the needs are provincial while the money is federal, that will give the province a chance to breathe.
They are correcting the situation for this year and the next few years, but they are not making any structural improvements. The federal government has yet to take that step. The Bloc Québécois has been fighting this battle for the past four years in the House of Commons and in every other forum imaginable. It has based its arguments on the Séguin report and the consensus in Quebec. Four years ago, nobody in this House was talking about fiscal imbalance. Now we have at least one budget that will allocate major funds to Quebec. As such, the budget deserves our support.
The income trust situation should have been fixed with a similar measure despite the fact that it clearly had a negative impact on a lot of investors. In terms of the underlying issue, the decision the government made was necessary, yet the government should have found other ways to ensure that the measure had as few negative effects as possible. Proposals to address this were submitted to the committee. The Bloc Québécois has been recognized for its efforts in that regard. The government did not agree to the Bloc's proposals. Instead, it implemented its own crude solution, which is fine, but our solution would have been better.
If the government had kept its original position and not made any changes, we would be faced today with huge flights of capital, which would add significantly to the challenges and problems facing the manufacturing industry in Quebec and Canada. We know how important it is in today's competitive global economy for capital to be available and used to improve productivity and not just make tax gains.
I believe that, on the face of it, the proposal my colleague is making today is not acceptable. This House must reject this motion. Moreover, if it were adopted, it would run counter to the budget that has been adopted and the implementation bill that is currently under study.
I invite my colleague and anyone who has questions about this issue that should be studied to continue making representations during the pre-budget consultations to come. This will not resolve the issue for this year, but if any additional information and solutions are out there, it would be interesting to know what they are. The Bloc Québécois began looking at income trusts in 2005, after the Liberal finance minister announced that the moratorium had been lifted. We did not want to abolish income trusts at that time. Instead of preventing corporations from becoming income trusts, we were in favour of introducing a minimum tax on profits from income trusts. We felt that this was worth considering, as it would rebalance the tax treatment of income trusts and corporations.
Following the minister's decision, in October 2006, the member for Joliette, who was then our party's finance critic, brought forward a motion before the Standing Committee on Finance that read as follows:
That, as soon as the report on prebudget consultations has been completed, the Standing Committee on Finance study the economic and fiscal consequences of the transformation of a growing number of taxable corporations into income trusts.
A few days later, we learned where the finance minister stood on this issue. Today, we have to choose between voting for this motion—which would recreate a very difficult situation that is not good for the economy and especially the manufacturing industry—and rejecting this motion. The Bloc Québécois chooses to reject the motion. We believe that that is better overall for Quebec's economy. We must move in that direction.