Mr. Speaker, I find it hard to be part of a discussion where people call each other deaf and blind. I am grateful for the chance our colleagues in the Reform Party have given us to discuss the government's budget and, in particular, the appropriateness of keeping taxes and income taxes at their present level in the Minister of Finance's upcoming budget.
I will say right off that the Bloc Quebecois supports the Reform Party's statement that increasing taxes and income tax at the present time, as the Minister of Finance himself acknowledged when he appeared before the finance committee in October, would kill the Canadian economy. It would put a strangle hold on job creation opportunities in the short term and before Canada enters a new period of slowing down, following the economic slowdown in the United States.
Thus I say straight off that we support the Reform Party's proposal that the upcoming budget contain no general increase in income tax, as the Liberal majority on the finance committee suggested in December, and no additional taxes. Taxes and income tax also have an effect on the black market economy, the underground economy. The Minister of Finance himself estimated it represented between 10 and 15 per cent of Canada's GDP. This is a lot and it is the direct result of the excessively high level of taxes and income tax in Canada.
Having said this, we have not forgotten that the budgetary situation of the Canadian government is critical, that the budgetary situation of the governments, as well, in Canada is one of the worst among industrialized countries. The federal debt alone, at $558 billion, represents over 80 per cent of the GDP. This is almost a world record. If we add the provincial debts, the figure increases from 80 per cent of the GDP to 115 per cent of the GDP. A catastrophe.
Another catastrophe, in terms of Canadian public finances, is the high proportion of Canadian securities in the hands of foreigners-43 per cent. This means we have a lot less control over our economic destiny and, in addition the capacity our governments have to act in budgetary or other areas is jeopardized.
In regard to this long-standing situation-it has existed for some ten years-we knew we would find ourselves sooner or later in a catastrophic situation such as the present one. In spite of this, the Minister of Finance gave himself a break of nearly a year and a half. The Minister of Finance has done nothing since assuming his position. The Minister of Finance has done nothing but present a first budget which hurt the most vulnerable, a budget which cut $7.5 billion from unemployment insurance programs but, in the end, solved nothing because in financial circles, both in Canada and abroad, the measures were not viewed as truly serious measures to correct the budget situation in Canada.
In fact, in May 1994, a mere three months after the first budget was brought down by the Minister of Finance, the C.D. Howe Institute was already forecasting additional cuts beyond those mentioned in the minister's budget, additional cuts of $7 billion over two years to allow the Minister of Finance to achieve his goal of a federal deficit of $25 billion for 1996-97, that is 3 per cent of GDP.
In his economic statement of last October-just to give members an example of the seriousness or, to be more precise, the lack thereof, and laziness on the part of the Minister of Finance-the minister estimated that costs would have to be cut not by $7 billion, as the C.D. Howe Institute indicated, but by more than $9 billion. And since January, precisely because of the lack of serious intent on the part of the Minister of Finance, his inability to take truly corrective measures and immediate action, we are now facing necessary cuts estimated at between $12 and $16 billion over the next two years because of variable interest rates. Over a seven month period, forecasts were changed four times as pertains to required cuts or new revenues if the Canadian government is to meet its goal of reducing the deficit to 3 per cent of GDP as established by the Minister of Finance.
And people wonder why things are not going well. People wonder why they still do not know what the federal government is doing to correct the situation. This is what happens when nothing is done for a year and a half, when financial circles tell us for a year and a half, with increasing urgency, that nothing is being done to correct the situation: panic sets in. And at present, we are seeing total panic from the Liberal government. They do not really know where to go from here. They are making proposals left and right. They have been sending test balloons out over the last two or three months, but have failed to do what was needed for a year and a half.
I would even say that not only is the official opposition awaiting the Minister of Finance's next budget, but also the entire international community. Indeed, all foreign investors who hold Canadian debt securities are getting ready to pounce on the Minister of Finance.
