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STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Tuesday, May 9, 2000
The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this afternoon. As everyone knows, the order of the day for the finance committee on Tuesday, May 9, is Bill C-32, an act to implement certain provisions of the budget tabled in Parliament on February 28, 2000.
We have the pleasure to have with us the following individuals, and I will take the time to read all your names.
From the Department of Finance we have Doug Wyatt, general counsel, general legal services; Doug Adlard, general counsel, general legal services; Dan Hermosa, counsel, general legal services; Michèle Dupont, international relations officer, international trade and finance branch; Mark Hodgson, policy analyst, federal-provincial relations and social policy branch, labour markets/employment/learning; David Bell, economist, federal-provincial relations and social policy branch; François Cadieux, economist, federal-provincial relations and social policy branch, strategic planning; Ian Wright, senior project leader, financial sector policy branch, financial markets division, government financing; Amanjit Pandher, financial economist, financial sector policy branch, financial markets division, government financing; Alan McNaughton, director, tax policy branch, personal income tax division; Robert Dubrule, senior tax policy officer, tax policy division, pension resources, trusts and Insurance; Grant Nash, tax policy officer, tax policy branch, business and property; Marlene Légaré, senior chief, tax policy branch, sales tax division; Greg Smart, tax policy officer, tax policy branch, sales tax division; Ken Medd, senior tax policy officer, first nation taxation section, intergovernmental tax policy division, tax policy branch; Glenn R. Campbell, senior policy analyst, federal-provincial relations and social policy.
From Canada Customs and Revenue Agency, there is Mr. James McDonald, program officer, policy analyst.
From Human Resources Development Canada, we have Fred Chilton, manager of labour standards policy and legislation; Jean-Pierre Aubre, counsel, labour; Jim Little, officer, operational policy; and Gordon McPhee, director, insurance policy.
From Canada Customs and Revenue Agency as well, we have Louise Guyan, program management and operations section.
The first question, of course, is who's running the Department of Finance right about now. Of course, appearing and making the introductory remarks will be Mr. Roy Cullen, parliamentary secretary to the finance minister.
Mr. Cullen, you have the floor. You have approximately ten to fifteen minutes to make introductory remarks. Thereafter we'll engage in a question and answer session. Welcome.
Mr. Roy Cullen (Parliamentary Secretary to Minister of Finance, Lib.): Thank you, Mr. Chairman.
As a relatively new parliamentary secretary to the Minister of Finance, I wanted to make sure I had a lot of support here for the questions later, so we're well supported. Mr. Doug Wyatt, general counsel, will be sort of fielding any questions and directing them to officials, as and when required.
I am pleased to have this opportunity to address the committee today on Bill C-32, the budget 2000 implementation omnibus bill. I'll keep my remarks brief so we'll have plenty of time for questions.
This bill implements ten measures that were announced in the 2000 budget.
Three of them must be passed before the summer recess to ensure that Canadians have the benefits they need and want on time. These are measures that affect our health care and education systems, and families with children and students in need of assistance. Let me briefly explain these measures.
The first legislates a $2.5 billion increase in the Canada health and social transfer, or CHST, for health care and post-secondary education. These additional funds will be made available to provinces and territories on a per capita basis, and will be paid into a trust, which they can begin to draw down over four years once this bill is passed.
There will be an additional $1 billion in 2000-01 and $500 million a year in each of the following three years for post-secondary education and health care. Together with the $11.5 billion investment from the 1999 budget, the cash component of the CHST will reach $15.5 billion in each of the next four years, a 25% increase from 1998-99.
The second measure increases child tax benefits and provides GST benefits effective July 1 of this year. The budget 2000 commitment to fully restore indexation of the personal income tax system as of January 1, 2000, will be of particular benefit to middle- and low-income Canadians. To help these families, the Canada Child Tax Benefit is being increased by $2.5 billion annually by 2004.
This will be achieved by amending the Income Tax Act to fully index the Canada child tax benefit, increase the CCTB base benefit and national child benefit supplement beyond indexation, and raise the income thresholds for the base benefit and the national child benefit supplement.
The maximum Canada child tax benefit for the first child will be raised to $2,056 in July 2000, and $2,265 in July 2001, well on the way to the five-year goal of $2,400. For the second child, the maximum Canada child tax benefit will reach $2,200 in 2004.
The third measure amends the Canada Student Financial Assistance Act to ensure uninterrupted delivery of student loans after the current agreement with financial institutions expires on July 31, 2000. Through Bill C-32 there will be money available for student borrowers after July 31. Students who need loans in September will receive them without interruption in services. For students there will be no significant changes in how the program operates.
Loans will be administered on behalf of the federal government by service providers which are private companies that currently administer loan portfolios for many financial institutions.
These three measures must be legislated before the summer recess, Mr. Chairman. There are Canadians in need waiting for them.
The other seven measures, while not facing the same deadline, are nevertheless just as important for millions of Canadians, and for the effective and efficient operation of government. Let me briefly outline them.
First, the Employment Insurance Act is amended to double the maximum child-related parental leave to one year by increasing the number of weeks of parental leave by 25 weeks. The Canada Labour Code is amended to match this extension. In addition, the number of insurable hours that must be worked will be lowered to 600. Parents can choose whether one or both will spend time at home with a new child, and only one waiting period will apply per birth or adoption.
Further, income earned while receiving parental benefits will be treated the same as for regular EI benefits, allowing parents to work part-time while receiving parental benefits.
Another measure provides Canadians with better opportunities to diversify their personal retirement savings investments through registered pension plans and RRSPs. The foreign property content limit in RRSPs and other deferred income plans will be increased to 25% for 2000 and 30% for 2001. These increases will also apply to the Canada Pension Plan Investment Board.
As requested by federal and provincial finance ministers, the provinces will now be allowed to redeem securities given to the CPP Investment Fund. At present, provinces can borrow from the CPP for terms of up to 20 years. They will now be allowed to repay their CPP obligations in advance of maturity and at no cost to the CPP plan.
