Mr. Speaker, before proceeding with my speech, allow me to express my scepticism regarding the remarks made by the parliamentary secretary who mentioned the openness of the finance minister and of his government vis-à-vis the consultation process. Supposedly, they are listening not only to MPs, but also to all citizens. This process is a farce; next week we are going to listen to witnesses, while the report has already been written. What kind of influence are these people going to have? The committee must return to Toronto, at the insistence of the Liberal members in the area, to hear more witnesses who did not, or will not, have any impact on the consultations. This is somewhat less than transparent.
Let us go back to Bill C-59, which could be described as one of the pieces of legislation resulting from the Liberal government's first budget. This bill includes 12 specific measures, which are only some of the legislative measures resulting from the last budget. Some are good, others much less so. Some will need to be clarified when the clauses of the bill are reviewed by the committee.
Indeed, this bill was, and still is, the first financial test for the Liberal government. Let us say that, in certain respects, it is very timid. Since coming to power, the Liberal Party may not have had that much time to influence the budget process, a reason which is often given to justify the fact that the budget does not reflect what the Liberals wanted. This is strange because they came to power in October. We were all elected then. They claim they did not have enough time, so they tried to postpone the pre-budget consultations which are supposed to end in mid-December. There is something wrong there.
Let us now move on quickly to the measures themselves. We will come back in more detail on some of them later. The Bloc Quebecois agrees with certain of them. Being more positive than negative by nature, I will start with the ones we agree with, although we will need clarification on some in committee. The first one, of course, is the cancellation of the capital gains exemption on the first $100,000. I will come back to this measure because it has to be put into context to see what happened with capital gains exemptions.
There is also the Home Buyers' Plan, which allows first-time home buyers to use their RRSPs for financing, which is made permanent. This is a good measure. There was much pressure on the Conservative Party at the time, and on the Liberal Party when it came to power, to make it permanent. This has now been done and it is a positive step.
Tax credits for charitable donations. The first $250 used to be deductible at 17 per cent and any amount in excess, at 29 per cent. Now, the limit has been brought down to $200. That is to say that amounts in excess of $200 will be deductible at 29 per cent. There is now an extra $50 that is becoming deductible at 29 per cent. In itself, this is a positive measure. It is not the reform of the century, but we, from the Bloc, recognize the contribution of charitable organizations and other organizations that benefit from this funding. That is why we support this measure.
There are also a number of technical provisions to close certain fiscal loopholes. I am thinking about company reorganization, tax shelters in the form of partnership interests and the small business deduction in particular. Let us just say that there are three measures to close technical loopholes. I will not get into the detail, as this can be done in committee, but this is not the tax reform of the century. It is certainly not the reform the parliamentary secretary would like to see and he is seeking public support to improve on it. Having participated in the consultation process myself, I can tell the hon. parliamentary secretary that public support is a subject that was brought up very regularly by various people.
One of the reasons why we end up with outstanding accounts-if you add up the GST, accounts in dispute and outstanding accounts per se, as they appear on the books, it is in excess of $9 billion-is that somehow individuals do not abide by the applicable part of the social contract, in terms of how revenue is to be collected. So, the system will have to be changed, so that the public can get the right idea. In some cases, public perceptions are quite accurate, but in others, perhaps if we could clarify and simplify things, people could change their minds about certain commonly-held beliefs. But in order to do that, we must lay our cards on the table and not be afraid of being truly transparent.
Another measure dealing with mine reclamation funds permits a tax deduction for contributions to these funds in the year in which the contributions are made. This will benefit these businesses, particularly those which had trouble taking advantage of these measures when closing or confirming their operations.
This bill contains a number of positive measures. I will review two of them, which can be described as being positive but requiring closer scrutiny. One is the capital gains exemption. A few years ago, this exemption was set at $500,000. The first $500,000 in capital gains was not taxable. To help people understand capital gains, I will give an example: Someone could buy, not a principal residence which does not qualify, but a secondary residence, a cottage, for $20,000. When he sells it later for $50,000, he makes a $30,000 capital gain which becomes taxable income. However, the first $500,000 in capital gains is tax-free. At least, it used to be $500,000.
