Agreed.

The Acting Speaker (Mr. Paproski):

When the House rose at one o'clock, the Hon. Member for Kenora-Rainy River (Mr. Parry) had the floor.

Mr. John Parry (Kenora-Rainy River):

Mr. Speaker, before lunch, I had just embarked on a short critique of some of the provisions of Bill C-64 that do not relate to the establishment of international banking centres. 1 want to make some further comment with regard to the omnibus character of this tax Bill.

Frankly, this omnibus Bill is an adjustment of the edges of the tax system and has nothing to do with tax reform as such. Even in those adjustments to the details on the periphery, the Government has not shown any willingness to implement some of the principles to which heretofore it has been giving lip service by way of the White Paper on tax reform.

This legislation does not envisage any indexing of the sales tax credit, nor of the turnover point. Therefore, with the normal operation of inflation, the value of this sales tax credit will diminish year by year and the point at which it will be clawed back through the tax system will also diminish in terms of real income. Surely, those measures could have been indexed if the Government was really committed to over-all tax reform.

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The non-indexation of the threshold will mean that Canadians will see this sales tax credit clawed back at a progressively lower level of income, whereas the level at which this clawback starts is already approximately 25 per cent below the poverty line as defined by Statistics Canada, in terms of a family of four in an urban centre. Even those who are just on either side of the poverty line will be subjected to a marginal degree of taxation that will be higher than the people who are in higher tax brackets because of the operation of this particular claw-back provision.

The Government often states, when discussing those higher marginal rates of tax, that they constitute a disincentive to attempting to earn more income. That disincentive will be doubly present for those who are on either side of the poverty line, particularly those at that 75 per cent of the poverty line where this claw-back provision comes into effect.

While the measures dealing with international banking centres are perhaps the most interesting and intriguing part of Bill C-64, they will have less effect in the long run than some of the minor detailed changes to unemployment insurance and to the question of sales tax credits and thresholds.

However, It is of particular interest because it provides such a telling paradigm of the way in which the Government is prepared to go to such lengths to express its basic economic philosophy, whether or not that philosophy will have any beneficial effects for Canadians.

This is an example of the Government pursuing two themes. One theme is that enterprise should be freer. However, it is very difficult to think of that particular term in regard to the banking system in Canada. The second theme is that tax considerations should be diminished in the formulation of business decisions. A third theme is that there should be some advantage given to sectors of the economy which the Government believes are beneficial to the entire economy.

What sacrifices is the Government prepared to make in pursuit of those objectives? First, it is prepared to allow interregional strife and hostility to break out within the business community and its political surrogates on the Government side, to the point of dividing its own back bench. It is prepared to allow abuse to flow back and forth between the financial communities in Vancouver, Montreal and Toronto which is, of course, the predominant one in this country and which has almost unanimously opposed this legislation. Canadians should know that in doing so it is prepared to allow action that essentially compromises whatever value or effect this legislation might have had.

We heard testimony in the finance committee that seems to border on the absurd in its naivety. We heard testimony that 26 jobs might be created, and testimony from the Department of Finance that only 11 jobs might be created. The Government is taking the time of Parliament, taking hearing time and the expense of travelling across the country, using the efforts of Members of the House, in pursuing a plan that might create 11 to 26 jobs. Surely, any of us could conceive numerous

legislative measures that would have five or tenfold the effect on job creation with a similar expenditure of time and money which the House might have more profitably used.

The purpose of this legislation is for the Government to align itself with the Reagan and Thatcher economic view of the world as well as with the so-called free enterprise philosophers. It is to align itself with the mullahs of the economic new right in the pursuit of objectives which, while they may have very little use or effect in themselves, nevertheless have an important philosophical underpinning that can be communicated to those who want to hear the message.

What is the cost? Department of Finance officials have suggested that there is no cost because all of this is happening offshore. It would be a very dangerous assumption to accept that view. While there may be no financial cost, we must consider the political cost to Canada in the institution of international banking centres. We must consider the measures that correlate with international banking centres.

