Honourable committee members, first of all, I want to thank you for giving me the opportunity to make this presentation. This subject is a matter of extreme importance to Ontario first nations and first nations people in general across this country. Therefore, I appreciate the opportunity to be heard.
We are in the midst of an AFN special chiefs assembly here in Ottawa, in Algonquin territory, where we've spent some time discussing the impact of the proposed HST on our communities. The chiefs are very concerned and have adopted a resolution expressing their position, which I would like to table with this committee. I would also like to table for the consideration of this committee a proposed amendment to Bill C-62, which was communicated earlier to the offices of the leaders of the opposition, just this afternoon.
In this presentation I want to address two topics: one, the lack of consultation and accommodation of Ontario first nations in the development of the HST proposal; and two, the economic impact of the HST on Ontario first nations.
The first point I want to make, for the record, is that Ontario first nations have not been meaningfully consulted and accommodated on the HST. Committee members will know that when aboriginal and treaty rights stand to be adversely affected by legislative or any crown conduct, affected first nations are required to be consulted. This is in the Constitution Act of 1982, section 35, and has been recognized by the Supreme Court of Canada in the Haida and Mikisew cases.
The aboriginal and treaty rights do not have to be established; they just need to be asserted. Minister Dwight Duncan agreed with the first nations leaders that the first nations tax exemption is an aboriginal and treaty right, yet we were not consulted when the memorandum of agreement was being developed and we were not included in the consultation regarding the CITCA. Needless to say, the present point-of-sale tax exemption provided for in the Retail Sales Tax Act will be eliminated in the HST. This has a major impact, and it is incomprehensible how we could have been left out of this process.
I acknowledge that Ontario has at least made some efforts to discuss our concerns and has expressed its support, most recently by way of correspondence from Premier McGuinty to Prime Minister Harper. But these have not been meaningful consultations and they have not resulted in any accommodation. Ontario blames the federal government for the failure to address our rights and interests. The federal government has ignored requests for consultation and will not respect the rights acknowledged by Ontario and under the current RST exemptions. There is some hope that we may be turning a corner, as per the premier's letter of December 2, 2009, to Prime Minister Harper requesting a meeting and an action.
As to the economic impact of the HST on Ontario first nations, the constitutionally protected rights and treaty rights are not the only issues. The HST will have a negative impact on first nations economies, yet there has been no economic impact study with respect to the increase in value-added tax paid by first nations communities on reserve. This includes first nations members who are on reserve living in poverty, northern first nations communities that are dependent upon off-reserve vendors, and the increased agency costs absorbed by aboriginal and non-aboriginal small businesses that serve first nations communities.
Not only will first nations people now have to pay an additional 8%, the HST will cover all sorts of things the RST doesn't, like fuel, electricity, and other essentials. Rebates and tax credits will not work for our people. Rebates do not match the taxes paid. Rebates come in the mail later on. Rebates won't feed us when we need the money today to buy the basic goods and services.
Finally, rebates assume that the federal government can implement this system across first nations. The track record on implementation is terrible. From drinking water to simple road access in remote first nations, the federal government does not manage first nations governance. In Ontario, 25% of the first nations are fly-in communities. The HST will increase the costs of doing business and hurt economic development in a segment of the Ontario population that is less than 1%. It is targeted and mean-spirited and not consistent with reconciliation.
However, there are recommendations on how this committee can address the concerns of Ontario first nations, and these are reasonable accommodations that will avoid significant economic hardships that would otherwise result from imposing the HST on Ontario first nations. These accommodations are within Canada's authority and can be implemented administratively and legislatively in a manner consistent with the work previously done by Ontario and first nations leadership in Ontario concerning the maintenance of the point-of-sale exemption.
Because the federal government refuses to meet with us--and the province--we have every reason to believe that we will not be heard or dealt with fairly once this bill leaves this committee. Accordingly, we urge this committee to ensure that our rights and interests are accommodated.
