Mr. Speaker, in chapter one of the Liberal red ink book it clearly states: "Fairness, simplicity and harmonization should be key objectives of tax policies". Unfortunately, after a year in Ottawa this promise of fairness and simplicity is nothing more than empty campaign rhetoric.
Bill C-70 is yet another in a series of omnibus bills introduced by the Liberal Party which further complicates, convolutes and confuses the income tax system in Canada.
Most Canadians who pay income tax are unable to file their tax returns without the assistance of an accountant or tax lawyer. How has this happened? To give an idea, let me take members on a journey through Liberal income tax amendment bills which were introduced in the first year of the government's mandate.
Bill C-9, an act to amend the Income Tax Act, was first read on February 4, 1994 and consisted of 70 pages. Bill C-15, an act to revise certain income tax law amendments in terms of the revised Income Tax Act and the income tax application rules, was first read on February 23, 1994 and consisted of 670 pages. Bill C-32, an act to amend the Excise Tax Act, the Excise Act and the Income Tax Act, was first read on May 27, 1994 and
consisted of 62 pages. Bill C-27, an act to amend the Income Tax Act, the income tax application rules, the Canada pension plan, the Canada Business Corporations Act, the Excise Tax Act, the Unemployment Insurance Act and certain related acts, was first read on May 5, 1994 and consisted of 176 pages. Bill C-59, an act to amend the Income Tax Act and the income tax application rules, was first read on November 24, 1994 and consisted of 110 pages.
Finally, we have the bill before us today, Bill C-70, an act to amend the Income Tax Act, the income tax application rules and Related acts, which was first read on February 16 and consists of 200 pages.
The total is 1,288 pages of new amendments to the Income Tax Act.
The Reform Party believes the time has come for us to question every aspect of our system of taxation. The urgent pressures of a spiralling debt and the ever growing complexity of an out of control Income Tax Act forced us to look seriously at fundamental reform of the tax system.
A flat rated system of income tax is an important example of such a reform. The idea has been the subject of much discussion in both Canada and the United States. It is relevant and has a great deal of merit.
There have been a number of flat tax models outlined in past years. When debating Bill C-70, the hon. member for Broadview-Greenwood outlined his single tax proposal. Now I will outline ours; note the difference. His model is his model, not the Liberal model, whereas ours is a party model, not my model. The primary areas of variation between the two centre around the definition of taxable income and the application of tax rates.
Canadians are among the highest taxed citizens in the industrialized world with about 45 per cent of a family's income going to government taxes. Our deficits and debts are so high that they are squeezing money out of program spending and we are transferring it over to interest payments instead.
Increasing revenues by adding to the heavy tax burden already carried on the shoulders of Canadian citizens and businesses alike is not the solution. Raising individual taxes would increase hardships for many families.
Leaving more money in the hands of the people who earn it makes it possible for more people to provide themselves with the basic necessities of life. Forcing people to send more taxes to Ottawa and returning it to them through social assistance is a waste of time, effort and money.
Continued increases in taxation rates encourage governments to keep spending at current levels and avoid the difficult problems of dealing with the kinds of significant spending cuts that are needed.
The first stage of tax reform should be a commitment on the part of the federal government to produce balanced budgets. This could be done through a Canadian taxpayers protection act that requires deficit control and reduction by eliminating expenditures according to deficit targets, inflation, and population growth.
This legislation would not be designed to say how money is to be spent but rather to regulate how much can be spent. Its purpose would be to protect the Canadian taxpayer from being dragged into the kinds of serious debt situation we have now by irresponsible governments.
The second stage of tax reform should be a commitment to the reform of the Income Tax Act. Our overall tax burden is the second highest in the G-7 countries in recent years. High taxes stifle economic growth in every sector of society. They decrease the productivity of the private sector, leading to more unemployment. They tempt governments to keep spending at current levels instead of coming to grips with the real problems.
As I demonstrated earlier, the current system of amending the Income Tax Act is ridiculous. The Income Tax Act is already 2,091 pages. Now in this past year we have added another 1,288 pages. It is a struggle to administer, a puzzle to interpret, a nightmare for the majority of Canadians who have the courage to try to do their own tax returns. A complete overhaul of the system is required.
Furthermore, in view of our current economic dilemma, tax reform must also mean tax relief. However, we cannot give tax relief until we come to realize that we must look at spending and what levels of government should be spending money where.
The following outline for a proportional flat tax is a serious proposal that would go a long way toward solving some of our economic problems, an attempt to bring our system of taxation into the 21st century. The system must be simple, visible and fair: Simple so that everybody understands it; visible with no hidden taxes; and fair to both individuals and corporations with no loopholes, no exceptions.
As it stands, the incentives should be to reward production and leave more dollars in the hands of taxpayers and wage earners than in the pockets of government, thereby reducing the need for many governmental assistance programs. In other
words, the cost of government assistance would decrease because fewer people would need it.
