Mr. Redway:

Mr. Speaker, I understand from the Hon. Member's response that he does not feel that the question merited any comments in his remarks. However, he did not answer my question, and I put it to him again. Does he believe that the Metropolitan Toronto area should be included as a banking centre, and if he does not, does he believe that the provisions in the Bill with respect to banking centres should be struck out?

Mr. Johnston:

Mr. Speaker, I thought I had made it perfectly clear. I think the whole thing is silly. 1 just do not think that the Government should be allowed to get away with creating visions in Canada that there is some great thing here.

[ Translation]

There is nothing there, Mr. Speaker! What good is it going to do, be it located in Montreal, Vancouver, Toronto, Winnipeg,

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or Halifax? What good is it going to do? Just exactly what kind of fallout can we expect from such a centre? Perhaps the Hon. Member might tell me, perhaps he might convince me there is something there? But, the way I see it, there is nothing there. As I said, it is a label on an empty box.

Mr. Layton:

Mr. Speaker, as this debate winds down, I would like to respond to my colleague from Montreal and from the business community which we share. It has been our community from the outset that has felt that there was an advantage, an opportunity and a contribution to be made to the image of Montreal as an international city.

The recent Picard report, which was presented and responded to in only these last few days by the Government, indicates that if Montreal is to regain its stature in the world of commerce and in the world of industry, there must be certain strong bases, among them aerospace, biotechnology, international commerce and international banking. This is a step in the right direction for Montreal. 1 think that most of the Montreal business community supports it. I know that a financial representative from his community and from his Party, the Official Opposition, supports this. I am rather surprised to find this great division in the Official Opposition.

Mr. Johnston:

Mr. Speaker, I am delighted to respond to my friend from Lachine East, and friend he is and has been for many years. He touched upon at least two issues. One is the international banking centre about which 1 said that there is nothing there. Putting an international banking centre into Montreal will not change the face of Montreal. Montreal is an international centre.

Let me deal with something else he said. He referred to biotechnology. Let us compare those two notions. You may recall that 1 was responsible for placing in Montreal the Institute of Biotechnology under the Special Recovery Projects Program back in 1983. I had the pleasure of visiting that facility, situated on the northwest side of the city, at the end of Royalmount Avenue which has now become an industrial park. Paramax and Canada Cement Lafarge Ltd. have established themselves there. Each company creates many skilled technical jobs. In the biotechnology centre, just commissioned last May, there are something like 650 employees already. Companies are coming from the U.S. to take advantage of that facility. People will be coming there from all over the world. 1 am assured by the National Research Council that it is a world-class facility, and may indeed be the very best of its kind in the world.

That is the kind of initiative I want to see for Montreal. Compare that to the concept of an international banking centre. There might be a dozen people working on computers in some office in the city. Sure, we have the etiquette "international banking centre". That is form, and the Government has been very strong on form. However, the biotechnology centre is

December 8, 1987

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substance. There are real jobs, real spin-offs. New industries are being created in a technology which is at the leading edge of the new wave industries.

1 am glad my hon. friend mentioned those in this context because it simply indicates that when I say-

[ Translation]

-it is a label on an empty box, there is nothing there.

-exactly that, but not so with biotechnology.

Mr. Cassidy:

Mr. Speaker, I would like to both thank and congratulate the Hon. Member for his remarks. I presume he has a substantial number of people from the Montreal Chamber of Commerce who have been pressing him on this issue. I respect their concerns, but I commend the Hon. Member for his courage in indicating that the proposal sounds attractive and looks good but when you examine it carefully it is very costly in terms of lost tax dollars. It might cost as much as $3 or $4 million per job created and will not contribute in any material way to the development of Montreal as a financial services centre. I take it what he is saying is that other proposals such as R and D and the biotechnology centre, for which he was partly responsible, make an awful lot more sense. If we were able to do this in the area of biotechnology-

-it can also be done with the financial services industry to ensure a greater involvement of the Montreal banking establishments in international finance without at the same time having to pay an enormous price for the meagre benefit which may result from the proposed legislation.

Mr. Johnston:

Mr. Speaker, it might be somewhat difficult to thoroughly examine the issue in a few sentences. It is clear, however, that every elected representative will seek to promote the interests of his or her region, just as I do promote the interests of the city of Montreal. That is why I managed to convince my Cabinet colleagues at the time to set up in Montreal a biotechnological centre.

What would a financial centre bring Montreal? It is very important, if we want to sell this project to Montreal businessmen, that they should know exactly what it is all about.