I'm leaving with the committee the letter from Premier McGuinty to Prime Minister Stephen Harper, the resolution of the Assembly of First Nations from just this afternoon, the letters that we sent to the opposition party leader Jack Layton and to the clerk of the finance committee, Jean-François Pagé, and the other letters to Gilles Duceppe and to Michael Ignatieff, leader of the opposition.
I am leaving that with you, committee members. What is also included there is the actual suggestion in terms of the amendment to the bill.
Thank you very much, Mr. Chair.
[Witness speaks in Oneida]
Thank you very much, Mr. Chair and members of this committee, for allowing us to make this presentation today. I am going to reiterate much of what Chief Toulouse has indicated with respect to the way we see this as a violation with respect to our treaty rights.
I represent an organization of eight communities. Within that, there are seven nations. That is the representation that we are trying to make here today. Within the same Constitution that protects those rights is an obligation by the federal government to have this notion and duty of consultation. There is an honour of the crown at stake.
As we start talking about the imposition of this tax on our people, I think we only stand to be fairly treated with respect to this. There is a great concern amongst our people with the speed and the process in terms of this particular piece of legislation, with it being rushed through not only in the Ontario parliament, but in this House of Commons as well.
We are calling on both governments to honour themselves. They have an obligation to protect our aboriginal treaty rights; they do exist. There is a process to be taken on if there is going to be any infringement on those rights. We don't see that with respect to this particular government in terms of addressing those things, so we are asking you to take up your obligation to protect these rights.
With respect to the notion of the exemption clause that the Ontario regional chief has suggested we include in this piece of legislation, this is not going to take away from the bill; it is not going to take away from anything with respect to the taxation powers that are going to be created. If Ontario citizens and Canadian citizens want to be taxed, that is certainly something that is beyond the control of first nations.
I come from communities that live by the spirit of what they call Gus-wen-tah, Two Row Wampum: that we would go down the river of life parallel and that rules would not interfere with one another. This is the same thing we're talking about here, ladies and gentlemen. It's the spirit and intent of that treaty that we need to uphold, and if there's going to be any violation of our rights, I think it behooves this committee and it behooves this government to sit down and do the fair thing and talk to us about this.
I am really concerned. I currently hold the chair for the chiefs committee on social and child welfare. What I have heard from citizens of many first nations right across this country is that this is going to have a tremendous impact on them. It is going to change their current ways with respect to spending and it is going to reduce their spending power. Also, this idea of a one-time contribution by the federal government to offset these costs is not going to be equitable, and it's certainly not going to be fair in comparison once this happens year after year.
We're concerned about that. We're concerned about the activities that it's going to cause right now with respect to a change in behaviour.
What it's going to hurt, too, sir.... You people have to understand that 90% of our money in first nations communities is not spent within our communities, but outside, so this idea that we don't pay tax is a misnomer. We have paid tax. We have paid tax continuously.
What we're saying now is that with this change, it's going to hurt the people. It's going to take money right out of their pockets. That, unfortunately, is going to have a negative effect on them. We're dealing right now with the poorest of the poor. We're dealing right now with families that are on fixed incomes. We're dealing with seniors who are on fixed incomes.
We live with all of these challenges on a day-to-day basis. We see nothing from the federal government in terms of trying to correct those things in a positive or aggressive fashion. We see that this tax is going to harm us and it's certainly going to harm our communities and our economic development.
With that, again, I just want to reiterate the fact that this is a violation of our treaty rights. I think this table has an obligation to report that to the House and to the Senate, and to take the proper actions to make sure that our rights are upheld and that this particular government holds true to its word with respect to the honour of the crown.
Thank you very much, Mr. Chair.
Thank you, Honourable Chair. It's good to be here today.
I'd just like to say a few words in my language.
[Witness speaks in Secwepemc]
My name is Chief Keith Matthew. I'm from the Simpcw First Nation. I'm on the HST committee for the Union of B.C. Indian Chiefs.
I'd like to open my comments by saying that we do not see this as adequate or meaningful consultation on this particular issue, to be called one hour before a committee meeting. We want to engage on this particular issue, but we haven't had that opportunity. I need to state that for the record.
