March 28, 1988

PC

John Allen Fraser (Speaker of the House of Commons)

Progressive Conservative

Mr. Speaker:

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

Topic:   GOVERNMENT ORDERS
Subtopic:   CUSTOMS TARIFF
Sub-subtopic:   MEASURE TO AMEND
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?

Some Hon. Members:

Agreed.

Topic:   GOVERNMENT ORDERS
Subtopic:   CUSTOMS TARIFF
Sub-subtopic:   MEASURE TO AMEND
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?

Some Hon. Members:

No.

Topic:   GOVERNMENT ORDERS
Subtopic:   CUSTOMS TARIFF
Sub-subtopic:   MEASURE TO AMEND
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PC

Richard Grisé (Parliamentary Secretary to the President of the Privy Council)

Progressive Conservative

Mr. Richard Grise (Parliamentary Secretary to Deputy Prime Minister and President of the Privy Council):

Mr. Speaker, Hon. Members may have noticed that the Bill under consideration today is not very long, but still Canadian companies and individuals think it is important. If the Bill is adopted we will be in a position to amend the Customs Tariff tabled by the Minister of Finance (Mr. Wislon) last February 10 when he presented his Budget.

Most of these tariff amendments will result in reducing or eliminating duty on equipment not available from production in Canada: specified machinery used by the oil-sands producing industry, certain compressors and differentials for automotive vehicles, steel rods used in the construction of silos, unrecorded magnetic tapes used to make cassettes for the blind, certain model kits, and burial shrouds. Some of the amendments are of a purely technical nature, for they simply continue to guarantee duty-free entry of equipment which was not subject to duties before the February 10 Budget, including among others facsimile transmission apparatus and diesel engines used in certain construction equipment.

Mr. Speaker, these amendments are among the least voluminous tariff measures introduced in recent Budgets. This Bill is substantially different from Bill C-87 proclaimed on December 24, 1987, which was one of the most important Bills the House had to consider. Naturally, it dealt with tariffs, but its main purpose was to review the whole customs tariff to ensure its consistency with the international harmonized goods designation and codification system.

Mr. Speaker, the development and implementation of the new harmonized system, which required massive resource investments from the business sector, without mentioning public expenditures, explain in large part the relatively small number of tariff amendment requests requiring the introduction of legislation to have been submitted to the Minister of Finance since the tabling of the 1987 Budget. I believe that this situation is also due to the fact that manufacturers, importers and other business people have focussed all their attention on the Free Trade Agreement with the United States. As Hon. Members already know, the agreement provides for the elimination of all tariffs imposed by Canada

March 28, 1988

Customs Tariff

and the United States on the goods they trade. Depending on the products, certain tariffs will be eliminated on January 1, 1989, while others will be phased out over periods of three, five or ten years from that date.

I have already indicated that, while the tariff changes included in this bill are few, they are very important for the companies and individuals who will benefit from them. As an example, the tar sands development industry will be able to import duty free a wide variety of parts not manufactured in Canada, which will allow this industry to reduce its costs at a time when it is attempting by every means possible to produce oil at a cost competitive with world market prices.

Mr. Speaker, the policy of the Government is to meet the needs of the business sector and individuals by amending the tariffs in its annual Budgets. This Bill maintains this tradition. I therefore urge the House to adopt it as quickly as possible.

Topic:   GOVERNMENT ORDERS
Subtopic:   CUSTOMS TARIFF
Sub-subtopic:   MEASURE TO AMEND
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LIB

Aideen Nicholson

Liberal

Miss Aideen Nicholson (Trinity):

Mr. Speaker, as the Hon. Parliamentary Secretary said, this is a fairly straightforward technical Bill which need not take up a lot of time in the House but should, I think, be examined rather carefully in committee.

The Bill introduces amendments to the customs tariff and these were included in the Ways and Means motion tabled as part of the Budget on February 10, 1988. Duties are being removed on a range of equipment used by the oil sands industry, certain compressors for motor vehicles, steel rods for farm silos, and so on. The Government tells us that all these changes have been made at the request of certain segments of industry, and of course we will want to confirm that through hearings with other interested parties to ensure that this is indeed as generally acceptable as we are told.

The Bill also provides for some technical amendments to the customs tariff, some of which are to ensure that goods which are now duty free continue to be so. These include facsimile equipment and diesel engines used in certain construction equipment.

Finally, there are some measures in this Bill to correct errors which were made in the new harmonized systems tariff. As the Parliamentary Secretary mentioned in his speech, the previous Bill, Bill C-87, contained a truly enormous list of goods on which there were changes. The Bill in itself was not very large, but the schedules were enormous comprising several columns. In speaking to that Bill on December 11, I said that brokers, and especially small importers, were clearly going to have problems with new names, new designations, and so on.

The original Bill, C-87, will require very careful monitoring. It does contain one clause, Clause 131, which could be used to

give relief. Clause 62 gives the Government very broad authority of a kind which had been used in the past merely to implement GATT decisions. However, that broad authority could potentially be used to give relief to innocent citizens who find themselves caught up in the maze of this Bill.

One would hope that the Department of Customs and Excise would continue to be helpful to users of the system. Much publicity was undertaken in connection with Bill C-87 and information was provided to the larger brokers to guide them through that more complicated Bill. Bill C-118 contains amendments which the Government has frankly admitted are necessary as a result of its errors.

On the face of it, Mr. Speaker, this is a straightforward Bill, but even Bills which are apparently straightforward and technical often present problems for the users. We do not know how extensive the Government's consultation has been. I would hope that in committee we will be able to hear witnesses and get a better understanding of the effects of these measures on Canadians.