The next budget needs to be a budget that clearly shows that a structural reform is taking place, that measures are being taken, not just haphazard measures but serious corrective measures. Not just superficial cuts, cuts concealing the true catastrophic state of our public finances, but real cuts, airtight fiscal mea-
sures that will not only permit the Minister of Finance to brag, and pat himself on the back for, reaching his goal of bringing the deficit down to three per cent of GDP in 1996-97, we will come back to this later, but real proof that the Minister of Finance has gotten public finances under control. This is what financial circles are expecting.
And let me tell you that if they are not convinced that this and the 1996-97 budgets contain serious corrective measures and take at least some strain off the public finances, since that is the heart of the problem, I would say that they are going to demand risk premiums, like they did in January and May 1994. In addition to the regular return they receive on Canadian debt securities, they will demand that an additional percentage be tacked on to compensate for the absolutely decrepit state of Canada's public finances and for the Minister of Finance's lack of action, other than his stand-up comedy act, to really correct the situation.
I would argue that people are a little tired of hearing the government and its representatives tell us every day that they will achieve their goal of reducing the deficit to 3 per cent of GDP.
I will make two comments on this. First, if they want to reduce the deficit to 3 per cent of GDP by continuing to slash social programs enthusiastically, they are on the wrong track. People are fed up with this government's hypocrisy. They are fed up with the red book telling them that they will be protected against underemployment or other social problems they may face and with a government that has been doing exactly the opposite in the past year.
The government has cut UI and stopped contributing to the UI fund. It is raising the spectre of additional cuts in transfers for social assistance, post-secondary education and even pensions. They have been talking about it on that side of the House for about six months. People are fed up with the Liberals' actions, which are not consistent with the reasons they were elected in October 1993.
Second, let me reiterate that even if the government managed to reduce the deficit to 3 per cent of GDP by 1996-97, it would not solve anything, and that is a little indecent. They tell us every day that they will reduce the deficit to 3 per cent of GDP and solve everything, but that will not solve anything. In 1996-97, we will still be saddled with a $25 billion deficit and, most importantly, with a debt approaching $625 billion. So they are not solving the problem. They are behaving like a government that only cares about being re-elected in three years.
From a structural point of view, they are not solving the federal debt problem at all. With a $625 billion debt, the problem will be just as serious in 1996-97 as it is today; the public finance crisis will be as serious as it is today. That is, in my opinion, Canada's biggest problem. There are other problems but that is the biggest one.
Despite the gravity of the problem, this government, which bragged during the election campaign of wanting to create as many jobs as possible, is doing, in my opinion, the opposite of what it should be doing as a result of its attitude toward public finance.
The debt is so big that going after domestic savings to periodically finance part of this debt pushes up interest rates. Interest rates are going up in this country. The Minister of Finance has lost his credibility with international investors, who are demanding higher yields, and this is also putting upward pressure on interest rates, which in turn affects our national interest rates.
If you happen to be an investor and want to invest money and create jobs, you will invest less and create fewer jobs because of high interest rates due to the pressure of the debt on the Canadian economy, the so-called crowding out effect, and it will not be any different in 1996-97. This jeopardizes our chances of experiencing a really strong economic recovery with substantial job creation.
When we consider how job creation has evolved during the past two and half years since the end of the recession, or at least its end in technical terms, it should come as no surprise that in Canada we are still about 800,000 jobs short of reaching the same labour force participation rate that existed before the first quarter of 1990 or before the recession began. And this is all because of the federal debt.
Even the Department of Finance has calculated that structural unemployment is at 8.5 per cent, in Canada, because of the size of the debt. Even with an economy that is doing well, even when the circumstances for job creation are ideal, the unemployment rate is around 8.5 per cent because of the size of the debt and the pressure of the debt on the economy, and the situation will not change until the structural problems besetting Canada's public finances have been solved.
That is the situation, and I do not think there is any reason for members on the other side to be proud of what the Minister of Finance has accomplished in one year. If I were the minister, I would be ashamed, and if I were the government, I would be even more so.