We are here to express concern with the current implementation process of the harmonized sales tax. I would like to meet and engage in meaningful consultations to ensure that our community's current tax benefits are unimpeded and uninterrupted by the potential passage of this legislation.
As you know, first nations in Canada have tax exemption for personal and real property situated on reserves under section 87 of the Indian Act, 1985. To date, B.C. first nations have not been consulted in any way about the potential HST legislation, although it stands to impact our communities, lands, and resources.
Because of this lack of consultation and inclusion, we are not clear about how the HST will affect and impact first nations bands, individuals, and companies. The UBCIC council, by resolution, has directed the UBCIC executive to raise concerns with the ministries of finance of the provincial and federal governments regarding the HST and its impacts on B.C. first nations, and to call for meaningful consultation accommodation, including commitments to develop appropriate information packages regarding the application of HST to first nations, inclusion of specific non-derogation language regarding the preservation of section 87 of the Indian Act tax exemption, and continuing rights of first nations taxation rights under the First Nations Goods and Services Tax Act and first nations sales tax prior to B.C. and Canada signing the Comprehensive Integrated Tax Coordination Agreement.
We are asking you to include the non-derogation language arrived at with the appropriate consultation with first nations into the CITCA immediately and well before the passage of CITCA through the legislatures.
Further to that, our communities are poorly equipped as the poorest of Canada's poor. We see the HST as a shift from business to consumers. We pay taxes when buying goods and services off reserve. Most of our reserves in B.C. do not have a retail sector. We do most of our purchasing off reserve, and as the poorest of the poor, we are poorly equipped to deal with that shift.
Thank you, Mr. Chair, for considering these comments. I appreciate this opportunity.
[Witness speaks in Secwepemc]
Thank you, Mr. Chairman.
Ladies and gentlemen, good evening.
Good evening. Thank you for inviting me to appear before the committee this evening on behalf of Canadian Manufacturers & Exporters to discuss sales tax harmonization. This is a very important measure that would help Ontario and British Columbia improve their tax competitiveness and make the exports coming from these two provinces more competitive as well.
Before I begin, I would like to say a few words about our association. Canadian Manufacturers & Exporters is the voice of manufacturing and global business in Canada. As such, we represent more than 10,000 leading companies nationwide. More than 85% of our members are small and medium-sized companies. Our members represent industrial sectors and every export sector you can imagine in the economy. We have members in every province and happen to have very active divisions in British Columbia and Ontario.
I am pleased to be here tonight to discuss Bill . Sometimes, especially when we face some significant economic challenges, as is the case today, governments have to do the right thing, even in the face of political opposition. That's what leadership is all about, and it's what B.C. and Ontario are trying to do right now with their initiatives to harmonize their provincial sales taxes with the GST. It's the right thing to do for their economies, and it's the right thing to do for Ontarians and British Columbians.
One of the most important things we've learned from this recession that has battered the Canadian economy over the past year is that you have to create real value in order to sustain employment and generate income growth. The financial market crash has shown that no one can create lasting wealth simply by spinning other people's money around and around. Eventually that money needs to be producing goods and services that people want to buy. Otherwise it leads to financial bubbles and major trouble for our economy.
Another lesson we've learned from the recession is that whether we like it or not, our economy is affected by global economic conditions. We must compete around the world for customers and suppliers, for skills and intellectual property, for credit and for investment dollars. Our companies have to be world class, and the business environment they operate in also has to be world class.
Competitive pressures have only become more acute as a result of the recession. In that context, we should be aware that the way we perceive taxes has a significant impact on investment, innovation, job creation, and all the elements needed to sustain a healthy economy. These lessons are becoming more obvious as the economy begins to recover. Business as usual is not an option for governments or for the enterprises upon whose success the economic recovery ultimately depends.
Sales tax harmonization is exactly the kind of forward-looking policy reform that will be critical in strengthening provincial economies, speeding along recovery, and creating job opportunities in the future. Harmonization will save businesses money, lowering the cost of investments in innovation and new technologies, productivity, and environmental performance, and in the development of new markets, all of which are extremely important in rebooting the economy, securing jobs for the future, and helping businesses make the changes they require to compete and grow in global markets.