As someone who has a lot of expertise in that area, I fail to see any benefit being derived from such an institution. While I remain dedicated to the promotion of my city's interests, I feel that the main concern of Montrealers, whether they are businessmen, workers, or ordinary citizens is to have good jobs requiring better training which will contribute to the economic development of the region.

When I compare the scientific centre with a financial centre which will provide about a dozen jobs for computer operators-that is what I am told; if I am wrong, so be it, but this is exactly what I have been told to this day-I cannot see any great advantage to it. I think the Government is promoting

something without a thorough knowledge of what is involved. As we say in English, this may not be a pig in a poke, but this is certainly not the greatest windfall of the century either, Mr. Speaker.

The Acting Speaker (Mr. Paproski):

The time for questions and comments is over. Debate. The Hon. Member for York East (Mr. Redway).

Mr. Alan Redway (York East):

Mr. Speaker, thank you very much for the opportunity to say a few brief words, I hope, in connection with Bill C-64, and to express my own personal grave concerns about the provisions of the Bill relating to international banking centres. Those provisions are found in Clause 10, particularly subclause (3), which designates only two cities, the metropolitan area of Montreal in the Province of Quebec, and the metropolitan area of Vancouver in the Province of British Columbia, as those in which international banking centres can be carried on.

Coming as I do from a riding in Metropolitan Toronto, I have had great concern over this particular provision. I feel that concern is best expressed in a letter I received from the Chairman of the municipality of Metropolitan Toronto, Dennis Flynn. I would just like to quote a very small portion of that letter. He says:

This proposed legislation is not in the best interests of Canada, and our concerns are based on the following reasons:

The financial services industry is undergoing rapid and dramatic changes. Canada cannot afford legislation that restricts its number one financial centre from competing on an equal basis for international business.

Clearly, Metropolitan Toronto is recognized throughout the world as a major financial and business centre. If Canada ignores this reality by arbitrarily excluding Toronto from IBC designation, it will change the perception of Toronto in international markets.

In its report to the Commons, April 30, the Committee on Finance and Economic Affairs cited three potential sources of loss in tax revenue for Canada if the current IBC proposal is pursued, and indicated a "minimal" positive impact on employment.

The IBC proposal is already creating interprovincial friction with the Province of Ontario threatening to "neutralize" federal action. It is not in Canada's interest to introduce a policy that will generate a tax war between provinces-particularly at the outset of discussions on sweeping tax reform proposals.

Those comments incorporate the gist of my concerns with this particular legislation. It seems to me the reports referred to by Chairman Flynn underline that fact.

The only real argument I have heard for this legislation, and for excluding Metropolitan Toronto and including only Metropolitan Montreal and Metropolitan Vancouver, is based on the fact that, hopefully, the legislation will create jobs and stimulate economic activity in those areas. That seems to me to be refuted very effectively by the report of the Standing Committee on Finance and Economic Affairs. I refer to the sixth report of that committee to the House which refers to the

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issue of employment creation. I quote from that report as follows:

Since the fiscal provisions of the IBCs are restrictive (narrow definition of eligible transactions, no bad debt deductions against regular income, and daily matching obligations at arm's length) and the international tax environment is not favourable (withholding tax abroad), transfers of assets and new business conducted through the IBCs will be quite small. Any positive impact on employment will therefore be minimal. Solicitation and negotiation of transactions currently take place abroad, where the business is located, and will continue to do so.

Management can be done partly in the offshore centres at present and a portion of that activity could be repatriated in Canada. The part that is in Canada today-certainly at the more senior levels-will continue at its present location. The same applies to credit analysis. Therefore, a small number of people required under the new legislation will work in the IBCs. Most probably the banks will only transfer existing positions and will certainly not create many jobs. Thus, the job impact of the IBC proposal appears modest.

I have heard that at the very most this may generate 20 to 30 jobs. As the committee indicates, those jobs are likely to be the transfer of existing jobs as opposed to new jobs. Therefore, if the basis for proposing this sort of legislation, which I think is clearly discriminatory, is to create jobs, no case has been made for that.

That brings me to the concern which I have as to what position I should take with respect to this Bill, bearing in mind that I find it extremely difficult to support. I must bear in mind at the same time, however, that there are other important financial provisions contained in Bill C-64. They include, for instance, the right to postpone until actually received in 1988 Canada Savings Bond interest which accrues in 1987 on series C-36 bonds. They also include the important provision that taxpayers can reduce or eliminate interest charged on deficient tax instalments by overpaying other instalments or paying other instalments before their due date.

In addition to that, bearing in mind the amendments which have been made to the Canada Pension Plan, the Bill provides that when an individual applies to split his or her pension with his or her spouse the portion going to the spouse will be taxed in his or her hands. Finally, the other important provisions are with regard to the child tax credit and the federal sales tax credit.