In any case, and I have a few minutes left, the official opposition wanted to make its own contribution last October when the Minister of Finance appeared before the committee, and we repeated our suggestions last December when the Liberal majority tabled its report on pre-budget consultations. We wanted to make a short-term contribution that would at least reduce the impact of the deficit and give the Minister of Finance
a chance to brag that he would hit his 3 per cent of GDP target. We wanted to submit recommendations as an alternative to the drastic cuts in social programs which the government has made and plans to continue.
We made ten recommendations, and I will mention the first eight, which are the most important ones. The first one, and I want the Secretary of State for Finance to listen very carefully, because although his minister realizes we made recommendations, he himself insists we never did, or maybe he cannot read and in that case, he should learn or at least find out about the recommendations enclosed with the report tabled by the Finance Committee last December.
The first recommendation we submitted to the Minister of Finance, to help him be on target with his deficit of 3 per cent of GDP in 1996-97, was that the federal government should withdraw altogether from areas under provincial jurisdiction. For Quebec alone, this means a savings of $2 to $3 billion a year by eliminating overlap, duplication and redundant administration.
The second recommendation we made to the Minister of Finance-and we are still waiting for him and his team to analyse these recommendations-is that we stop giving subsidies to business, which, last year, amounted to $3.3 billion and which are, more often than not, a form of patronage for friends of the Liberal Party of Canada rather than real support to business in meeting the challenges of globalization. Here then is $3 billion; a big savings in reaching the goal of reducing the federal deficit to 3 per cent of the GDP in 1996-97.
The third recommendation we made to the Minister of Finance, and we continue to stand by it, was to make a further cut of at least $1.6 billion in the national defence budget. This would have meant a 25 per cent cut in the defence budget over the past two years. This corresponds to the analysis we made during the electoral campaign. We held that, even with a 25 per cent budget cut, national defence could retain its past and present efficiency in a world of reduced international tensions.
The fourth recommendation, and we still make this recommendation to the federal government, which claims to want to avoid white elephants and wastage, is that, if it wants to maintain some credibility, it withdraw from the Hibernia project, which has already absorbed some $3 billion with no promise of producing any profits within the next twenty years. If this government wants to do something other than playing politics, if it wants to be taken seriously, it must withdraw from the Hibernia project.
The fifth recommendation, one we have been making for a long time-but I think the Liberal government lacks transparency-is for a complete review of the taxation system. Complete, from A to Z, including the 16 tax treaties signed between Canada and several countries which are, in fact, regarded as tax havens.
Businesses can claim operating losses abroad, repatriate these losses, though they are fictitious losses, and deduct them from their Canadian income to avoid paying taxes. That too is a major problem, and will become an even bigger one if allowed to continue.
We had also asked, in the context of this taxation review, that the privileges associated with family trusts be eliminated. Shortly before adjournment, we made a motion in the finance committee which was readily defeated by Liberals and Reformers. Why? Because it affected privileges enjoyed by their buddies, the wealthiest of Canadians, who avoid taxes year after year by paying no tax on capital gains or on personal fortunes valued at several hundred million if not several billion dollars. We cannot quote the precise figure because, although the Minister of Finance is ostensibly in favour of transparency, his department does not want to conduct the studies necessary to determine the true value of these tax loopholes.
The seventh recommendation would be to impose a true minimum tax on corporate profits. Not with the aim of adding to their tax burden, but because several thousand companies have paid no taxes in the last ten years. We must be sure, at least, that they are escaping taxes because of their specific production conditions and product-process cycles and not because they have hired tax experts to save money by not paying Canadian taxes.
The eighth recommendation is one of the most important. I was saving it for the end. The auditor general even made the same recommendation, in his last report, regarding the $6.6 billion that Canadians owe in unpaid income taxes. These are not amounts in dispute, but simply money owed to the federal government that has remained uncollected due to the government's lax approach and failure to allot the resources necessary to recover these amounts. The auditor general's own opinion is that 80 per cent of the amount owed, more than $5 billion, could be recovered if only enough resources were available for the task.
In conclusion, we too are not in favour of new general taxes, as was recommended in the Liberal majority reports from the finance committee, but at the same time, we recommend that the government find ways to improve, even in the slightest way, the state of Canada's public finances, at least on the short term, because we have very serious longer term problems.