This will provide more flexibility for provinces with surpluses in search of ways to reduce their debts. It also means that more funds will be transferred to the Canada Pension Plan Investment Board and invested in the market at higher expected returns.
Bill C-32 also amends the Special Imports Measures Act, SIMA, to bring Canadian countervailing duty laws into line with recent changes to the WTO subsidies agreement, namely the lapsing last December 31 of certain provisions in that agreement that rendered certain foreign subsidies immune from countervailing duty action. In this regard, Bill C-32 allows for the suspension of provisions in SIMA that implement these non-actionable subsidy provisions into Canadian law. These changes will ensure that we are not treating our trading partners more favourably than they are treating us in countervailing duty investigations.
Moving on, 13 first nations will be authorized to levy a direct 7% GST-style sales tax on sales of fuel, alcohol, and tobacco products on reserve. The Canada Customs and Revenue Agency will collect the sales taxes, and the federal government will vacate the GST room where the first nation tax applies.
Finally, this bill amends the Excise Tax Act to preserve the GST/HST base and avoid tax evasion in cases where revenues can be at risk if some registrants are allowed the usual remittance period.
The Minister of National Revenue, powerless until now to proceed with assessment and collection action before the tax came due, can now apply ex parte without notice for judicial authorization to assess the registrant in these cases and to take action to recover the money.
In summary, Mr. Chairman, the measures in this bill are straightforward and deserve to be passed without delay. The timing for the passage of the three measures I discussed earlier is particularly crucial. If we delay, it is Canadians who will suffer.
The remaining measures are also important for millions of Canadians and for the efficient operations of government.
Along with the officials present today, I'll now be pleased to answer any questions. Merci beaucoup. Thank you.
The Chair: Thank you very much, Mr. Cullen.
Mr. Forseth, we'll start with you. We'll start with a 10-minute round.
Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Canadian Alliance): Thank you very much. Thank you for coming today.
I want first to address my comments to part 1 of the bill, which deals with the Employment Insurance Act. I certainly commend the general policy objective of helping parents, but I would like some discussion or reflection about whether there was any analysis done of how limited the scope was as to what parents will actually benefit from the program. Instead of expanding or making a tax expenditure under this provision, were there any considerations to have this measure of tax expenditure under some broader program that would have captured more parents? In other words, it's a matter of the efficacious value of trying to support families within this kind of program versus some other alternative.
Perhaps you could address your comments to that, and maybe there are some support staff here who could help. There must have been some discussion about choosing to spend money in EI, which is going to affect a relatively narrow number of people. In other words, I'm concerned about a lot of the parents who get left out. Obviously there were some philosophical choices and some reasons this policy option was chosen.
Mr. Roy Cullen: Thank you, Mr. Forseth.
Do you have any ideas about the type of people who might be left out under these provisions? I'm sure other options were looked at. While you're thinking about that, maybe Mr. McFee could comment.
Mr. Gordon McFee (Director, Insurance Policy, Department of Human Resources Development): In arriving at policies on an issue of this kind, other options are always looked at. I think the option chosen was considered to be, all things considered, an efficient manner of responding to the needs of families, particularly in the sphere of employment insurance.
Mr. Paul Forseth: Was there any kind of policy paper or discussion, rather than just a glib comment like that?
First of all, let me ask you, what was the approximate tax expenditure value of expanding the program?
Mr. Gordon McFee: Do you mean what is the cost of this measure?
Mr. Paul Forseth: What it is going to cost us.
Mr. Gordon McFee: The last estimate I heard was around $900 million.
Mr. Paul Forseth: If we're going to spend $900 million, then certainly some policy options about how we support families should have been, I would have thought, thrown in the air about whether we deliver it through EI or some other way.
Mr. Gordon McFee: Mr. Chairman, I didn't mean to come across as being glib in my first response. What I was trying to say was that those kinds of options are looked at in the development of an exercise like this. I just didn't think it was particularly appropriate for me to comment on what those policy options might have been, one reason being that I don't know all of what they were, and secondly, if I did, the decision taken is reflected in the budget. I just didn't think it was appropriate for an official to comment on that.
Mr. Roy Cullen: Mr. Forseth, you indicated that you had some concerns that certain Canadians would be excluded using this instrument, EI. I'm wondering if you had another instrument in mind or if you had a concern about certain types of Canadians that might be excluded under this delivery system.
Mr. Paul Forseth: Just briefly, you have to have an earned income and qualify within the program. If you're outside that, then you're out of luck.
Mr. Paul Szabo (Mississauga South, Lib.): Just to help Mr. Forseth, Mr. Chairman, the finance committee actually had established a subcommittee to look into the issue of the taxation of the family. This recommendation about increasing the benefits was one of the recommendations. It was not in isolation, though. It was also in relation to expanding the Canada child tax benefit and looking at CPP as well. I don't think there was any suggestion that the EI be a linear solution to a much more complex problem.
Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): And h e was a member of it.
Mr. Paul Szabo: —and do you know what? You were on the committee.
Mr. Roy Cullen: That was before my time.
Mr. Paul Forseth: Let's go to part 2 of the bill. Part 2 spends about $2.5 billion under the Canada health and social transfer. I have a question of somewhat the same nature. It says that the minister is authorized to spend $2.5 billion into a trust, from which these funds will be distributed over a four-year period beginning April 1, 2000. What was some of the underlying rationale for the timing spread of the payments over four years? Why that particular nature of the program?
Mr. Roy Cullen: I'll start it off and just say that one of the things we hear from the provinces is about some emergent situations they're trying to deal with. In last year's budget, a supplement of $3.5 billion was made available so that the provinces that had some immediate needs could draw down as they saw fit. The same arrangement is made with regard to the CHST, the $2.5 billion.
In terms of the budget plan, there's a scenario set out in terms of some drawdown. With regard to the supplement, the provinces and territories can draw on the supplement as they see fit. I find it somewhat ironic that while the provinces of Quebec and Ontario say there are some emergent needs in health care, there's money, I gather, still sitting in trust from last year's supplement of $3.5 billion. It reflects, obviously, the need to make an orderly draw in terms of where the emergent needs are. But if governments are clamouring for more CHST money, you'd think they would have expired the money that was already made available. But that doesn't seem to be the case.
