David Walker

[Committees Of The House, June 22nd, 1994]

Mr. Speaker, I thank the self-proclaimed rookie from Calgary Centre for this opportunity to discuss the GST report and to show by his motion support for what the majority of Liberals are trying to get toward.

What we are trying to do in this report is set the stage for some fundamental changes in the Canadian tax system and I would like to publicly thank my colleagues both on the government side and on the opposition side for their diligence.

There are only two members of the House of Commons committee on finance who have ever sat before on a House of Commons committee, the chairman and I, and it is a great tribute to the new members who brought such strength and wisdom and such diligence not only in Ottawa but across the country in the consideration of this very difficult piece of legislation.

It is old ground that this government inherited a very difficult tax. This tax is a very difficult one for Canadians. In the last few years it was a focal point for tax unrest and government unrest and there would indeed be many members of this House who are here today because of that general public unrest with the previous government.

We have taken this issue. It is one of the first things that we did when the House sat. I can remember presenting on behalf of the government the motion to the House of Commons committee in the first week of business in which we stated quite clearly in the speech from the throne and in the committee on the first day that we were going to fulfil the commitment from the red book.

I would like to take this opportunity to express my thanks to those in the former opposition caucus of the Liberal Party and in the office of the Leader of the Official Opposition for their work in preparing the red book.

I used to be very involved with the policy process of the Liberal Party of Canada and it took us years to get people to agree that the best way to succeed in politics was to present a clear mandate, a clear choice to Canadians as to what we intended to do in the government.

This red book is the first serious effort of a major party to present a document of substance and I think the fact that we have used it as a benchmark in our actions is a tribute to the Prime Minister and to his cabinet.

Our inquiry was in response to the red book commitment of the government to have the finance committee "report on all options for alternatives to the current GST", and "replace the GST with a system that generates equivalent revenues, is fairer to consumers and to small business, and minimizes disruption to small business, and promotes federal-provincial fiscal co-operation and harmonization".

That motion was passed unanimously by that committee on the first day of its business and all three parties voted to begin its work.

It was with a great deal of spirit of co-operation that witnesses were called, were questioned, and I think that the committee soon began to recognize the complexity of the GST issue as part of the consumption tax strategy of the national government.

It is not well known but the federal government entered the income tax field in 1917 in response to its fiscal prices during the first world war and the began to enter the consumption tax deal by various means in 1923.

Therefore the government has been involved with one form of consumption tax or another for the last 70 years. As one begins to reform these taxes, to restructure them and to build a new tax that is completely different than the previous GST which has, I must admit, been a great frustration for almost every Canadian I met, this committee showed a great deal of maturity to go through each of these issues.

Many Canadians, as I speak today, have not had an opportunity to read the report, as it was just tabled 48 hours ago and is in the beginnings of being distributed. The committee broke its work up into five areas. It looked at the history of the tax and why it was such a difficult tax. It looked at the fact that the GST became an opportunity lost.

I, as a member of the opposition-

[Committees Of The House, June 22nd, 1994]

Mr. Speaker, on a point of order. Could the Chair please clarify what the intent of this motion is.

[1999 Pan-American Games, June 21st, 1994]

Mr. Speaker, I am rising today in support of the bid by the 1999 Pan-American Bid Committee in Winnipeg to host the 1999 Pan-American Games.

Since Winnipeg was chosen as the Canadian bid city for the 1999 Pan-Am Games the government of Canada and its partners, the province of Manitoba and the city of Winnipeg, have supported the bid both technically and financially. There has been tremendous community support for the hard working committee. This will ensure the setting of a standard of excellence and a very high profile for the Pan-Am Games both in Canada and abroad.

In this bid Winnipeg has also pledged to strive for new heights of excellence in sports and culture while forging a new spirit of international understanding helping to ensure a bright future for the games.

I know all Canadians will join me in wishing the city of Winnipeg every success in its bid for the 1999 Pan-Am Games.

[Committees Of The House, June 15th, 1994]

Mr. Speaker, I have the honour to present, in both official languages, the eighth report of the Standing Committee on Finance dealing with Bill C-32, an act to amend the Excise Tax Act, the Excise Act and the Income Tax Act.

[Excise Tax Act, May 30th, 1994]

Mr. Speaker, I rise to move second reading of Bill C-32. This is an important bill which will give legislative effect to excise and income tax changes announced over the past four months.

