Madam Speaker, I am very pleased to speak to the motion presented by my colleague from Mercier.
First, I would like to say a few words to Reform members. I was listening to them lecturing us earlier and giving us advice on political correctness. We do not need that kind of comment on an issue that is very important for Quebec, one where Quebec is the victim of a blatant injustice. We especially need no lessons in ethics from a political party that wanted, only two days ago, to invite a former minister of the Pinochet dictatorship in Chile to appear before the finance committee as an expert witness on pension reform. We have no lessons to learn from them. We do not need their moralizing.
Coming back to the subject at hand, when all the facts are considered, it is obvious that a blatant injustice was done to Quebec. To help you understand the nature of this injustice, I would like to remind you of the main features of the agreement reached by the federal government and three maritime provinces more than a year ago.
On April 23, 1996, the federal government concluded with three maritime provinces, namely Nova Scotia, Newfoundland and New Brunswick, an agreement harmonizing their provincial sales tax with the GST.
Since the three provinces faced adjustment costs, the agreement provided they would receive in the following years a compensation worth close to $1 billion, $961 million to be precise.
How did the government come up with such a compensation for these three provinces? This is how it was calculated. Here is what they said, and it was the finance minister who set that criteria that suited the three maritime provinces perfectly: “Will the maritimes loose money if they go ahead with harmonization? If they do, we will compensate them”. He put the criteria at 5%. What does it mean exactly? Under the agreement, if there is a decline of more than 5% in the tax revenue of the three maritime provinces, the federal government will take action and compensate them for these adjustment costs.
It is an important criteria to remember, and we will get back to it later when explaining why the province of Quebec is entitled to such a compensation.
What benefit was given to the three maritime provinces with an agreement on the harmonization of the GST and the provincial sales tax and $1 billion in compensation? That agreement gave them three benefits straight away. The first one was the possibility to reduce sales tax by four percentage points. That was a direct advantage for the consumers in the three Atlantic provinces concerned.
The second one was the possibility for businesses to have more competitive prices in these three provinces since the lowering of the sales tax rate allowed them to lower the price of their products.
The third one was a major added advantage for companies in the Atlantic provinces because, with the full harmonization of taxes, which has been completed since April 1, they can claim a direct refund for all the taxes they pay on their inputs.
Quebec was not able to benefit from these three advantages. Quebec, which harmonized its sales tax with the GST on its own in 1990 did not benefit from these three advantages that were provided for in the agreement between the federal government and the three Atlantic provinces. It could not benefit from a complete harmonization because it could not afford it. It had to pay costs and it is still paying costs because it was technically impossible for it to proceed with a complete harmonization because, unlike the three Atlantic provinces, it did not have the financial support of the federal government.
That is why, in December of last year, Bernard Landry, the deputy premier of Quebec, minister of state for the economy and minister of finance, and Jacques Brassard, minister of intergovernmental affairs, demanded, on behalf of the Quebec government, compensation for the adjustment costs it incurred in 1990 and the costs it has been paying since then in terms of QST and GST harmonization.
Based on a fair assessment of the costs incurred, Quebec is entitled to an estimated $2 billion in compensation. The Minister of Finance told us, and the Secretary of State for International Financial Institutions repeated the same thing a few moments ago—there are a lot of parrots in that party—“You are not entitled to this compensation because your provincial sales tax revenues have not gone down since the harmonization of the GST and the QST”.
I will remind you of the criterion I was telling you about a few moments ago and which is included in the agreement between the three Atlantic provinces and the federal government, namely that the $1 billion compensation given to the Atlantic provinces is due to the fact that the harmonization of the provincial sales tax and the federal sales tax is causing them to lose over 5% in PST revenues.
It has been claimed—and the Minister of Finance and the Secretary of State for International Financial Institutions understand this problem—by using a rationale that has been stretched to the limit, that we are not entitled to anything.
One must look at the whole tax base. One must see if, for example, the harmonization of the tax has forced the Quebec government to make adjustments elsewhere in its tax structure that may have had a negative impact on the province's revenues. One must do that. One must look at all the facts in this matter.