Topic:   GOVERNMENT ORDERS
Subtopic:   CUSTOMS TARIFF
Sub-subtopic:   MEASURE TO AMEND
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NDP

Simon Leendert de Jong

New Democratic Party

Mr. Simon de Jong (Regina East):

Mr. Speaker, I wish to say a few words on behalf of the New Democratic Party on Bill C-118. As the Parliamentary Secretary indicated and the spokesperson for the Liberal Party concurred in, this is not a major Bill. It is not a thick Bill like the one we received earlier which dealt with the harmonization of the trade practices between Canada and other countries involved in GATT. When we discussed Bill C-87 there were concerns expressed with regard to some of the measures. While the Government ignored some of the points raised at that time it has now, through Bill C-118, attempted to deal with some of the mistakes it made when it drafted the harmonization Bill, C-87.

This Bill removes tariffs on a range of equipment used by the oil sands industry, certain differentials and compressors for motor vehicles, steel rods for farm silos, recording tapes used to make cassettes for the blind, certain model kits, and burial shrouds.

We will have some questions in committee with regard to the importance of these measures, the revenue implications that they will have, and the type of consultation which has occurred between the Government and industry. There is not much more I can say about this Bill at this stage. Most of our questions will be asked in committee. We hope to receive appropriate responses from the Minister at that time.

Topic:   GOVERNMENT ORDERS
Subtopic:   CUSTOMS TARIFF
Sub-subtopic:   MEASURE TO AMEND
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PC

Steve Eugene Paproski (Deputy Chair of Committees of the Whole)

Progressive Conservative

The Acting Speaker (Mr. Paproski):

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

Topic:   GOVERNMENT ORDERS
Subtopic:   CUSTOMS TARIFF
Sub-subtopic:   MEASURE TO AMEND
Permalink
?

Some Hon. Members:

Agreed.

Topic:   GOVERNMENT ORDERS
Subtopic:   CUSTOMS TARIFF
Sub-subtopic:   MEASURE TO AMEND
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Motion agreed to, Bill read the second time and referred to the Standing Committee on Finance and Economic Affairs. March 28, 1988


EXCISE TAX ACT

PC

George Harris Hees (Minister of Veterans Affairs; Minister of State (Seniors))

Progressive Conservative

Hon. George Hees (on behalf of the Minister of Finance) moved:

That Bill C-117, an Act to amend the Excise Tax Act and the Excise Tax Act, be read the second time and referred to the Standing Committee on Finance and Economic Affairs.

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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PC

Richard Grisé (Parliamentary Secretary to the President of the Privy Council)

Progressive Conservative

Mr. Richard Grise (Parliamentary Secretary to Deputy Prime Minister and President of the Privy Council):

Mr. Speaker, this Bill C-117 makes it possible to implement a number of proposals related to the Excise Tax Act and the Excise Act. Most of these amendments were announced last June in the White Paper on the tax reform and in the Notices of Ways and Means Motions which were tabled later on, more specifically on December 16, 1987. Moreover, this Bill makes it possible to implement a number of measures announced in the Budget speeches of February 18, 1987, and February 10, 1988.

From a tax point of view, this Bill is very important. Although it provides for some tax increases, it should be seen in its proper context. In this Bill, most of the revenue increasing measures are part of the global tax reform program. Generally speaking, this program is fiscally neutral: the major reductions in personal income tax, which represent some $12 billion over the next five years, will be compensated by an increase in revenues from corporate income tax and by a large number of the sales tax increases provided for in this Bill. It should be emphasized that, among other measures involving personal income tax, the tax reform program provides for an increase of 40 per cent of the refundable sales tax credit paid to low-income Canadians. The purpose of this measure is to considerably reduce the impact of the sales tax increases on less fortunate Canadians.

In addition to measures announced when the tax reform was unveiled, the Bill features others aimed at a major target, namely deficit reduction. The most important factor in our deficit reduction strategy has been a curb on the growth of public expenditures, and we have been highly successful in this endeavour: general expenses have gone down, and there has been a sharp decline in operating expenses and capital expenditures. However, intent on reducing the deficit and maintaining financial management improvement, we had to combine lower expenditures with the higher taxes proposed in the Bill. Although no Government likes to raise taxes, these measures reflect our commitment to show more responsibility in the financial management of the economy.

Mr. Speaker, allow me to deal with some of the measures which will enable us to boost revenues.

I should like to sum up the major steps through which we intend to increase revenues, as set forth in the Bill. Here are the main provisions of the over-all tax reform program: a 10 per cent tax on telecommunications services such as telephone and telex, excluding service charges for local residential

Excise Tax Act

telephone lines. The corresponding tax rate on cable and pay TV services will rise from 8 to 10 per cent. These changes took effect on January 1, 1988 and are expected to yield additional revenues of about $870 million a year.

The sales tax rate on paint and wallpaper products has increased from 8 per cent to 12 per cent effective January 1, 1988, which should bring in an extra $60 million annually.

To compensate the effects of the tax reform temporary measures on revenues, the payment of sales and excise taxes will be accelerated effective April 1, 1988. At present, all businesses are required to remit the sales tax on the last day of the month following the month of the taxable sale. Under the new provisions, the great majority of corporations will have to remit the tax on the 21st day of the month following the month of the sale, while the largest corporations, which represent fewer than 1 per cent of ail taxpayers, will be required to remit the tax twice a month.