The first reform reduced this exemption to $100,000. Now they want to eliminate it, arguing that it only benefits the rich. This statement, however, requires careful scrutiny. If this measure benefits the rich, it also benefits the future. Some of those who used this capital gains exemption are not affected because they have already exceeded the limit. Many people benefited.
When we say that our financial situation is difficult and that the country is in debt because of our social programs, we should take an occasional look at the cost of tax expenditures. If this approach is not valid today, why was it in the past? Of course, we can say at some point that we must provide the tools needed to stimulate investment, to encourage people to invest in economic development, with appropriate tax incentives. Although investments are still needed today, we say: "No, this measure benefits the rich. It took us a while, but we have finally realized it". In reality, this penalizes young people like myself, people of my generation. Those who would have benefited in the future will be denied this advantage. This is a sacrifice we are willing to make in the fight against the deficit. Although we are willing to make this sacrifice, I find it very difficult to believe that it penalizes today's rich people.
We now must work on this in committee and I can say right now to Liberal Party members: Older people seem to have a problem with this measure this year. The finance minister's budget provides an election in respect of gains accrued before February 22, which authorizes tax-selling throughout the year. To go back to the example I gave earlier, suppose I now have a cottage worth $50,000, which I bought for $20,000. I could resell it to myself for $50,000. If I sell it for $80,000 in 15 years, the only taxable portion will not be $80,000 minus $20,000, or $60,000, but $80,000 minus $50,000, or $30,000, which is the increase in value between February 22, 1994 and the date of the sale. So this year everyone can sell their tax benefits to take advantage of the exemption for the last time. They must do so before the end of this fiscal year.
Take a senior who collects an old age pension or the income supplement. He must declare it on his tax return under capital gains so his net income which is used to calculate the amount of his pension is artificially increased this year, even though he did not collect it as income. As a result, he might lose some pension or income supplement. There is a problem, because some seniors are being penalized. We would have to know who is being penalized. We will need the information. How much money is involved and why was a mechanism not provided so that people are not discriminated against on the basis of age? Someone who is 64 is not affected, but someone who is 65 or older and makes a capital gain may find his pension or income security affected.
This needs to be looked at carefully. I say that some amendments should certainly be possible. I talked to some accounting offices and they told me that it happens in many cases. Sometimes people take a while to react and now, thanks to the vigilance of some people, we are starting to realize that things are not quite right and that something is not working as it should. We must ask the government whether it intends to penalize seniors or if it is ready to develop some way so that they can avoid being penalized.
I comment now on another measure, the tax credit for charitable organizations. Since the government wants to implement a social program reform which will hit hard, there is good reason to consider providing additional support, so that these groups
would somehow have the option of finding their own sources of income. Many officials representing community groups, agencies, charitable institutions and philanthropic organizations told us that this was an avenue to pursue, adding that an evaluation should be made of how much it costs the government to either give funding to organizations, or encourage them more strongly to raise funds. Then the government's participation, from a fiscal point of view, should be looked at.
This is an avenue which must be pursued thoroughly, and the minister should conduct such an analysis before going ahead with in a social program reform which will adversely affect these groups.
The few measures proposed to close some loopholes are symbolic of the will of this government to eliminate all existing loopholes in the taxation system. We keep raising the issue of family trusts, which is still being examined by a committee. More people than ever before feel that there is a lot of money involved. It is very difficult to get information. In fact, it is almost impossible. But the government does not seem interested in getting that information.
The government will consult on just about anything, but it cannot provide the required information to form an opinion on this issue. Eliminating family trusts might be much more profitable for the government than implementing the few proposed measures. These measures must be taken too, but there are initiatives which would help restore public confidence.
People say that there is a problem with family trusts. When it comes to RRSPs, the government says: What we want to do is take a chunk of your future income now, either by taxing RRSPs or by lowering the maximum to which you can contribute. It is essentially telling people that they will have to pay taxes immediately instead of when they cash in their RRSPs. However, the government does not follow the same reasoning when it comes to capital gains in family trusts. Indeed, it may take up to 80 years before such gains are taxed.
I do not see any logic there. The time has come to target the general public-and it is true that this is the most profitable move, because it affects the largest number of people-but the middle-class is tired of always being the scapegoat, while those who earn the most are left alone.