Businesses in British Columbia and Ontario currently pay $6.9 billion every year in provincial sales taxes when they purchase inputs such as construction materials, office supplies, energy, legal services, furniture, business vehicles, and equipment--all goods they need to produce goods and services that they will sell to their clients. That $6.9 billion will be saved under a harmonized sales tax system. There will also be additional savings for businesses, as well as for governments, as a result of lowering the cost of tax administration.
Tax experts—and I understand you might be hearing from some of them later on—agree about the benefits of the HST. The introduction of an HST in Ontario and British Columbia will make these provinces' tax systems more competitive in attracting business investments to their provinces. That's extremely important for companies that are competing right now to attract and retain the investments these provinces need to develop an economy based on advanced manufacturing and on knowledge and value creation.
But it is the citizens of these two provinces who ultimately stand to benefit from tax harmonization. Business savings will be redirected to supporting employment in more competitive industries as well as reducing consumer prices.
To conclude, I want to stress that sales tax harmonization will help build a more competitive private sector in B.C. and Ontario that is capable of creating jobs in the future, because it's investing today in new products, new technologies, new skills, and new markets. By doing the right thing today, we will help our economies recover faster from the recession. We will be in a stronger position to pay off the debts we incurred before and during the recession. Above all, we will continue to generate the job and income growth that is so important to maintaining the quality of life Ontarians and British Columbians enjoy, both today and in the future.
I am going to try to continue what I was doing as a parliamentarian, which was to read a document, this ersatz resolution from the Liberal Party that reads as follows:
||Be it further resolved that the Liberal Party of Canada rejects the GST, and more particularly, categorically rejects the imposition of the GST on first nations and their citizens throughout Canada, on the grounds that it is in violation of their aboriginal and treaty rights which are recognized and affirmed in the Constitution, and is inconsistent with the principle of self-government.
And I must say that you are absolutely right, because it ends completely up in the air with the word “and” in the French version.
Mr. Chairman, we are talking about a bill which is the logical conclusion of the demolition project undertaken by the Conservative Party four years ago. Motivated by an ideology which refutes the utility of any government intervention, they began to attack whole parts of our economy. They started by sabotaging the manufacturing and forest industries, particularly in Quebec and Ontario, but the forest industry in British Columbia and New Brunswick also suffered the torments of this policy. How did they go about this? Well, it wasn't difficult, Mr. Chairman. With the assistance of their henchmen in the Liberal Party, they proposed radical reductions in the taxes paid by the most profitable corporations. Why do I say “the most profitable corporations”? Well, it's very simple. If a company did not make any profit, it did not have to pay taxes. As a result, the Conservatives reduced the tax payable of the most profitable corporations by some $60 billion.
It is important to remember that Mr. McCallum and other members of his political party encouraged them to do this even more quickly. I recall that when the Minister of Finance came into the House a year and a half ago, he said that he was reducing corporate taxation far more quickly than he would have dared to, thanks to the Liberals encouraging him to act even more quickly. If you want to understand our opposition to this proposal, that is where you have to start, because it marks the beginning of a long process that compromised whole sectors of our economy, particularly the manufacturing and forest industries.
How did they create the tax room necessary to provide a $60 billion tax cut to the most profitable corporations? Well, they looted the Employment Insurance Fund; they took some $57 billion out of it, egged on, once again, by their henchmen in the Liberal Party. Some would say that makes absolutely no difference; that $57 billion was just notional; just government money being transferred into general government revenues, into the Consolidated Fund.
In fact, Mr. Chairman, there is a huge difference between the two. The monies in the Employment Insurance Fund had been paid by every single Canadian company, on behalf of every single one of their employees. Whatever your company's financial status—whether you are just breaking even, losing money or making money—you are a certified general accountant, so you know that a business owner has no choice: even if he loses his money, he has to contribute to the Employment Insurance Fund. All employees contribute to the same fund. Sixty billion dollars worth of tax room was created by stealing the money of corporations in Quebec, Ontario and across Canada, who were either losing or earning money and whose contributions were transferred to the government's general revenues. The result of that operation was to provide tax cuts to the most profitable corporations, particularly in the oil and banking sectors—corporations such as EnCana, which our colleagues from Alberta are well acquainted with, which received windfall profits—money that was totally unexpected and unhoped for and which they had absolutely no need for either—amounting to several hundred million dollars. They would have made exactly the same investments.
