Herb Grubel

[Finance, December 9th, 1996]

Mr. Speaker, I thank the hon. member very much for that softball. Yes, it is correct that the Reform Party should be given much more credit than we are being given for having been one of the sources that pushed in the crucial months before the 1995 budget for a much more restrictive budget than the Liberal ideology would have produced otherwise.

At the same time what the hon. member just mentioned makes this Liberal report that we are talking about right now such a tragedy. That the hard won victory of 1995 turned the corner. It meant a shift in the battle but the battle is only half way there. This year's deficit is still around $20 billion. It still adds $75 million a day to the debt clock. The debt clock has slowed down somewhat but it is still ticking like a time bomb. Here we have the first revolt of the left-wing Liberals who believe it is time to start spending again.

It was defended on the floor of this House and it is something which is very scary given the history of this government in this country in its inability to resist the siren songs of spending.

[Finance, December 9th, 1996]

Mr. Speaker, I am pleased to respond to that excellent summary of the points I made.

The member will remember that I was very careful to say, since I am now a politician and not an academic, that this is indeed what scholars around the world, scholars who are published by the OECD are finding. They are finding that there is a trade-off for societies, a trade-off on the generosity of programs of the sort he mentioned and the unemployment rate.

My point is that what this country has to come to grips with is however much we would like to fly by flapping our wings, we are never going to fly. There are certain realities in this world. In this case the reality is that we cannot have it both ways: more generous programs than other countries and the same rate of unemployment. I do not know if it has ever been explained to the people of Canada what the trade off is and what they would choose if they really had been given the alternative by the government. We should at least start a dialogue.

I think I know where we will end up but since I believe in democracy that would be up to the people. The main thing we have to do is start a dialogue on that subject.

[Finance, December 9th, 1996]

Mr. Speaker, as you may know, I will not be seeking re-election and therefore this will be my last opportunity as the Reform finance critic to discuss the prebudget hearings report brought down by the finance committee. I do so with pleasure because I believe that the rosy Liberal coloured interpretation of the history of the last three years leading up to this budget consultation needs a bit of correction.

In 1994 we had a quick budget that was essentially a do nothing budget. I give the Minister of Finance some credit for at that point resisting the demand for increased spending. And except for a few

special categories of spending, he kept everyone in line and it was more or less a steady as she goes budget.

However, between the 1994 and 1995 budgets I believe having read Double Vision , a book I recommend highly to all members of Parliament who have lived through this period and to the general public, that between that time in 1995 there was a serious conversion of the Minister of Finance and his cabinet and caucus. What we saw was an intellectual integration of the concept of compound interest. I think during that period it became obvious that there was no way that this government could grow out of the deficit simply by slowing down or even holding constant the increase in expenditures. Therefore that was a major achievement.

The second thing that happened that was fortuitous in retrospect but at the time probably a very agonizing terrible thing to all those Liberals who wanted to spend more, because that is how they had been brought up, was that the Mexican crisis hit the country. High interest rates raced through the world, the Canadian dollar came under attack and a series of articles and outside events brought home like nothing else would have in the absence of those events the seriousness of the crisis facing Canada. Moody's gave a down rating of our debt. There were editorials in the Wall Street Journal and everywhere else that this country was really in trouble.

As it turns out, in 1995 the government produced a major breakthrough budget. I said so at the time and I say so again. The government is to be congratulated. It first initiated a program review which was a code word for downsizing the operations of government. It could not do anything about the debt and I will talk shortly about transfers to others.

The day to day operations of the government had grown and become bloated in the post-war years. It was decided through the program review that the best way to go was not to cut across the board but to select certain items that needed to be eliminated and others that needed to be trimmed. The ministers were given a lot of latitude. They resisted heavily but they finally committed themselves to an $11 billion cut in departmental spending. That was a 20 per cent cut.

It is still beginning to bite. All the layoffs, all the spending reductions have not yet taken place but it was a major cutback. In the Reform Party's view it should have gone further and in our budget we propose to do more of it, mainly by more decentralization of functions, the ideological anathema to the Liberals.

