David Walker

[Budget Implementation Act, May 26th, 1994]

I think there are changes to the text.

[Income Tax Act, May 25th, 1994]

Mr. Speaker, please excuse my haste. I am not known for that usually on these measures.

I believe there is unanimous consent in the House to proceed to committee of the whole right now for consideration of clause by clause study of this bill.

[Income Tax Act, May 25th, 1994]

Mr. Speaker, it gives me great pleasure to begin debate on second reading of Bill C-27.

The bill proposes to implement a number of amendments to the Income Tax Act and related statutes, most of which are technical in nature. The bill also contains draft legislation for a measure announced in the budget of February 1994 related to scientific research and experimental development, the SR and ED expenditures.

With the exception of the one budget item the measures contained in the bill were announced by the previous government. They were included in a package of technical amendments that were released in August 1993 but never tabled in the House. That package consolidated a number of measures that had been released for public consultation in December 1992 with draft legislation issued by press release during 1993. In a December 1993 press release the Minister of Finance confirmed the government's intention to table the legislation.

As the amendments are mostly technical I will just spend a brief moment reviewing them and allowing the House to proceed with its business. It is very important to note that most of these measures are already in effect and have been so for some time. Many were said to be effective immediately when announced.

This is a perfectly legitimate and normal practice in the House, especially for measures of a relieving nature that modify an anomaly under existing tax law. When simplifying the income tax treatment of automobile operating cost benefits, for example, it would be unreasonable to insist that taxpayers wait out the course of full legislative enactment for relief.

Several of the amendments relate to retirement income plans including RRSPs and certain pensions. One set of measures, for example, is designed to ensure that a taxpayer's RRSP limit reflects in a fairer way the taxpayer's retirement savings under certain types of unregistered pension plans such as foreign pension plans.

The legislation also modifies rules for RRSPs on death and enables the legal representative of a deceased person to pay an RRSP premium on that person's behalf up to 60 days after the end of the year of death.

This bill also proposes to simplify or clarify existing tax rules. I have already mentioned the tax treatment of automobile operating cost benefits. The amendments simplify the way in which these benefits are taxed by establishing a formula for calculating them. This is one change that is sure to please taxpayers.

Another amendment will allow taxpayers to deduct interest on money that is borrowed to earn business income or certain types of investment income in situations where the property financed by the borrowing has been disposed of at a loss or become altogether valueless. Without this amendment such interest expenses would not be deductible in spite of their business nature and the hardship that could result.

The legislation also provides relief to producers of calcium chloride and diamonds by treating these substances as minerals for income tax purposes. This gives producers access to income tax incentives for mining.

Not every amendment in the legislation is relieving. One is designed to curtail a tax avoidance mechanism used by certain corporations with non-resident shareholders. This technique, commonly referred to as a cross-border purchase butterfly, is used to avoid tax on the sale of business assets. Our tax laws were not intended to provide special breaks for structuring corporate assets sales in this way and the amendment eliminates such undesirable tax advantages.

There is also a measure which will give legislative force to the special capital tax, the so-called part VI tax, that has been payable by life insurance companies for taxation years ending after February 25, 1992.

Finally, the bill contains a measure announced in the most recent federal budget, namely draft legislation requiring corporations claiming tax credits for scientific research and experimental development to identify expenditures in this area in their tax returns.

In conclusion, the amendments in this bill represent technical improvements to our tax legislation, improvements that follow from the ongoing process of fine tuning the tax system in consultations with taxpayers. Most of the provisions are already in effect and many thousands of Canadians have relied on them in planning their affairs.

In short, this bill should be viewed as a matter of routine but important parliamentary housekeeping. Therefore I urge all members of the House to support it.

[Questions On The Order Paper, May 10th, 1994]

The precise dollar impact that the election for the $100,000 lifetime capital gains exemption will have on the various provisions mentioned in this question, such as the child tax benefit or the alternative minimum tax will depend on the number of people and the income and age characteristics of those who choose to use the election.

The election allows individuals to exempt up to $100,000 of capital gains. In most cases the cost associated with using the election will be relatively small compared to the potential tax savings of exempting capital gains. Nevertheless, it will be up to the individual to determine whether he or she wishes to utilize the election.

