Mr. Speaker, I am pleased to congratulate my finance committee colleague, the member for Burlington, for a truly scintillating discourse on this exciting subject.
It is an important subject. It speaks to tax fairness, to making sure that all people pay their fair share of taxes so that others will not have to pay more.
We on this side are very pleased to support the bill because it is, after all, a Liberal bill. It is a good illustration of an intelligent and competent approach to tax fairness. Indeed, it was tabled in the House by the previous government, but sadly did not pass in time so now it is back again. We support this Liberal approach to tax fairness, embodying as it does both intelligence and competence.
If I have time toward the end of my comments, I might offer a contrast between this approach to tax fairness versus the Conservatives' own approach, which is not only not intelligent and competent but unintelligent and incompetent. I refer to their disastrous temporary incursion into the area of interest deductibility. It is a good case study of the general proposition that when it comes to economic management, the Liberals are competent, as reflected in this bill, and the Conservatives are incompetent, as reflected in their disastrous experience with interest deductibility.
Beginning with the bill, what it essentially does, notwithstanding that it is technical, as my colleague said at least 12 times, is tighten up the rules when a Canadian uses a foreign investment entity or a trust with the intent of avoiding taxes altogether. The bill ensures that any income earned through these investment vehicles will be taxed as though that income were earned in Canada.
The essence of the idea is to make sure that it is not advantageous from a tax point of view for a Canadian to invest outside Canada and take advantage of secrecy provisions in tax havens that prevent the Canada Revenue Agency from finding out what is going on. It is an attempt, and I believe it will be a largely successful attempt, to clamp down on what is at best aggressive tax planning or at worst outright tax evasion.
How do we do this? The government is in a permanent struggle with tax lawyers and the private sector, which can pay a lot of money to get the best tax advice to avoid taxes, whether legally or illegally, so how does the government counteract that?
The short answer is that we have to give the Canada Revenue Agency the tools with which it can go after these people and stay ahead of the tax game. When we were in government, we did this by putting $30 million a year of extra money into the CRA budget, in the budget of 2005, to strengthen its capacity to go after those who would indulge in aggressive tax planning or tax evasion.
I remember well, because I was the revenue minister at the time, that we opened 11 centres of expertise across the country, and I visited a number of them, where we had expert lawyers, accountants and others who had deep knowledge in these areas and would go after those who would indulge in this aggressive tax planning.
I recall that these entities were having some success in going after such individuals or entities. The work they did internationally and collaboratively with other countries was also very important, because in these areas it is frequently very difficult to act alone. However, if the G-8 or the OECD act together, then one can be much more effective. These entities also worked extensively with the OECD and with the Pacific Association of Tax Administrators, the Joint International Tax Shelter Information Centre and other international organizations of this kind.
That is what I mean by intelligent pursuit of tax fairness, an intelligent and effective way in which we go after those who would abuse the system, both in terms of the legislation before the House today and in the setting up these 11 centres of expertise where are our own Canadian experts would go after those who would abuse the system.
We on this side of the House have nothing to apologize for in terms of the government. We put $30 million into these centres of expertise and I believe the current government put $20 million into them. Therefore, if only by that measure, the Liberal government has been at least as aggressive as the Conservative government in going after tax evaders.
Now I will say a few words about the other way of going after tax fairness, a way that is both unintelligent and incompetent as opposed to the sensible way, which I have just described. Members of the House will recall that in the budget of 2007 the minister said that, starting from a certain date, companies would no longer be able to deduct interest on debt used to finance foreign acquisitions. He said that it would bring in revenue of $40 million a year. The experts said no, that it may be $2 billion or $3 billion. He was totally out of his depth and did not know what he was doing.
The whole financial community and community of experts came down on top of him. The one good thing he did was withdrew it. He flip-flopped and removed that item from the budget. However, there were two things he did at the same time, which were not good. A sensible approach would have been to simply say that he was sorry he put that in, that he made a mistake, and refer the whole matter to a committee of experts, because these are very technical matters. The Liberal leader had proposed that some weeks before the minister did his flip-flop.
However, he did two things that reflect poorly on the government. First, he claimed that only he, the Minister of Finance, had read the budget correctly and that all those tax experts and analysts out there, whose job it is to read budgets, had read it wrong, that he had never said interest deductibility would be eliminated. He said only that he would go after double-dipping and tax havens.
First, that is wrong if members read the budget. Second, it was not very smart because he alienated the whole tax expert world, which does not really like it when its professional intelligence is questioned by a minister who claims that only he knows how to read the budget.
More important, having incompetently tried to go after tax havens with the interest deductibility measure in the first place, he made an incompetent retreat. All the experts tell us that the real abuses in this area have to do with debt dumping. They do not have to do with double-dipping. Yet the minister, in his unseemly retreat, focused exclusively on double-dipping, which is the irrelevant part of things, and not on debt dumping which is the critical one.
I have heard at least six or seven witnesses and all but one have said that it is exclusively debt dumping that is important. One said that both were important. Therefore, the expert community is in agreement that the problem is the debt dumping.
What debt dumping means is a foreign subsidiary comes into Canada, borrows huge amounts of money, reduces or eliminates its Canadian tax liability by deducting the interest on that debt and then invests that money in a third country. There is abuse there.
Something called our thin capitalization rules could be tightened up to reduce that abuse to achieve more tax fairness. That is what the minister should have done. That is what a sensible, rational person would have done, but he loves the term double-dipping because it has a kind of unethical flavour to it, so he goes after that even though it is not relevant.
The double-dipping, and here again I am quoting experts, means a Canadian company would only be able to deduct the interest once, so the Canadian company will deduct the interest in Canada. What will now be not allowed is deductions in third countries like the U.K., or Europe, or the United States. It is the deductions in those third countries that the minister is prohibiting.
What would be the effect of that? The effect on Canadian revenue would be zero. It would not help any other Canadian pay less tax. It will not contribute to tax fairness because it will not have any effect at all on Canadian tax revenue.
What it will do is enrich the treasuries of the United Kingdom, or a European country, or the United States. There would be less money going to the Canadian companies, making them less competitive. It would be a transfer of their money to the U.K. or the U.S. government. That makes no sense. It is yet another indicator that the minister is well and truly out of his depth.
To conclude, our party is very pleased to support the legislation put forward by the government, but which is Liberal legislation and which represents an intelligent, reasonable and effective way to attack tax abuses and to ensure tax fairness, in sharp contrast to the Conservative measures when the Conservatives have not had Liberal measures to fall back on. When they have struck out on their own, they have ended up doing so in an extraordinarily ineffective and incompetent way, as the whole country has seen from this example of interest deductibility.