The primary purpose of the bill is to implement a range of measures related to tobacco taxation that were developed to combat the very serious smuggling problem facing Canada. These measures were announced in the House of Commons by the Prime Minister on February 8, 1994 and form an integral part of the government's national action plan on smuggling.

The legislation includes, among other things, first a national reduction in the federal excise tax on tobacco products equal to $5 per carton of 200 cigarettes, $5 per 200 tobacco sticks and $5 per 200 grams of fine cut tobacco as well as a reduction in the ad valorem rate for cigars to 50 per cent.

Second, additional reductions in the federal excise tax on tobacco products marked for sale in a particular province where the province has reduced its provincial tobacco tax.

Third, an excise tax on tobacco products for export with exemptions for legitimate exports for consumption outside Canada.

Fourth, a health promotion surtax that would increase the rate of federal tax paid by tobacco corporations under tobacco manufacturing and processing profits.

The bill also contains changes to the air transportation tax and the goods and services tax that were announced in the budget of February 22, 1994. These changes are intended to improve the fairness and efficiency of the tax system and to raise revenues. The measures undertaken in this respect are:

First, changes in the structure of the air transportation tax to reduce the tax burden on short-haul domestic and transporter flights and to recover a greater proportion of the cost of air facilities and services provided by Transport Canada.

Second, a reduction in the goods and services input tax credit for eligible business meals and entertainment expenses to better reflect the personal consumption elements of these expenses.

I would like to turn specifically to measures to address tobacco smuggling. There was a dramatic increase in tobacco smuggling in 1992 and 1993. Strong evidence indicated that most Canadian tobacco products that were exported to the United States on a tax and duty free basis were smuggled back into Canada and sold illegally without payment of federal and provincial taxes.

By the end of 1993 these contraband products accounted for about 40 per cent of the total domestic tobacco market and represented a revenue loss to the federal government of more than $1 billion and an additional loss of $1 billion to the provincial governments.

The impact of tobacco smuggling goes far beyond the financial costs and the negative impact on the government's ability to deliver needed programs and services. Even more troubling are the social costs associated with the contraband trade. With up to 95 per cent of the contraband tobacco market controlled by organized criminal elements, law-abiding wholesalers and retailers were forced to watch as their legitimate business interests gave way to a climate of increased violence and lawlessness. The proceeds from tobacco smuggling were being used as the foundation for further criminal activity.

The social costs associated with tobacco smuggling are equally troubling from a health perspective. Increased market penetration of cheap contraband tobacco effectively reduced the average price paid for cigarettes and undermines the government's health policy objective of reducing tobacco consumption, particularly among youth.

To respond to these very serious problems the government announced a comprehensive anti-smuggling initiative on February 8, 1994. Within the framework of this national action plan both the RCMP and Canada customs have undertaken increased measures to disrupt the contraband trade in tobacco and other products.

These organizations have been assigned substantially increased resources in terms of both personnel and technical equipment and are deploying these resources to intensify surveillance and detection along the Canada-U.S. border and to more effectively target organized smuggling networks.

To facilitate the increased enforcement efforts the anti-smuggling initiative includes a national $5 reduction in federal excise taxes on tobacco products. This reduction narrows the price differential between contraband and legal tax paid on cigarettes across Canada, thereby weakening demand for contraband and reducing the incentive to smuggle in all provinces.

Recognizing that the smuggling problem is more pronounced in some parts of the country, the government has extended an offer to match any provincial tobacco tax reduction in excess of $5 up to a maximum total tax reduction of $10 per carton of 200 cigarettes. This bill implements the federal tax matching reductions in response to provincial tax reductions undertaken in Quebec, New Brunswick, Ontario, Prince Edward Island and Nova Scotia.

The government is very concerned that tobacco corporations not derive any benefit from the difficult decision to reduce tobacco taxes. Toward this end the bill imposes a new health promotion surtax that will increase by 40 per cent the corporate tax rate in respect of tobacco manufacturing and processing profits. This surtax will apply for a three-year period and will be used to fund the largest anti-smoking campaign in the history of the country.