That just goes to show the extent to which the Conservative ideology, encouraged every step of the way by the Liberals, has harmed the economy. It's just like in some countries, where they force people to pay their own executioner. In this case, it was the Liberal Party doing the Conservatives' dirty work. In addition, the companies that suffered most were helping the oil industry which, it is important to remember, did not apply the fundamental principles of sustainable development, such as cost internalization and the polluter-pay and user-pay principle.
So, the oil industry continues to produce, using the tax room created by the money stolen from companies that are already experiencing very tough times because of the high value of the Canadian dollar. The oil sector is really overheating, which in turn is fuelling the unprecedented rise in the Canadian dollar. It then becomes increasingly difficult to export our forest and manufacturing products.
Before the current crisis hit us—in other words, prior to the fall of 2008—we had already lost 450,000 jobs—in Quebec and Ontario alone—especially in the manufacturing and forest industries. That is the consequence. Ontario, which is grappling with financial difficulties of a magnitude never seen before—because of the choices made by Conservatives, supported by their big brothers here in Ottawa—is now coming cap in hand to ask the federal government to change its legislation. But what is behind all of this? The plan is to continue the most significant transformation of our tax system in the history of Canada—a transformation involving the transfer of corporate taxes to individuals in the amount of $60 billion. And, by the greatest of coincidences, that just happens to be the exact amount of the deficit recorded this year. Rather than applying the principles of sustainable development, internalizing the cost of greenhouse gases and pollution caused by the oil sands, in particular—which is the fundamental principle of sustainable development—we are passing all of that on to future generations. But, it gets even worse: we are burdening the future generations with this deficit rather than internalizing the cost and creating a fund so that, at this critical time, we can at least build the infrastructure that will allow us to produce clean and renewable energy.
That is a vision for the future that we could have supported, Mr. Chairman, but they are totally incapable of that. Since the Liberals believe in nothing and have absolutely no principles of any kind, they are supporting, even encouraging, this steady erosion at every step in the process. That is why they have no choice but to support this kind of insane proposal, which will generate new taxes on heating oil in northern Ontario, for example. As if people on fixed income or the poor could afford to absorb this cost. That is what the first nations leaders have just been explaining. As was mentioned, once again, the large corporations are the only ones who will benefit from this. Once again, it is the people who will be footing the bill.
I know that you are a learned man, Mr. Chairman, and that you like to look at this type of material; so, if you're interested, have a look at the numbers produced by Statistics Canada on the average income of Canadians since the North American Free Trade Agreement was signed. NAFTA created enormous wealth in Canada, except for one slight problem: the gulf separating the richest from the poorest is widening. The gap between the two is growing ever larger. The fact is that the Canadian middle class earns less in 2009 than it earned when the North American Free Trade Agreement was first signed, despite a significant increase in wealth in Canada. How is that possible? Well, it's quite simple. Once again, all of our policies seek to benefit the richest members of society. And this is another example of that. Here we are helping business escape its tax responsibilities and piling them on ordinary Canadians instead.
That is the reality of this exercise, Mr. Chairman, and my comments provide the backdrop to our fierce opposition to Bill C-62. I would just like to conclude this brief introduction with the following comment: right from the beginning, we have been saying that Minister Monique Jérôme-Forget was right in stating that Quebec was entitled to be compensated. Like us, you heard the explanation given earlier: there is an inconsistency between the situation in Quebec, when it comes to tax collection and the other criteria that have been mentioned, and what is going to be required under this bill. It is quite clear that Quebec will never be compensated—unless, of course, it relinquishes its jurisdiction over tax collection. In my opinion, that is not likely to occur any time soon, but perhaps members of the Bloc know something that we don't know in that regard. We'll see.