This measure does not increase the amount of tax payable on each transaction, but only reduces the time elapsed between the date on which the taxable sale is made and the date on which the sales tax is remitted. This measure will make it possible for the Federal Government to get a one time cash flow increase of $1,6 billion for the fiscal year 1988-89.

Finally, Mr. Speaker, as was announced in the Notices of Ways and Means Motion of December 16, 1987, this Bill will increase the federal sales tax rate on beer, spirits, wine and tobacco products from 15 to 18 per cent, effective January 1, 1988.

The revenues resulting from this amendment, representing some $175 million per year, will be used to finance the increase in tax benefits to families with children.

This Bill will also allow for the implementation of two revenue increasing measures included in the February 1987 Budget.

Since February 19, 1987, the duties and excise taxes on tobacco products have increased by 4 per cent, which is about the rate of inflation. This measure should increase the revenues by some $70 million a year.

Moreover, to recover a greater portion of the air transport program costs, the February 1987 Budget provides for an increase in the air transportation tax levied by $4 per ticket, which should take in an extra $45 million in 1987-88.

Finally, this Bill provides for an increase in the excise tax on gasoline by 1 cent per litre, as announced in the February 10, 1988 Budget. This increase will come into effect on April 1, 1988. At the same time, the existing fuel tax discount for farmers, fishermen and other primary producers has been increased by an equivalent amount to protect them from the tax increase. The net increase produced by this measure should bring some $300 million in revenue in 1988-89.

The bill also provides for the implementation of a number of technical amendments to the Excise Tax Act and the Excise

March 28, 1988

Excise Tax Act

Act. Sales taxes on motor fuels have been transferred to the manufacturer to solve the administration and reporting problems which became apparent when these fuels were taxed at the wholesale stage.

The burden of federal sales and excise taxes on leaded and unleaded gasoline has been balanced to support the efforts of the Minister of the Environment who is trying to eliminate lead emissions from gasoline.

The tax rate on alcoholized coolers has been lowered to correspond to that of wine-based coolers to grant them equal tax treatment.

The provisions on the reimbursement of the sales tax for certified public institutions have been made more specific to ensure that the tax abatement is limited to non-profit organizations. Certain compliance provisions of the Excise Act have been reviewed to reflect reduced on site surveillance by excise officers in relation to the production of alcohol and tobacco products.

In addition, the Bill contains certain measures to reduce the paperwork of small businesses; more specifically, the tax ceiling for periodical and seasonal returns has been doubled, which will allow some 2,000 additional taxpayers to pay their taxes four times a year, twice a year or periodically rather than every month.

In response to the concerns raised by cultural groups, original engravings have been exempted from the federal sales tax.

Mr. Speaker, this Bill also amends certain fair price provisions included in Section 34 of the Excise Tax Act. Under the proposed amendment, the tax will apply on fair market values when non-arm's length sales are made. This amendment follows a recent ruling by the Federal Court which questioned the power of the Minister of National Revenue to determine the value of a product for tax purposes under such circumstances.

That amendment, as well as the provisions concerning the taxing of marketing and distribution costs, which will be implemented under another bill on November 1, 1988, should effectively solve the problem of value for the purposes of the sales tax before the second phase of tax reform is carried out.

Finally, the bill implements the provisions announced in the budget speech of February 1987 according to which the tax levy is shifted to the wholesaler's level for a variety of items such as candies, snack foods, pet food and certain electronic equipment. Thoses changes will come into effect on various dates between May 1 and August 1,1987. When the proposed rules on marketing and distribution costs are enforced on November 1, 1988, the tax levy on most of those items will be shifted back to the manufacturing level.

Other minor technical amendments provided in the Bill are aimed at clarifying the interpretation of some provisions in the

legislation and to give legislative authority to some present administration procedures.

In conclusion, Mr. Speaker, I want to reiterate that it is a very important bill. It is one of the basic aspects of our comprehensive tax reform which will enable us to reduce considerably the income tax collected from 8 out of 10 Canadian taxpayers. Moreover, it completes important steps in our Government's comprehensive strategy which is to reduce the deficit and to improve the financial management of the economy.

To enforce those changes, I call upon all Hon. Members to approve the Bill as soon as possible.

[DOT] (1140)

[ English]

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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LIB

Aideen Nicholson

Liberal

Miss Aideen Nicholson (Trinity):

Mr. Speaker, this is a Bill to implement a number of increases in excise taxes. This is from a Government that came to power on a promise to reduce the deficit without increasing taxes.

The Prime Minister (Mr. Mulroney) was quoted early on as saying that taxes would not be increased generally because Canadians already pay a lot for the services they receive from the Government. He was also quoted as saying he would tax the rich, that the rich would pay handsomely. However, what is happening is that we are seeing enormous increases in sales taxes. The Minister of Finance (Mr. Wilson) regularly inveighs about the manufacturers' sales tax, which he says is a silent killer of jobs, yet he uses it and abuses it and piles taxes upon taxes on Canadians. Between the increases in personal income tax, many of them hidden because they were arrived at by deindexing, and the increases in sales taxes, this Government has taken an additional $22 billion from Canadians since it came to power.

[DOT] (1150)

In his speech the Parliamentary Secretary also made a reference to reduction in personal income tax of approximately $2 billion this year. The Minister of Finance takes $22 billion away over a five-year period, proposes to hand back $2 billion in the pre-election year, and we are all supposed to be grateful. As the Parliamentary Secretary pointed out, many of these measures in the Bill before us were contained in the White Paper last June, the so-called tax reform paper, which also had a lot of the features of a budget, and in the subsequent Ways and Means motion tabled December 16. In addition, this Bill implements some of the measures announced in the Budgets of February 18, 1987 and February 10, 1988.