In response to the role that export shipments have played in the contraband market, the bill reimposes an excise tax on exported tobacco products. An export tobacco tax equal to $8 per carton of 200 cigarettes is designed to more closely control export shipments and prevent any recurrence in the level of shipments that would effectively supply the contraband trade. At the same time the bill makes adequate provisions for manufacturers to undertake legitimate export shipments intended for bona fide consumption outside of Canada.

In addition to these direct changes to excise and income taxes, the bill also contains a number of related measures that are designed to complement the new tax measures and ensure their long term effectiveness. At the time the national $5 reduction in federal excise taxes was announced, the government wanted to ensure that the reduced rates of tax were immediately passed on to consumers at the retail level, complementing enforcement measures by weakening the demand for contraband tobacco products.

Consequently the government has undertaken to pay a full inventory rebate to all wholesalers and retailers in respect of their inventories of tobacco products on February 8, 1994. Where federal excise taxes are further reduced to match a provincial tobacco tax reduction, wholesalers and retailers are eligible for an additional inventory rebate to the extent that their inventories of cigarettes exceed a certain threshold amount.

The use of threshold levels is designed to protect the interest of those persons holding large inventories of cigarettes while limiting the government's total fiscal exposure.

Administration of the rebate program is being conducted by Revenue Canada and is already well under way with retailers and wholesalers from across the country filing their inventory rebate claims and awaiting payment of the appropriate amounts.

Inventory rebates cannot be paid however until such time as this bill which provides the Minister of National Revenue with explicit legislative authority to issue amounts in payment of inventory rebate claims is approved by Parliament and receives royal assent.

Ensuring that retailers and wholesalers receive these amounts as soon as possible is one of the main reasons we are attaching such a high priority to the bill. In view of the variable federal tax reductions undertaken by the federal government in response to specific provincial tax reductions, the bill contains provisions that are designed to ensure payment of appropriate federal excise taxes and also to deter any interprovincial diversion of tobacco products.

First, the bill provides for the collection of federal excise tax differential where tobacco products marked for sale in one province are sold for any purpose other than personal consumption by a consumer in that province. Thus if a wholesaler or retailer sells products to a person in another province, the seller will be required to pay an amount equal to the additional federal excise tax that would apply if there had been no provincial tax reduction.

Second, the bill contains provisions making it an offence subject to a fine for any person to sell or offer for sale tobacco products marked for sale in one province to a consumer located in another province. The amount of the fine is set at no less than $1,000 and not more than three times the additional federal excise tax that would have applied to the tobacco products had there been no provincial tobacco tax reduction.

The combined effect of these two measures will be to substantially impair the potential for interprovincial diversion of tobacco products from low tax jurisdictions. While the collection of the additional federal excise tax can be enforced immediately, the offence provision cannot come into force until such time as the bill receives royal assent.

Also in response to provincial tax reductions, the bill contains provisions to deal with the sale of unmarked tobacco products on Indian reserves in Ontario and Nova Scotia. Both these provinces require that tobacco products sold on reserve free of provincial tobacco taxes not be marked. Matching federal tax reductions on the other hand are based on distinct provincial markings.

To reconcile these different marking requirements and to ensure that unmarked tobacco products sold on reserve to Indians in Ontario and Nova Scotia are taxed at the reduced federal rates that would otherwise apply to marked tobacco products in each province, the bill contains provisions that allow for the sale of unmarked tobacco products at the reduced rates of federal excise tax to specially licensed wholesalers and retailers in each province.

Finally, the bill amends the fines in the Excise Act for possession or sale of tobacco products on which federal taxes have not been paid. Because these fines were based on the previous rates of federal excise tax, this amendment is necessary to maintain the fines at their former minimum and maximum amounts.

These proposed legislative amendments are a very important part of the government's action plan to combat tobacco smuggling. Together with increased enforcement, these measures form an integrated approach that provides the foundation for a long term solution to the smuggling problem.

I would like to turn to other measures in the legislation, the air transportation tax. Bill C-32 also implements changes to the air transportation tax announced in the federal budget of February 22, 1994. The structure of the air transportation tax is being altered to reduce the tax burden for short haul, domestic and transporter flights and to recover a greater proportion of the cost of air facilities and services provided by Transport Canada.

To reduce the tax burden and short haul, domestic and transporter air travel, the current $10 flat tax component will be reduced to $6.

