Thank you, Mr. Chair. I am pleased to appear before the members of the committee today to discuss Bill , which implements certain provisions of the 2007 budget, and other fiscal measures announced before the budget was presented.
I would note, as usual, that the remaining budget 2007 measures will be included in a second budget bill, which we will introduce in the fall session.
Since March 19 I've had the opportunity to travel across Canada to discuss the budget with Canadians from all walks of life. I've also had the opportunity to travel to New York and Tokyo and London to promote Canada and all that we have to offer.
People are aware of the fact that we're making our strong Canadian economy even stronger. They recognize that we are creating an environment that encourages investment, rewards hard work, and further opens the door for our investors and entrepreneurs and risk-takers.
Canadians have a right to be proud. Our country is a leader in the global economy. We have the most solid financial foundation of all the countries of the G-7. We are the only member country that continues to record budgetary surpluses and whose debt burden is being reduced.
Although we have only been the government for 15 months, we've moved the yardsticks considerably on a number of fronts, first with budget 2006, then our tax fairness plan, and then with budget 2007. Budget 2007 is an historic document that begins delivering on our long-term economic plan for Canada, called Advantage Canada.
Advantage Canada is a plan that seeks to mobilize the most compelling research, innovation, investment, and competitive forces in our society. It is a plan that sets out a bold and exciting course for a strong and united Canada, a Canada with purpose and passion that believes in itself and is a shining example to the world of what a great nation can be. It is a plan that will lead to a more rewarding future for Canadians and their families.
Advantage Canada focuses on creating five key advantages, which are reflected in this bill and reflected in budget 2007: first of all, a tax advantage, reducing taxes of all kinds and establishing the lowest tax rate on new business investment in the G-7; secondly, a fiscal advantage, eliminating Canada's total government net debt in less than a generation; third, an entrepreneurial advantage, reducing unnecessary regulation and red tape and increasing competition in the Canadian marketplace; fourth, a knowledge advantage, creating the best educated, most skilled, most flexible workforce in the world; and finally, an infrastructure advantage, building the modern bridges, roads, gateways we need to link our nation and make our workers and businesses more efficient.
Now, if we're to achieve these goals and maintain an upward trajectory, we need to adopt the measures contained in . As part of our plan to create a fiscal advantage for Canada, Bill C-52 proposes to enact our tax-back guarantee, which will provide taxpayers with a direct benefit from debt reduction. Lower debt will mean fewer interest payments, which will mean lower taxes every year.
The interest savings related to our national mortgage will be passed on to Canadians in the form of personal income tax relief. That relief will be permanent and ongoing.
Mr. Chair, I say and I repeat, Canadians are paying too much tax. This is why the government is also moving to create a Canadian tax advantage.
In fact, measures introduced by Canada's new government will reduce taxes for individuals by nearly $38 billion over three fiscal years. proposes to implement several important tax relief measures, including the tax fairness plan I announced last October. Our plan increases the age credit amount by $1,000 to $5,066 as of January 2007. This will benefit low- and middle-income seniors by ensuring that less of their income will be subject to tax.
The plan also makes one of the most significant changes to the federal tax system to have been made in a long time. This is the decision to allow Canadian seniors, starting this year, to share up to half of their pension income with their common-law spouse.
Taken together, these measures will put some $1 billion a year more into the pockets of Canadian seniors.
Budget 2007 also proposes significant tax relief for Canadian families, a working families tax plan, and that relief is also set out in Bill. The first part of the four-part plan helps Canadian families with children. The plan includes a new $2,000-per-child tax credit for children under the age of 18. It will provide more than 90% of tax-paying families with the maximum benefit of $310 per child.
The second part of the plan will increase the spousal and other amounts to the same level as the basic personal amount. Single-earner families will receive the same tax relief as that already provided through the basic personal amount to two-earner families; that is, the elimination of what has often been called the marriage penalty in Canada.
Third, the working families tax plan strengthens the registered education savings plan, RESP, to help parents save for their children's education. The $4,000 annual limit on RESP contributions will be eliminated and the lifetime limit will increase from $42,000 to $50,000. We will also improve access to RESP funds for part-time post-secondary students. Moreover, the maximum annual amount of the Canada education savings grant that can be paid in any year will be increased to $1,000 from $800, if there is unused grant room from previous years.