As it stands now, Canada's Income Tax Act is based on three graduated rates of taxation and an extensive network of exemptions, deductions, reductions, deterrents and incentives.
The proportional flat tax proposal incorporates a flat tax and establishes a single rate for everyone, both individuals and corporations, with no loopholes. With a proportional element, the basic flat tax model is improved further by proportioning an individual's tax liability according to income, family size and therefore the ability to pay.
A basic level of income is tax free for all wage earners. Individuals and corporations would pay the same rate on income with a minimum of exemptions and deductions. Taxes would be used exclusively for the purposes of raising revenues to fund approved government programs, not as an instrument of economic, industrial or social policy.
The rate of taxation would therefore be determined solely on the basis of how much the government needs to provide the services that Canadians want. The rate may be in the range of 20 to 25 per cent.
The key principle of our flat tax model is that a buck is a buck. Income is defined as productive income from employment, business and investments including interest income, capital gains, pensions and dividends. Some of the areas under the definition may be debatable, whether they should be treated that way, but that is for the Canadian public to decide.
All personal income generated in any form would be taxed with no special treatment for various forms of income. The only capital gain that would not be taxed would be the one primary personal residence because this could represent a lifetime of effort over years of inflation.
The fundamental approach to corporate income would be to ensure that income is only taxed once. Depreciation is eliminated and purchases are 100 per cent deductible in the year of purchase, even if it creates a loss.
There would be one personal exemption per individual, perhaps $12,000. Lower income individuals would therefore be basically exempted from paying tax and families are granted a generous deduction.
Deductions are at levels the middle class can afford. This will result in more tax being paid by the wealthy than is now the case and leaves more disposable income in the hands of taxpayers.
A child care deduction will leave money in the hands of families to use to care for their children as they wish, whether it is at home or in day care centres. This deduction could be in the area of $5,000 for children up to age 7 and $3,000 for each child between the ages of 8 and 14.
Spousal deductions are also included, perhaps up to $6,000. A charitable deduction would be included, perhaps up to 5 per cent. The amount of RRSPs would be reduced to $6,000 annually so that higher income earners do not gain an unfair advantage and provisions would include a deduction of about $2,000 for seniors.
For businesses, we could look at what they could deduct as cost of operations or goods, services and materials, wages and benefits, interest payments and pension contributions plus dividends paid out. This is the big difference. Dividends paid out to individuals for investing in that company would be deductible to the corporation and taxable in the hands of the recipient which would end the current problem of double taxation on dividends.
GST or other forms of federal sales tax would not continue. Sales tax would be left to provincial governments to raise money for their own needs. This is one of the advantages of tax reform, looking at various levels of government and raising the money that they need at their level that could be shared.
The federal government does not have to grab all, end all and waste all. The initial objective would be to establish a tax rate that is revenue neutral to begin and is redistributed equally between individuals and corporations.
From that starting point, as we eliminate the waste in government spending, as we determine which levels of government should be responsible for which programs, as we privatize crown corporations and government gets out of the business of being in business, this rate would go down and down and down.
I acknowledge we must start at a revenue neutral base and let that work through the system over a three-year period. Some of the advantages of this system would be an even distribution of the tax load by eliminating exemptions and reductions, a lower tax rate over the current three tier graduated system, more disposable income, a broader base spread out over corporations and individuals more equally.
It might increase government revenue because corporations and higher income individuals would pay tax on everything with no exemptions, no tax shelters, thereby restoring tax expenditure costs to the government.
More government revenue could be generated because perhaps the underground economy would start to disappear. Some economists say it presently ranges from a low of $15 billion to a high of $100 billion. Nobody knows what level the transactions take on there. If we had a system of taxation where people were more willing to pay their taxes, the underground economy would
disappear and taxes would then flow into government coffers at all levels.
The fourth advantage would be equity in the system. The Liberal red book dangles that idea but it does not deliver. People with the same level of income would pay relatively the same amount of tax.
Another major benefit of a proportional flat tax system would be simplified tax forms. Everybody could fill out his or her own income tax form at taxation time. As politicians and parliamentarians, is that not what we are here for, to try and improve the system, try to make laws easier for people to understand and for governments to administer?
Where is the tax fairness and simplicity that the Liberals promised in their red ink book? We have bills like C-70, C-9, C-50, C-27, C-32, C-59. Next week the government is going to introduce another excise tax amendment to the Income Tax Act. All these bills put together add up to thousands and thousands of pages. The government has fallen into the same trap as previous governments. It has made the same mistake.
In the name of simplicity and fairness it continues to make the system more complicated and more inequitable. It says that by passing all these bills, it improves the system and makes it more fair and more understandable. Give me a break. Who could read all this in six months or less and understand it?