This measure addresses the concerns expressed in recent years by carriers providing short distance air transportation services to smaller communities that the tax places too heavy a burden on short distance travellers. To enhance the cost recovery with respect to air facilities and services the maximum air transportation tax on domestic and transborder air travel is to increase from $40 to $50. The tax on international travel is also increased from $40 to $50 where the transportation is purchased in Canada and from $19 to $25 where the transportation is purchased outside Canada for travel to Canada.

These new rates apply to tickets purchased outside Canada that include an international departure from Canada on or after May 1, 1994 except where the tax has been paid prior to that date and to tickets purchased in Canada on or after May 1, 1994.

A third measure relates to the goods and services tax. The bill also contains an amendment to the goods and services tax. As announced in the February 22 budget, the portion of the goods and services tax paid on business meals and entertainment expenses which may be recovered as an input tax credit is being reduced from 80 per cent to 50 per cent.

This change will better reflect the personal consumption element of these expenses and is consistent with the reduction in the income tax deduction for business meals and entertainment expenses from 80 per cent to 50 per cent. The reduced rate will apply to expenses in respect of meals and entertainment consumed or enjoyed after February 1994.

In conclusion, Bill C-32 is an important bill. It enacts a number of measures related to tobacco taxation that will make a very important contribution to eliminating smuggling as a significant national problem, as well as implementing other excise tax changes from the government's first budget.

While some of the tobacco related measures have been implemented on the basis of a ways and means motion, two very important measures, the ability to pay inventory rebates to wholesalers and retailers and the offence provisions in respect to interprovincial diversions, will not take effect until the bill receives royal assent. I would, therefore, urge my colleagues to give speedy passage to the bill.

[Tax Conventions, May 30th, 1994]

Mr. Speaker, I have already spoken at this stage of the bill. I just want to indicate that the comments of the Reform Party spokesperson were heard and that a response will be made.

(Motion agreed to, bill read the third time and passed.)

[Tax Conventions, May 30th, 1994]

Mr. Speaker, as the House knows, this is very important legislation although it may appear to be housekeeping to some. I would like to rise today to speak on this legislation and to urge for its speedy approval.

This is not a bill to command great attention in the public arena. Rather it represents some of the work-a-day measures addressing tax fairness and good international and trade relations that are a vital part of our endeavours on behalf of Canadians.

The purpose of Bill S-2 is to implement reciprocal trade treaties between our nation and Hungary, Nigeria, Argentina and Zimbabwe, treaties that will eliminate double taxation on income tax. As well, the bill implements the protocol to revise the current tax convention between Canada and the Kingdom of the Netherlands.

A tax treaty between countries is an important tool to provide the benefit of certainty and stability regarding tax regimes, benefits that concretely promote and facilitate international trade and investment. Another benefit of such tax treaties is that they also reduce annoyance in the operation of the national tax systems involved in several ways.

First, they eliminate the necessity of paying tax on business profits in the source country if there is no permanent establishment in that country. As well, they provide a mechanism to settle problems encountered by taxpayers.

More important, tax treaties eliminate or alleviate double taxation in the instances where international transactions are involved and may give rise to the same income being taxable in the hands of the same person by more than one nation.

I should remind the House that the treaties enacted by this bill are the latest within a longstanding process. The major reform of Canada's income tax legislation in 1971 required Canada to expand its network of double taxation conventions or tax treaties with other countries. Since that time, negotiations for the conclusion of new treaties or the revision of existing ones have been entered into with almost 75 countries.

In this bill, the four tax conventions under review follow the general pattern of the conventions previously approved by Parliament. The number of Canadian tax treaties in force is presently 52.

For the record, let me remind hon. members of the main elements of the new treaties covered by the bill. These treaties provide generally that dividends may be taxed in the source country at a maximum rate of 15 per cent. However in the case of intercompany dividends, the rate is often reduced if the company receiving the dividends holds a certain equity interest in the company paying the dividends. Such a reduced rate has

been set at 10 per cent for the countries covered here, except for Nigeria where it will be 12.5 per cent.

Regarding interest paid by a resident of one country to that of another country, the rates set out in this bill are 10 per cent in the case of Hungary, 12.5 per cent for Argentina and Nigeria and 15 per cent in the case of Zimbabwe. There are however some exceptions.