Of course, we are talking about the free trade zones which have been established in different countries of the world to assist in industrialization. Of course, these are the darlings of the economic right because they enable the concentration of wealth and the substitution of cheap labour for labour that earns a decent wage. They allow the internationalization of products to subvert Government controls on rules of origin and to undermine national economic planning. They allow the treatment of labour and capital as if they are completely interchangeable and they allow the subversion of safety legislation, environmental legislation, health protection legislation and the tax system.

One of the principal themes of my leader and of this Party has been the misuse of the tax system, and what is left out of the tax system by way of economic policy. Although it may be useful and beneficial to the country, and beneficial in certain areas itself, we should be very careful about adopting a measure that is so susceptible to harmonization in an international economic order that does not empower individuals or communities, that does not permit the development of Third World countries in a democratic fashion, and that essentially leads to the concentration of wealth, capital, and power in the hands of a few.

The Eurocurrency reserves, as they are sometimes called, which the international banking legislation is designed to accommodate, are an example of that phenomena which has been described as-

-"money without a country", there are huge monetary reserves, billions of dollars throughout the world, thousands of billions of dollars indeed, money called eurodollars.

December 8, 1987

The notorious hot money flows which can lead to runs on the currency of a particular country are an example of the operations of the Eurocurrency and of the Eurodollar market. The existence of numerous tax havens and tax shelters, convenience banking islands such as The Bahamas and the Cayman Islands are manifestations of that same system, and of the degree to which international finance is adapting to accommodate those Eurocurrency transactions and those Eurocurrency reserves.

It is unfortunate that there have been comparisons with the American experience, because the reserve requirements and the restrictions on interstate banking in the United States render Canada's situation very different from that of the United States, to the point where it would be unwise to draw comparative conclusions. Our fear is that loans that have a significant risk element will continue to be put through the normal channels, and only the safe loans will go through those international banking centres.

In looking at this legislation we have to ask the following questions. Will there be any real economic benefits in the form of jobs to the centres of Vancouver and Montreal, or is the federal Government simply undertaking a measure that is designed to stroke the leaders of those two financial communities and convince them that they are getting something for nothing when, in fact, they are not? What will be the real size of the tax expenditure involved, particularly at a time when we are looking at tax reform and when there is $28 billion of other federal tax expenditures out there, essentially unaccounted for, although we have an idea of their order of magnitude?

Given the profit picture of the banks, should we be doing anything to benefit institutions of that size? I say this not to call down the banking industry, but to point out that over the past years job creation has almost exclusively been the preserve of small and medium sized business. The job creation record of Canadian banks would not bear comparison with that of small business as a whole.

I could on at some length on this whole question. It brings into play the matter of the free trade agreement. I want to hold my fire on the free trade agreement until the Government can state with confidence, and produce the evidence before the House, that it really has a free trade agreement.

I simply wish to point out that the three centres around which discussion has hinged in this debate are those of Toronto, Montreal, and Vancouver. The whole problem that I see with the operation of a free trade agreement is the danger of centralization of the Canadian economy. It is not that the legislation to create international banking centres is inequitable; it is obvious that both Vancouver and Montreal are far more in need of economic stimulus, even in the financial industries, than is Toronto. But what we will see under the move to a free trade environment, which undoubtedly this international banking legislation is designed to harmonize with, is a centralization of the Canadian economy that will

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lead to a reduction in jobs, and a reduction in economic opportunities in the smaller communities of Canada, and quite possibly in most communities in Canada outside of those three centres.

Yet we should never fall into the trap of believing that because there may be job creation, and certainly centralization of industry in those three centres, that the people who live there will actually benefit from the results. I believe that when there is excessive centralization of an economy, the benefits of productivity and job creation are extremely vulnerable to being outweighed and overburdened by the simple physical strains expressed as financial constraints that occur in the major areas of centralization.

Thus it is today that we have situations such as that in New York City where I was told by one of our own civil servants if I was looking for a nice pied-a-terre I could perhaps view the penthouse in his apartment block. The owner had just reduced the price by $1 million, from $5 million U.S. to $4 million U.S. in the hope of getting a quick sale.