To members of the Liberal caucus here is an opportunity to stop the madness, to end the bureaucratic nightmare known as the income tax system and start moving the country toward a simple, visible, flat rate taxation system. Show some leadership. Follow the member for Broadview-Greenwood. Follow his advice. Follow our vision of a simple, visible flat taxation system. Show Canadians that omnibus bills like Bill C-70 will no longer be necessary.
The Liberals can only spin the public for so long. They can only use sophistry so long in the budgets they present every year. They can only use sophistry so long in presenting all their wonderful amendments and changes to bills before the Canadian public will realize that their clever use of words has a false and misleading conclusion and will not be accepted at election time.
Canadians will realize that if the Liberals do not do anything about it, that it is business as usual at plant Ottawa, they could be booted out just as fast as the Tories were. When the public does boot them out, the Reform Party will be waiting in the wings with a bill called Bill C-1 or C-2 or C-3. It will be a bill with a very high priority. It will be entitled an act to repeal the Income Tax Act and institute in an orderly fashion a proportional flat tax system in Canada over a three-year period.
A flat tax has further advantages in that visually it makes you feel good. I have with me a personal income tax return under the proportional flat tax system. It has three categories for gross income. It has seven elements of deductions which I defined in my speech. When the total deductions are added up and subtracted from total income, the tax is paid at whatever percentage we need initially to be revenue neutral.
As we improve government and eliminate waste in spending, we can continue to lower the rate to really give tax relief to the Canadian public. We can show them the more they look after themselves, and this gives them that opportunity because more money will be left in their pockets, then the better the system will be for everybody.
The corporate income tax return is also a simple one-page document that scares tax lawyers and tax accountants. They should not be scared. In this system rather than working for corporations that are in receivership and trying to determine whether it is 10 cents, 20 cents or 50 cents on the dollar and wasting fruitless hours trying to do personal income tax forms for $50 or $100, these people will be advising the public and corporations where to invest, where the best rate of return will be. They will be helping them build profitable companies.
I acknowledge that some tax lawyers and tax accountants will have to get out of the profession. Perhaps they will become entrepreneurs. Perhaps they will be contributors to the income stream rather that being on the receiving end of the expense stream. They do good work and they are necessary now. However it would open the field for a lot more opportunities. I do not think these people need to worry.
On this tax form under income we have everything the corporation makes. There are five deductions. Any losses are carried forward, for a total of six items of deductions for corporations. Subtract those deductions from income and send in the tax at the same rate as individuals.
This principle of fairness would make every Canadian and all corporations happy. Corporations would be proud of no longer being accused of manipulating the system, of not paying their fair share. We hear all the time that corporations do not pay their fair share of taxes. We hear all the time that the wealthy do not pay their share of taxes.
Under this system individuals would have a certain level of tax free income. A married couple with two children would have the basic $12,000 deduction, $6,000 for a spouse is $18,000, and $5,000 each for two children under seven equals $28,000 of income that would not be taxed.
Currently somebody making $12,000 has to send in $1,200. They then have to line up for some kind of subsidy program for education, job retraining, unemployment and welfare. By the time that $1,200 comes back to that individual it has shrunk to
about $400. That is what gets used up sending it to Ottawa and then sending it back to the people in the field who need it.
Let us stop this nonsense. It is one of the best ways we have to reduce the pressure and save social programs. Leave the money in the hands of the people who need it for their own subsistence, for food, shelter and clothing. We are supposed to be here to find solutions and that is a very concrete solution.
Without the loopholes, exemptions and deductions that the wealthy use now to manipulate the system and receive tax breaks, they will pay their share on all income. This will enable wealthy people not to worry about whether or not they are paying their share. I already know for a fact that 50 per cent of the tax revenues generated in this country on an individual basis come from 10 per cent or less of Canada's taxpaying population. The wealthy are paying their share. Now the Liberal government is saying the corporations are not paying their share. The corporations under this system would pay their share.
As we discuss the simple, visible, flat system of taxation perhaps the debate could lead to a system where corporations would only pay 5 per cent, allowing them to hire more people, to reinvest their profits.
Why would I invest in a company and how would I get my money back? I am using 80 cent dollars. I make an investment and it is not deductible. However, I have invested in an area where I feel and see that the economy is going to grow. It is not driven by the government. It is driven by speculators, risk takers and investors.
The company may be making a profit digging out gold or they have a manufacturing company and make bicycles better than the other bicycle. If I invest in that company and it makes profit it will pay me out of the profits. It gets to deduct those dividends and I pay tax on them. It is an equitable and fair system.
The government will no longer be able to accuse one sector of the economy of abusing the system. The flat tax cleans up the entire system of taxation and reallocates the purpose of government, what the government should be doing, whether it is regulation or social programs. It raises the money required to do it and delivers it.
I believe a flat tax system is going to become a reality in the United States. Therefore, why delay in making the proportional flat tax a reality in Canada? Let us start today.