[Tax Fairness, May 4th, 1994]

Mr. Speaker, this issue is foremost in tax fairness. As the House knows, it has in front of it motion M-14 from the member for Nepean on the issue of child support. It is a votable motion and the minister and the government look forward to hearing the wishes of the House on this issue.

The minister and other members of the government are quite happy to meet with members of the whole House to talk about this issue. There is also a federal-provincial-territorial task force on the question of child support. We consider this input to be also very important in our consideration.

[Tax Fairness, May 4th, 1994]

Mr. Speaker, as the member rightly points out, the decision yesterday is perhaps one of the more important decisions in the equation dealing with child support payments.

Under the Canadian judicial system we have 90 days to consider the decision and what actions the Government of Canada with the assistance of the Minister of National Revenue and the Minister of Justice will take. The Minister of Finance will be revealing that decision and will speak to the House at the earliest possible convenience.

[Supply, May 3rd, 1994]

On a point of order, Madam Speaker. I do not interrupt the House too frequently but the member suggests that the department is not doing work when in fact it is. I would like to bring to the attention of the House that the studies referred to have been done, and there are several studies on tax expenditures.

[Supply, May 3rd, 1994]

Madam Speaker, the member for Calgary Centre has put me on the horns of a dilemma: do I think for myself or do I listen to the department?

t That is not necessarily two different issues, but I like to think that I can still keep my own counsel when I listen to other professionals giving me advice.

The last point is a very serious point. In this case I am not speaking for the department. I have some doubts about the flat tax. It does not mean that I think there should not be an open discussion. I have listened to my colleague from Broadview-Greenwood bring this up several times. I really do hope the finance committee takes a look at these ideas in the fall as part of the deliberations for the upcoming budget.

If it will help the committee to have a presentation on some of the data and some of the intricacies, either publicly or with the hon. member individually, I would be more than happy to take that request to the department and we can arrange something. I do not think the resources of the government should be, if you will, cornered by the government and I do not have any intention of doing that.

If I appear to be critical of a different way of approaching taxation, it does not mean that I am not willing to open up the doors and make sure that is fully explored in the coming months. The member has given this a lot of thought. We have our disagreements but that does not mean that it should not be looked at properly and thoroughly.

[Supply, May 3rd, 1994]

Madam Speaker, I will talk first about the family trusts issue. The government announced in the budget that this issue would be referrred to the finance committee but, at the present time, the committee is very busy with the GST issue, the budget issue, Bill C-17 and other bills. I think that, in the fall, the committee will start examining the family trusts issue. But at this time, it is too busy with the other bills.

The second issue is very important for all the nation, because research matters and tax matters in the research field are very difficult to settle. Within the government, the Departments of Industry and Finance are currently examining our research policy directions. I hope to see changes before the next budget and also, I say to the hon. member that it is possible that changes will be made to the family trusts issue if the finance committee thinks that might be a major problem for the next budgets.

[Supply, May 3rd, 1994]

Madam Speaker, it gives me great pleasure to lead off the debate for the government side today and to thank the member for Calgary Centre for putting such an important issue in front of the House.

There is not a member in the Chamber who does not have to deal from time to time with the question of tax reform. I was interested in the interventions first from the member on our side, the hon. member for Broadview-Greenwood. He has been a great advocate of tax reform. The member for Durham just rose. He sits on the finance committee, as does the member for Niagara Falls. Since joining the House, all of them in their own way have been very active on the question of tax reform. I thank them for their contributions. I am sure all members will join me in wishing to hear more from them on questions of tax reform.

The motion itself at first glance has much to contribute to the debate. The first part reads:

That this House implore the government to initiate immediate consultations with Canadian taxpayers and provincial governments on the creation of a fair and integrated reform of the entire tax system-

After looking at the first part of the motion I would like to get the House to consider where we have come from on the question of tax reform and where we might be going.

The question of taking on the whole issue at one time at one level is quite attractive. It would be very nice to find a simple solution to the question of tax reform in this country, but the reality is that tax reform has been a very difficult process.