In the 1995 budget provisions were made for downloading to the tune of $7 billion. It said to the provinces "you used to get that money from us for welfare, higher education and medicare but in the next few years we are going to cut all of that to the tune of $7 billion". Where did all the wonderful figures for the government come from that the previous speaker was talking about? It was said that the deficit would be almost eliminated by the year 2001. It has come from increased tax revenue.

About one-quarter of that amount is through 35 small increases in different taxes. They were not called tax increases but just making the system a little fairer. It hurt like a tax increase, it looked like a tax increase, it raised government revenue but it was not really a tax increase. There were 35 of those steps.

All of that will amount by next year to over $25 billion. Let me repeat that this government started with a deficit of about $40 billion. It tried to eliminate this with a $25 billion increase in revenue which it took from the pockets of Canadians. It is also taking the $7 billion out of the pockets of Canadians except that it has put the burden, the political cost, on the provinces by saying that the provinces will get $7 billion less. The only thing the government has done where it really hurt was the $11 billion in the local bureaucracies, in the local functions of government. If all goes well, all that will lead to a balanced budget by the fiscal year 2000-2001.

The 1996 budget essentially carried on with the promises made in the preceding budget and it seems to be working all right. Interest rates have come down and there is a slightly better than expected performance. I congratulate the government again for having done what it has done. However, it should have done it much faster because what is lying ahead of us within the next year or two is still the possibility of a recession. There is a possibility of an increase in interest rates.

We have been warned by economists all along that economic expansions do not last forever.

I am worried about how the stock market is doing today. That indicator of economic well-being tends to forecast change in economic activity. One of the big troubles is if we do get such a turnaround in the economic activity or interest rates rise or both-this has nothing to do with ideology-as the Minister of Finance has said again and again, it is simply a matter of arithmetic that in fact such events as a slowdown in economic activity and higher interest rates could put this government, after all this pain, back to where it was when its term started.

For the sake of Canadians, not for the sake of the Liberal Party, just for the sake of Canadians, I hope none of this will happen. The outcome of the policies that the government has already undertaken is really quite a dismal record. It could have been better if there had been more decisive action more quickly.

The debt this government inherited was $500 billion. Next year it will be over $600 billion. In some budgets it was forecasted to be $625 billion. This will be $11 billion more in interest costs on just

the amount of debt that the government has added to the one which it inherited.

One of the most tragic things is, as I mentioned, that $25 billion increase in revenue, partly through increased tax rates but simply through economic growth, has resulted in a reduction in average family income in Canada of $3,000 per year. People feel like they have been squeezed. The average Canadian does not have enough money to pay the interest on all the debts that they have. On top of that, however, it is not getting better. It is getting worse.

That is why they have not increased spending. That is why our recovery was export driven. That is why we have been coasting along at a very anaemic growth rate, why employment creation has been large by the standards of the six European countries that are tearing their hair out because they are having such great difficulties. The famous Germany, the economic miracle, is stuck at unemployment rates over 10 per cent. Its best corporations are opening factories everywhere except in Bavaria and places where they should be. It is looking at what the problem is and we do not want to imitate it. We should look to the Americans.

As the House knows, as the result of this we have been just coasting along at a very unfortunate rate. Because of the slowness and the lack of incisiveness with which the government attacked this deficit we saw a large risk premium on our interest rate relative to that in the United States and the rest of the world. That risk premium has severely reduced investment and of course investment is the source of productivity growth and the source of higher income.

This government's record which was described by looking through such rosy coloured spectacles is really nothing very much to brag about. This government offers no tax cuts, no relief for all the hard working Canadians who are wondering how to make ends meet. The only thing the government did was to take money away from Canadians to the tune of $25 billion to eliminate the deficit, another $7 billion away from Canadians by downloading on the provinces.

In relation to that $32 billion all it did was spend $11 billion of reductions in departmental spending on its own bureaucracy. No wonder people are disappointed and worried about the power and strength of the bureaucracies in Canada and how individual ministers are captured by them. However, they are Liberals and they are willing to be captured and do all this good spending.

One of my greatest disappointments in this document that we are discussing today is that the restraint which the Minister of Finance has been able to keep on his Liberal spenders now appears to be ready to be broken. This restraint is about to go because we have the all-Liberal tradition.

