Mr. Speaker, I will follow up on the last comment of the government's representative. It is obvious that people will receive no refund until the bill is passed. Let me explain.
Bill C-32 proposes legal measures resulting from the announced decrease in taxes on tobacco products. Some storekeepers had inventories for which they had paid the higher amount and most of them have had to absorb the cost of that decrease in taxes, except those who had 5,000 cartons of cigarettes or more for example. It is those people who would now receive inventory rebates.
This is what the parliamentary secretary was talking about when he said they would not receive any inventory rebate until the bill is passed. That being said, I do not think this is reason enough to rush this bill which contains many elements.
There is no need to remind you of the improvisation and confusion that surrounded the implementation of the action plan against smuggling. It was difficult to convince some provinces to join in; I am sure my colleagues from the other side remember it quite well. Toward the end of the process, many steps were taken just to please them and to ensure a greater consensus.
And now, as is often the case, the necessary measures are presented to the House in an omnibus bill. One of these measures deals with transportation. The government probably thought that this plan against smuggling would pass easily since it had been requested from the very beginning of the session. They thought that members of the Bloc Quebecois would support it, and that they could, discreetly, try to add something a bit more controversial, something dealing with air transportation.
I will come back to this measure which, at first glance and if we do not get satisfactory explanations in committee, might rankle somewhat the Official Opposition.
Let us come back a bit to the smuggling phenomenon. How did it happen? Everybody remembers how widespread it had become. There had been a relaxed attitude about it for years. To give you an example, in my riding of Témiscamingue, which is not in the Far North, but north of the main urban centres, it took a while before smuggling arrived. But last year it was amazing to see how easily smuggling networks had taken over. They provided a form of service which, up to a point, could be seen as a model of efficiency. They had home delivery. Customer service was exemplary, and the networks controlled two thirds of the tobacco market, which is enormous.
It took a long time before we could make the government do something. It was only after the federal government realized that it was maybe losing a billion dollars a year that it decided to act. It also took many demonstrations. You probably recall the MATRAC in Quebec which openly defied the government and the RCMP. It organized demonstrations, highly publicized and largely covered by the media, to sell cigarettes to the public at prices that even smugglers could not match. These small business people
Of course, there were winners. Everybody involved in smuggling made money out of it. We can even say that consumers who bought tobacco products on the black market benefited from it and the companies which manufacture these products have certainly not seen their sales drop.
In the last few years, cigarette prices were on the increase. Governments had decided to use price as a deterrent to curb the use of a product which had harmful effects on consumers' health. We were certainly not in favour of dropping cigarette prices in order to increase consumption. Far from it! That never was a motive of ours. On the contrary. We always maintained that such a measure had to be accompanied by an active education campaign on tobacco use-the effects of which were
known-but what was needed then was perhaps a more convincing anti-smoking campaign.
Thanks to smuggling, tobacco products had become very cheap and easily accessible to just about anyone due to the extent of the distribution network. In my riding, smuggled cigarettes could easily be found in high schools and CEGEPs. They were quite visible. You will remember that, at one point, the government had thought that, by having different packaging for export, it would solve the problem, and that people would be embarrassed to be seen with them, but such was not the case.
I remember that during the Christmas break, when I met with friends in public places, I would for the fun of it check the number of smuggled cigarette packs on the tables, as opposed to legal ones. Many people had bought cigarette cases in which they hid their smuggled cigarettes; I would say that every other package was smuggled.
It is estimated that cigarette smuggling accounted for 40 per cent of the market in the Atlantic provinces, over 60 per cent in Quebec; that is a lot. In Ontario, it was 35 per cent and 15 per cent in Western Canada. Those were the statistics just before the government took action. It means that the problem has spread from east to west, and that it is still relatively minor in western Canada where provincial governments have not had to take the same measures as Quebec, Ontario and three Atlantic provinces to curb this problem which has not yet taken hold there. I am not certain though that they will be immune from it much longer.
Ottawa is an important player in all this, because multiple jurisdictions were involved and things had to be done on protected territories; smugglers used tax-free zones to get their goods through. They even used some protected areas to establish warehouses. The federal government, which had jurisdiction over that, had to intervene. Originally, this was seen as a very local problem concentrated in the Montreal area. The problem grew and finally was seen as a provincial problem, but here in Ottawa, it was perceived as a regional problem. After the election, every weekend that I went to my riding, people spoke to me about the size of this phenomenon and I can tell you that I heard a lot about it during the election campaign.