Perhaps Mr. Campbell could comment.
Mr. Glenn R. Campbell (Senior Policy Analyst, Federal-Provincial Relations and Social Policy, Department of Finance): The basic rationale for the spread of the $2.5 billion was to ensure that there was a consistent wrap at $15.5 billion over four years. The $1 billion we're offering this year is basically our recommended drawdown for those provinces and $500 million for the three years thereafter. The flexibility provided is that if any province is finding itself in difficulty or has another approach to manage their health care or post-secondary education, they're able to draw on that fund at any rate that suits them. So we're basically suggesting that this is the drawdown rate to ensure there's a $15.5 billion cashflow over four years. If provinces wish to draw down sooner, it's their prerogative.
Mr. Paul Forseth: Thank you.
How much time do I have left?
The Chair: You have three minutes left.
Mr. Paul Forseth: I'll go on to another section.
Part 3 deals with the Canada student loans program. It says that for the making of loans to students by the Minister of Human Resources Development, it allows the minister to enter into agreements with private sector service providers to administer the loans on behalf of the government. On that particular topic, was there any consideration of the issue of repayment of student loans via the income tax return and trying to introduce the clear principle of ability to pay? At committee, generally in our pre-budget consultations, we usually hear from various student organizations concerned about the overall operation of the student loan system. Some want grants. Some cite various problems with the whole program. The government dealt with the Bankruptcy Act to respond to abuse and so on.
It's a topic that's before this committee an awful lot. I'm just wanting to narrow in on that specific issue of whether any consideration was given to repayment via the income tax return and to the introduction of the principle of ability to pay.
Mr. Roy Cullen: Who can deal with that one?
The Chair: Mr. Cullen.
Mr. Roy Cullen: There's an official here. I'm not sure that option was examined.
Ms. Sonya Lewis (Policy Analyst, Canada Student Loans Program, Department of Human Resources Development): My name is Sonya Lewis. I work for the Canada student loans program. I'll attempt to address your question.
We've been looking generally at the possibility of income-contingent repayment. Up to this point it hasn't been feasible. It's not been directly considered in the process of these amendments. However, it's something we would consider for a future time, but we just haven't gotten there yet.
Mr. Paul Forseth: But it's in the working legislation of the ICR, right?
Ms. Sonya Lewis: What's in the legislation with respect to the Canada Student Loans Act or the Canada Student Financial Assistance Act is paragraph 15(o) with respect to regulatory-making power. It's our understanding that we probably need a great deal more legislative amendment to actually implement an income-contingent repayment scheme.
Mr. Paul Forseth: Certainly the whole area consistently, year after year, comes before committee in one form or another. Maybe we could, as a committee, at another time just try to anticipate that and look at it.
The Chair: Sure.
Mr. Roy Cullen: If I could comment too, one of the big challenges of course was the government not being able to conclude a deal with the banks because they wanted a higher risk premium; or some of them did, and some of them didn't even want to participate. The chief priority for us of course is to make a smooth transition to an alternative program to make sure the students who are in need receive the kind of services they expect and deserve. So in terms of the repayment problems, I know it's an issue that's certainly on the table, but I'm not sure whether at this point the answers are there.
The Chair: Thank you, Mr. Forseth.
Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Mr. Chairman, with respect to the questions and answers on Part 2 of the bill, I find it quite ridiculous that we are once again hearing about the tax points which were handed over at the end of the 60s, and some more at the end of the 70s as justification for the federal government's transfer payments. It is absolutely disgraceful for officials who claim to be objective to present things in this way and to tell us that transfers have been restored and amount to $31 billion, when it is cash transfers which are really important.
My second comment has to do with the way tax points are defined today. In the 60s, and even into the 70s, when there was a 100% tax field which was shared between the provinces and the federal government, it was possible to exchange tax points in that manner or to transfer them. The federal government could transfer part of a tax field. Today, however, in the year 2000, when we look at the way governments behave, whether it is the federal government or a provincial one, we see that they could not care less about a given tax base. This notion of tax points no longer makes sense today. I wondered who was putting these words in the mouth of the Minister and various government members, and now I know. In any case, it is ridiculous. Perhaps some official will tell me that it is not ridiculous, but I would like to have a good explanation because as far as I am concerned, there is no justification for tax points when we are talking about federal transfers. It is absolutely ridiculous.
Mr. Roy Cullen: Before the officials respond, Mr. Loubier, I think there's been some confusion and perhaps some mischievousness on behalf of some others about the tax points.
In 1977 there was an agreement with the provinces for the federal government to vacate a certain tax room, I think it was 13-odd percent for personal and about 1 percent corporate, with the explicit understanding that the federal government would move out of that taxation area and the provinces would move in, which they did immediately. So the move was totally transparent to Canadians, but the result was that the federal government was receiving less tax revenue from that source and the provinces were receiving more. And it was done fully in contemplation that it was for investments in health care, post-secondary education, and social services.
So when we hear that the tax points don't matter any more, I'm at a loss to understand how they were important in 1977, and they were given expressly with a view to augmenting the investments in health, post-secondary education, and social services, yet those are not acknowledged or recognized by the opposition parties, because that was clearly the understanding.
The argument I've heard sometimes is that in the meantime the federal government has increased taxes, but that is irrelevant; the provinces have increased taxes as well, and they have gone up and down higgledy-piggledy, my black hen. The point is that when the federal government vacated that tax room they released it to the provinces, and the provinces immediately moved in and took it over. And it was totally in contemplation of investments in.... It was the old established programs financing, so—
Mr. Yvan Loubier: There were two occasions when the federal government transferred a significant number of tax points: in the 60s, when social programs and so on were being developed; and then at the end of the 70s, as you have mentioned. In the 60s, when the federal government gave tax points to the provinces and freed up part of its taxation field, it had to return the income tax which it had taken for itself during the two World Wars to finance the war effort. But then when it had once again transferred these tax fields in the form of tax points, as it did in 1997 as well, it was just the same as selling your house to someone and no longer having any control over this house, or its maintenance, the roof and the foundations, some 20 years later, because it is no longer your house. The same principle applies to the transfer of tax points. These points were transferred under particular circumstances at a certain point in time, when there was a field of taxation shared between the federal government and the provinces. This is no longer the case today. A tax point does not mean anything anymore. You can ask any tax expert, and he will tell you the same thing. Stop going on and on about it. As a matter of fact, there was someone from the University of Toronto, whose name escapes me, who said recently that there was no point in trying to win points over tax points. This individual stated that the important thing was the federal government's expenditures and revenues, and not some historic concessions made 30 years ago which nobody has talked about since. That is just trying to win points.