1 hope that we as Canadians never adopt the measures that will lead us to the type of future where those real estate prices combine to gut cities of their population, force people ever further out into expanding remote suburbs, and eventually deteriorate the quality of life for the majority of people who live in the major centres that will benefit from free trade legislation, as they plan to benefit from this legislation.

Mr. Layton:

Mr. Speaker, I thank you for the opportunity to participate in this debate. I feel it is important that the House realize that reports and impressions that have been given to the public over the past day or two by the press are both incomplete and incorrect. They have been filled with comments from one side of the argument and the proposition that we are discussing today as part of Bill C-64.

Many years ago the international banking centres idea was first advanced from the community of Montreal and endorsed and reinforced by the community of Vancouver. It has been studied and analysed. The Standing Committee on Finance and Economic Affairs conducted a major study of this concept. Our visits to New York developed a wealth of information that concluded under the limited circumstances that would be allowed for those banks that there would be a limited opportunity, and therefore a limited number of jobs. That did not change the fact that when the committee came to its final statement, its recommendation clearly established that it was a good idea, it just was not developed far enough; the Minister should consider other ways of increasing and improving the success or the effectiveness of this idea.

Mr. Cassidy:

Not true.

Mr. Layton:

The committee report went on to state that one particular requirement, our second recommendation, was that we should negotiate withholding tax agreements with other countries to make this idea more successful. Under those circumstances, the banks would be more competitive. This

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committee, of which 1 was a member for more than a year, clearly was in favour in its majority of supporting the Montreal and Vancouver initiative. There were those who were against-

Mr. Cassidy:

That is not true.

Mr. Layton:

-and they are the most vocal members of the committee, Mr. Speaker, and they will give the impression to the press that their views stand as the opinion of the committee. However, I stand here and assure the House that there was a majority of us on the committee who felt that it was a good idea.

Mr. Cassidy:

That is not true.

Mr. Layton:

All we have to do is to ask members of the committee. The truth is that this concept will continue the feeling or the impression that it is a very major concern to Montreal, as all of us who live there know. We have watched our role and our opportunity as an outlet for Canadian skills and international services diminish in favour of points west, in particular Toronto.

Along comes an idea, the Government recognizes that it is a good one and promotes it. We in Montreal are very pleased. However, I would certainly want to correct the idea that the committee was stacked. If one thing should go on record, it is that both opposition Parties were divided on the issue. It might surprise the Hon. Member to know that in a vote his Party was divided, as was the Official Opposition. It was also divided on the government side.

It was recognition of whether or not regions like Montreal and Vancouver would have certain opportunities and rights in the future. A vote could have come at any time, and it came at committee in the absence of those from the Opposition who supported this particular motion. Maybe that was a surprise. Maybe it was well planned. However, I can only assure the House that at any time when that vote would have been taken, a majority of the finance committee would have been in favour of it, as was shown in the final announcement of that election.

Mr. Speaker, to us Montrealers and to our fellow Canadians in Vancouver, opening banking centres is an element, a symbolic indication of the special values of these two international cities in Canada.

Mr. Parry:

Mr. Speaker, in response to the Hon. Member I must say that perhaps he did not observe the degree and intensity of some of the conflicts which I was able to identify in just one appearance at the finance committee on this particular matter. I can assure him that there will be no kudos in our caucus to any degree about the division on this particular legislation. However, I must recall to the Hon. Member the very words of the Chairman of the committee, which I believe

he heard, when he indicated on a particular vote that he had to cast his vote with the Government.

I am not too sure of the direction in which the intervention of the Hon. Member is proceeding. If he wishes simply to demonstrate his dedication to the interests of the business community of the city which he calls home, I am sure that all of us would accept it as a given and that none of us would wish to challenge it, as he would certainly not challenge the commitment of other members of the Progressive Conservative Party to the business interests of the cities they represent.

However, I would have to point out that in the divisions which I saw at this particular committee, the divisions by way of vote and the divisions by way of opinion, I felt that the basic purpose of the committee was being undermined in some sense when the Chairman declared that his function was to vote with the Government. To me that was a notion which almost reached the point of absurdity, particularly since at the other committees before which I have appeared there had always been declarations of the Chairmen that they were in fact the masters of their own procedure.