I watched the Minister of Finance last week, when he was the guest on Jean-Luc Mongrain's program. There was a pyramid of small blocks representing social classes. Mr. Mongrain asked the minister: Where are you going to cut? The minister was hesitant in choosing a block, thinking: I cannot really go for the middle one, because all the other blocks will fall and it would not look good. He was reluctant to take the block at the top. And when he realized what he had to do, Mr. Mongrain asked him: "Why not take the top one?" He took it without any hesitation and said: "I will take them first". Surprise, surprise! Everybody saw him hesitate when he went for the block in the middle, representing the middle class. That was an object lesson people will remember.
There is another aspect to this and I am referring to butterfly companies and tax shelters. This was partly addressed in the last budget. The government should listen a little more to the Auditor General instead of just paying him to publish his annual report!
The government has invested $50 million in the Auditor General's activities, so we might as well make sure this money is made more productive. I am not saying they are not doing a good job, but the government has to use the information they provide. There are still many so-called problem countries listed because of the opportunities they provide for tax evasion as a result of a lack of reciprocity between their tax systems and ours. There are still 16 countries on this list, and in some cases an investigation followed by corrective action would be necessary.
It gets very complicated when you want to go after the top blocks. When you want to get at the top of the pyramid, it is not easy, and the government never seems to have the best tax experts. They are all in the private sector, and they know how to use the tax system to make money. So I do not believe that is the answer.
We have resources here to be able to evaluate all this. People know that but of course there is a very strong lobby, and lobbying expenses are tax deductible, would you believe. They did not talk about that either. They may talk about cutting the amount you can deduct for charitable donations, things like that, but never a word about lobbyists. Perish the thought!
I was talking about the measures we support and that there is room for improvement. I will now talk about the measures we oppose, because we will vote against this bill since it contains measures that would not appear and, in fact, are not in order. Those of my colleagues who will speak on this bill will have a chance to come back to this issue, however, the government singled out the age credit and I will devote a small part of my speech to that.
Although we did not estimate its impact precisely, we have some questions about the reduced deduction for meals and entertainment. We are not necessarily dead set against it, but we would like to evaluate its impact, and we will be able to do that in committee, since there is some time left before its implementation.
Then there are the investment tax credits. The notion of regional development seems to have been dropped. The region is Canada as a whole. I will come back to this to explain what happened. Technically speaking, it is rather complex, but things have happened. There again there is a lack of imagination. Revenue has to be raised but during election campaigns candi-
dates always say, and the Prime Minister was no exception: "We will not raise taxes, at least not in the first two years".
Yet, we tax employee benefits like employer-provided life insurance. Previously the first $25,000 of coverage were tax free, this will no longer be the case. Why is the government afraid of saying that it is a new way to get more money? Because it would not be able to claim that it did not raise taxes. However, taxpayers realize that as the years go by, there is less money left in their pockets.
They are told: "No, we did not raise taxes". They think: "This does not make sense! The government finds all kinds of tricks to come and take our money". Then, people start getting mistrustful, and they think: "It is my turn now to get even and find ways to avoid giving money to the government".
Therefore they deal under the table, they pay cash and avoid paying taxes. Merchants, too, get on the bandwagon, for they are also consumers. Many small merchants, who belong to the middle class, are just as frustrated as consumers; they understand their fellow consumers and they do the same thing. This is how the underground economy was created. The finance minister does not agree with his colleague, the revenue minister, on the size of the underground economy, nor do they agree on the importance of tightening the collection of unpaid taxes.
For his part, the finance minister claims that efforts are needed, that it does not make sense, whereas the revenue minister tries to minimize the situation regarding unpaid taxes. With a sudden change of heart, Mr. Martin realizes that there is a good deal of money there, but he admits that there are few solutions for improving the situation.
You know, we have seen it before. Year after year, it is the same thing. I recall especially the past three years, maybe because I am the youngest. I believe the next budget is going to be tough, it is going to hurt. This is what we see in the press every November or December. In January, the finance minister will say: "I will not comment on individual measures, wait for my budget". In February, we get a budget which is not all that tough and the deficit for the year is reasonable. The big deal this year is that the deficit is not higher.
It will probably be around $38 or $39 billion, but some expenses are not recurring. This year, for instance, the Unemployment Insurance Fund has a surplus so that the deficit is two to three billion dollars less than last year. But this is not a reason to rejoice. We have skipped a turn, there was a non-budget or rather a budget without any effect. They believe that economic growth will solve the problem but we will need much more than that.