Mr. Roy Cullen: We totally disagree.
In fact, if you look at the federal contribution to health care, post-secondary education, and social services, the number that some people are throwing out, the 12% or 13%, is totally misleading, in my view. It totally ignores tax points, and the fact that it was in 1977 is, in my view, totally irrelevant. The tax points, that tax room, were ceded to the provinces, so that revenue stream to the federal government was ceded to the provinces. The provinces immediately moved in. It wasn't as though they had the option. Well, they had the option, I suppose, but they immediately moved into that tax area, and since then the world has changed. But the world has changed in many respects.
The other fact that is often misquoted, in my view, is the notion that the federal government used to contribute 50% to health care costs nationally. As I understand it, the federal government at one point in time contributed 50% of certain services—hospital services, medical, certain insured services—so that was only a part of the total health care expenditure money that was being spent in Canada. In fact, the effective contribution rate at that point in time was maybe 41%. So if you look at the contribution today with cash and tax points, which I think it's painfully obvious you have to include, then you get to 31% very quickly, and to 33% to 34% if you include what you should and must: the direct delivery of programs by the federal government of health care research and other expenditures.
So to say that we don't include the tax points.... I think the officials are absolutely right in presenting it this way and I would totally support them. But if they'd like to expand, I'm happy to—
Mr. Glenn Campbell: There is one additional point that is often overlooked in the debate about tax points. In 1977, as was explained, it was a formal agreement between the provinces and the federal government that we would reverse that tax room, and since then, even though it was in 1977, the reality is that those tax dollars still exist to the tune of $15.3 billion that's available for health care purposes. And something that often people don't realize is that each year the CHST—the Canada health and social transfer—is managed with the provinces and that money is dispersed on a per capita basis, which includes the value of those tax points.
In Quebec's case, for example, we take the value of tax points as well as the cash to make up its per capita entitlement across the country. And in cases such as the equalization-receiving provinces, they actually receive a double benefit given that tax points are worth less in Quebec and New Brunswick, for example, as per Ontario. Therefore, those tax points are even used in equalization to make sure there's parity across provinces.
So the inclusion of tax points is very integral to the calculation of the provincial per capita entitlement both for CHST and for equalization. It's not merely a presentation matter of showing whether or not the CHST is at $15.5 billion in cash or at $31 billion, as we're explaining. I think, to be transparent, that is $31 billion available for the purposes of the Canada health and social transfer.
Mr. Roy Cullen: In fact, Mr. Loubier, I would add that the equalization payments equate to about $10 billion a year, and in fact the Province of Quebec is receiving about half of that, roughly $5 billion. Equalization can be used by the provinces for any purpose they would like. I haven't actually seen the numbers for Quebec, but I think the federal contribution to health care in Quebec is probably close to—if you include the equalization, which of course you must—the percentage we had many years ago.
Mr. Yvan Loubier: No, I was not talking about equalization. You have no idea how difficult it is to make oneself understood here. I am talking about the fact that each time we hear about federal contributions, these tax points are included. As you have said, they were transferred. If they were transferred, they are no longer your business. The important thing is the amount which varies, the amount which comes out of or goes into your pocket, not what was transferred. You have said it yourself: you transferred them to the provinces. Then leave them to the provinces. It is no longer anything to do with you. They were transferred under certain specific historic circumstances and under the taxation structure of the time at the end of the 60s and at the end of the 70s. It is no longer a federal contribution now. It is practically propaganda; it makes a good impression to say that there are $31 billion in tax points and cash transfers, but I have to say that I do not find your demonstration very convincing. In any case, that is how it is.
Mr. Roy Cullen: Mr. Loubier, yes, but in terms of calculating the federal contribution, clearly one can't ignore them, because the tax room was made available to the provinces in full contemplation that they'd be used to fund health care, post-secondary education, and social programs. But having said all that—and we can debate the CHST and equalization until we're blue in the face—our Minister of Finance has indicated that if there is a strategic plan for health care, a plan that makes sure all the tax dollars of Canadians are used wisely and there is some plan to continue to use it wisely into the future, our federal government would look perhaps at that favourably.
I think the solution is for the health ministers to meet with our health minister and come up with a plan that makes sense. I'm sure our federal government will look at it very carefully and hopefully positively.
The Chair: Thank you, Mr. Loubier.
If I could follow up on that question before I go to Mr. Szabo, talking about the funding of health care, costs are growing at approximately 5% per year, is that correct?
Mr. Roy Cullen: Costs in demographics or just inflationary pressures and costs of technology?
The Chair: Yes.
Mr. Glenn Campbell: It's 5% to 7%, depending on how you calculate what's included in those goods.
The Chair: If we look at a solution being to pour more money into the system, how sustainable is that in a few years?
Mr. Roy Cullen: I'll let Mr. Campbell respond. But Canadians recognize that if we just pour money into health care, unless there's a reasonable plan, our tax dollars won't be spent wisely. You talk about the inflationary pressures on the cost. At the same time as we've completely restored the CHST, admittedly in nominal terms, our federal government direct expenditure is down $4 billion, and if you take into account demographics and inflation that equates to about a $20 billion reduction in our direct budgetary requirements for the federal delivery of our own programs.
Yes, we need to keep up with the demographics and inflation. Yes, we don't need to pour money down a big hole unless we have a plan. But we also need to recognize that our government has attached a high priority to health care and education in transfers to the provinces.
