Madam Speaker, as industry critic for the Progressive Conservative Party of Canada I am pleased to speak today to Bill C-71, the budget implementation act, a Liberal budget that completely fails to address the root causes of Canada's low productivity.
In a speech delivered in Toronto on February 18 the Minister of Industry cited Canada's need for more business investment, the importance of more foreign investment to develop new technology and the significance of higher innovation. The minister also said that Canada's productivity growth over the past 25 years was the worst in the G-7. I was pleased that last month the Leader of the Reform Party and the member for Medicine Hat followed my lead in question period in highlighting the industry minister's lack of confidence in the Canadian economy.
The Minister of Industry is not alone in his assessment of Canada's weak productivity. At a conference last month, just a few minute's walk from Parliament Hill at the Chateau Laurier, Nesbitt Burns economist Sherry Cooper called Canada's productivity the worst in the industrial world.
The Liberal Party's own pollster, Michael Marzolini, added that Canada has the worst rate of productivity among our G-7 competitors.
The Liberals have attempted to portray anybody who questions Canada's weak productivity as an enemy of Canada who does not want Canada to succeed.
Although I can understand some of the rhetoric, I challenge the Liberals. Is Sherry Cooper an enemy of Canada? Does the Liberal Party pollster not want Canada to succeed? Was the Minister of Industry wrong when he spoke to the Empire Club in February in Toronto about Canada's weak productivity, low foreign investment, high tax burden and declining standard of living?
The PC party believes that the priority to improve Canada's productivity should be on tax relief and less red tape. Let me be clear. I do not criticize the government for increased funding for organizations such as the National Research Council or the Canadian Space Agency.
The fundamental problem with the government is that it ignores the best approach to increase the business investment needed to improve productivity: low business taxes, a lower regulatory burden and less debt.
There is an ancient Chinese proverb which says that it is not the heavily taxed realm that executes great deeds, it is the moderately taxed one. Canada needs to follow these wise words.
High taxes hurt our economy and threaten future economic growth. They discourage investment by businesses and individuals. This in turn limits employment opportunities and lowers tax revenues used to fund social programs.
Although our country is often cited by the United Nations and the Prime Minister as the best country in the world, we received a clear warning at January's world economic forum in Davos, Switzerland. Meeting participants, comprised of many of the world's business leaders, said that future economic prospects did not look bright and that heavily taxed and heavily indebted countries are particularly at risk.
Despite the rhetoric from the government, Canada qualifies as being both overtaxed and deeply indebted. In particular, we need to address the heavy tax burden of businesses.
Corporations are often the target of people frustrated with the economy. We will no doubt hear from some, especially the NDP, the Bloc, and to some extent the Liberals, that if only big, bad corporations paid their full share average working people would be better off. Of course this fair share concept implies that large corporations do not pay a heavy amount of taxes. It also suggests that Canada can raise taxes on corporations without any negative impact on the economy and our social programs.
In fact there are some who believe that our economy and social programs would actually improve if corporations paid more tax. Indeed it was the confused Minister of Industry who said last December that high taxes should increase productivity.
Let us take a look at the facts about business taxation. The first myth is that corporations are getting off scot-free. The reality is that since the Liberals took office in 1993 corporate income tax revenue has more than doubled.
Canada's combined federal-provincial general corporate income tax rate averages 43%, four percentage points higher than comparable rates in the United States, our number one competitor.
Moreover, Canada's corporate taxes are 9% higher than the average G-7 country, some of the most important economic countries in the world, including the U.S., Great Britain, France, Germany and Japan. Over the past 30 years the total tax contributions made by Canadian corporations, including payroll, sales, property and income taxes, has jumped 144%.
Many of those taxes are not even dependent on whether a corporation is profitable. The federal Department of Finance estimates that 70% of the taxes which businesses pay are not related to any profit whatsoever. Meanwhile, according to the Conference Board of Canada, for every single dollar in extra profit made by corporations in the past 30 years a full 62 cents was clawed back in taxes.
Corporations have not been untouched by the tax collector. In fact one could make a strong argument in favour of lowering the tax burden of businesses.
Our G-7 partners, on average, have lower corporate rates than Canada.
Meanwhile, other developing countries such as Ireland, Mexico, Hungary and Singapore are positioning themselves through low or non-existent corporate taxes as attractive locations for business investment, business investment which, according to the Minister of Industry, is needed for higher productivity.
Companies are mobile. They can choose where to invest their dollars, where to create jobs and where to pay taxes which in turn fund social programs. Companies can also decide where to conduct research and development and where to commercialize innovation. In short, companies are free to choose where to contribute to a productive economy. They are not choosing Canada.
Let us look at the result of Canada's high corporate tax policies. While we became the place to pick the pockets of business, foreign investment dried up. According to the United Nations' report on world investment, Canada's share of direct foreign investment fell by 50% from 1985 to 1995. More recent figures put the drop closer to 60% over a 15 year period. The United States, with a more favourable business tax climate, saw its share increase by 4%. That is very significant. The government knows that our corporate tax structure is a problem. There are other factors to consider beside the corporate income tax rate.
The federal Department of Industry commissioned an independent study in conjunction with the Alliance of Manufacturers and Exporters Canada to determine whether changes in the corporate tax structure would benefit the economy. The study was conducted by Dr. Jeffrey Bernstein of Carleton University in Ottawa and the National Bureau of Economic Research in Cambridge, Massachusetts.
Dr. Bernstein's analysis examined five different taxes and investment elements, including corporate income and payroll tax rates, capital cost allowance of plant and equipment, research and development, and investment tax credits.
Dr. Bernstein's report concluded that the existing corporate tax structure is an inefficient means of raising government revenue and that the reduction of corporate income taxes for manufacturers through the provision of an enhanced manufacturing and processing tax credit would provide the most significant benefits to the Canadian economy.
The report also inferred that a corporate tax increase of $100 million, relatively small in a $150 billion budget, would kill up to 627 jobs, the equivalent of six average manufacturing plants. Furthermore, a $100 million reduction in R and D credits would kill up to 3,000 jobs.
Each of these lost jobs have an impact. The person working at the job pays more taxes than they would if they were unemployed. The person is also not dependent on income security programs. It is a simple economic formula. More jobs equals less social and economic problems, equals a higher standard of living.
The viability and profitability of private enterprises are essential to the Canadian economy. We cannot have a strong economy that benefits socially as a whole without a strong private sector.
This budget does nothing to address one of the main causes of Canada's low productivity nor does it deal with the problem of government regulation. In particular, the government did not make a single change to the cost recovery program the Liberals introduced in 1994. There is nothing wrong with a cost recovery program that is based on reasonable fees, increased efficiency and smarter performance. Credible evidence suggests that the present program has no such grounding.
A recent report prepared by the Business Coalition of Cost Recovery, representing small, medium and large firms that employ 2.2 million Canadians and contribute $330 billion to the national economy, detailed the devastating impact of the federal cost recovery program since 1994.
Canada's manufacturers have been subject to a massive 153% increase in regulatory fees. User fees through cost recovery are among the fastest growing costs of doing business in Canada—