I would now like to talk about the regional investment tax credit. I will try to be as simple as possible about all the technical aspects. There were three regional investment tax credits. There was the special investment tax credit; the investment tax credit in the Atlantic region and the investment tax credit for scientific research and experimental development, also in the Atlantic region. To tell you the truth, nothing is simple in the taxation system; there are numerous credits, and the fact that the federal government wants to take action of its own in regional development often results in that kind of situation.
The first one, the special investment tax credit of 30 per cent is abolished. It was mainly used for buildings, machines and equipment.
The second one, the investment tax credit in the Atlantic region, is reduced from 15 per cent to 10 per cent.
The other one, the investment tax credit for scientific research and experimental development, which was 30 per cent in the Atlantic region and 20 per cent elsewhere, is reduced to 20 per cent across the board.
We can see that regional investment tax credits are generally not considered as effective economic means to attract additional investments. After a while, we can see that they do not have the results expected.
The real question to be asked is: Why? Why did it not have the expected results? Because there must be a direct incentive somewhere. Maybe if there were not always the same problem with two governments, each in its own way, trying to stimulate experimental development, especially aimed at small and medium size enterprises-because it is the thing to do nowadays, when you are a finance minister, to talk about small and medium size enterprises. They talk about it but they do not necessarily act on it. It always sounds good in their speeches. They talk about measures especially for them.
When you look at the way things are, when you look at these people, who are born entrepreneurs, who came up with good ideas and were able to capitalize on it, you come to the same conclusion as many have, including the Standing Committee on Industry and other committees. These people have strong points, these are brave and enterprising people who are helping to build Canada and Quebec, but they also have some weaknesses, one of them is their lack of administrative expertise. This could explain why some projects have failed.
These people are good businessmen and women, with good ideas, but we provide them with such complicated tools; depending on where they are located and what they do, with this type of tax credit, there are three possibilities- They become so disheartened that they start to think that, with all the time they are going to lose on these tax breaks, they might as well go back
to their business and get some more work done. It would cost less and they would be able to save more money than they would have by using the tax credit.
They are not entirely wrong, since consultant services in this area, whether we are talking about lawyers, tax specialists, or others can be costly. This may be why they are not widely used.
With regard to regional development, here is what we say to the federal government: Instead of squandering your money, why not transfer these resources to the provinces which are probably in a better position to understand the specific needs of their regions. In turn, the provinces can allocate this money anyway they want to.
For example, transfer the tax points and assess how much these credits are costing you. Tell yourself: We still want to help businesses, because we know there are future entrepreneurs out there and we want to help them work on their weaknesses, like their lack of interest in research and development, so we will provide them with the means to do so. Transfer the resources where they are needed. We are not talking here about transferring dozens of tax points, these are not major expenditures, but we will see what will happen.
I am convinced, as many others are, that the closer a level of government is to people, the more it is able to understand the people's specific characteristics. We should stop managing everything from this level and we are certainly not doing so with this measure. What the government is doing once again is setting its own standards nation-wide, and it will continue. . . I am sure other tax credits will be created and soon the situation will be just as complex as what we have now.
This year, the Auditor General was harsh in his judgment, especially on the issue of money. Even if our country lags behind in the area of research and development, the little we spend, we spend inadequately. And this comment applies to all areas. In almost all fields of activity, people say we are spending too much and they are convinced there is a better way to spend whatever amounts we do spend. Better spending practices alone would improve our performance in the area of economic development. But it is hard for such changes to get to the top, all the way to this place. Whether we are talking about the tax system or the transmission of information, it is always a problem for changes to reach the highest levels. The message does not always get there, in spite of numerous consultations.
Another measure is the age tax credit. It certainly is striking. At one time, the present Minister of Human Resources Development was a member of the opposition. He was there during the Tory period. We all remember the Charlie Brown incident, when the Tories launched an attack on the old age pension. Just look at what he said in those days. He said this, about the budget, here in this House, on June 18, 1985: It is a fact that the government has reduced considerably, and in a backward way, the purchasing power of seniors. Not only are they being deprived of income assistance, but their purchasing power is also being reduced. And as if this was not enough, the government hits them again by cutting two billions-in dollars of 1985-in transfers to provinces, between now and 1990. Clearly, this budget is an attack on several fronts against seniors'incomes. Now, in their first budget, the Liberals reduce the age credit. Eight years later, they do exactly was they opposed back then.