Mr. Glenn Campbell: I want to point out that if you're looking at it over the last two years, health care costs may have, combined, increased about 10%. The CHST cash alone we've increased 25% over two years. As you've seen with the CHST supplements, we are certainly contributing more. If you include tax points, at $31 billion, we've restored the total entitlement amount to the CHST.
I think the issue at play now is one that's before the government, and that is of reform. Clearly, on that challenge, as the Minister of Finance has said, we will do our part—assuming there is a reform plan in place—in partnership with the provinces to deal with those very issues in health care.
The Chair: During our pre-budget consultations, we often hear from health lobby groups that money is a key issue. The reason I asked that question is that at 5% per year, the costs will rise almost...you're going to start getting exponential growth pretty soon.
Mr. Roy Cullen: Look at the demographics. Look at technology, which is a two-edged sword. The technology is a good thing because it can cure people and create a better state of wellness for Canadians, but some of the new technologies also have a huge cost.
So as Canadians, if we don't manage health care, we're all going to be in trouble. I think it's incumbent on all of us, including provincial health ministers and our federal health minister, to come up with a game plan that is credible and sustainable.
The Chair: I raise this issue particularly because of some of the ads we see on TV today—taxpayers' money being used in trying to score political points. I don't think that's the issue. I think it's not a question of how much money you're spending; there are so many other things. Unfortunately, those types of ads do a disservice to Canadians, rather than letting Canadians focus on and confront the real challenges of the demographic transition of the country, technology, and other pressures.
Mr. Roy Cullen: Absolutely. But you know, Mr. Bevilacqua, one of the things a lot of Canadians tell me is that there is an understanding that health care is a priority, that it needs some fixing, but I'm often told we shouldn't just pour money into health care unless there's a good plan. Canadians recognize that.
The Chair: Mr. Szabo.
Mr. Paul Szabo: The tax points issue is something that has seized the debate in the House and with Canadians as the reconciling point to the whole argument. I think it would probably be worth while, since it hasn't been done before, if the officials could explain in lay language what the tax points actually constitute in terms of the dollars they generate. If we set in the CHST...there's an amount established, the tax points account for something, and whatever is left over is how much cash they get. The tax points are not just taxing authority, they are in fact a determination of an amount of tax revenue that is generated depending on the economic performance.
So I guess the question is even broader than that. Maybe the second part of it is why were the provinces interested in having the tax points in the first place? What advantage is there?
Mr. Glenn Campbell: On the first question, with respect, we can't speak for the provinces necessarily as to why they proposed to the federal government to take that tax room. It was quite clear at the time that those tax points would grow in line with the economy and therefore would be less subject to arbitrary decisions on behalf of the federal government, generally speaking.
With respect to how the tax points are calculated—the more technical question—there is really not much disagreement between the provincial level and the federal government about what those tax values are worth. It's very clear that we can take the 13.5% personal income tax and 1% corporate tax and do a very straightforward calculation, depending on any year, and get a value for those tax points. That issue is not in dispute; it's very clear. The Canada Customs and Revenue Agency helps us do that. The technical issue of how that is calculated is a very clear one.
Even as we move to the tax-on-income system with the provinces, where we're essentially having two separate tax systems, it's not going to have an impact on how we calculate the value of those tax points. As I said, they certainly are a benefit to the provinces, as they are growing over time and they have grown considerably with the growth in the economy. And as you said, that cash is paid as a residual to a certain extent, in the sense that we set a per capita entitlement limit—
Mr. Paul Szabo: Subject to a floor.
Mr. Glenn Campbell: Subject to a floor, which we haven't come close to as of recently. As we were saying, the floor is $12.5 billion, but we're operating at a $15.5 billion national level. We perturb that residual a little bit, because if we want to put in $1 billion more, or as we did this year, we would basically adjust across all provinces.
Mr. Paul Szabo: Just prior to the introduction of the CHST as a single envelope replacing the three silos—we had one for the established programs financing, the post-secondary, and health—each one had a little bit of cash and a little bit of tax points to come up to the total authorized amount in a province. In some cases, cash was starting to run low, or the projection was that cash in fact theoretically would run out, which meant that the federal government would have no cash to withhold, say in the health silo, to support or defend the principles of the Canada Health Act.
Certainly it makes some sense that they put the three silos together into the CHST, because now you've pooled the cash and we buy some time. But ultimately, if we just extend this out to a number of years from now, tax points are going to totally wipe out the cash, except for the guaranteed floor.
Mr. Glenn Campbell: Actually, that was correct about two years ago. Had everything remained constant and the government decided not to put any additional money—as we did this year and last year—into the CHST, then conceivably, with the growing value of tax points, at some point in the future, yes, the value of tax points could have exceeded cash.
Mr. Paul Szabo: I'm really trying to understand, and hopefully others are going to learn a little bit about this too. It seems to me that the value of tax points is that over the longer period of time, the expectation of greater revenue flows to the provincial government was a possibility, whereas under the system without tax points, the cash was the cash.
Mr. Glenn Campbell: That's right.
Mr. Paul Szabo: That's probably why there was a negotiated settlement. If you have a thriving economy, a lot of people are working, your tax point value is going to grow, which means that your expectations for provinces who manage their economies well are going to benefit in the long run.
I wanted to move to the last part, basically with regard to health care costs. It's something we touched on. This could easily become the health committee...and probably should, only from the standpoint that it is the single most important issue before Canadians. The funding of fundamental health care, beyond just tax points and cash, is really of concern to Canadians and very concerning to all parliamentarians, I'm sure.
It has to do with the simplicity or the casualness with which people have talked about it—for example, “Well, we live longer, so that's going to cost more money, obviously.” We have an aging population simply because of the demographics and the baby boomers moving through. It may correct a little, but we still have to get over the big spike that's coming forward.
The technology is kind of an interesting point. The provinces benefit from technology improvements, because they can the lower average length of stays, they have less invasive procedures, etc. We never get any credit at the federal level for efficiencies in technology at the provincial level. That concerns me a little bit.