I commend to the Hon. Member a careful study of what happened in that particular committee, before he commits himself to such a drastic and dramatic degree of revision in the rewriting of the history of the committee hearings. I commend to him the committee record and a brief conversation with his colleague from Scarborough on the particular interests involved in the formulation of the report on this matter.

Mr. Rodriguez:

Mr. Speaker, I recall the Chairman of the finance committee making a comment when the matter of banking centres was discussed-and it was reported in the press-that the whole proposal belonged in the waste-basket. When the vote came on the proposal, there was a complete turnaround and the spirit of reform, which is supposed to permeate the finance committee, went out of the window. The Chairman did docilely what the nabobs in the Department of Finance wanted. He did what the Minister of Finance (Mr. Wilson) wanted. He fell in line. He did the bidding. He sat up and wagged his tail, voted, and broke the tie.

I think that needs to be explained to the Hon. Member who just presented the view that somehow or other the divisions which may exist in caucuses of the House were extended to a committee which, in the spirit of reform, is supposed to look at a proposal and make a decision on the basis of what it feels is beneficial to the country as a whole. I think the committee fell down in that regard.

The Acting Speaker (Mr. Paproski):

Does the Hon. Member for Kenora-Rainy River (Mr. Parry) have a rebuttal, or should I recognize another Hon. Member on debate, because there are only 30 seconds remaining?

Mr. Parry:

Fine.

December 8, 1987

Hon. Donald J. Johnston (Saint-Henri-Westmount):

Mr. Speaker, I am very glad to have the opportunity to rise in this debate and to speak of Bill C-64.

In speaking to this Bill I intend to raise issues which go to the heart of the credibility of the Minister and of the Government. The Bill contains certain elements which point, if I may say so, to a lack of candour, a lack of frankness, or almost a disdain for the public which by and large is ignorant of fiscal matters.

Mr. Speaker, I recall that on a number of occasions during the 1984 leadership campaign I was compared with the Hon. Member for Etobicoke Centre (Mr. Wilson), who was not Minister of Finance at the time. He was the Opposition critic. I was not offended at all. I would not say I was all that flattered, but I was not offended. I felt enormous respect for him and for his integrity.

I think I would have to say that when the present Minister of Finance (Mr. Wilson) was named to his functions I, along with other members of my Party and probably members of the NDP, looked to this man as being solid, as a man who would not provide a flamboyant leadership in the Ministry but who would be solid, dependable, and reliable. We felt that he was a man who would not try to fool Canadians into believing something other than the reality with respect to the fiscal position of the Government of Canada and with respect to the contents of any particular piece of financial legislation.

That image has been irretrievably damaged by a series of events during the course of this Minister's stewardship. Whereas I once thought the Minister was solid, the most I can say today is that he is stolid. Even that I suppose is flattering. I have just thought, if I may take poetic licence, Mr. Speaker, that he is stolid compared with the Government, of which he is a member, that indeed is squalid. That is not too bad; I am sure that could be turned into a limerick by you, Mr. Speaker. I would not go so far as to say that the Minister is squalid, far from it, but he has been a profound disappointment. He has lowered his standards, and he has fallen in the esteem of Members of the House and of the public.

I fear the Minister has become an advocate of that philosophy of Phineas T. Barnum, namely that there is a sucker born every minute. Thank God, Mr. Speaker, there are no suckers in the Opposition in this House, and I do not believe there are suckers in the Canadian public either.

Before I come to the specifics of linking this lack of credibility to the context of Bill C-64, let me offer a bit of an overview of how I see the Minister's performance to date. First, I would remind you that after this Minister assumed his

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functions, he came forward on national television. In Question Period I raised this matter, but it has to be raised again. In March, 1985, and in response to a question as to how he intended to get at the deficit, which he considered to be a major problem and allegedly still does, he said:

I don't want to increase taxes. I think we have a good deal of scope on the expenditure side to deal with the deficit problem. A tax increase, certainly a general tax increase, puts a dampening effect on the economy and 1 don't want to see us do that.