The fact remains, Mr. Chairman, that we are vehemently opposed to this plan. We see it as the reflection of a society which is no longer the one we have been trying to build since World War II. Canada has always known, and successive governments always knew—despite the fact that, from time to time, some rather surprising individuals, shall we say, ended up being prime minister—that to give value to the number two country in the world, based on size, in order to add value, the government needed to have a comprehensive vision that would allow it to play a key role in developing the country. The government must have such a vision, a vision that will make it possible to develop the resources and wealth that we are creating, while ensuring that they are shared fairly. Governments have always understood that—until four years ago. The Conservatives do not understand—nor do the Liberals, it seems—that in order to give value to the second largest country in the world, with a population of barely 30 million, the government must have a vision.
Conservative ideologues claim that this means the government ends up choosing the winners. In English, they say: “You're choosing winners”. That is their simplistic way of saying that the government has no business being involved, that there is a perfectly free market out there which determines the trade-offs for us, so that we don't even have to think about them. The problem is that they have chosen their winner, and there is only one: the oil industry.
In the Netherlands after the Second World War—and this is extremely well documented—people saw the economy collapse because petrodollars were allowed in without any concern for balance. Now the balanced economy that we have been building in Canada since World War II is being destabilized by the Conservatives, with the willing complicity of the Liberals.
Companies in the Beauce, family firms that have been making furniture for generations now find themselves forced to shut down because of the high value of the loony. The value of the loonie is artificially high because of a refusal to take the obvious steps—in other words, internalizing the cost of pollution and GHGs associated with the oil sands. They don't even have the good sense to say that developing a clean and renewable energy fund would be a good solution for the future. We continue to see companies that derive a living from forest products shut their doors, we continue to see manufacturers shut down, and we continue to see massive layoffs in companies across Quebec and Ontario, in particular, but also in other provinces.
Mr. Chairman, we find it inconceivable that anyone, in all good conscience, would want to continue this gradual erosion that is the result of the Conservative ideology in relation to our provincial economies. The provinces, often with a vision and assistance from the government, have patiently built businesses that are successful. In the last four years, however, they have been gradually snuffed out because the Conservatives have chosen a single winner, the oil industry, based on their ideology, the losers being Quebec and Ontario. Thus it is even more scandalous to see the Liberals supporting this process every step of the way, a process aimed at destabilizing a once well-balanced economy.
I invite those who are interested to read an article published Monday of last week—eight days ago, in other words—in The Guardian, a British newspaper. George Monbiot wrote a highly critical piece about Canada. It's very interesting. According to his analysis, we are in the process of sacrificing our economy on the altar of the oil sands. We aren't even smart enough to retain second and third oil sand processing jobs here in Canada. The recent Keystone project, one of the many pipelines to have been approved since the Conservatives took office, exports some 500,000 barrels a day, and here I am talking about crude. At the same time, we are exporting work for 18,000 people south of the border, because we have no vision.
We do not realize that we are drawers of water and hewers of wood, and that we are making exactly the same mistakes we made back in the days of Duplessis, when we exported logs to be processed somewhere else. We were exporting our ore for someone else to provide value added, and we were not even collecting one cent a ton. That is where we are now in Canada, in 2009. It's scandalous, Mr. Chairman.
For all those reasons, the NDP is opposed to this Conservative policy aimed at changing our tax system, as usual, to benefit the large corporations. In the history of Canada, this is the largest transfer of business fiscal capacity to individuals ever seen. We, at least, will be there to stand up and say loud and clear, at every step of the process, that this is unacceptable and that it is a betrayal of Canada and the best of everything it had. We are sabotaging the balanced economy we have succeeded in building since World War II.
Mr. Chairman, to summarize, the NDP is adamantly opposed to this continuation of the operation started four years ago by the Conservative Party to transfer the tax burden from corporations onto the backs of hard-working Canadians. Now, how have they done that? How has it happened that this is the continuation of that? As we heard from the first nations who were here tonight, and as we heard even from the Canadian Federation of Independent Business, it's quite obvious that the HST is a straight transfer of the tax obligations of corporations. Why do you think the Chamber of Commerce was in here saying that this is great for corporations? The tax money is still going to be collected; it's just not going to be collected from them anymore. It's going to be collected from individuals.