In talking about the White Paper, the Parliamentary Secretary repeated the myth that his Party has continued to express, that the package is fiscally neutral. The effect of fiscal neutrality is achieved by smoke and mirrors. The package the White Paper produced was to involve reductions of personal income tax by $12 billion over a five-year period,and an increase in corporate taxes by $5 billion over a similar period,

March 28, 1988

increases in manufacturers' sales tax, to which I will return, and then at least $2.6 billion worth of smoke and mirrors, that is, advanced remittances. Employers were initially required to remit at a faster rate, fortnightly instead of monthly, and later it became weekly instead of fortnightly, payroll deductions from their employees. That, I think, accounted for $1.2 billion.

Today the Parliamentary Secretary reminds us that by requiring business people to remit the sales tax earlier, on the twenty-first day of the month following the sale instead of the end of the month, and requiring some firms to remit fortnightly, we arrive at a situation where the Government has a one time cash flow increase of $1.6 billion for the fiscal year 198889. There were other pieces of smoke and mirrors in that exercise, but I think we should be clear that phase one of the so-called tax reform was not, and never has been, fiscally neutral.

In his speech, the Parliamentary Secretary also said that the most important element of the Government's strategy of deficit reduction has been to limit the growth of government spending. Unfortunately, that does not jibe with the facts. The facts are that this Government has tried to tax its way out of dealing with the deficit. While government spending has been reduced in some areas which are important to Canadians, such as post-secondary education, research, the environment, the Prime Minister's presidential lifestyle has required very large increases in government spending.

This Bill before us puts a 10 per cent tax on long-distance telephone calls and on cable and pay television services, which will net the Government $870 million a year. This tax is quite a hardship on people with small businesses who do a lot of business overseas as well as within Canada. I have heard from many people whose telephone calls are a necessary part of their business, and this will now represent a serious increase in their costs. The sales tax rate on paint and wallpaper products has increased from 8 per cent to 12 per cent, and this is expected to raise $60 million annually for the Government.

The taxes on beer, spirits, wine and tobacco products, which were previously announced, are all in this Bill and altogether will amount to something like $240 million a year. However, the tax that will concern many Canadians is the continued increase in the excise tax on gasoline, another one cent a litre increase effective April 1, 1988. Since this Government has been in power it has raised the price of gas by 23 cents a gallon. That is causing severe problems to our transportation industry, already competing with very large American firms, and is also causing problems to our tourism industry. Of course, the cost of gasoline goes right through our economy. It affects manufacturing, packaging, storage, heating of retail facilities, and so on. At every point in the distribution chain, increased gasoline costs affect the final cost to the consumer.

When I spoke on the borrowing authority and on the Budget, I pointed out again and again that this Government, since it came to power, has taxed Canadians in a way that is unprecedented since Confederation. I will not repeat all those

Excise Tax Act

criticisms again today, however, they certainly still hold. The Parliamentary Secretary, in concluding his speech, said that the over-all tax reform package provides major personal income tax cuts for more than eight out of ten Canadians. What he omitted to say is that it provides income tax cuts to poorer Canadians with incomes of less than $15,000 a year, and that these income tax measures, which have been misleadingly called "reform", are particularly hard on young families with children. A family with two children and one earner earning around $30,000 per year will pay a great deal more after this package.

Furthermore, what has been left out of this argument is the cumulative effect of all the tax changes that have been built in since the Government came to power. I refer to the deindexation of family allowances, the deindexation of personal allowances. Factor all those measures in and one comes up with a very different picture in which eight out of ten Canadians will not be benefiting.

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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NDP

Simon Leendert de Jong

New Democratic Party

Mr. Simon de Jong (Regina East):

Mr. Speaker, I listened attentively to the spokesperson for the Liberal Party. I wish to address myself to this Bill as well. Many of the criticisms we propose to Bill C-117 are ones that she has stated. Indeed, when we come to look at Bill C-l 17 we really begin to see the smoke and mirrors of the Government, the double-talk and the double-think.

When introducing this measure the Parliamentary Secretary talked about tax reform and the great job the Government has done in lowering taxes paid by ordinary Canadians. Yet we know that since the election of the Conservative Government in 1984 some $22 billion in increased taxes have been levied on the Canadian taxpayers. What tax reform does is to return some $2.2 billion to them. The Parliamentary Secretary was certainly very forward when he suggested that the $2.2 billion was a great effort by the Government to relieve the tax burdens that ordinary Canadians pay. Yet he did not mention the $22 billion in extra taxes that the Government is collecting.

Of course, the Government likes to collect its money in what I would call the sneaky way. It has done a partial deindexing on marginal tax rates. It has deindexed family allowances so that the benefits from family allowance do not keep pace with the increase in inflation. However, these are things that are not immediately apparent to the Canadian taxpayers. I say that because they would first have to figure out what the rate of increase should be if it were fully indexed to inflation as opposed to the increases that they are getting under the partial deindexing that the Government has introduced.

The Government tried to take on the seniors by deindexing the old age pension. However, the seniors were a little smarter than the Government, and certainly a little faster on their feet. They forced the Government to backtrack on that measure.

The biggest revenue grab by the Government was the partial deindexing of the income tax which will mean that as inflation

March 28, 1988

Excise Tax Act

increases the Government's take will increase also. The Government benefits from inflation because it has now partially deindexed the income tax.