And then the drugs are another major component in terms of the cost of health care. Now, we've always talked about—and this was one of the questions the chairman asked—how health care costs are growing at a rate of 5% to 7% a year. This is absolutely unacceptable in terms of a discussion about funding health care. This massive demand for health services is hurtling toward us, and I still haven't heard about the strategy, our plan and our backup plan, to make sure that everything else we do doesn't have to be sacrificed simply to sustain a health care system.
This is really serious, and I want to know whether or not the finance department—being involved in virtually everything that goes on in the lives of Canadians, I would suspect—is working in collaboration with anybody else who's remotely associated with this thing to have that strategy. And I raise it from the standpoint that we have—I think in the last report by Revenue Canada, from the 1997 tax returns—about 14 million taxpayers who filed returns and paid taxes, and if we were to put $100 into each of their pockets, it would be about $1.4 billion.
This across-the-board anything is an expensive proposition under tax law, under tax rules, so you try to target so that you get a better value or better impact for the dollar. Is that same kind of thinking going on with regard to health spending? Because my concern would be, if we continue to say here's another $2.5 billion, here's another $4.2 billion, and if it just goes generally and is spread through the health regimes, the targeting of that to where the need is and where the demand is by Canadians is not going to be efficient.
I need some assurance, and I think Canadians would like some assurance, that each and every department that has anything remotely to do with the challenge of funding health care in Canada is being worked on actively and that a strategy will be presented to them in the very near future.
Mr. Roy Cullen: Let me start off by saying I'm quite sure the Department of Finance keeps a watching brief and there's discussion and whatever influence transpires at a certain level, but we need to understand that the primary responsibility to come up with a health care plan and a strategy rests with the Minister of Health and the provincial health ministers.
Some of the frustration at the meeting held in Toronto not too long ago was because the health ministers came to the meeting it seemed with no mandate to talk about a plan; they just wanted more money. We have to get out of that cycle.
I use the term “health care cost containment”. It's an old term, but it doesn't necessarily mean, in my parlance anyway, that you keep health care costs flat. It means you contain costs within some kind of strategic plan.
To the department, if there's any thinking going on in collaboration with Health Canada, perhaps you could chat about that.
Mr. Glenn Campbell: Yes. Definitely the minister has said he would support Minister Rock, and of course as the Prime Minister has stated, before we put any new money into the health care system, they require a plan in partnership with the provinces that includes measuring outcomes and results. And of course we are collaborating very closely with our colleagues at Health Canada, providing them any support they need in supporting their minister in trying to develop this plan with the provinces.
Let me just say generally you are correct in saying there are a lot of expectations of Canadians for the health care system. We recognize that from a finance point of view. As well, costs are increasing at a rate of 5% to 7%.
Let me just draw your attention, though, to the flexibility that exists now. In the short run, before this agreement on how we reform health care in the future is reached, there are a lot of flexibilities within the Canada health and social transfer. We have increased cash generally. We have a notional amount that we suggest the provinces may spend on health care, but they are certainly free in the interim to divert any money within the CHST to any of those three purposes. So a lot of flexibility is provided to differing provinces underneath the CHST.
Mr. Roy Cullen: The other thing too, Mr. Szabo, is the Minister of Health has.... I guess it's a fine line between providing a prescriptive solution to the provinces in an area of provincial jurisdiction—and you heard Mr. Loubier and others talk about the jurisdiction of health provincially—and laying out a set of principles or a road map. As the federal government, because we're providing substantial funding, we have a right and an obligation to insist upon some framework or some plan developed by the provinces. Minister Rock has laid out a set of principles and challenged the provinces, as I understand it, to come back with a strategy of managing health care costs into the next millennium.
Mr. Paul Szabo: Mr. Chairman, there was one fact I didn't put out, but I'd like to now, just to help amplify the magnitude of the challenge we're facing. I don't what the current figures are, but when I first became a member of Parliament, the Health officials told us about 75% of the health care costs in your lifetime will be incurred in the last two years of your life. It's very back-ended. With our aging society and the demographics of our society, all other things remaining equal, the fact that we're aging is going to create a tremendous burden on the health system. So it's very serious.
The Chair: Mr. Discepola.
Mr. Nick Discepola: Thank you, Chair.
I don't have very many questions really, just more of a point of clarification for my own edification. It's too bad Mr. Loubier's not here, but I wonder whether, in his analysis, if we were just to suggest to the provinces that we might want to take back those tax points and then give them cash in return, the provinces would be amenable to it.
On the question of tax points, my question is, what makes a tax point worth more or less in the different provinces, and why is that? Is it due to the factors in calculating it? What weighs more or less in the attribution of the weight to those tax points?
Mr. Glenn Campbell: Generally speaking, the stronger the economy, each individual tax point or 1% of personal income tax.... For example, in Ontario, that 1% will collect a lot more per capita than it will in Newfoundland—upwards of 70% more if you're looking at Ontario to Newfoundland. I don't have the exact difference in how it's calculated, but the strength of the economy and the tax revenues in a particular economy on a per capita basis are certainly the determinants in the difference.
Mr. Nick Discepola: So the weight really is not on the percentage of the tax point itself but what that 1% generates.
Mr. Glenn Campbell: It's what it generates, yes.
Mr. Nick Discepola: Okay.
Thank you, Chair.
The Chair: That's it?
Mr. Nick Discepola: Yes. I want to be expedient.
The Chair: Mr. Forseth.
Mr. Paul Forseth: Thank you.
I'm going to ask a question on part 5 and then I'm going to go back to part 4, about aboriginals.
First of all, it says:
Part 5 amends the Excise Tax Act to allow the
Minister of National Revenue to obtain judicial
authorization to immediately assess and take actions to
collect from a person the amount of Goods and Services
Tax or Harmonized Sales Tax determined by the Minister
to be remittable by the person at the time of the
authorization. This would only apply when the
collection of net tax from a registrant would be
jeopardized by a delay in its collection.
I'd like some description, just in plain language, of what is the real change here. What's the anticipated action or what's going to happen because of the change? Also, what is the problem it's trying to solve?