During a press conference one after the other, disadvantaged group marched up to the microphone and television camera and said they needed more money. Sure, these are tragic problems besetting the people who come to the government wanting help. Reform would love to give them help and we plan to give them help through tax cuts, by lowering spending on the local bureaucracy. That is how it can and should be done.

The tragedy is that allegedly, on the basis of performance in the budget being better than had been expected, there now sits maybe $1.5 billion. This Liberal government, speaking through the finance committee, has said "let's start spending again". This is at a time when the deficit still adds $100 million a day to the debt that the young people sitting around here, the pages in university, will have to pay the interest on.

The Bloc was talking about how it speaks for this disadvantaged group and that disadvantaged group to give more money. I would love to be able to do so. However, the Reform Party, and especially myself, have made it our task to speak for those who cannot speak for themselves, who do not have a vote and therefore do not count at all, zilch, negative in the Liberal calculus on what should be the policy.

Our youth will have to face $50 billion a year in interest costs, which are still rising and will be even higher if these Liberals get their way and start spending again. They also have another $50 billion or $60 billion to pay to us in the form of medicare expenses and CPP expenses, unfunded liabilities which will require at least $50 billion a year.

It is a crime what we are doing to our unborn generation and to those who cannot yet vote. Yet just when we are about to move slowly, surely and with some sanity toward reducing this debt on future generations what do we get? We get opportunistic Liberals, who cannot look beyond their own selfish noses, proposing again to increase spending before the battle is won. We are not even half way there yet. The risk of higher interest rates and a recession makes this totally and completely irresponsible.

Imagine what it will mean when we balance the budget and then start spending again. If we do not want a deficit again where is the money going to come from? It is going to come from further increases in tax revenue from overtaxed Canadians. They will suffer another $3,000 reduction in family income as they did in the last three years because these Liberals, as they indicated in this particular report, are just waiting for the Minister of Finance to weaken ever so slightly and give in to one special interest group, however worthy its cause, and the flood gates will open.

There are lists of people from the natives to battered women. I could go on and on about the people we heard from in the finance committee, all of whom had good causes to come to the federal government for more support. But at whose expense would that support come? At the expense of the young people I see right here in the House, who when they have grown up will find their debt burden even higher than it would be otherwise.

I would now like to turn quickly to two pet projects which I believe are worth supporting. They will cost a little bit of money and maybe will have to wait another year or two, but I will not be here to talk about them. Therefore I would like to put them on record right now.

The first is the elimination of the luxury tax on jewellery and watches. This is an antiquated tax. Hardly anyone today would believe that these products are a luxury and should be carrying in a very discriminatory fashion another 10 per cent tax on top of all the other taxes that are paid. Why pick on those particular products? They have created an underground economy and it is totally counterproductive. If we could recover the revenue on smuggled goods, on underground production and unreported income, the government would probably be away ahead. It is a kind of micro management which I do not think is justified in this day and age.

The second thing I would like to support is the idea of removing all restrictions on the tax benefits that accrue from charitable donations. A very interesting study has been made of American history, the wealth created during the monopolies in the late 19th century of the oil barons, railroad barons and the steel barons, the Mellons, who had accumulated huge fortunes which have since been dissipated. In what way? They have all been given to foundations and to universities. The entire accumulated fortunes, capital gains, invested dividends, everything, was given to these institutions. Today Harvard has a $4 billion capital fund; Yale has $2 billion; Stanford, $2 billion or $3 billion.

We heard statistics that our universities have tiny little endowments. It is believed that the main reason for the difference between the two countries is the tax treatment. The Americans simply do not tax the accumulated capital gains on the assets are given away.

I am pleased the chairman of the finance committee supports the report that we should also do this in Canada as soon as the budget allows. It is not a great revenue loss relative to the huge benefits to be achieved.

I think I am running out of time soon. I would like to talk about the presentations we heard from economist Andrew Sharpe about the role of labour market imperfections and barriers to the reductions in the unemployment rate. This is a topic I have spoken about regularly in the House whenever I had the opportunity. I will dedicate the rest of my professional life at the Fraser Institute after the election to pushing and increasing public awareness of this problem.