Post-World War II Canada usually uses the Carter commission with its after the fact cliché that a dollar is a dollar as the beginning of tax reform efforts which now stretch over 30 years. Successive governments including our own back in the 1960s and 1970s have done more than their fair share to instil a better sense of fairness in the tax system.

However, the job remains a daunting one. It is one in which we need the advice not only from members of our own caucus but also members from all parties in this House to find the best way to improve Canada's tax system.

I hope each member in the House is most conscious of the tax system since the period for filing income tax returns has just ended. It is not just an abstract issue to members; it is one each of us as individuals contribute to annually, as well as daily through the consumption taxes. To remind Canadians, when members of the House of Commons and the Senate speak about tax reform, they are not just speaking about something in someone else's life, they are also speaking about something in their own lives. Therefore they are very conscious of the need to make things fairer at all times.

As the member pointed out in the lead speech, the legacy of the last 10 years has been an increased shift to individual personal tax. This has caused a great deal of concern among Canadians on the question of fairness. At the same time in the business community the question of payroll taxes and the ever increasing burden of weekly and monthly remittances to provincial, local and federal governments drive small businesses to distraction and are a constant concern of big businesses in their investment decisions in Canada.

We on this side of the House join the opposition in seeking ways to improve the tax system. We probably would differ on the ability of a government to find one solution to the entire question of tax reform. One of the great frustrations in governing is of course that every solution requires biting off a chunk of the problem and dealing with it in a practical sense. Tax reform is an ever evolving process.

I would like to share with the House the ways in which we have begun to deal with the issue of tax reform at this time. There are three benchmarks for this government.

The first one is that in our platform before the election we set out tax reform as a major initiative. Part of the commitments we made to Canadians is to make progress on questions of taxes and tax reform during our first mandate.

Also, one of the first measures taken in this House was the approval of the work being done by the House of Commons finance committee, of which I am a member. There are at least four other members of the committee in the House of Commons today participating in this debate. The committee has sought to reform the GST.

To observe the rules of the House, I will not dwell on the work of the committee. However I will make it part of the public record that in view of the witnesses who have been heard, the experts who have come in to help the committee and the wisdom of the members themselves, we are very much convinced the committee will produce a report which will be used as a tool by the Minister of Finance in his efforts to deal with the provincial governments.

The second part of the motion deals with the negotiations with the provincial government. We would agree in the motion with the reality that we cannot sell the question of tax reform on our own.

Consumption taxes are perhaps the best example. There are 11 regimes in this country of which 10 are active in consumption taxes. Some provinces have differential rates. All 11 regimes tax different commodities and different services at different rates. It is very confusing for the consumer and we have set out as our highest priority in tax reform to bring some order out of the chaos and the GST/consumption taxes in this country.

Again, on behalf of the Minister of Finance I thank my colleagues in the House and in committee for their work. Like them, I look forward to seeing a report some time in the next month, on schedule, which then can be taken to the provincial ministers of finance and contribute to an ongoing national debate on tax reform.

The third initiative that we have taken and that I would like to spend some time on is our February budget. Our February budget considered a number of measures to eliminate tax loopholes and inequities in the system. This is why in the budget we also announced that we would be rolling back unemployment insurance premiums of 1993 to deal with the question of the high cost of payroll taxes.

Although the changes that we made to the UI system were minor, we consider that to be an important first step to indicate to Canadian businesses that we are conscious of the cost of payroll taxes. Often forgotten in this is that the worker bears a very high cost on a weekly basis for these premiums. Any initiatives that we can take to cut back on his or her weekly premiums is appreciated.

During the prebudget consultations, Canadians told us that payroll taxes like these are a major barrier to job creation. We heard that message and we acted. These prebudget consultations are also bottom line proof that our pursuit of a better tax system is firmly rooted in a commitment to consultation with taxpayers and with other levels of government.

As I noted at the beginning of my speech, the question of tax reform will take us several years. Next fall is the second stage in the work of the finance committee. The Minister of Finance is required by orders of the House to report for the first time in our history to the finance committee with an economic statement.