This has been four years that the Conservatives have been carrying out this policy of transferring the tax load from corporations onto the backs of citizens. The first and most important step they took was to provide tax reductions in the order of $60 billion to Canada's richest corporations. Now, why do I say the richest corporations, Mr. Chairman? It's quite clear that if your company had not been making money, you hadn't paid any taxes and therefore you didn't profit in any way, shape, or form from a tax reduction. Only the companies that had been paying the bulk of those taxes got that money. And where were they? Well, they were in the oil patch and they were the banks.
You can't create that fiscal space overnight--$60 billion. How did they find the fiscal room in Canada to provide that $60 billion tax reduction for the corporations? It wasn't complicated. They pillaged; they looted the employment insurance fund. It was $57 billion in there. They said afterwards that it's a notional amount; it's on paper. It's all government money and they're just taking it from there and sticking it into the general revenue fund of the government. It doesn't really change anything. Actually, it does, because there's a huge difference between who paid in and who had the money as it came out.
Every employer in Canada, whether they were making money, breaking even, or losing money, was obliged to pay into the employment insurance fund for every single one of their employees. That $57 billion was there to even out the cyclical element of the employment market. We're at the bottom of that cycle right now. That money was needed.
To make matters worse, to add insult to injury, it's now being calculated that we're going to be $19 billion short--that's with a “b”--given the current freeze on those contributions, as we come out of the recession. In other words, not only did employers whose companies might have been losing money see their contributions to the employment insurance fund pillaged, sent over to general revenue, and then turned into tax reductions for the richest corporations, which they couldn't benefit from, but they're again going to be taxed to the order of $19 billion to re-inflate the employment insurance account, which is going to be left short by that amount. Those are the calculations that have been made, both by this committee and by the various ministries.
Mr. Chairman, that constituted the first step in the Liberal-Conservative march towards removing the tax burden of enterprises and businesses in this country and putting it onto the backs of ordinary working Canadians. In the process they bled out 450,000 jobs from Ontario and Quebec. They had been lost. Those jobs I just described had been lost in the manufacturing and forestry sectors, just in Ontario and Quebec, prior to the current recession hitting in fall 2008, Mr. Chairman. That's the reality.
This is now the band-aid that the Liberals are helping the Conservatives put on the gaping wound they caused by bleeding out those 450,000 jobs. There's no way that Ontario could have avoided the tens of billions of dollars of shortfall they now have given the choices their big brothers in Ottawa made with the Conservatives. As they killed manufacturing and forestry in Ontario on the altar of the expediency of the oil sands, the tar sands, they created the situation we're in now. Instead of having some vision, including, for example, internalizing the environmental and greenhouse gas emission costs, internalizing a fund that could create at least something for future generations in the way of green renewables, they're continuing to take in the petro dollars from the States as they pump the raw product from the tar sands south--pumping jobs with it, by the way.
The Keystone pipeline is exporting 18,000 jobs south of the border, but they don't care. They're getting the dollars into Alberta quickly.
What has that been doing? It's been pushing the Canadian dollar artificially higher. If we had at least internalized the cost, it would have had a softening effect on those spikes of the Canadian dollar. But it was those high rates.... It was when the Canadian dollar actually went past the U.S. dollar that we saw manufacturing concerns in the Beauce and in Ontario—manufacturing concerns that were part of a balanced economy we had built up since the Second World War.
We had always understood that to give value to the second largest country in the world with only 30 million people required government intervention and vision. That vision is sorely lacking now. And that's not just on the Conservative side; we've always known that's been part of their ideology. What is the most galling now is that they're being aided by their henchmen in the Liberal Party, who help them every step of the way and encourage them on.