On a personal note, Mr. Donald Macdonald, the former finance minister and head of the Macdonald commission, was a witness in a committee hearing the other day. I first met him about 11 years ago, after a luncheon speech. I introduced myself and he said: "Your paper on the effect of unemployment insurance on the rate of unemployment hung over our commission like a shadow". Last week he reminded me of that meeting.

I find it unbelievable that we have so many blinders on that we cannot see that when a country just across the border with the same macro economic policy produces an unemployment rate of 5 per cent, we are stuck at 10 per cent. What a tragedy. I do not want to necessarily replicate what is being done in the United States.

What I think we need in this country is a lengthy, major in-depth discussion on the trade-offs. If we tell people to stay in that place, that if they are poor and unemployed we will give them a guaranteed amount of money every year, they will stay there. It is simple economics. We may want to do this as a society. But at least we should talk about it and not stay stuck at an unemployment rate of 10 per cent.

I would like to close by reminding the House that I disagree with the presentation of the witness who said that those overly generous Canadian welfare and social programs were responsible for only about a quarter of the 5 per cent difference between the American and Canadian rates.

I worked on my Ph.D. at one of the leading left leaning universities of the world, Yale. We got our degree by doing a study which showed that the market failed. All the professors would say, with a few exceptions: "Right on. Here is your doctorate. You found that the market is not working".

Then I spent three years as an apprentice at the University of Chicago. I was an assistant professor. There if we found out that the market was not working we were told to go back and do more research until we found out that it was the government's fault that the market was not working.

That is the kind of attitude I bring to this debate. That kind of attitude will show that the bulk of the difference between the unemployment rates in Canada and the United States is due to policies which we make with the best of intentions but which have these unfortunate, unintended consequences.

[Canada Pension Plan, December 5th, 1996]

Mr. Speaker, a poll confirmed what financial institutions have known for some time. Canadians are cutting back on their RRSP contributions. They just do not have the money after the Liberal policies reduced after tax family income by $3,000 on average.

Will the minister help Canadians by giving them tax relief in the next budget, financing it by more spending reductions and giving Canadians the smaller federal government they want?

[Canada Pension Plan, December 5th, 1996]

Mr. Speaker, today six working people pay taxes to support one pensioner. Twenty years from now there will be only three. Their CPP taxes will be double and on top of that they will have to pay interest on the $600 billion debt the Liberals are leaving them. Reform of CPP must come soon to prevent serious intergenerational conflicts.

Will the minister break the log jam preventing agreement with the provinces on CPP by agreeing to match increases on CPP premiums with long overdue decreases in EI premiums?

[Excise Tax Act, December 3rd, 1996]

Madam Speaker, I thought that I indirectly admitted the correctness of this position. This is exactly why Reform supported the idea that we should have a national sales tax. Though I must say to the hon. member that after the very lengthy study of the GST as it is in operation I have really changed my mind about the merit of such a value added tax unless we could start from scratch and do what the New Zealand government did: put it broadly on everything.

The administrative nightmare, the distortions that I have mentioned in my speech that are caused by exemptions, zero rating and various other twists that are too complicated to explain here have made the tax into a nightmare. I do not believe it can be fixed. To come forward and say that we need a valued added tax on everything, including food, simply will not go in this political system, however good it would be.

For this reason I believe the country needs fundamental tax reform which would lead to flatter rates: flatter personal income tax rates, the elimination of double taxation on income from property and lower rates or maybe even the elimination of capital gains taxes. Economists agree that all those measures would do wonders for the efficiency and the growth of an economy.

In the process of having such tax reform I believe that it would be appropriate to eliminate the GST and impose the revenue loss on the other forms of taxation. We have done some very preliminary calculations which involve a flat tax. This is not Reform Party policy but we are doing our homework which is expected of us as elected members of Parliament. We are expected to do our homework, to investigate the costs and benefits of different types of taxation.

When we ran simulations of different tax rates on the computer, we discovered that the average flat tax rate would have to increase by only about three percentage points to afford to get rid of the GST with all the nightmares associated with it, including the need to send monthly cheques to individuals in Canada with lower incomes. Members know how much it costs to write, print and keep track of cheques, yet the GST and the blended sales tax require the government to send out those kinds of cheques to people with low incomes. They can be helped some other way.

[Excise Tax Act, December 3rd, 1996]

Madam Speaker, I appreciate the kind words of the member opposite.