The finance committee will then proceed with several weeks of hearings in a more public prebudget consultation process. I personally take this as a benchmark of changes in the attitude of the Canadian government toward taxpayers in the organization of the budget, the expenditures and on the revenue side.

I ask those Canadians who are watching this debate and those members of the House who are participating in this debate not to consider it to be a sole opportunity to contribute toward tax reform but to proceed to prepare for the finance committee in the fall and to bring forward ideas for tax reform, to bring out ways that we can make the system fairer and to put those into the public realm for debate, discuss it with members of Parliament on the committee. Write a letter. For those members who have their own projects, bring it to the attention of the committee.

One of the most interesting aspects of the GST hearings was a number of members of Parliament who came forward to present their ideas on GST reform. Around 24 or 25 members participated in this debate. I thought it was a very healthy process. Although my memory in the House is not long, I think it has been a while since members felt it efficacious to go in front of a committee in that number and present their own ideas.

The fact is that officials from finance and other departments that deal with tax issues meet with their provincial counterparts year in and year out to discuss proposals for changes and improvements. The broad policy review process that the February budget outlined includes areas where tax concerns are being studied and Canadians are being consulted.

This reality that consultations are taking place on tax improvements is just one reason why today's motion, although it is a good start, may perhaps do discredit to the tax reform process inadvertently if it is not appreciated in the reading of the motion

that the complexity of the issue is respected. No one can bring to the debate a holier than thou attitude that one solution will solve all of that.

This is what I personally find disturbing inasmuch as the verbal game playing and intellectual cynicism in the motions, invocation of a triple-E solution of equity, efficiency and effectiveness goes together without creating other problems. Again, I want to assure Canadians that in developing tax policy these principles have been and will continue to be recognized as critically important by the government and the officials in finance and Revenue Canada.

Unfortunately, Canadians should recognize that these are not principles that always work well together. In fact sometimes just the opposite is the result. It is just this conflict that the opposition has chosen to ignore in its original motion.

A bit of common sense history and philosophy will make it clear why this motion could contribute more to solving the challenges of tax reform. As Canada's income tax law gradually evolved over the past 74 years it has been shaped by several key forces which I would like to review for the House.

The first is the use of the tax system to do more than just generate government revenues. It has also been a tool to carry out economic and social policies from child care assistance to research tax credits that play an important part in our national well-being. But each of these measures has needed specific and often intricate legislation on definitions, rules and procedures.

A second force in shaping our modern tax system is the increasingly sophisticated tax planning evolved by individuals and corporations seeking to reduce their tax liability. This perfectly legal and entirely understandable activity has a clear corollary. We have had to put in place correspondingly sophisticated tax law in order to preserve the government's tax base.

A third force is the evolution of the economy itself into one that has become more sophisticated and complex with every passing year and one more deeply tied to global currents and competition. Here again there is an unfortunate corollary. The fact is that it is becoming often impossible for a tax system to be truly simple, truly fair and truly effective given the extraordinary variety and complexity of commercial and other situations it must accommodate.

Let me give just one high tech example of what I am talking about. We would all agree in the House that the high tech industry is the cutting edge of the new economy and that research in these areas is something that the tax system should encourage. That is something virtually all the participants in our prebudget consultations agreed on. But what about the situation where a company, say Ottawa's Bell Northern Research, used equipment to make experimental microchips and yet uses the same equipment to produce proven commercial chips? Is this research equipment or manufacturing equipment? How do we determine the equipment's tax status? Especially, how do we determine its tax status without developing fairly detailed rules?

If we eliminate any tax benefits for research facilities all we are doing is inviting Canadian researchers and manufacturers to move to jurisdictions where those benefits are available. Those are the sorts of real world situations and issues that tax policy makers must not ignore and they must not be ignored in the consideration of a resolution such as the one we have in front of us.

A key element of a fair and equitable tax system is that it provides both taxpayer and government with all possible certainty. If you do not know what your obligations and entitlements are, you can never be sure you are not at a disadvantage. Only explicit law can be certain. To be explicit a law must be somewhat complex. It must cover all known eventualities and then be updated as new conditions warrant.