There are three major facts. First of all, one must take into account that, when the harmonized tax was implemented in 1990, there were other taxes on certain goods and services in Quebec that had to be abolished and replaced by the new harmonized tax. Such was the case for fuel and tobacco products. The Quebec government had to abolish the old tax when fuel and tobacco products became subject to the new harmonized tax.
By so doing, however, the difference between the old fuel and tobacco taxes and the new harmonized tax meant a loss to the Quebec government of $355 million. This is the first example of data missing from the Minister of Finance's assessment, or rejected out of hand by him, because he does not want anything to do with an accurate overall assessment—and, what is more, he knows he is wrong.
The second major point that must be considered is the overall tax structure before and after harmonization of the GST and the provincial sales tax in Quebec. People became aware that the cost of harmonizing the GST and the sales tax in Quebec meant that corporate tax rates had to be adjusted. They had to be increased in order to raise supplementary revenues for Quebec to finance the harmonization of the GST and the TVQ.
I will give two examples. The first, that the tax on profits was raised, from 6.33% for businesses in general, to 8,9% immediately after harmonization. There is a link here with harmonization of the GST and TVQ, and the costs of that harmonization. Tax on capital was also raised, from 0.52% to 0.64%.
If you look at the preferential tax rates for small businesses, the SB program, small businesses saw their tax rates raised from 3.45% to 5.75%. All of this is linked to harmonization and to the costs of adjustment or transition from the GST and TVQ to a new harmonized regime, which we in Quebec were the first to have.
The third fundamental point is the one I made when I started to speak. Since Quebec was not compensated for harmonization of the GST and TVQ, we have not been able to fully harmonize our taxation system. What that means in particular is that, normally, large Quebec corporations ought to be able to receive full reimbursement of business input taxes paid, these being intermediary products used in production of their end product for sale.
In the maritimes, with full harmonization, which has been in effect since April, businesses have a competitive edge over businesses in Quebec. They are being reimbursed the taxes they pay on the purchase of the input used in the production of their final product.
The shortfall faced by big businesses in Quebec, which is tied directly to the lack of transition measures from the federal government to harmonize the GST and the QST—the Quebec sales tax—means a loss of $500 million for these businesses. Because there is no compensation, the Government of Quebec cannot reimburse the taxes paid on the input of the major firms.
When the Minister of Finance tabled his latest budget, the Quebec deputy premier and minister of state for the economy, Bernard Landry, showed clearly the link between the injustice faced by Quebec on the policy of harmonizing the GST and the QST and the fact that big business is not being reimbursed the taxes paid on input.
We are talking about $500 million, Madam Speaker. Do you know what that means? It is 10% of the Quebec sales tax revenues.
I return to the criteria whose importance I stressed at the start of my speech. The Minister of Finance said that, had the three maritime provinces lost more than 5% of their revenues, we could compensate them. This gave rise to the $1 billion in compensation to the three maritime provinces.
We have a situation where the big businesses' shortfall alone, in terms of a refund for the taxes paid on their inputs, totals $500 million or 10% of the provincial sales tax.
The federal government must be consistent. It has to look at the overall picture and if it must pay then it should do so. Quebec is currently the victim of an injustice on the part of the federal government. Members opposite can say whatever they want. We are only asking that justice be done.
I will complete my presentation with a situation that could have occurred in 1990. At the time, Quebec could have looked at the various budget items, including direct and indirect taxes, and made other choices in terms of business and consumer taxes, etc., and it could have ended up with a completely different tax structure than the current one.
For example, let us consider the direct sales tax revenues in comparison with the governments' total revenues. There are huge differences between Canadian provinces.
The ratio of sales tax revenues to the governments' total revenues is 12.9% for provincial governments in the maritimes. In Ontario, it is 8.3%, while in Quebec it is 8.6%.