We sometimes have this impression of déjà vu. At one time or another, we all feel as though we have already lived a particular experience. Since the beginning of this new Parliament, we often have this feeling of being back to 1985, under a Conservative government. The Liberals conduct the same consultation exercises that they criticized before, and they do so regarding the same issues. They deal with problems in the same way as the Conservatives did, something which they would never have dared mention during the election campaign.
Let me explain this age credit. People aged 65 and over can ask for a tax credit equivalent to 17 per cent of $3,500. This is a non refundable credit; in other words, it can only be applied to the tax payable. If there is excess tax to be paid, the credit cannot be refunded. That credit translates into a tax reduction of about $610 per year. From now on, seniors with a net income of over $25,921 will see this credit diminish progressively with every dollar over that amount. The credit will totally disappear when the income reaches $49,100. Is this the level to be found at the top of the pyramid the Minister of Finance was talking about during the TV interview he granted to Mr. Mongrain? Was that the top block, an income of $25,000 or $26,000 for the elderly?
In the meantime, a new level of Old Age Security benefits is being added. The government clawbacks the old age pension it pays to people with incomes over $52,000. This level includes income from about $52,000 to $80,000. Now the government is proposing a new level for incomes between $25,000 and $49,000. Is this the basis for a new scale or, where old age pension is concerned, is the government trying to add new levels to the existing scale in order to reduce benefits? I think we have good reasons to be concerned. Very often, this is the way things happen. Once you have an in, it is easy to do whatever you want. Here, the government has set this new level and in the future we will most probably see the government adjust or recover pensions paid to elderly Canadians with a net income of over $25,000.
Older Canadians are concerned and have trouble understanding why they are the first to be picked on in this budget. Over the next three years, the government will recover $500 million. In 1985, the Minister of Human Resources Development feared that the then government would clawback $2 billion over a period of five years. But now he is not concerned about the $500 million the government will recuperate over the next three years. The worst part is that what he was objecting to was partly implemented, therefore older people already lost money. He
thought that was indecent, but now that the government is asking for more he is in the Cabinet and he is going to do it.
My colleagues will have a chance to elaborate on the issues regarding seniors, but I must say that senior citizens are more and more concerned. This is somewhat ironic, because members opposite, to fight Quebec sovereignty, go to retirement homes and talk to seniors, trying to scare them. They tell them that Quebec separation would endanger their well-being and they use the vilest substantives they can find. They blackmail them with their pensions, because the cheques they receive bear the logo and flag of the federal government.
Yet, this same federal government is the first to pick here and there in their pockets. Yes, there is something to do collectively to fight the debt. While there might be some categories of senior citizens willing to do more, they do not want to be first because they do not seem themselves as different from other taxpayers. We should strike at the top of the pyramid, at those who benefitted from the capital gains exemption in the past. Today they are still alive, and probably rich. This is no coincidence.
When we draw the pyramid, we realize that the top gets higher, but that the middle is slumping. We have a pyramid with an ever bigger base and an ever higher and narrower peak. The gap between rich and poor is widening.
Of the 20 million taxpayers, 50 per cent have incomes of less than $20,000 and 60 per cent, below $25,000. At this level, there is not much hope of getting at the top of the pyramid, and by so doing perhaps make our society more equitable, high enough to dare demand that those who finance the major political parties do their share to solve the debt and deficit problem in general. It seems difficult to ask for such an effort.
In conclusion, all committee members will look at these legislative measures in detail and report back at third reading in this House. This is a relatively timid and cautious budget, probably because the government ran out of time. People have high expectations for 1995; they expect us not only to reduce the deficit but to do it in a fair and equitable manner. Successfully meeting the debt challenge requires that everyone co-operate by fighting the temptation to evade taxes. To achieve this goal, people must know what the government's intentions are and feel that it is acting fairly and equitably. They are willing to give the Minister of Finance a chance because he is new at this and because this will be his first real budget this year.