The Bill does not only deal with the issue of international banking centres but with a number of other very important tax aspects. Because it is a tax Bill and is in fact a Bill to implement the Budget, it is quite likely that the Government, in its wisdom, might consider a vote against this Bill to be a vote of non-confidence in the Government. I certainly have a great deal of confidence in the Government, notwithstanding my concerns with and objections to the provisions relating to international banking centres.

As you can appreciate, Mr. Speaker, while I do not believe that a vote against this Bill would be a vote of non-confidence in the Government, I can understand why you might believe otherwise. That puts me somewhat on the horns of a dilemma. I intend to resolve that dilemma by voting neither for nor

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against this Bill. 1 hope to be in the House when the Bill is voted on at third reading. 1 shall not rise in support of it but 1 will ask to be recognized by you, Mr. Speaker, so that I can indicate that I am present but will not be voting for the Bill.

Mr. Nelson A. Riis (Kamloops-Shuswap):

Mr. Speaker, 1 appreciate being recognized to participate in this important debate. It is our intention that this debate be relatively short. However, I do want to make some comments because I think that a great deal of mythology has built up surrounding the international banking centres which this legislation addresses.

During the time leading up to the committee's examination of the impact of international banking centres on various communities and after the concept was introduced by the Government many people thought this was a major step toward significant job creation, particularly in the Cities of Vancouver and Montreal. If you were to ask people about this in Vancouver even today they would say that they are looking forward to this designation because they need the jobs and the economic activity in western Canada and, more precisely, in the port city of Vancouver.

Unfortunately, the evidence shows that that assumption is not accurate. In 1984 the United States General Accounting Office did a thorough examination of the establishment in the United States of international banking centres. In 1984 they stated in their report: "Significant increases in employment and other real activity associated with IBCs-only 55 to 67 new jobs". In other words, after a number of years in one of the major centres of world commerce, the number of jobs that a small restaurant would create is all that resulted.

Some analysis has been done on what this will mean in terms of jobs in Vancouver and Montreal. The Canadian Bankers' Association studied what international banking centres had done in other places and applied that to Vancouver and Montreal. They factored in the extent of financial activity which takes place in those centres now. They concluded that between the two cities we may expect an increase of 26 jobs. The finance officials applied their analyses to the two centres and concluded that only 11 jobs would ultimately be created in Montreal and Vancouver combined.

The evidence which we have seen indicates that this is not the best way to create jobs. As a matter of fact, it is a very expensive way to do so. Studies which have been done to date indicate that about $32 million would be lost to the federal Treasury as the result of the creation of these international banking centres. If we are to lose $32 million to create 11 jobs, that works out to about $2.9 million per job. That is a very expensive job creation program. If job creation is our aim, we can do much better. The point 1 am trying to make is that the aim is not to create jobs in international finance. There must, therefore, be some other purpose.

What is the purpose? People have assumed that the creation of an international banking centre would result in all kinds of money flowing into Canada which we could use for investment

December 8, 1987

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purposes. That is not the concept of an international banking centre. An international banking centre does in fact attract offshore money, but only for investment offshore. In other words, it is a depository for a short period of time while overseas investments through that financial institution and its affiliates are being determined.

The creation of an international banking centre in the City of Vancouver would possibly attract funds which are presently going to the Cayman Islands or others of the rather peculiar tax havens. Those funds would not, however, be used for investment in Vancouver, British Columbia or Canada, but in offshore locations. There would be no direct benefit to Canada whatsoever through economic activity which would flow from the moneys in international banking centres. However, there are people who would benefit. Of course, the major beneficiaries would be the banks themselves.

This legislation creates an international banking centre where the profits generated in that centre would not be taxed. When we consider examples in the Cayman Islands and other places which we recognize as international tax havens, we see that substantial profits that are generated would be tax-free. At a time when we are expending a lot of energy and money deciding how to restructure our tax system to make it more equitable, fair and just, the Government is taking a rather peculiar step by creating an international banking centre and giving another break to the banks.

I do not fault the banks for this. As a matter of fact, the banks have made it quite clear that this step is probably not a good idea in terms of the financial system in Canada and its reputation in the financial circles of the world. They are simply going along with what the Government passes.

A number of bankers have told me not to blame them for taking advantage of tax laws that the Parliament of Canada creates. Last year I believe that not one of the big six banks in Canada paid any income tax. They have said that they should not be blamed for not paying taxes because they are only following the laws that the Government of Canada makes. If the Government wants them to pay taxes, it should change the laws. In a sense, they have a point. The fact that they will be the main beneficiaries raises questions. It would make it very difficult for me to support this legislation on those grounds alone.