The fourth component of the working families tax plan builds on the tax fairness plan. It will raise the age limit for maturing RPPs and RRSPs to age 71 from age 69. This change recognizes that many older Canadians want to continue working and saving. It is important that we help them pursue these goals.
We are also committed to providing an economic environment in which Canadian businesses can thrive. In budget 2006 we reduced the corporate tax rate to 19% from 21%. Under the tax fairness plan, Bill proposes to reduce that rate by a further 0.5%, effective January 1, 2011, to 18.5%. Additional corporate tax measures in budget 2007 will be introduced in the second budget implementation bill, to which I referred earlier.
Of course, Mr. Chairman, there's much more to budget 2007 and to this bill than tax relief.
For example, in Bill , Canada's New Government is proposing significant measures that will help to clean our environment and improve our health care system.
It is only through a healthier environment that Canadians can create the quality of life and standard of living to which we all aspire. With that goal in mind, budget 2007 invests $4.5 billion to clean our air and water, reduce greenhouse gases, combat climate change, and preserve our national treasures, which are also natural treasures, like the Great Bear rain forest on the central coast of British Columbia. Bill takes the first step by proposing to support major clean air and climate change projects through a new $1.5 billion Canada ecoTrust. This is an innovative way to engage the provinces and the territories and improve our environment for the benefit of future generations.
On health care, as we all know, Mr. Chairman, our health care system is an important part of what defines us as Canadians. That is why Canada's new government is committed to implementing the 10-year plan to strengthen health care. This will provide $41.3 billion in new federal funding over 10 years to the provinces and territories. In support of that commitment, Bill proposes to provide up to $612 million to help eligible provinces and territories move forward with patient wait time guarantees in key areas such as cancer treatment, heart procedures, diagnostic imaging, joint replacement, and sight restoration.
Mr. Chair, in order for Canada to be even better tomorrow, the national fiscal balance must be re-established, starting today. To do this, we must provide the provinces and territories with the funds they need.
The needs include such matters as an unprecedented and long-term investment in public infrastructure; better health care; better-equipped universities; cleaner oceans, rivers, lakes, and air; training to help Canadians get the skills they need.
Mr. Chairman, restoring fiscal balance is very much about building a stronger, safer, and better country.
I would also like to mention that the harmonized sales tax provinces—Nova Scotia, New Brunswick, and Newfoundland and Labrador—have each announced their intention to participate in the foreign convention and tour incentive program proposed in Budget 2007. Accordingly, I am pleased to announce that the Government of Canada plans to propose motions to amend Bill to extend the application of the new program to the 8% provincial component of HST, effective April 1, 2007.
Given that such amendments have the effect of increasing the amount of the rebates to be paid under Bill it is the government's intent to seek a royal recommendation and to propose the motions at report stage.
In Bill , Canada's new government is taking action by proposing a new formula that improves and enriches equalization, and a territorial formula of financing. It also puts major transfers, such as the Canada social transfer and Canada health transfer, on a more solid footing and makes treatment of provinces fairer for those transfers.
In fact, under Bill we are proposing to deliver more than $39 billion in additional funding to the provinces and territories. This is funding that will restore fiscal balance in Canada.
Mr. Chairman, that is what Bill is all about. I look forward to answering questions from the committee.
I should mention that officials from the Department of Finance are here with me to provide any further clarification the honourable members may wish to have on any of the measures in the bill.
Thank you, Minister, for appearing.
I don't think you could have a budget that spends as much money as you have here and not get a few things right. So I will point out that there are some things that are right.
I did like the capital gains exemption in the fisheries. It met the commitment that we had made in our electoral platform. Congratulations for doing it. But I have to tell you, our fisheries minister went one up on you, in that he made a licensing announcement a couple of weeks ago that has completely eliminated the capital gains itself, bringing the licence value down about $300,000 each. I agree with what he's trying to do. Everybody agrees with that. But making the announcement without having it fleshed out creates some anxiety in the industry and has forced down prices.