My riding is close to Ontario, separated from it only by a lake. Because Ontario did not follow the federal plan, I can tell you that there was tremendous pressure on the Ontario side; many people crossed to our area to buy packs of cigarettes legally in our stores, since the tax where they lived was higher. A sort of negotiation went on before Quebec, Ontario and the other provinces came up with a joint plan, because clearly it would not be effective in the long run if everyone did not come on side or the provisions were not acceptable to all.
I told you that that market had become too big, Mr. Speaker; let us look at estimates of the contraband market from the departments of Finance and Revenue. In 1993, 2.1 million Canadians consumed 90 to 100 million cartons of smuggled cigarettes, with a retail value of $4.5 billion. That is awful. Of course you can tell me that this problem has been partly solved. Yes, partly; we must say that the plan has been very effective in some respects. Lower taxes strongly discouraged the whole market and the underground economy related to it. We must learn lessons from that. There are some things to keep in mind.
I was just telling you that price was used to deter or strongly discourage people from consuming that kind of product. It has to be done but we must also know the limits of such a system, in that we cannot enforce it or do the legal follow-up, due to all sorts of problems that we know very well.
In 1988, cigarettes were $25 a carton. From 1988 to 1993, in the matter of five years, during a period when, let us not forget, Canada had a strong anti-inflationary monetary policy-which it is still pursuing-and inflation was low, the price per carton went from $25 to $48, a $23 increase. That is a substantial, almost a 100 per cent increase. All the while, the price of cigarettes remained constant in the United States.
There were some exports, because Canadian companies do export to the American market, although not all that much. But all of the sudden, exports to the United States increased phenomenally. It took us some time to realize that these goods were making their way back into Canada to be resold here. Domestic sales were dropping, while exports were skyrocketing. That was proof, obvious proof, that something was wrong.
We dragged our feet and dragged them some more. We did not use the legal measures available to us at the time to exercise control over this situation, which eventually deteriorated to the point where we had no other choice but to cut taxes. Now, we end up with a less than positive product, in fact one which is harmful to your health, being easily accessible at a cut price on the market. You can change the colour of cigarette packs and change the packaging any old way, price remains the main disincentive. We must admit that prices, being as low as they are, if they are not a major incentive, are not much of a disincentive either. We must be well aware of that. This is not a product we want to promote.
I can remember the Prime Minister saying these measures would only be temporary. The bill says very little on the subject, and I cannot blame its authors for not wanting to make their intentions known just now, but it might be interesting just the same to know a little more about the cigarette price increases planned for the next few years.
That is why this bill, because of some aspects I will address in a little more detail, raises questions we have the right to ask in committee and to examine with experts in the field and with the people involved. It is not true that, because we waited two months for the bill to be tabled, it will go through quickly because we are told we must now quickly repay the retailers who had large inventories.
Why are they concerned about it now? They were not at the time. They wanted one month and then two months. Why all of a sudden, just as they are introducing a transportation measure that may be controversial? Let us look at this plan which was announced in this House by the Prime Minister. His plan had several elements. The first dealt with law enforcement, which would clearly have been insufficient by itself, but it was a global plan to increase the number of customs and RCMP officers. They were supposed to hire 350 extra customs and Revenue Canada employees. Increasing control measures was one element of the plan.
The second element was to reduce tobacco taxes. The federal government reduced federal taxes by $5 plus an extra dollar depending on what the provincial governments did. In the case of Quebec, for instance, this allowed for a $11 cut. The Quebec government reduced taxes by $11 and the federal government by $10. Federal taxes were limited to $10 per carton.
We also implemented measures concerning tobacco-product manufacturers. Under pressure from the Government of Ontario, towards the end when it seemed very reluctant to get involved in this process, an export tax of $8 per carton was introduced. This tax or this kind of tax had been tried a few years before and turned out to be so inefficient that we had to retreat a few months later because of the powerful lobby of the manufacturing companies that threatened to move their operations abroad.
They now seem to be telling us that this measure could be implemented. Whenever they talk to us about it, they always talk about a tax of $8 per carton. What they forget to tell us is that, in fact, it will apply very rarely since estimated production before smuggling, that is the first 3 per cent of production sold abroad, including on the U.S. market, will not be subject to this tax. Its only purpose will be to prevent exports from coming back into the country.