One wonders, if it is in the Government's vested interest to have a certain amount of inflation, then how committed is it to reducing inflation to zero? In the last little while members of the New Democratic Party have been asking for a lower interest rate. The Minister of Finance (Mr. Wilson) defends a high interest rate because he figures this is the way to fight inflation, that inflation at around 4 per cent is still too high and therefore we have to maintain this high interest rate.

Yet when we look at Bill C-117 we begin to recognize why we have the high inflation that we do have. It is not because of market forces. It is because of the forces of the Government. It has increased the taxes on manufactured goods which has resulted in increased prices right across the board. So it does not matter how high the interest rate is, it is the taxation policies of the Government that are maintaining an inflation rate of 4 per cent.

When we hear the Minister of Finance tell us that we need a high interest rate in order to combat inflation I suggest to the Canadian people that if we are to combat inflation we should turf this troupe out. If we did not have a Conservative Government, inflation would be down around 2 per cent. I would venture to estimate that 50 per cent of the reason that we have the inflation rate that we do have is the tax measures of the Government.

Let us take a look at some of these tax measures. The Bill which we are debating today will justify a 10 per cent increase on telecommunication services such as telephone and telex services, not including the charges for local residential lines. How much will this take out of the economy? It will take some $870 million per year, by the Government's own figures. Now our telephone costs are higher, which increases the costs of doing business. This increased cost will be shifted on to the consumer. It is no wonder that we have this inflation rate when the Government is taxing anything that sits, moves and jumps.

The sales tax rate on paint and wallpaper products is increased from 8 per cent to 12 per cent effective January 1, 1988. That will take an extra $60 million annually. In other words it will cost a little more to renovate one's home, put on some new wallpaper or to paint, whether it is a renovation or new construction. Again, we see the cost of homes and home fixtures being increased because of the measures of the Government.

Bill C-117 increases the federal sales tax rate on beer and spirits, wine and tobacco products from 15 per cent to 18 per cent. There is an increase in specific excise tax on the excise duty rates for tobacco products by 4 per cent.

There is an increase in the air transportation tax levied by $4 per ticket to recover a greater proportion of the air transport program costs. There is an increase in the excise tax on gasoline and aviation gasoline by one cent per litre. As my

colleague and the spokesperson from the Liberal Party pointed out, since the election of the Government the federal take on gasoline has increased by some 23 cents per litre. My gosh, if Canadians wanted to have cheaper gasoline prices they should turf this group out. That inflationary cost is something that gets passed on to the consumer as well.

The Bill also introduces several technical amendments to the Excise Tax Act and the Excise Act. These include a shift of the taxes on motor fuels to the manufacturing level to address administration and compliance problems. Again, this is something that the finance committee has been concerned with. We did issue a report on it. I am happy to see that there is some sensitivity by the Government on this matter. Whether or not it deals with the problems of the small wholesalers of gasoline or not I am not quite certain. I think that the measures of the February 1987 Budget created unfairness in the system. That unfairness still prevails.

Part of the problem with our present excise tax and our sales tax is that they create distortions in the economy. As well as being unfair to low-income Canadians and to consumers they also create distortions in our economy. I will be addressing these distortions a little later in my remarks.

The Bill also shifts the sales tax to the wholesale level for snack foods, pet food and pet litter, candy and confectionery goods, and certain electronic equipment. This comes out of the February 1987 Budget. The tax on most of those products will be shifted back to the manufacturing level when the marketing and distribution cost measures announced in the February 1988 Budget come into effect on November 1 of this year.

The Bill clarifies the refund provisions applicable to certified public institutions. It amends the fair price provisions to apply tax on fair market values when non-arm's length sales are made, or where it is difficult to determine the sale price. There is a revision to certain compliance provisions in the Excise Act to reflect reduced on-site surveillance by excise officers in relation to the production of alcohol and tobacco products. Those are mainly housekeeping type measures.

One of the relieving measures in this Bill, and there are a few, is an increase in the existing fuel tax rebate available to primary producers for the excise tax on gasoline by one cent a litre to compensate for the increase announced in the February 1988 Budget. Thank heavens for that. The farmers in my district who are already having difficulty enough in surviving with the low grain prices and high input costs, will not be asked to pay an extra cent a litre for the gasoline that they must use to put the crop in the ground.

Another relieving measure is an increase in the tax threshold for periodic and seasonal filers in order to reduce the paper burden for small businesses. I am happy to see this provision. A small business person or restauranteur had to fill out those forms for, at times, very insignificant amounts, but it did take time. Operating a restaurant is not an easy matter, particularly

March 28, 1988

if one has loads of paper work to deal with a few dollars of remittance to the Government on some sales tax item. It was a necessary part of the job, it did not make sense, and I am glad to see that there is some sensitivity on this issue from the Government.

We also see a little sensitivity from the Government regarding the fine arts. As a relieving measure in this Bill there is an exemption for original prints from the application of federal sales tax.

Let us look at the Government's philosophy in terms of tax. Bill C-117 is a Bill to amend the Excise Tax Act and the Excise Act. It is legislation coming out of the February 10, 1988 Budget. In light of tax reform, the Minister of Finance has missed the opportunity to introduce real tax reform. I think that my colleague, the chairman of the finance committee, will say a hearty "hear, hear" when I make this statement. We all recognize that, in essence, the Minister has flubbed when it comes to tax reform.