Interest paid on a bond or a similar obligation of the national government, a political subdivision or a local authority will be exempt from tax in the country in which it arises. Also, these treaties, except that with Zimbabwe, contain a certain provision that will allow interest paid on loans or credits extended, guaranteed or insured by certain state entities, in Canada for example, the Export Development Corporation, to be taxable only in the country where the recipient of the interest payment resides.

These treaties also address the taxation of royalty payments. They provide for a general rate of source taxation of 10 per cent in the case of Hungary and Zimbabwe, 12.5 per cent in the case of Nigeria and from 3 per cent to 15 per cent in the case of Argentina, depending on the nature of the royalty. Copyright royalties are exempt under the treaty with Hungary.

A number of other matters are dealt with in these tax treaties. First, the treaty provisions dealing with capital gains reflect a standard Canadian position enabling the source country to tax gains arising on the sale of real property, business assets and shares in the real estate companies.

Second, under the conventions, discrimination on the basis of nationality is prohibited. This ensures nationals of one country equal treatment with nationals of another country in the same circumstances. However, this does not prevent a country from providing fiscal incentives, for example, Canada's small business deduction, on the basis of the residence of the taxpayer.

Third, Canada has also preserved its right to tax pensions paid to residents of the countries covered by the bill. However, it is important to point out, especially in light of the upcoming D-Day anniversary, that war veterans pensions are generally exempt from tax under the four treaties.

Fourth, the treaties provide that in Canada double taxation of foreign source income of Canadian residents is alleviated by way of a foreign tax credit, in accordance with the limitations provided for in the Canadian legislation. Reciprocally, relief from double taxation is granted in the other treaty country and in accordance with the method recognized by that government.

Let me turn to a final undertaking enacted by this legislation. Bill S-2 will implement a protocol to the tax convention signed by Canada and the Kingdom of the Netherlands in 1986. This updates the existing treaty to take into consideration changes made to the respective laws and policies of the two countries.

For example, in 1992 Canada announced that it was prepared in tax treaty negotiations to reciprocally reduce the withholding tax rate on direct dividends. This was seen as a valuable incentive to encourage international direct investment. In the 1993 budget, the government stated its willingness to enact bilateral exemptions from withholding taxes on payments made for the use of computer software. I am pleased to say that the Netherlands is the first country with which we have completed such an agreement.

Under this bill, in cases where a dividend recipient holds 25 per cent or more of the capital or 10 per cent or more of the voting power of the dividend paying corporation, the withholding tax will be reduced to 5 per cent from the current 10 per cent. This reduction will take place over a five-year period starting from 1993. As regards interest payments, the protocol reduces the rate to 10 per cent from the current 15 per cent.

As well, the agreement eliminates the withholding tax on royalties for computer software and on interest paid to pension plans.

In simple summary, the four tax conventions and the Netherlands protocol contained in the bill provide some equitable solutions to the various problems of double taxation existing between Canada and certain international partners. Each of these countries hopes to implement the bilateral convention as soon as possible. Consequently I commend this bill to the House and urge its speedy passage.

[Income Tax Act, May 30th, 1994]

Mr. Speaker, it is with a great deal of enthusiasm that I join in this debate on the private member's motion first presented to the House by the member for Nepean.

The need for change to the child support system is recognized by Canadians and the government. As many in the House have noted the question of child support touches deeply and in many respects is a very personal issue. It relates to family responsibilities and to the well-being of our children.

Accordingly the government is committed to broad consultations with those Canadians most affected. That is why as task group of MPs has been formed to conduct a series of open round table discussions on child support.

As many of you will have noticed, the subject of child support payments raises, when it comes to parental responsibilities and the well-being of our children, questions which are deeply felt and which in many respects are very personal.

This is why the government is committed to broad consultations with those Canadians most affected. It has, therefore, set up a task force of members to hold a series of open round table discussions on the subject of child support payments.

As a member of that task group I welcome the deliberations of the House. They constitute a thoughtful and highly valued source of advice. At the same time I am confident that whatever the results of our current debate, the House shares my eagerness to hear what Canadians will say to the task group.

Over the coming weeks we will be asking Canadians to share their experiences and make suggestions with respect to the tax treatment of child support. The task group will provide feedback and advice on this issue to our government colleagues.

We have worked out a schedule to reach a cross-section of Canadians, including representatives of custodial and non-custodial parents, child advocates, women's organizations, lawyers, accountants, community groups and others concerned about this issue.