We are aware, and you are aware, Mr. Speaker, that, having made that declaration, the Minister then proceeded to increase taxes at a rate and of a magnitude never seen in peacetime in Canada. Let me offer you a couple of examples. Taxes on individual Canadians, namely, income taxes and sales taxes, increased from 1984-85-you will recall that that was the year the Government assumed power-until 1988-89 by an estimated $22.2 billion, an increase of 93 per cent. This comes from a Minister who on national television said, "We don't believe in a general increase in taxes".

Despite five years of economic growth, which we have realized-

And I can tell you, Mr. Speaker, that we achieved this strong economy, not as a result of the Minister's policy but indeed in spite of his policies.

Imagine what this economy could have been like without an increase of 93 per cent in personal income taxes, an increase of $22 billion, Mr. Speaker? It would be all right if the Minister could turn to us and say "Yes, but the deficit has now been taken care of. It is now under control". But despite those taxes and economic growth, the deficit is still in the neighbourhood of $30 billion. Some attack on the deficit. Some way of getting at it through the expenditures of Government. It is incredible that the Minister has been able to get away with this chicanery. To go even further, the Minister now tells us we are going to have tax reform. "We are going to make the tax system equitable. We are going to widen the tax base and do all these things".

Tax reform is necessary in order to correct the inequities, the increased tax burden and the complexity that the Minister himself has put into the Act. Sure, tax reform is necessary. It was necessary in 1984, but it is much more necessary today by reason of what the Government and the Minister have done. It is reminiscent of the woman who, when convicted of murdering her husband, sought clemency on the grounds that she was now a widow. That is what we have in terms of tax reform under the Minister of Finance. If he gets away with this, indeed Canadians will justifiably be regarded as suckers, and if we, on this side of the House, let the Government get away with it, we should properly be regarded as suckers as well and also incompetent in not doing our job. Our job here is to ensure that Canadians are not horn-swaggled by this master horn-swaggler.

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1 never thought the Minister of Finance, whom I knew when he was on this side of the House, would become such a first-class snake oil salesman. He has been successful because he has enjoyed the benefits of strong western economies, and the Canadian economy has followed suit. I say, as 1 said a moment ago in French, this is not because of the policies of the Government; it is in spite of the policies of the Government. For all of that, in these areas with which I take issue, namely, raising taxes to lower them and telling us that the deficit will be through expenditure cuts and then trying to do it through massive tax increases, failing on both counts, I never expected the Minister to stoop so low as to tinker with accounting procedures in the name of management practices simply to get at the deficit artificially. He was not able to get at it, as I pointed out, through massive tax increases. The Minister obviously did not get at it through expenditures which, initially, he said he would do. Instead, what has he done? He has tried to get at the deficit through tinkering, if you like, with bookkeeping procedures under the Income Tax Act. We will not let him get away with that. In other words, creative arithmetic seemed to be the only vehicle left.

The first hint that we would be faced with this kind of activity by the Minister and his Department was in the first Budget of 1985. In that Budget, Mr. Speaker, you may recall that in the name of new management and initiatives, the Government expected in 1985 and 1986 to realize savings of $1.2 billion. That was called a plan of improved cash management. You may recall this because we discussed it in the House. It ties in very directly to what I have to say today about Bill C-64. Most of that better cash management, a total of $336 million, was to be saved in 1985-86. Those funds were to come from stripping Crown corporations of their surpluses. In other words, by taking dividends out of Crown corporations and bringing them up into general revenues, the Government was saying, "We are providing better cash management and, of course, in this fashion we will be reducing the deficit". That is like moving your funds from one bank account to the other and saying, "You see, I have no deficit now in my savings account", but you still have depleted your other account. The Minister just moved funds from account A to account B and put that procedure forward as some magical way of getting at the deficit through that wonderful name of better management initiatives and improved cash management.