That's what I think your party did with income trust, where you made a commitment, you made a promise during the election, and then you broke that promise. You end up in a situation where people lose a lot of money on capital value and you have a loss of Canadian assets. We had the governor of the bank tell us that it was an ideal vehicle for certain sectors, that there were problems within the sector. I think everybody agrees with that.
It's the same thing on interest deductibility. Everybody agrees that where there is abuse of foreign low-tax jurisdiction, that has to be cleaned up. But you made the announcement initially on all the interest for investments in foreign markets for our Canadian corporations, which was disadvantaging them. A big fear was put into corporate Canada, into confidence, internationally and in our country, without having it fleshed out.
Since then, you flip-flopped on that issue. You brought it back to a minute point of interest deductibility on the question of double-dipping. You're talking now about towering, and I look forward to seeing how that plays out and how that works out, to make sure that we don't throw out the baby with the bathwater, that we do stop the abuses that are there. But you said you would have that in place by 2012, and you further said that the savings to the Canadian treasury would go to lower corporate tax rates.
Your expert, your Mr. Ernewein, testified that the analysis hasn't been done. There's no evidence that it will bring any increase in revenue to the treasury, and some tax experts suggest that it might reduce the revenue. So I would have to surmise that you're going to increase their corporate taxes, in that case, to balance it out.
But I want to bring you to the point that's the most egregious to me, and that's the Atlantic accord. You weren't in the House at the time, but your colleagues supported the Atlantic accord in the House, supported it to the point that they asked for the budget bill to be split so that they could vote against the budget but support the accord. The accord went through. It's a very good tool for Nova Scotia and Newfoundland, a very good tool. What the accord says is that the revenue from gases, from these non-renewable resources, would be above and beyond any other program of government, not instead of. You have turned it into an “instead of”, where the Province of Nova Scotia, my province, although you've extended it for one year, has to decide if they're going to keep operating under the Atlantic accord, the Canada-Nova Scotia accord, or whether they're going to accept the ready money under the new equalization formula, which, by the way, the Atlantic provinces all agree has a cap.
In your ongoing negotiations with the province, will you withdraw your position? Will you honour the Government of Canada's commitment to the Province of Nova Scotia and respect the full intent of the accord?
Minister, you went from the universe of interest deductibility in a very broad budget statement down to a microdot of double deductibility on this concept of towering. You did it through a whole series of stages of clarifications after clarifications after clarifications. You went from two years to ten years, back to five years, and then you made your latest announcement last Monday.
Last Monday those who read your material and listened to your announcement said afterwards, and here I'm quoting from the Ernst & Young team: (a) “The Government has ignored the adverse macroeconomic impact of the proposals”; (b) “Minister Flaherty's revised proposal broadly strikes at tax planning arrangements that reduce foreign taxes--not Canadian taxes”; and (c) “The minister's anti-tax haven initiative is not restricted to arrangements involving tax havens”.
So I'd like your comments on those three criticisms by the Ernst & Young team.
I'd like to know, as well, why you didn't deal with the obvious one of debt dumping. This is a concept where a foreign company lends money to a Canadian affiliate. The Canadian affiliate then lends the money, in turn, to a third country affiliate, meanwhile ratcheting up its debt, the consequence of which is that it reduces its income tax, the consequence of which is that there is less revenue for the Canadian treasury and no discernible economic activity in this country.
Why in heaven's name would you pick this one, as opposed to one that's a bit more obvious? Wouldn't it have been better to have actually engaged the panel of experts first and then have decided from the panoply of choices that one might have available to choose what is most advantageous to the Canadian treasury and to Canadian companies and the least advantageous to foreign treasuries?
The second question has to do with the income trust rate. You've whacked them for 31.5%. You've said that you would share the revenues with the provinces. It's perfectly obvious that at the end of the four-year period the pension funds will unload them and that non-residents will not hold trusts. Therefore, the revenues will be reduced; and because the revenues are reduced, the provinces will have nothing to share in. If there's nothing to share, there are no tax revenues. You've snookered the provinces on this heavy-handed, dishonest proposal, which you put forward on Halloween.
I'd like your comments on both of those. I'd appreciate it if you'd minimize the rhetoric and stay with the specific questions.