In 1990, had Quebec known that the federal government would some day offer compensation for harmonizing taxes—something we did without compensation or support at a cost of hundreds of millions of dollars—it could have said “There will be some form of compensation some day”. Using the rule mentioned earlier, by which the finance minister decided that the government was to step in and give $1 billion to the maritimes in compensation after they experienced revenue losses from harmonization in excess of 5% of their current sales tax revenue, we could have said “If that is how it will work, let us reduce personal income taxes, reduce business taxes and raise the provincial sales tax so that, when the federal government comes to us with its plans for harmonizing and asks us to reduce our tax rate, it will have to pay us compensation because we will have experienced a loss in excess of 5% of our provincial sales tax revenue”. Can you see how it does not make any sense to consider sales tax revenue only instead of considering all adjustments that had to be made in the fiscal structure, including tax increases and indirect taxes, following harmonization in Quebec?
One cannot look at only part of the equation, decide that there were no losses and condemn Quebec to never getting any compensation for having made fiscal choices that were different from those in the past.
The maritime provinces depend heavily on sales taxes—they account for nearly 13% of their overall revenue, as someone said—and because they made that choice, they are entitled to $1 billion in compensation.
We, on the other hand, decided to reduce sales taxes to only 8.6% of the tax base in order to boost the level of consumption and stimulate employment, and we are out $2 billion because we made rational decisions, decisions which, I would remind Reform and Liberal members, also served the purposes of a federal regime; that should not be forgotten. We were the first to harmonize because the idea was that it could benefit businesses with respect to operations, interprovincial trade, and so forth. We went along with the federal government's proposal. So we are not interested in hearing that we are being difficult.
What is even more offensive is that $250 million of the compensation being paid the maritimes is coming from Quebec taxpayers. Not only are we not getting $2 billion in compensation, and there are actual figures to support this calculation, but as Quebeckers we are also being forced to pay $250 million to harmonize a tax in the Atlantic provinces so that businesses in those provinces can be more competitive than businesses in Quebec, can cut in on our markets, take away our jobs, and all with our help. You can see what a ridiculous and unfair situation Quebec is in.
We are not calling for a debate for the sheer pleasure of it. There must be no confusing apples with oranges, dragging constitutional arguments into a serious fiscal matter, as our colleague, the secretary of state for international financial institutions did just now. He often says the first thing that comes into his head, but this time he was out of line. What we are calling for in our motion is something quite simple.
We have figures and arguments. We think they are the best arguments. We think we have a strong case. We think we have been treated unfairly in this matter, and we are not the only ones who think so, because our view is also shared by the premiers of all Canadian provinces. Last year, at the economic summit in Quebec City, this was the unanimous view. All these people cannot be wrong. But we are prepared to play by the rules and take this approach. The Minister of Finance tells us “You are not entitled to compensation”. Maybe we are wrong. Maybe all these people are wrong. Maybe our case is not as strong as all that.
But this is our proposal, the proposal that our leader, the member for Laurier—Sainte-Marie, outlined during the election campaign, and it is an ingenious proposal that could resolve this deadlock. Its result could be that we would no longer rise every week in this House to ask the Minister of Finance for $2 billion, and he would no longer tell us we have no right to such an amount. This is a useless debate.
What we propose is that three experts be appointed—the first by the Minister of Finance, the second by the Government of Quebec, and the third jointly by the first two—to review the whole issue and analyze all of the basic data involved.
We are ready to accept the conclusion. But if the Minister of Finance rejects our proposal, it is because he has something to hide, because he recognizes his vulnerability, because he is scared to compare the technical arguments of the Bloc Quebecois and the Government of Quebec with his own technical arguments. If he rejects our proposal, it is because he knows very well that following an objective analysis, a serious assessment like the one we outlined this morning, he will realize that he owes money to Quebec. He will realize that he made a mistake. He will realize that he owes Quebec $2 billion, $1.9 million to be exact, for harmonizing the GST with its provincial sales tax.
We are humbly reaching out to the federal government so that this deadlock can be resolved and so that we can go forward. As I pointed out, we are willing to accept the conclusion of the three experts. Government members ought to take this issue more seriously, to be fair to Quebec, to show some intellectual honesty, because over the last year and a half, I have seen this debate degenerate into demagoguery. This makes no sense.
So we and our leader humbly submit this extremely intelligent proposal. All that is left to do is to settle the account.