In other jurisdictions that have implemented tax reform it has been done as one complete package coming into effect on one day. When there was an increase in the sales tax and people saw the price of goods and services increasing, on the same day they also saw a reduction in their income tax, and low income people saw an increase in family benefits. All of this was done in one day in one complete package with most of the middle and lower income people benefiting from such measures. Certainly, we do not see this today in Bill C-117 and the Government's attempt at tax reform. It has reduced marginal rates. But what it has given with one hand it has taken back tenfold with the other hand. There is an increase in taxes of $22 billion and a rebate to the average taxpayer of $2.2 billion. That is a clumsy way of playing a shell game, something that I do not think average Canadians will be fooled by.

Since most of the tax reform proposals dealing with sales and excise taxes are proposed in stage two of tax reform, what is not in the Bill is more interesting than what is in it. It is obvious, by delaying stage two of tax reform, which is not expected until after an election, the Minister and the Conservative Government are content in sustaining a deeply flawed, unfair, and inequitable system of federal sales tax and excise tax.

Since the 1984 election the Conservative sales and excise tax revenues have escalated dramatically. It is clear that the Government is increasingly relying on the regressive sales and excise taxes to finance federal expenditures. The more the Government does this, the more difficult it will be to revise it.

The theory and implementation of federal sales tax is quite straightforward. The underlying principle of the tax is that it should apply only once in the distribution of the goods from producer to the consumer. Manufacturers are given licences which allow them to buy goods tax free. When the manufactured products are sold to non-licenced firms such as wholesalers they then become subject to tax. This method of

Excise Tax Act

licensing manufacturers is designed to avoid the problem of multiple taxation.

Canada is the only remaining major industrial country with a sales tax at the manufacturers' level. Canada now collects more revenue from those goods and service taxes, 35 per cent of our total revenues, than most OECD countries where the average is 29 per cent.

In the six decades since its inception, a wide array of variable rates and exemptions have been developed to reduce the inherent regressivity of such a tax. The system is so skewed that in 1981, six commodities accounted for 61 per cent of total federal sales tax revenue, three of which, motive fuels, alcohol, and tobacco were also subject to excise taxes.

Excise taxes which are levied under the Excise Tax Act are usually ad valorem taxes levied as a percentage of the manufacturers' selling prices, similar to the federal sales tax. They were originally designed to apply to luxury or nonessential goods. Excise taxes now are levied on goods such as alcohol, tobacco, jewellery, matches, lighters, coin-operated games or amusement devices, motive fuels, air travel, playing cards, radio and television programming services, automobiles, et cetera. Excise taxes apply to both domestically produced goods and imports. The excise duties are usually applied at a fixed rate for a given quantity of goods. Excise duties are only levied on alcohol and tobacco products. These sumptuary taxes are designed specifically to reduce consumption of what are considered to be harmful products, like the working man's beer.

The degree to which the Conservatives have decided to emphasize these regressive, hidden commodity taxes in their deficit reduction plans has become one of the hallmarks of this administration. Amid the controversies surrounding the capital gains tax exemption, the partial deindexing of marginal tax brackets, pensions, and family allowances, those commodity tax increases have gone forward virtually unnoticed.

There are some major problems with the current system. First, there is the difference in sales tax burden. The federal sales tax is levied on the manufacturer's selling price. However, the selling price may vary for the same product depending upon whether the manufacturer sells it to a wholesaler or to a retailer. Selling to a retailer brings with it a higher relative tax burden. When the manufacturer sells his or her products to a retail outlet, a higher cost will be incurred than if the product is sold to the retailer directly.

In 1977 it was estimated that fully 44 per cent of taxable manufacturers' sales went directly to retailers. To reduce this discrimination there is now an extensive list of what are called notional values, which are used to discount the price at which a manufacturer sells a product to a retailer to the price that would have been paid by a wholesaler. We can see the arbitrariness of the sales tax system.

Another problem is the taxation of production goods. When purchasing intermediate goods to be used in the production

March 28, 1988

Excise Tax Act

process, the manufacturer inevitably ends up paying hidden sales taxes on some goods. It was recently estimated that 42 per cent of federal tax revenues were collected on intermediate and capital goods. This leads to the third concern that we have with the present sales tax system, and that is the discrimination against exports. Hidden sales tax costs are forward shifted to the export price, making exports more costly than they would otherwise be. We are about the only industrialized country in the world that puts a tax on our exports.

The fourth concern that we have with the sales tax is the advantage to imports. Canada does not include the cost of transporting goods to Canada as part of the cost base for the calculation of federal sales tax. Consequently, those imports competing with domestically produced goods are often subject to less tax than goods produced in Canada. We tax exporters through our sales tax system and we give an advantage to importers. Aren't we smart? Instead of the Government attempting to deal with it in phase two of tax reform, which should have been brought in at the same time as phase one, the Government, through Bill C-117, is complicating and making worse an already bad situation.

Our fifth concern is the complexity. The licensing requirements of manufacturers and the documentation which entail, the special exemptions for certain goods, and the system of notional values, all tend to make the federal sales tax administratively very burdensome and unnecessarily complex.

The new 1 cent per litre increase in gasoline, which is not applicable to farmers, fishermen, and other primary producers, will cost the average Canadian family of four, assuming a $35,000 annual income, some $50 extra per year. This amount is roughly the same as the decrease in tariff rates, which the first two years of the free trade agreement will see as a reduction of federal government revenue. In other words, the Government will lose this money because of the free trade agreement and the reduction of tariffs. It will be reducing its revenues, but the Minister of Finance has made certain that he will grab it out of the hands of consumers by increasing the price of gasoline by 1 cent per litre.