Mr. Roy Cullen: The official is coming up.
Generally it puts the same provisions into this act as are available in the Income Tax Act. It would be used in those cases where information comes forward that it's fairly evident a taxpayer is in the process of trying to evade the payment of GST bills. Of course when you're a new registrant, there's a certain reporting period, so there's a lapse of time, but if information becomes available, it would still have to go before a court, as I understand it, and satisfy that test. The department could go in and recover the GST money collected on behalf of Canadians before they're into a bankruptcy or other type of situation.
Perhaps Mr. Smart could add.
Mr. Greg Smart (Tax Policy Officer, Tax Policy Branch, Sales Tax Division, Department of Finance): Currently a new registrant has up to fifteen months from the beginning of their fiscal year to remit the tax they have collected. This provision would only be used in cases where there was some evidence—not definite evidence, but certainly some evidence—of fraudulent intent by the registrant to basically take off with those moneys that have been collected on behalf of the federal government.
Mr. Roy Cullen: I gather, Mr. Smart, there are some circumstances...well, I guess they're not all unique circumstances, but some with respect to trading of automobiles. Some people are in the game of just using these provisions and running away with the GST.
Mr. Greg Smart: Certainly there are some cases where goods are purchased tax-free, perhaps for export, and then sold at the 7% rate, or they're bought at the 7% rate and subsequently sold at the HST rate of 15%, and that difference is pocketed by the fraudulent registrant. Currently Revenue Canada is powerless to do anything when they discover a registrant is involved in one of these schemes. So this tool would be used where there was some evidence this was occurring.
Mr. Paul Forseth: So I'm contemplating here that some judicial order would be made, and they could go right to a bank and take money right out of someone's account?
Mr. Greg Smart: Yes, certainly, but remember the judge would have to be satisfied that there is strong evidence that the moneys are in jeopardy.
Mr. Paul Forseth: Whenever these powers are given, there's always concern about some bureaucracy run amok, or whatever, the balance of the taxpayers' rights. I'm sure most members of Parliament have had presentations from time to time from various constituents who are complaining about how this small business has just gone bankrupt because tax authorities have come in and taken money when they shouldn't have, or whatever, because of the whole mess-up of a file, a whole story of social disturbance. They couldn't get any response with the agency, so the member of Parliament, through their offices, have assisted in the sorting out of the file.
Mr. Roy Cullen: I can assure you that the intent here is to use it very judiciously and only in cases where there's a clear intent to defraud the government and the people of Canada. It basically provides the same tools as are already available to the agency for income taxes.
Mr. Paul Forseth: Thank you.
I'm now going to go back to part 4. Part 4 enables 13 first nations identified in the schedule to impose a 7% value-added tax equivalent to the GST on all sales of fuel, alcohol, and tobacco products where the sales occur on reserves. I assume this taxing power will apply to both status and non-status individuals—is that correct?—because of course there are certain tax-exempt provisions that come with being status. Maybe you could explain that point, first of all.
Mr. Ken Medd (Tax Policy Officer, Intergovernmental Tax Policy Division, Department of Finance): I'd be happy to.
Section 87 of the Indian Act provides an exemption from taxation for the property of status Indians where that property is situated on a reserve. “Property” has been defined over time to include a number of things, including income. You're quite correct that section 87 operates to protect that property from taxation by other governments.
As to the arrangements we're putting in place with interested first nations, we respond to requests from first nations where they come forward and indicate that they want to tax their members. Where they want to tax their members, Canada will work with them to put in place the legal foundation for the first nation to prepare tax bylaws that will allow them to tax their members.
So job one is that the first nations governments are taxing the registered members, and beyond that, on reserve, if a non-registered Indian, for example, is purchasing something on reserve, he would be required to pay federal sales tax. He wouldn't benefit from the section 87 exemption. But where a first nations government puts in place its own tax, Canada is prepared to back out of the GST. So the first nations tax would apply not only to registered members but to others on reserve.
Mr. Paul Forseth: In contemplation of this scheme, what is it anticipated these listed groups will likely collect, and also, what would be the tax expenditure on behalf of the federal government?
Mr. Ken Medd: I don't have a dollar value that I can offer to the committee at this point. I can advise you that in connection with the transfer of revenue to Westbank, Sliammon, and Kamloops, my understanding is that it's running at approximately $700,000 a year, but if you require a firm figure, I'm unable to provide one to you now.
Mr. Paul Forseth: What about the principle of no taxation without democratic representation? Was there any thought about that principle, for those being taxed, aboriginals, to be able to hold those who collect and spend accountable through the secret ballot box in a democratic context?
Mr. Ken Medd: I don't believe the arrangements we're putting in place with first nations undermine that principle. It's a principle that we consider to be very important as well. In fact, we now have 13 first nations that are interested in putting these arrangements in place. Previously, over the last three years, we've had four first nations. So there is some growth there, but not explosive growth. There is a real political risk and political cost for first nations governments to take the step to start taxing their members.
Certainly the members of the first nations have a direct say in the election of their chief and council. Valid first nations tax bylaws only come into force when there's a collection agreement with Canada through which CCRA would collect and administer the tax for the first nation.
For that agreement to be put in place, Canada would be interested and want to be assured that discriminatory taxation is not occurring and in fact first nations taxes are at the same rate. Where Canada, on the GST side, for example, makes room available, the first nation occupies it at the same rate and doesn't have the levers for adjusting the rates up or down or for charging more tax to non-registered members than to registered members.
Mr. Paul Forseth: Okay, that's all helpful, but coming back to the general principle of an individual who pays the tax to some authority but really has no democratic means to hold those individuals who are doing the taxing or the spending accountable in a secret ballot election process, I would think that is the most fundamental thing we have as citizens of Canada: our provincial, federal and municipal governments. It's not the parallel design that I see being contemplated here.
We know how many national stories we've read in the press about all the excesses of lack of accountability of spending money. New authority is being granted here to tax, so I wonder about that principle as well.