The steps now being taken in order to deal with the shortcomings of the tax in pricing provision are a typical Liberal approach: "There is no sense in admitting that we made a mistake and drop the whole thing but let us patch it up".

The member and I sat together in finance committee hearings about the GST. The length of the horror stories about the different provisions and difficulties that business has was caused by a previous government's unwillingness to do the right thing and say: "We made a mistake. Let's drop it. Let us go, say, for a broad based tax. Instead of 7 per cent, let us have it on everything but only 4 per cent". That is what we heard all the time.

I predict that if the member is going to sit in the finance committee two years from now he will hear horror stories about the administrative costs, the difficulties of going from bin pricing to all kinds of other provisions that he has mentioned. The government is going in the right direction but why does it not swallow its pride and say: "We'll suspend the tax in pricing provision for this legislation in order to get the other advantages".

I agree with him. This is why with all intellectual honesty we came to Ottawa and said that when the government does something right, proposes something that is good for Canada, we will support it. We will not play pure politics. That is why we said in our minority report that we believe harmonization of provincial sales taxes and the GST is a good idea. We still think so.

However, we did not endorse and we cannot honestly endorse the imposition of such a tax in a particular region only and having the rest of the country pay substantial sums for this to be acceptable to those regions.

I feel that the thrust of what I said remains unchallenged by the points made by the member opposite. This is not a good piece of legislation. At the very least Canadians should expect that the tax in pricing provision be removed.

[Excise Tax Act, December 3rd, 1996]

Madam Speaker, the Minister of Finance has asked this House to approve the blended tax deal he has made with the Atlantic provinces. The Reform Party opposes this legislation on several grounds.

First, it does not fulfil the election promise to kill the GST. The red book fine print may have hedged on this issue but the impression left with the public was quite clear. The Liberal Party had been in a historic fight with the Conservative government's Brian Mulroney against the GST. With such a fight under its belt, it would use the opportunity of being in office to scrap the hated tax. The resignation of the Deputy Prime Minister and the parliamentary protest actions of the members for York South-Weston and Broadview-Greenwood support this view.

Second, the blended tax deal comes with too high a price tag for the rest of Canada. Why should taxpayers outside the Atlantic provinces pay nearly $1 billion to the governments of those provinces which have voluntarily agreed to go along with the federal government's plan? They have no moral right to be compensated for an action which was essentially voluntary. It is quite clear that the transfer was a political bribe by the federal government so that it could pretend that it had begun to deliver on its election promise to scrap the tax.

Third, the blended tax does nothing to get rid of the fundamental flaws of the GST system as enacted by the Mulroney government.

As an economist, I was a strong supporter of the policy that would replace the manufacturer's excise tax by a value added tax. The latter promised to eliminate the cascading of taxes, distortions between industry's prices, be good for exports and leave a paper trail that discourages tax evasion. However, the value added tax

which eventually emerged from the Conservative's deliberations as the GST fell far short of the ideal found in academic studies of such a tax.

The most serious problem stems from the failure to apply the tax to the broadest base possible. Once the political decision to exclude food had been reached, a Pandora's box of other exemptions and so-called zero rating became subject to successful political lobbying.

The result is a special treatment of the so-called MUSH sector covering municipalities, universities, schools and hospitals which are exempted from the tax. Doctors and professionals are zero rated which means that they do not charge the GST, but they do not get a rebate on the GST they paid on the materials they bought while providing their services.

Hearings by the finance committee produced many stories about the nightmarish complexity and administrative costs of the GST in general. These stories went from the inequity of having five doughnuts taxed because they are assumed to embody food service delivery, while six doughnuts are not taxed since they are pure food, to the false incentives implicit in the taxation of garbage collection services delivered by a private firm and non-taxation of municipal garbage collection services. Imagine what that does to the privatization of the often much more costly municipal garbage collection services.

From evidence produced by the witnesses, it is clear that the GST did not discourage but encouraged tax evasion. Firms in construction, in home, shoe and automobile repairs and a variety of other service industries that pay the GST face serious competition from many that do not. In addition, participants in the scam to defraud the GST are alleged also to be avoiding paying income tax.