The new telecommunications tax on long distance rates is a blow to Canadians for two reasons. First, the finance committee of which I am a member, in its report last fall, recommended that people living in the remote North be subject to the 10 per cent tax on long distance calls only to a maximum of $3, since many people living in northern Canada depend heavily on long distance telephone service. The Minister rejected the recommendation. In fact, the Minister of Finance rejected most of our recommendations, but this is one about which I feel somewhat outraged. It is a tax on people living in remote and rural areas who depend upon telephone services much more than people living in the cities. People in remote areas have to place many more long distance telephone calls than city people, and this 10 per cent tax is an unfair levy on them.

Second, the CRTC ruled that Bell Canada should reduce its rates because Canadians were paying too much on their telephone bill. The Government's new 10 per cent tax on long distance rates ensures that Canadians are still paying too much on their telephone bill.

These are some of our concerns with Bill C-117. It increases inflation, despite what the Government has been saying about the reasons for having a high interest rate to combat inflation. As I mentioned earlier, if we are to combat inflation, the best thing to do would be to defeat a Government which has been so inflationary because of the increases in sales tax which it has imposed.

We are also concerned about the unfairness and complexity of the present sales tax regime. I admit that it is a problem which the present Government inherited from the previous Government. However, the Government has been in power for almost four years now, and it still has not done anything about it. In fact, it has made a bad situation even worse by piling more sales taxes on average consumers, by taxing pet food, candy, chocolate bars, and so on. It has created distortions in the market-place with unsalted peanuts not being taxed and salted peanuts being taxed. If we look at the list we see that certain yoghurt products are not taxed whereas certain frozen bars are taxed. There are distortions in the market-place because of the unfairness of the sales tax system.

We have seen the Government do its smoke and mirror act regarding tax reform. In a sneaky way it has taken more money out of the pockets of Canadians while up-front it has given them some tax relief.

This is certainly not honest and fair government. A fair Government would have been honest with Canadians and, if it was to increase taxes, it would do it in an up front way rather than through hidden sales tax.

We are not happy with the Bill. As I mentioned before, it makes a bad situation even worse. We are certainly looking forward to reviewing it in committee.

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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LIB

Jean-Robert Gauthier (Chief Opposition Whip; Whip of the Liberal Party)

Liberal

Mr. Jean-Robert Gauthier (Ottawa-Vanier):

Mr. Speaker, I take part in the debate on Bill C-117 very reluctantly because we are not too happy about having to face a government that uses regressive taxation, that resorts to hidden taxes to collect from Canadian consumers enormous amounts of money, admittedly to strike where it shows the least and use measures at its disposal such as the sales tax, the most unfair of all because it affects everybody without any consideration of income. Rich and poor alike pay the same sales tax. That is what a regressive tax is, Mr. Speaker, and a sales tax such as this one must be changed, even though it brings in significant revenue, and I think there is a disposition in this country to replace this approach with a fairer and more progressive one. But we are starting to lose patience with this Government. After three and a half years of endless studies and broken promises, Canadians have every reason to grow impatient.

March 28, 1988

The objective of Bill C-117 is to implement numerous sales and excise tax increases the Government announced in the Budget of February 18, 1987, also in the tax reform of June 18, 1987 and, finally December 16, 1987 in the most recent Budget of February 10, 1988. It is therefore because of those four Government measures that we now have before us a Bill that seeks to raise present taxes and give effect to the budgets or so-called economic statements the Government presented in the last year.

Mr. Speaker, I could detail those tax measures and tell you the 12 per cent tax the February 1987 Budget imposed on candy, snacks and ice cream as of July 1, 1987 has brought in $60 million in revenue and will bring in an estimated $80 million more in 1988-89. The same February 1987 Budget slapped a 4 per cent tax on cigarettes and tobacco that yielded $70 million in 1987-88 and will yield an estimated $77 million in 1988-89.

The air transportation tax was increased by $4 per ticket: $45 million in 1987-88 and $50 million in 1988-89; the sales tax on leaded and unleaded gasoline was equalized as of April 1, 1987, resulting in revenues of $30 million in 1987-88 and $30 million in 1988-89.

Mr. Speaker, as I said earlier, we had the tax reform in June and December 1987, when a 10 per cent tax was added to long-distance calls and the tax on cable TV was increased from 8 per cent to 10 per cent. As of January 1, 1988, this tax will raise $877 million in fiscal 1988-89.

As was stated by a number of my colleagues in this House, the tax on long-distance calls is unfair because it mainly affects people who live in rural areas. The tax on cable TV is unfair to people on medium and low-incomes for whom this may be the only kind of entertainment they can afford. And now the tax on cable TV is being increased from 8 to 10 per cent. There is also an increase from 8 to 12 per cent on paint and wallpaper, which will raise $60 million in 1988-89. The accelerated remittance of sales and excise tax, which will become effective in April 1988, will raise $1.6 billion. Another increase in the excise tax on alcohol and tobacco from 15 per cent to 18 per cent will raise $175 million.

The 1988 Budget brought down on February 10 brought us a one cent per litre increase in the excise tax on gasoline. This will raise an additional $225 million in 1988-89.

Mr. Speaker, what I don't like about sales tax, and I think many Members will agree, is that it is applied indiscriminately. The rich pay and the poor pay. They all pay the same amount because this tax is collected on a transaction, and no matter what your income is, the tax remains the same. That is why it is regressive, unlike the tax tables which are progressive, in other words, the more you earn the higher your income tax.