It would be interesting to make a more in-depth review of this bill in committee, to look at its merits and to see if it is merely a show-off to comfort some who thought that this measure alone would be sufficient to eliminate smuggling. A promotion surtax was also included, a surtax on profits made by tobacco companies which was to be invested in a campaign for the promotion of health. I will come back to this, which was the original intention. However, these measures are not part of the proposed legislation today.
There were also measures against tobacco consumption, including regulations to limit access to vending machines and other similar measures designed to deter people from smoking. This was the initial plan. Now, we have this bill. The first part of the legislation, which specifically concerns the fight against smuggling, contains a series of measures. As I recall, there are eight of them.
As I said earlier, there is also a reduction in the excise tax, which means a reduction in the price, since the GST applies to the excise tax and the amount of GST on that tax is reduced. This is one aspect. There is a further reduction for provinces willing to go beyond a certain amount, as is the case for Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island. As far as I know, this is an option which remains open to other interested provinces. This is the type of issue for which we would like to get answers when the Standing Committee on Finance will look at this legislation.
There is also the imposition of an excise tax and offence provisions that apply where tobacco products taxed at a reduced federal excise tax rate in one province are diverted to another province.
We are trying to put an end to some illegal activities carried out this time by well known and registered retailers, who make up another kind of smuggling ring.
Another provision in this bill ensures that unmarked tobacco products sold to Indians on reserves in Ontario and Nova Scotia are taxed at the same reduced federal excise tax rates as marked tobacco products sold to other consumers in those provinces. There is nothing wrong with this provision.
There are also provisions for rebates of excise tax paid on tobacco products in stock when federal excise tax rates were reduced. I want to lay emphasis on this last issue, because it means that the government will compensate retailers who had tobacco products in stock at that time, who had bought the products at the old price and now have to sell them legally at the new price.
Since the new price is lower than the old one, storekeepers must sell at a loss. Now the government tells them that it is going to compensate them. What it does not say is that it will only compensate retailers with an inventory of 5,000 cartons or more.
In my own riding, I have small retailers, corner store owners, small grocers, and even a distributor who does not have 5,000 cartons in stock. For them, the losses are significant. In Quebec, there has been a $10 federal tax reduction. That means that a carton now sells for $10 less.
A corner store owner who has 50 or 60 cartons in stock stands to directly lose $500 to $600. It may not seem like much to you. But these people who have been fighting against smuggling rings for three, four or five years have suffered heavy losses already. And they will suffer even more. They will also be the ones to pay for the plan. Nobody will say it out loud but this is the price they have to pay for the fight against smuggling. Some retailers pay more than others. For an inventory of 1,000 or 1,500 cartons in Quebec, you have only to multiply by ten to know what the losses are. And they are substantial.
We received a great many calls in the days following the announcement of the anti-smuggling plan, especially since the Quebec government chose to compensate all the retailers, whatever their inventory, via its forms and a method it considers rather simple. Thus, the information is available. The information is not impossible to find. It exists and it is available, and we could have agreed to use the information that the Quebec government has on the inventories of all Quebec retailers to determine the compensation.
We could have had an agreement. These people who speak almost daily about reducing overlapping almost never act on it. Here they had an opportunity to easily compensate retailers, using the list already established by the Quebec government. But they did not do it.
Since that plan to fight smuggling costs about $300 million- which would have been higher if we had decided to compensate small retailers also-we ask them to bear a significant part of those costs. I am sure that Liberal members also received complaints from retailers in their ridings. Of course, business went up for many retailers in the days after the plan took effect. Higher tobacco sales helped make them accept a measure they never liked.
But nevertheless, it is a blatant injustice for them. Of course, we could say that they sometimes win when there are small tax increases, but they never get such a break all at once. Although many retailers had reduced their inventory because of lower sales due to smuggling, many of them still had a large number of cartons in stock and they had to pay the price. However, the government is not in a hurry to give them a refund. Only those retailers who had 5,000 cartons or more in stock will be compensated. And now the government says: "We have to pass this bill quickly because it is one of our highest priorities".
But what about small retailers? Are they not a priority for this government? That is a question we have a right to ask. I will not elaborate any further on the sixth measure because I am certain that, at committee stage, some people will come to explain to government members the impact that this measure had on their businesses and to tell them what $1,000, $2,000 or $5,000 can mean in a year to a small convenience store. God knows we have many of them, and all kinds of other stores where cigarettes are sold, like drug stores, and food stores that have somewhat larger inventories and that suffered substantial losses.