This legislation will designate Vancouver and Montreal as international banking centres. I think we can do a great deal more as a Parliament to enhance the financial services available in Vancouver and Montreal, as well as in cities like Edmonton, Calgary, Winnipeg and many other Canadian centres where I believe we should be doing what we can to enhance the availability of financial services, particularly to the small and medium-sized businesses operating in those jurisdictions.

Many Members meet small and medium-sized business people in their constituency who have ideas and concepts they want to act upon but have difficulty obtaining financing to do so. They are hindered by the ability to obtain that financing.

As my colleague, the member for Ottawa Centre (Mr. Cassidy) indicated, it is time to set up some task forces in centres where the appropriate boards of trade and chambers of commerce could meet with urban officials as well as provincial and federal officials and representatives of the financial community to identify ways and means of enhancing the level of financial services in those centres. That is what people want.

Unfortunately, I believe the impression has been created that the designation of Vancouver as an international banking centre will present a host of new financial opportunities for local business people, industrialists, entrepreneurs and others. However, that is not the case.

The identification of Vancouver as an international banking centre is only symbolic. While it may send a certain message to some people in the country that we have identified Vancouver as an important West Coast city and port, no one who understands international banking will be fooled by this designation. They will realize that the critical decisions on national and international finance will be made in Toronto or New York, no matter what designation we give to centres around the country.

We are talking about a very sophisticated, effective and complicated international community of financiers. These trained and experienced individuals understand that to designate an international banking centre means very little, other than being a symbolic effort. They will know where the real, important and critical financial decisions will continue to be made.

While I am in favour of the concept of applying an international banking centre status to a city like Vancouver, I think it is somewhat of a smokescreen. It gives the illusion that something is being done and gives the people of Vancouver, and perhaps the people of western Canada, the impression that they have been given a significant designation, according to this Bill. Such is not the case.

It is important for us to recognize that we should not only do something of significance but also be seen to be doing something of significance. Unfortunately, only the latter is the case. The life of the average Vancouverite, British Columbian and Canadian will not significantly change as a result of this legislation. It is essentially a waste of our energy.

If anything, this legislation has made Parliament and the finance committee recognize that we must take steps to provide better financing vehicles for Canadian investors and business people. If this debate has moved us a step in that direction, I think we have made some progress. But let us not be duped into thinking that this will make a major difference in terms of the economic activity that is generated either in Vancouver or in Montreal.

December 8, 1987

The Acting Speaker (Mr. Paproski):

Questions or comments? Debate.

Hon. John W. Bosley (Don Valley West):

Mr. Speaker, 1 intend to be brief. This has been difficult legislation, particularly for those Members who come from Toronto. 1 want to elaborate on some of the concerns raised by the Member for Kamloops-Shuswap (Mr. Riis) and the Member for York East (Mr. Redway).

It seems that there is no one who seriously believes that Clause 10 is reasonable or sensible. Certainly, no one in the banking community believes that to be the case.

Some Members believe that a symbolic gesture with regard to Vancouver or Montreal perhaps makes sense. That may be easier to accept if either of those centres were being considered on an experimental basis, but that is not the .case. We are being asked to accept permanent legislation 'which no tax expert believes makes sense.

On that basis, as an honourable Member, I do not think I can do anything but vote against the legislation. While I suspect that no one will believe me, let me make it clear that I do not intend to vote for this legislation because I believe it is unnecessary.

If this were reasonable banking centre legislation, I would then be arguing that Toronto should be included. I cannot believe that anyone would not contemplate anything called international banking centre legislation in this country and exclude the place where 80 per cent of the banking is done.

The Hon. Member for York East has raised his dilemma, and I simply wish to say to him that under the spirit of reform, the only way that individual Members will ever be able to make their points to a Government will be on third reading. In the end, that is where we will have to stand up, even though you and I know, Sir, and the Member for York East and I both know that we will lose this fight. Sometimes it may be necessary, when it seems appropriate, because that is what this Government in absolute legitimacy said, that when Members want to vote against Bills, they should do so. Well, I intend to do so. Sir.

The Acting Speaker (Mr. Paproski):

Is the House ready for the question?

Question.

The Acting Speaker (Mr. Paproski):

Is it the pleasure of the House to adopt the motion?

Agreed.

No.

The Acting Speaker (Mr. Paproski):

All those in favour of the motion will please say yea.

Customs Tariff

Yea.

The Acting Speaker (Mr. Paproski):

All those opposed will please say nay.

Nay.