Mr. Ken Medd: I would repeat that these arrangements don't permit discriminatory taxation. First nations must tax their own citizens, and thereafter their taxes may be extended to others who are purchasing or living on reserve, through these agreements with Canada.
Mr. Roy Cullen: I guess it's in line too with the government's policy of increasing aboriginal self-sufficiency, and that along the road there are some hiccups, some bumps. But it's not as though we, as a government, are pushing this on these first nations groups. We're responding to their request.
Mr. Paul Forseth: I have one last supplemental question. Why are these three particular limited products listed? Why not everything?
Mr. Ken Medd: Our experience is that as more and more first nations are coming forward.... First of all, I'll provide a little background.
In previous budget implementation acts, we have made arrangements for specific first nations to levy tax on the sale of certain products. In 1997, the budget implementation act dealt with Cowichan and tobacco products, and Westbank and alcohol and tobacco, and the next year, Kamloops and alcohol, tobacco, and fuels. The next year, Westbank came back to add fuels, and Sliammon came on for tobacco and fuels. Then Sliammon came back and wanted alcohol.
Within the three products we are working with to this point, the experience is that first nations ease into it and select one or two products and then want to expand their tax base to more and more products. In fact, the first nations that are coming forward now are expressing an interest in having first nations sales tax applied broadly to the complete range of products and services that are taxable under the GST, and we're working now within the department and with first nations to develop an approach for that.
The three products to which first nations sales taxes apply now can be considered to be consumable items. The way the current system works, it's geographically based, a point-of-sale tax with the idea in mind that consumption occurs in the vicinity of the sale. If the first nations sales tax was to be expanded more broadly to include durables like cars and other things, and if you consider the situation where there are two first nations that have this broadly based tax in place and an individual from one first nation goes to another first nation and buys a washer and dryer and takes it back, it raises the question, which of those first nations governments ought to benefit from that sales tax?
Mr. Paul Forseth: I have one last supplemental question.
Under program review, the global expenditures of most ministries were held in check, except one, and that was DIAND, which continues to go up. So I'm asking, will the government reduce some transfers to first nations to take into account the extra revenues these groups will receive from the taxes?
Mr. Ken Medd: I'm aware of the initiative that's underway with DIAND on their own-source revenues front, looking at moderating, I guess, the flow of federal program resources to first nations as they become better able to generate their own resources locally.
At this point, the net tax revenues that Finance is transferring to first nations are not being included in that own-source revenue. In fact, that own-source revenue policy doesn't yet exist. But when we meet with first nations that express an interest in doing this, we do advise them that with the development of this own-source revenue policy, there is a possibility that these revenues will be considered to be own-source revenues.
Mr. Roy Cullen: Certainly in terms of the policy intent and direction, it's more of a medium-term objective, though, in a sense, through DIAND, to move in that direction once the first nations have taken it up and are administering it and they're sort of on their way. But certainly I think that would be the policy intent over time.
Mr. Paul Forseth: So the answer is, not now, but maybe in the future.
Mr. Roy Cullen: That's correct.
Mr. Paul Forseth: That's all for now, Mr. Chairman. Thank you.
The Chair: Thank you, Mr. Forseth.
We'll go to Mr. Szabo for a final question.
Mr. Paul Szabo: I want to follow up on the parental leave benefit that we started with.
I assume that the estimated $900 million annual cost of that improvement under EI is a gross figure, based on the estimated number of families that would take it up at an average amount of benefit. That's basically benefits out.
Ms. Sonia L'Heureux (Chief, Employment Insurance Policy, Department of Human Resources Development): The $900 million is an amount based on what we expect might be the take-up of the benefits and the average amount currently claimed by people given their current take-up of the parental and maternity benefits.
Mr. Paul Szabo: Okay, and I think I understand why we just assume it's money out. HRDC probably has some information on that, and I don't think you'd have it here, but there probably has been some work done about the consequences or the potential benefits.
There are some obvious things I thought of, that to the extent that someone withdraws from the workforce, paid labour force, for an extended period of time, their position would have to filled by someone else, which means someone who's currently unemployed and wants to be employed, or someone who's on social assistance, or whatever, may be able to get income and pay some taxes and actually get some work experience, which may help them get a full-time job, and so on. There's a ripple effect there.
The other part of it really is the health issue, the health outcomes of children, the increased opportunity for breast-feeding. I know the Canadian Pediatric Society and Health Canada have endorsed one year as an optimal period in terms of breast-feeding, which this coincides with. I think there are also some studies with regard to lower infant mortality where extended parental leave, up to a full year, has been granted in other countries. I have forgotten the gentleman's name, but I think in the study I saw there was a 29% lower infant mortality rate where 50 weeks of parental leave were given in 19 European countries. Is that about right?
Ms. Sonia L'Heureux: Maybe to sum up a few things, in terms of our estimates, we did not include the impact on hiring replacement workers or the tax income that would be generated through the tax paid on their employment income. So the $900 million does not include these amounts. It is not net.
With regard to the research you were quoting, yes, a whole series of research supports the first year in the child's life as being the critical year in terms of reducing future costs and assisting in having children who are better adapted socially with a lower risk of poverty in the future.
Mr. Paul Szabo: So the $900 million might be worst-case, and hopefully over the longer term there are substantial benefits that could be realized but that you can't budget for.
Ms. Sonia L'Heureux: It's very difficult at this point to really have a good sense of how much the take-up will be.
Mr. Paul Szabo: Thank you.
The Chair: Thank you, Mr. Szabo.
Mr. Cullen, thank you very much.
I also want to thank all of the individuals I mentioned at the beginning. I'm not going to go through the list again, of course.
I want to add to that list Sonya Lewis, a policy analyst with the Canada student loans program, and Sonia L'Heureux from HRDC, who just answered a question.
As always, this committee is very grateful for the work you do as officials. You make our job at lot easier. Of course you're not off the hook yet, because we will be needing your support during clause-by-clause of this bill, which I'm sure will come up very soon.
Once again, on behalf of the committee, thank you very much.
Mr. Roy Cullen: Thank you very much.
The Chair: The committee is adjourned.