One of the most dramatic presentations was by a witness who owned a business selling used goods. The GST has virtually bankrupted him primarily because of competition from used goods dealers that do not charge the GST. Similar stories were told by legitimate dealers in used cars. The notional GST return on used goods did not prevent the erosion of the nationally important legitimate trade in used goods and automobiles.

The paperwork involved in paying the tax and claiming rebates is very significant. For larger firms the day to day operations have reached a reasonable level of cost as a result of the intensive use of computers. For small businesses the cost remains high in spite of the government's willingness to accommodate the special needs of such firms.

In sum, all of these costs and false incentives of the Canadian GST system still affect the blended tax. In some ways they have become worse because of the need to integrate the provincial sales tax with the GST. The rates are higher, the incentives to evade are larger and so on.

Fourth therefore are the inequities resulting from the harmonization of the sales tax of individual provinces with each other and the GST. This harmonization produced a number of inequities.

Historically, provincial governments have used the sales tax to engage in social and economic engineering according to the demands of their electorates. This explains why some provinces exempt food, children's clothing, reading materials, some services and medical supplies from sales taxes while others tax such items, some at different rates from those charged in other provinces.

On top of this there were differences in the rates of taxation depending on how much money provincial governments had to raise by this method. Some taxed people and companies at different rates; some spent more than others; all of which determined the average provincial sales tax rate in the individual province.

The GST has a much broader base of taxation than the provincial sales taxes. Blending them therefore meant that provincial taxes had to be put on to many items of consumption that were previously untaxed. However this broadening of the tax base meant that provinces could raise the same amount of money at lower tax rates. This fact underlies the Liberal assertion that provincial tax rates are lower in favour of consumers. This of course is a shell game. By definition the average consumer pays the same with the blended sales tax as she did with the GST plus the provincial sales tax. Otherwise it would have been a tax grab and we would have heard the screams all across the country.

Averages hide a lot of variations in gains and losses to individuals under different circumstances. People who buy a lot of reading material may or may not make up the extra taxes they pay through reductions in the rates paid on other consumer purchases. People who find their tax obligations have increased are justified in complaining to the Liberals since they voted for the elimination of the GST, not a change which costs them personally.

A fifth reason Reform opposes the blended tax legislation is that the Liberals have claimed that the administration of the blended tax will result in substantial savings in administrative costs to governments and taxpayers. Returns have to be filed and audits only have to deal with one bureaucracy rather than two. Such savings are real. However the question arises as to how large these savings will be in

relation to the extra costs involved in switching to the new system and in the day to day operations.

As it turns out, one provision in the legislation has resulted in a significant increase in costs. I will discuss this briefly by describing the problem that it attempted to address. It is the so-called tax-in provision of the legislation.

This provision requires merchants to display all prices including the taxes paid and not show the taxes separately. This mandated tax inclusive pricing works very well in Europe. It removes many of the annoyances consumers experience when under the present system they are faced with a bill for their goods and services, often inflated unexpectedly much by the GST and provincial sales taxes whenever they reach the check-out counter. European shoppers became quickly used to tax-in pricing and merchants adjusted their operations quickly.

Many in Europe and in Canada had opposed the inclusion of tax-in pricing requirements in the GST legislation because of the fear that it would permit governments to raise GST rates of taxation surreptitiously without explicit consultation and the kind of openness and resistance which is brought when people are required to file their personal income taxes. According to the experience in Europe, it turns out that this fear was not well placed.

When the Government of Germany recently tried to raise the GST tax by one percentage point, it ran into a storm of opposition. In the end it was forced to drop the plan for this increased tax. I believe the same would occur in Canada.

It is for all these reasons that show an advantage of tax-in pricing that the Reform Party in its minority report to the study on the GST endorsed the tax-in pricing provision for a national sales tax. However, the problem is that we do not have a national sales tax. We have what has been called a blended sales tax in order to distinguish it from the national sales tax. In fact it applies only to four of the Atlantic provinces.

As it turns out, I have no doubt that there may be savings for individual retailers from having only one sales tax, the blended sales tax. I have not seen how big these savings are. Therefore I am not able to relate them to the kinds of costs the tax-in pricing provision has imposed on these retailers and which costs they are required to pass on to the consumers in the provinces which are subjected to this legislation.