We have set out a schedule of meetings in Regina, Montreal, Vancouver, Winnipeg, Moncton, Toronto and Ottawa and are providing ways for those not in those cities also to participate and make their views known to the task group, to the government, and to the House.

The task group will listen to Canadians with an open mind, guided by a number of clear principles. Our over-arching principle is that the child's needs come first. Tax rules for child support must place paramount importance on the welfare of children.

Second, we are committed to the principle of fairness. That includes fairness between custodial and non-custodial parents as well as fairness to other taxpayers. We must treat all family situations equitably whether there has been a marriage breakup or not.

Third, while tax equity demands that tax be paid on income, this exercise is not at all about increasing government revenues.

The issue surrounding child support payments encompasses more than just their tax treatment. Questions relating to levels of support and enforcement are critical as well. It is a sad fact that a great majority of single mothers in Canada receive no support payments at all for their children and that the great majority of support orders are not obeyed.

Our goals therefore are broader than those of the current motion. We want to create a more equitable system for child support determinations. That includes generally increasing the value of child support awards, simplifying the process, providing similar awards in similar family situations.

I can understand that Canadian women affected by the Thibaudeau decision may be sceptical of the government's intent. I want to reassure them that although the decision is being

appealed the government recognizes the need to improve the child support system.

The fact remains, however, that the court's ruling has led to tremendous uncertainty and possible chaos in Canadian family law. As well, in dealing with only the income inclusion and not the deduction the ruling has created an unbalanced system.

We expect to achieve significant progress toward a better system by the end of this year. That includes reviewing the tax system, legislating child support formulas to simplify the system and finding more effective ways to enforce support orders.

We hope to be able to make significant improvements by the end of the year, specifically through revision of the tax system and legislative measures on child support formulas in order to simplify the system and with a view to finding more efficient means of enforcing support orders.

I am confident that the insights Canadians will provide the task group will make a major contribution to this important work.

I thank the hon. member for her motion and the House for the opportunity to speak today.

[Budget Implementation Act, May 26th, 1994]

Mr. Speaker, I am very pleased to speak to these motions and respond to the critic of the Bloc Quebecois.

I am very pleased to see such a large audience here today. Sometimes we see the ironies of Canadian politics first hand. It gives us an opportunity to understand, and I do wish the member has the opportunity to listen to me here. Here is a man standing up right now who has been one of the great supporters of the UI program. What is the UI program?

The UI program is one of the greatest contributors to national unity we have ever had. It does not matter what part of the country you live in. We have made rules; we have made exceptions; and we have reached out to make sure that no matter what economy you are in or what part of the country you live in, you have an opportunity to participate in UI.

There is a party whose sole purpose is to come here and destroy our country, but what does it do? It ends up defending a program that benefits all Canadians. This is the hypocrisy which drives the government crazy. Yes, this is a very important program and, yes, people in Atlantic Canada deserve to be protected and deserve to be supported. These members have to realize that this is a national program which requires national participation. No program in the last 50 years has contributed more to the needy regions of our country than this legislation.

Part of the difficulty with the opposition is it repeats day by day misrepresentations of what happens in committees, which allows people to think what it says is really the truth.

Let me clarify the record of what happened in committee. When we began hearings there was not one particular group which had expressed an interest in talking on the bill. We had an agreement from this party that we would allow a week to see if groups came forward.

Suddenly, to use a colloquialism, to hot dog it for the press, they said: "we are cutting off the debate" when they had made an agreement that a week was sufficient. Suddenly the press shows up and the line changes in the cheapest of all forms of politics.

Second, several weeks were set aside for people to come forward. Not one group that asked to come forward has not been heard on the bill. There has not been one group that has not been spoken to and asked questions of.

The government has reached out to make sure that its program is understood and that when groups come forward, whether they are from the Gaspé or from Atlantic Canada or a group from downtown Toronto, which had really good ideas to reform and to improve on the system, they are responded to.

The government has been very proud of the way it approached a very complicated bill such as this and the way it set out hearings and gave an opportunity for everyone to speak who wished to speak on the bill.

[Budget Implementation Act, May 26th, 1994]

Madam Speaker, in response to a question raised earlier, the amendments we are proposing do not affect tax points.