I suspect that many critics of the government might try and argue the fact that many tax measures require interpretation. There is evidence that current laws fail this goal of certainty. What they do not realize is that radical simplification which must use sweeping generalities would actually make the act more ambiguous and ultimately increase the amount of interpretation necessary.

I wish that reality was not so demanding on all of us. But wishful thinking and rose coloured spectacles are poor guides for policy and do Canadian citizens no favours. This is exactly the case when it comes to one form of tax simplification that some hon. members in this House have been known to espouse, what I call the seductive flat tax proposal. How much simpler, how much fairer it would be if there was just one rate of tax to be calculated on all income. Simpler perhaps, but perhaps not. Fairer? Well, that depends on your definition of fairness.

I suspect that many Canadians would not find a flat tax system less equitable and fairer than the current progressive system. After all, to be revenue neutral individuals in top income brackets would enjoy lower taxes while tax increases would be necessary for lower and middle income filers.

The fact is that high income Canadians pay a considerably larger share of the total tax bill than their size as a group in the population. The lowest income groups pay a relatively small share of the tax take. Is this equitable? Not in the sense of mathematical equality. Is it fair? I suggest that most Canadians agree that those facing economic hardship who must devote the bulk of their incomes to basic necessities do not deserve to have

their tax burden increased. This government is committed to avoiding tax increases among low income families.

I hold that justice without compassion is more tyranny than equity. By the same token, a tax system that places narrow numerical simplicity ahead of social conscience will be a betrayal of the values of mutual support and sharing that are a cherished part of our national Canadian fabric.

It is also worth pointing out that the complexity in our tax system is not so much the result of having more than one tax rate. Let me again remind the House that complexity stems from a wide variety of complex situations that arise in the real world. The current tax system takes into account the reality of differing individual and family circumstances.

For example, special measures such as the child care expense deduction provide relief to families which incur these expenses. Other measures such as the charitable donations credit encourage contributions to the voluntary sector. Under the 1994 budget we in fact made it easier for Canadians to contribute to voluntary associations.

Under the flat tax system such measures should not exist. If they are maintained then we are right back to the exemptions and credits in calculations that many of us wrestle with each year. The only difference would be in using one tax rate instead of the current three, hardly a dramatic improvement.

That leads me directly to another problem I have with today's motion. That is perhaps the intimation that is implied, that there is some silver bullet or some simple one-step solution to these problems. However, there is no national consensus as to exactly what that one simple solution might be.

At the start of my remarks I mentioned the series of cross country prebudget consultations that the Minister of Finance and myself engaged in. It might interest the member to know that while some participants wanted fewer rates and brackets, others took the opposite stance and urged us to increase the range of brackets and make the rates even more progressive. There was also real wisdom in the comments made by one Toronto participant who observed that one taxpayer's loophole was clearly another's entitlement.

Madam Speaker, I hope I have not, if you will, taxed the patience of the House too much by highlighting the real world conditions and obstacles that make a simple, fair and effective tax system such a challenge. It is a challenge that this government will continue to accept. I know that my colleagues here will have much to say on the action that we have taken and the activities underway to meet this goal.

The challenges that must be overcome cannot be overcome by pretending there are magic cure-alls. Progress is not made by glibly lumping together principles that undercut each other. Success will not be achieved by pretending that panic and haste can achieve more than patience and steady sensible progress.

In my speech I highlighted some of the problems that we have in developing proper tax regimes for corporations working in a very competitive international environment, with very difficult trade and tariff regimes. In the last few days I have had an opportunity to deal with people in the garment manufacturing industry, for example, whose whole world is being turned upside down by changing tax regimes and tariff regimes. We are all aware of just how difficult individual Canadian families are finding the tax system and how it leads members in this House to be impatient for a new system. I quote a famous American jurist, Oliver Wendell Holmes, who said: "Taxes are what we pay for a civilized society".

That I guess is the message that I would like to leave with this House, that as we deal with taxes we also deal with the legitimacy of this country in the way that taxes provide us with the resources to do things together. Trying to change the tax system and to make it fairer also implies that we remember the usefulness of these taxes for everyone. I thank you for this opportunity to contribute.