They may blame him for wasting a year. We lost two years because of the election; one year because after its leadership race, the Conservative Party did not dare table a budget. They decided to give some leeway to the new administration. Then the newcomers argued that they got there too late. As a result, we lost two more years in the fight against the deficit, two more years during which the debt grew by $40 billion. That is a lot of money. This additional $80 billion is costing us between $5 billion and $6 billion in interest charges alone.
That is a lot of money, and I cannot help talking about an impending threat with respect to the next budget. Rumours to the effect that RRSPs will be affected continue to circulate. And there is no truth to the allegation that the Official Opposition is keeping it alive, contrary to what the hon. Parliamentary Secretary to the Minister of Finance maintained three or four weeks ago and, realizing it was not credible, stopped saying so, but now, someone is playing the parrot, taking an old quote and circulating the same rumour again.
The Minister of Finance could very easily state, in any of the speeches he makes in his travels-because I am convinced that he gets media attention when he travels-that plans to put government finances in order, for next year, do not include taxing RRSPs. Because there is a problem. People who try to sell RRSPs, who are trying to get other people to contribute, are faced with the normal reaction of individuals telling them: "Sure, but there is much talk about RRSPs. Apparently, they are going to be taxed. We are going to have to pay tax on that money". It does not sell well. Potential customers are sceptical.
They may go for it, but it will probably be more difficult this year to sell RRSPs, and that constitutes saving. One of my colleagues, the hon. member for Rosemont, quoted statistics on consumer saving in Canada, showing the decline in saving. On one hand, we could be glad that people are consuming more and stimulating our economy, but on the other, we must be concerned because their ability to consume is increasingly limited.
There is a problem, because our recovery could level off, especially with what is happening to economic growth in the United States, which is operating close to capacity, raising fears of inflation and all that this involves. So we need savings. Hitting savings would send a very bad signal. Not only is our future being mortgaged and our debt burden very high but today they want to take a bite out of our future income as well.
I am very worried. I am trying to think what the situation will be for a finance minister in 15 or 20 years. He would be able to count on the income from retired people since they will be cashing in their RRSPs. Instead of collecting benefits, many will be taxpayers. If they are not encouraged to invest in their own retirement-and anyway, all they are doing is deferring income tax-what will happen in 15 or 20 years? Again, the room to manoeuvre will be limited.
Let us solve the government's financial problem without touching RRSPs and within 15 or 20 years, we will have a much greater pool of revenue. I am concerned, but it also makes me smile, that in the finance minister's grey paper, it is listed as a tax expenditure, with a very awkward calculation, but basically it is deferred income. If someone puts money in an RRSP, it will be taxed when he takes it out.
It is true that many taxpayers could find their RRSP taxed at a lower rate than it is today. That is the incentive for the government and that is a tax expenditure. The tax expenditure is not the amount which taxpayers can deduct this year: It is only the difference between what they would now pay in taxes and what they will pay when they cash in their RRSPs. This might be a sizable amount, but it is also the actual figure which the government should quote.
However, the government uses a different approach. It would rather come up with huge figures and say: "It costs us $15 billion". We are not only talking about RRSPs, but also about registered pension plans. The government says that it badly needs money and that it must get it somewhere. Then it is quick to add that it might be a good idea to look at this option, using the argument that rich people who put a lot of money in their RRSPs are benefitting more than others.
But that is not necessarily the case. Indeed, when these very rich people cash in their RRSPs, chances are they will still be in the same tax bracket. Consequently, in their case, it is strictly a tax deferral.
The government should tell it like it is. When it calculates tax expenditures, it should do so accurately.
In conclusion, I want to point out that there are measures such as the use of RRSPs for the purposes of the Home Buyers' Plan. RRSPs could be a more effective tool for economic development, based on the argument that, maybe, people should invest more at the local level. Whether or not this is a good idea could give rise to a long debate.
So, the government takes such measures but, at the same time, it is considering going after RRSPs. This is not good, and I hope that the Minister of Finance will have the courage to say: Enough is enough, RRSPs will not be touched this year. Just like he said he would not lower UI contributions.
The Bloc Quebecois opposes the bill as a whole because it targets seniors. Some measures will have to be clarified in committee and, in any case, we will discuss it again at third reading. The real budget will be tabled next year and people will not be as tolerant as they were this year. That budget will have to bring results.