What are these costs? There is the once and for all cost required of individual firms to switch their system of calculating the price charged at the till. This requires not only reprogramming computers, but it is very important that it also requires the retraining of the individuals serving the consumers. These once and for all costs may be justifiable in light of the savings on the other side by not having to deal with two authorities.

It turns out that there are also very large costs associated with day to day operations which will go on for as long as there is a blended sales tax in that region and the GST and provincial sales taxes in the other provinces. What are these costs?

According to an independent study by Ernst and Young, prices that have been attached to labels on goods manufactured, let us say in the United States or Ontario, to be marketed throughout Canada will have to be changed. Tags will have to be removed by hand and replaced on the goods that are being sold in that area. In some cases the price is printed on the good, such as on greeting cards the price is printed on the back at the bottom. Stores will have to relabel all of those cards.

Major retailers base many of their marketing campaigns on the use of flyers and house to house distribution of material. Right now the copy is prepared only once with the prices and conditions applying to all of Canada. In that particular region, special copies will have to be written and separate copies will have to be printed. It is a very serious increase in costs.

We should also note that warehousing and cost of distribution are expensive parts of retailing. Those of us who have never been in that business do not realize what it takes to keep the shelves filled with goods of the required size, quality, quantity and variety that consumers want. One problem is that the varieties, quantities and qualities are not predictable.

Retailers now have as an option that if in one region their sales have exceeded those expected and they require more goods from another region, they can go to the warehouse in another region and ship the goods to the area with the shortage. There will now be an invisible barrier at the edge of the blended tax zone which means they cannot get something from the other warehouses. The studies said that truckers who deliver goods in regions on either side of the invisible barrier may now have to shift the goods around in their trucks to get at those goods which have the appropriate label for the area. This is not a fantasy. This is not something made up. Some estimates are that these costs may be as high as $100 million for this region.

Let us say that half of it involves continuous costs every year. Who is going to pay those costs? The consumers in that region. Eaton's and other big national retailers cannot pass them on to the rest of the country because there is too much competition, forcing them to keep prices down, not allowing them to raise prices.

We believe that the very least the government can do in order to help the consumers of the Atlantic provinces is to postpone the

required tax in pricing approach until a blended sales tax or a national sales tax exists throughout the country.

In the meantime, however, there are so many flaws in this bill and in this approach to replace the GST that I believe Reform is acting in a socially responsible manner by opposing it.

[Bank Act, November 28th, 1996]

Madam Speaker, I agree with one of the premises underlying the hon. member's bill. Canada's financial system would benefit from more competition generally and foreign competition in particular. This view is reflected in the Reform Party's minority amendment to the government's report on the hearings on the review of the financial sector held by the finance committee this fall. In this amendment we opposed the government's proposed legislation which would have made it more difficult and expensive for foreign banks to operate in Canada.

However, I cannot agree with the second part of the hon. member's legislative initiative which would require foreign banks to commit themselves to increased lending to small business as part of obtaining a licence to operate in Canada. I oppose this provision on two grounds.

First, it is out of touch with a modern relationship between business and government. It is sometimes efficient and equitable for government to set general rules of operation to assure public safety, as for example the rule which requires banks to maintain equity at a certain per cent of its deposit base. This rule assures the systemic stability of the banking system in case of a serious economic slowdown and many bankruptcies.

However, it is not wise for the government to set out specific rules about the composition of the banks' loan portfolios. Such regulation represents an indirect tax on the banks which they pass on to other clients. It also represents an indirect subsidy-

[Employment Insurance, November 27th, 1996]

Mr. Speaker, the Reform Party supports the strong public demand for more substantial cuts in employment insurance premiums and for an end to the accumulation of the reserves beyond $5 billion.

It makes no legal sense to let the independent employment insurance system finance general Liberal overspending. It makes no economic sense to let the premiums mask the need for more cuts in program spending. It makes no social sense to let premiums put the main burden of deficit fighting on workers. And it makes no commons sense to forgo the job creation benefits of lower premiums.

I once thought the Minister of Finance and his cabinet colleagues had sense enough to do what is right, legally, economically, socially and for Canada. I was wrong. They have no sense.