As I said earlier, this Bill implements certain statements made in the House and certain Budget proposals, but for some reason the Government has put off presenting this Bill until today. Mr. Speaker, it is not unusual for the Government to delay such a Bill. It has made a habit of bringing in Bills that

Excise Tax Act

affect all Canadians and increase taxes just before the House adjourns for Christmas, Easter or for the summer.

Mr. Speaker, we must remember that the same Government, the same Prime Minister (Mr. Mulroney) and the same Minister of Finance (Mr. Wilson) promised not to raise taxes. And we do remember. This is not new.

I want to quote from Hansard of March 6, 1984, two statements made by the Minister of Finance:

We would cut spending. We would not raise taxes. Tax levels in Canada are already too high.

But that is what he did, he made the load heavier still, not by taxing the rich and the 60,000 Canadian companies which do not carry what I consider their fair share of the tax burden, but by taxing low- and middle-income Canadians.

Here is a statement made by the leader of that Party, the Prime Minister of Canada, and reproduced in Le Devoir of November 29, 1984. I am quoting: "Canadians pay a fair amount of money for government services, and they have the impression they are paying enough". Quite true. The Prime Minister was right. As individuals we pay enough taxes. Perhaps he might practice what he preaches and tax his friends, those rich people who do not pay their fair share.

Since the Conservatives took over, Mr. Speaker, revenues from indirect taxes, sales taxes, excise taxes, went up much more sharply than those produced by direct taxes. Revenues from sales and excise taxes jumped by 77 per cent between 1984-85 and 1988-89, while personal income taxes rose by 55 per cent since this Government was elected, as compared with only 28 per cent for corporations and rich people. Through personal income taxes, sales taxes and excise taxes, individual Canadians rather than corporations had to shoulder most of the added burden.

Again, Mr. Speaker, for your enlightenment I could sum up the table I have here which shows the load Canadians have had to carry since September 1984: indirect taxes, higher sales tax from 9 to 10 per cent on October 1, 1984, from 10 to 11 per cent in January 1986, and from 11 to 12 per cent in April 1986. And each time it meant an additional $1 billion in the public purse, $1 billion more from hidden, regressive and unfair taxes.

I have here a list, which could be of interest to Conservative Members, concerning increases in the excise tax on gas: for example, 2 cents a litre on September 23, 1985 generating $900 million in revenue; 1 cent a litre on January 1, 1987- $450 million; 1 cent a litre on February 19, 1987-another $450 million. And, on April Fools' Day, we will get another increase of 1 cent a litre-$300 million in revenue, for a total increase of 23 cents on a gallon of gas in Canada since they came to power.

Mr. Speaker, their avowed objective is to tax the poorer people in order to get the large sums of money they cannot or do not want to get honestly in a progressive, open and fair manner. There is also the 10 per cent tax on long distance calls and cable television services. The Hon. Minister should rise on that subject and explain how those young people ...

March 28, 1988

Excise Tax Act

I see that he is singing, he finds it funny. The young people find it funny, Mr. Speaker ... He is playing the violin ... But I say to him that the young people, like their parents, will remember this Government for taxing cable television and long distance calls.

I could perhaps read from another interesting list on this Government's costs.

We spoke about indirect taxes earlier, and we shall now deal with direct taxes, which are collected up front.

First, the de-indexation of family allowances, personal credit and income tax tables. Since January 1, 1986, the Government has relieved Canadian taxpayers of $635 million by deindexing family allowances. The Members opposite are happy about it!

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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PC

Lise Bourgault (Parliamentary Secretary to the Minister of Consumer and Corporate Affairs)

Progressive Conservative

Mrs. Bourgault:

We are paying for your mistakes!

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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LIB

Jean-Robert Gauthier (Chief Opposition Whip; Whip of the Liberal Party)

Liberal

Mr. Gauthier:

Since January 1, 1986, the elimination of the tax rebate has brought in $650 million. By eliminating the deduction for the Registered Home Ownership Plan as of May 22, 1985, the Government has taken away $125 million from Canadians. The temporary surtax of 5 to 10 per cent on high incomes from July 1 to December 31, 1986, has brought in $500 million. The general and permanent surtax of 3 per cent for all taxpayers implemented on July 1, 1986, has brought in $1.2 billion. The change in the tax system for dividends implemented on January 1, 1986, has brought the Government $300 million. The change in the spousal exemption implemented on January 1, 1986, has cost taxpayers $20 million.

Mr. Speaker, I heard one Member say: "That is nothing!" It was a Conservative Member, one of the silly ones who usually make such comments. "That is nothing!"

For him, Mr. Speaker, $1.2 billion, a general surtax of 3 per cent, on to all taxpayers is nothing.

The Hon. Member is probably wealthier than average Canadians. "That is nothing", say the Conservatives, Mr. Speaker!

This is why the public is becoming cynical as far as the Conservatives are concerned. It is because of such comments that the Government has lost all credibility.

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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?

An Hon. Member:

All credibility!

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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LIB

Jean-Robert Gauthier (Chief Opposition Whip; Whip of the Liberal Party)

Liberal

Mr. Gauthier:

That's right, the Government has lost all credibility, you have lost, wasted and destroyed everything in the past three and a half years. The little you had in 1984 you have now lost!

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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PC

Lise Bourgault (Parliamentary Secretary to the Minister of Consumer and Corporate Affairs)

Progressive Conservative

Mrs. Bourgault:

The polls say-

Topic:   GOVERNMENT ORDERS
Subtopic:   EXCISE TAX ACT
Sub-subtopic:   MEASURE TO AMEND
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March 28, 1988