In that regard, it would take much more specific reasons to justify the arbitrary figure of 5,000 and the fact that the federal government is not acting like the Quebec government which, while wanting to fight against smuggling, chose to reimburse everybody. It did not choose to make small retailers pay the cost of it.
The seventh measure is an adjustment to the fines applicable for illegal possession or sale of unstamped tobacco products. Or course, these measures are good, if they are applied.
The eighth measure is the imposition of a surtax on tobacco manufacturing profits. That surtax looks good. It looks like it affects the companies themselves. But we must understand that, with the price reduction, it will be very easy for manufacturers to pass the cost of that surtax on to consumers. That is not to say that we should necessarily be against that measure, but the government should be honest and say that this is an indirect way to admit that it has not reduced prices as much as it seems. It looks good to say that manufacturers will pay for part of it, whereas in fact it will be very easy for them to pass this burden on to consumers, especially since no mechanism is provided to prevent that.
The government wanted to look good saying: "See, those who profited from it, the manufacturers, will have to pay their share of the cost of the fight against smuggling". Except that, ultimately, the manufacturers will have the last word in being able to easily pass it on to consumers.
I would like to come back to another point. I remember taking part in a few discussions or open-line programs where people would say things like: "We oppose that measure because it will be costly, and will have a terrible impact on public health". I could understand their concerns but, at the same time, I thought and many people thought that the black market had taken on such huge proportions and was undermining public trust in the whole tax system to such an extent that even this measure would not be enough to restore that trust. Tough action was needed to regain control because the distribution networks were very well established. Apparently, those networks are now being used more and more to sell liquor. And the black market racketeers will find other products to sell. Had we left them one more product, because it was a sure market and for all kinds of good reasons, consumers would have felt justified to take advantage of the bargain. A frightening variety of products could have been smuggled through this network.
Those were a few of the arguments served up, that it made sense for economic reasons, but the government understood their point of view and told them that it would clearly define a policy or a prevention campaign in conjunction with that. The government and the Prime Minister himself said that they would invest-the money raised with the surtax-directly in a health promotion campaign against tobacco use. And the Minis-
ter of Health said the same thing. It pleased her to reassure people by saying the same thing.
In concrete terms, and I am referring to a surtax which could generate around $200 million in revenue, I am not sure-far from it-that we have seen the effects of such a promotion campaign. If so, I would be interested to know what they are. The best way to assess the effectiveness of something is to ask whether people are aware of it. I am rather close to everything that is going on in government, but I do not really feel the concrete effects of that. People are saying very little to me about it. Professionals from the health field, from regional health offices in my area have asked me: "When will this campaign start? What form will it take?" Their input has not been sought, and they are still waiting.
But we too are still waiting to see which direction the government is going and what the minister of health will do to make sure that she gets the amounts that she has been told she would receive from the surtax. "Directly", Mr. Speaker, it seems to me that it cannot be clearer. These amounts should be linked to that. Well, it is simple for her, because she has a source of revenue. Now, we would like to know how she will use it.
I want to quote from the speech that the Prime Minister made in this House: "The amounts thus collected will allow the funding of the most important campaign against tobacco ever seen in Canada". We are waiting. It will certainly be one of the things that are yet to come.
There are two other measures in that bill. The first one, probably the less controversial one, was announced in the budget. The government has reduced the income tax deduction for business meals expenses that was claimed by business executives or independent workers. That deduction is reduced from 80 per cent to 50 per cent. The GST will be adjusted accordingly. The GST rebate that was claimed by those people for meals expenses has also been adjusted in the same proportions. It is a minor adjustment. We can argue whether the rate should be 80 per cent or 50 per cent, which was a difficult decision. There are many aspects involved in the budget.
A very interesting study indicated who would be directly concerned by that measure, how they would be and what category of meals would be affected. I am convinced that the authors of the study would be very happy to give explanations to the committee and to examine the impact of the measure in a more detailed fashion in order to see who is affected, who was anticipated to be affected and who will be, because the measure is now in effect and we are able to know a little bit more. That would be an interesting thing to do.