Worse still is what we see in Clause 67 of Bill C-64. This is stooping even lower than what the Minister did in 1985. Specifically, the Minister decided to get at his deficit by a one-shot $1.2 billion move of tax remittance from 1988-89, I believe it is, to 1987-88. Let me make sure of that. Yes, it will indeed. By obliging employers to effect withholdings on salaries paid to employees twice a month instead of at the end of each month, a block of withholding funds of approximately $1.2 billion will be moved from April of 1988 to March of 1988. That has been estimated to bring an additional $1.2 billion into the 1987-88 fiscal year.

Of course, this removes that same $1.2 billion from the following fiscal year of 1988-1989. What kind of sound financial management is that?

I could go further. When the Minister presented his Budget and his Estimates for the deficit, he did everything possible to get it below $30 billion, the magic number he had in his head. Of course, by changing the payroll withholding date from April to March, he in fact was able to get his deficit below $30 billion. Had he not done so, the projected deficit at that point would have been $30.5 billion.

Let us think about that. If I am wrong about it, I stand to be corrected. I wish I were wrong about it and I wish the Minister would tell us that it is not true. However, in order for the Minister to have this $ 1.2-billion increase in revenues in 198788, this one shot at $1.2 billion, employers across the country have to change their accounting systems forever to provide bimonthly rather than monthly remittances to the federal Government of Canada.

Imagine the increased costs and increased paper burden on those employers, simply to accommodate the Minister's deficit which he promised in 1985 he would get at through expenditure cuts. As I said, despite the $22-billion increase in taxes on individuals, he has been unable to get at it through tax increases.

What has the Minister done instead? He has moved to artificial, creative arithmetic, imposing a burden on employers right across Canada, simply to move $1.2-billion worth of receipts in the federal coffers ahead by 15 days. I think that is shameful. I think it is scandalous. In my judgment, the Minister has tarnished that image of fiscal management and fiscal integrity, if it is not in tatters when people understand what is taking place.

When I saw this bit of sleight of hand, I became very concerned. I thought that the Minister had found something else. He discovered the coffers of Crown corporations back in 1985, and now he has discovered the concept of accelerated payments.

Where will it end? Will I be invited to accelerate my income tax payments over the next several years in order to bring more money into the coffers of the Government of Canada and basically reduce the deficit of the current year? The Minister has effectively set out a lot of chickens which will come home to roost.

Let us look at the initiatives of this Government across the board. If I can coin a phrase used by the former Minister of Finance on that side of the House who had a very brief tenure, you may recall quite painfully, Mr. Speaker, back in 1979, it is short-term gain for long-term pain. This is a first-class example of short-term gain for long-term pain. The pain will be felt by employers forever and the gain will be realized by the Minister simply for the current fiscal year.

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The same is true of so many other initiatives the Government has taken since it came into office. There have been so many ill-conceived initiatives that when those chickens start to come home, I promise that the sky will be dark. It is our successors in many cases who will have to deal with those chickens. Short-term gain for long-term pain has become one of the principles by which this Government conducts its affairs; that and the principle of Phineas T. Barnum I enunciated at the outset: a sucker is born every minute.

I never believed that particular principle. Clearly the Minister of Finance (Mr. Wilson) and the Government does. Let us set any doubt about that to rest by ensuring that the Canadian public is not suckered on this particular provision.

Mr. Redway:

Mr. Speaker, I may not have heard the Hon. Member's remarks on the subject, but one of the important aspects of this Bill is the question of international banking centres. I wonder if the Hon. Member could tell us if he believes that the Bill should be amended to include the area of Metropolitan Toronto as an international banking centre.

Mr. Johnston:

Mr. Speaker, what an interesting question in light of my comments. This gentleman and other Members of the House who are so caught up with the notion of international banking centres also believe in the principle that a sucker is born every minute.

In French we say it is good, that is the idea of such a centre, it is a label on an empty box. There in nothing there.

There is nothing there. All the puffery and exaggeration about international banking centres has been created by the Government, but it knows full well how minimal the economic activity is that can be associated with such centres. It is simply ridiculous. It did not merit any comment in my remarks because I did not want to obscure some of the fundamental issues which are at stake in this Bill, such things as accelerating the remittances of employees' deductions.