We are told that we must act quickly, that time is running out and that we must repay retailers who have stocks of 5,000 or more. Some say that the opposition is ungrateful, that it wants to delay the passage of the bill and that it wants to prevent the government from paying retailers back. The question might have been put on the table much earlier if their concern really was as we were told.
The third measure contained in the bill, which comes out of the blues, deals with the tax on air travel.
These objectives were announced: the review of the air transportation tax in order to reduce the tax burden on short haul domestic and transborder flights, as well as to recover a greater proportion of the cost of facilities and services provided by Transport Canada.
Worse, they have the nerve to include short haul flights to smaller communities. Coming from the regions, we are going to examine thoroughly what this means. Right now there is a flat tax. It works like this: you pay a flat tax of $10 for an airline ticket on the domestic market. Add to this a tax of 7 per cent on the ticket value, up to a maximum of $40.
Now, they say that they will lower the flat tax to $6, but that they will maintain the tax of 7 per cent. However, the maximum is raised to $50. Take the case of a region like Abitibi-Témiscamingue. An airline ticket from Rouyn-Noranda to Ottawa costs about $525, $530. Before, the maximum tax was $40. Today, with the new cost structure, we are talking of $41.
The objective is to reduce the tax burden imposed on domestic flights, particularly on short-distance flights to smaller towns. We can also go from Ottawa to Rouyn-Noranda. I am told that my tax burden has been reduced with this increase from $40 to $41. At the same time, I am told that this measure will give rise to a recovery of $21 million this year and of $44 million next year. I am also told that this is supposed to benefit small towns and people living in those towns. I think that the members opposite do not really understand what regional development is all about. I think they did not look at that provision for very long.
The costs are higher in some areas. Sometimes, it costs $600 or $700, and it is often more expensive to go from Montreal, Quebec or Ottawa to some areas, in Quebec, than to fly from Montreal to Paris. The upper tax limit on those tickets, which was $40 before, will now be $48 or $50. One might say that it is only an $8 or $10 difference. However, it is a lot of money.
As if deregulation had not hurt enough. It was supposed to have no impact on airfares, but the contrary is now obvious. It is more expensive for me to return to my riding than to go to Paris. It does not make any sense.
It is far from certain that we will let that be passed rapidly. The Minister of Transport is in the House. He should take good note that he will have to explain to us what he really intends to do about this rate structure.
Only flights between $100 and $400 will benefit from this measure, that is the Montreal-Toronto and Montreal-Quebec runs or other popular short distance flights. Only those flights will benefit from it.
Do not try to tell me that with the structure I have in front of me-unless my information is erroneous, but it comes from the Department of Finance-travellers to the regions and to smaller communities, as it is said here, will benefit from it. Maybe for some, going from Toronto to Montreal is travelling to a smaller community. However, in our region, travelling to small communities would mean going to Rouyn-Noranda, Val-d'Or, Chicoutimi and the like, which we consider major centres. Plane tickets to those places already cost $600 or $700 and they will increase by $8 to $10, though only by one dollar in my region. I am lucky, the price of my flight to Rouyn will only be raised by one dollar. To go to the neighbouring riding, that of my colleague for Val-d'Or, perhaps I would have to pay $8 more. Some might say that we do not have to worry much, since the House pays some of our travel and other costs.
Our business people travel, they get around, they have to go and represent their companies. Besides, people often travel for Quebec government departments and go from our region to Quebec City. This will increase operating costs for the other government. All individuals who want to travel by air will have to pay for these costs. As if by chance, this comes in an innocent-looking bill to fight smuggling, we are told. In very small writing, in the second to last measure, not the last one-often we look at the beginning and at the end-we see that there will be changes. The explanatory note in the bill says: "The amendments to the air transportation tax reduce the tax burden on short-haul domestic and transborder flights and shift the tax burden to long-haul flights".
They forget to make the connection with the price and the tax is related to the price. I could even discuss how this compares to the former system and how it penalizes the regions as well. I think that they were afraid to open this debate for fear that we would show the government members the impact of deregulating air transport on the regions. I am sure that some Liberal members, when they see this, will have trouble explaining it to their constituents. I am thinking of my colleagues from northern Ontario. How come they put up with such a thing?
We will not let this be rushed through. It will go to committee and we will take a thorough look at it in committee. We can work quickly but thoroughly, that is what we will do, but at this stage, with no major amendments, there is no question of the Bloc Quebecois supporting this bill.