Now in Ontario the government is taxing ordinary Canadians again with a very regressive sales tax. Why is a sales tax more regressive than another tax? Why do we use that term? It's quite simple. If you have a retired couple on a fixed income who are trying to get by and you increase the cost of their heating oil by 8%, guess what? They can't find the money. They can't print the money. They are going to be hit with an increase in the cost of their heating oil.
It's always the people who are least able to afford it who are hit with this type of regressive tax. It is regressive because there is no curve to it, unlike an income tax, which is progressive, which increases....
Mr. Chair, I'm going to have to ask you to do something about decorum.
Chair, let's start with the Fraser Institute and what they had to say about sales tax. I do appreciate Mr. Mulcair's staying on topic. I know in a previous Parliament, I was with a different committee, Mr. Chair, at which I spoke for four hours straight. Sometimes it's a little bit difficult to keep it up, but I think I can handle it.
So let me just read into the record, so that everybody knows about this, from the Fraser Forum, which is a magazine put out by the Fraser Institute, which comments on public policy issues across Canada, not just on taxes but on a number of issues from health care and so on. I'm sure we all get the magazine in our offices. But here is an article from September of this year. It's a very good article, and I'd like to make sure people understand what the article says. It is entitled “Smart Thinking on Sales Taxes: BC's new HST will provide significant benefits for the province”, and here's the article:
||This summer, British Columbia’s Finance Minister Colin Hansen took a bold step in announcing that BC will harmonize its provincial sales tax...
They call it the PST in British Columbia; we call it the RST here in Ontario.
||...with the federal goods and services tax (GST).
They're quoting and they have references from the British Columbia Ministry of Finance, 2009.
||While sales tax harmonization is unlikely to produce warm fuzzy feelings for British Columbians...
||...(or even most economists), it will make BC businesses more competitive, encourage investment, and provide significant and lasting economic benefits for the province. As of July 1, 2010, BC will replace its independent provincial sales tax with a single harmonized sales tax (HST) of 12%—a combination of the current 7% PST and 5% federal GST.
||Like the GST, the new HST will be a “value-added” tax in that it will only apply to the final consumption of goods and services.
We heard earlier from witnesses what the difference is between an embedded PST—or, in the province of Ontario, RST—compared to a value-added tax, which is what the GST is and what the future HST will be.
||Currently, the PST applies to both business inputs and final goods and services, meaning that BC businesses pay 7% more for business inputs than their competitors in provinces that have harmonized sales taxes or no sales tax at all.
So as they point out here, Alberta has no sales tax—and I know, Mr. Chairman, you're from that fine province of Alberta. We heard earlier that New Brunswick, Newfoundland, and Nova Scotia have already, about 12 years ago, harmonized their sales tax. The Quebec government harmonized to an extent; they changed their QST from an embedded sales tax to a value-added tax. It might be not completely harmonized in that the other provinces gave up the collection aspects.
I know in my own business, when I had my own business, you had to submit a PST report and a GST report. My business was small enough that I was involved with the day-to-day operation, and there would be a PST auditor from Ontario, and you could then get audited on the GST. It was two different groups doing basically the same function, making sure the company or the business had collected and submitted the appropriate amounts of PST and GST that they should have been charging. That was always nerve-wracking, even though the businesses I worked for always followed the law. You know, we're all human and sometimes you make mistakes and don't...and so on.
So it was something where the actual work of providing services or a product to customers basically got interrupted because of these audits. It took time away from what I would say is the value-add that a business provides its customers in trying to fill their needs.
That is why this is an important piece for business, as we heard earlier tonight.
“This difference is not insignificant”, this article goes on to say; “$1.9 billion (or approximately 40%) of annual provincial sales tax revenue in BC comes from taxing business inputs.” So that's tax on tax on tax. It adds up to about $1.9 billion.
||Because the current provincial sales tax applies to business inputs, it significantly increases the cost of investing in machinery, equipment, and technology. Consider, for instance, a business that purchases a $1 million machine that improves the productivity and wages of its workers, and makes the business more competitive. Under the current system, the firm must pay provincial sales taxes on the purchase of this equipment. This additional cost raises the real cost of investment and makes business development more expensive in British Columbia than in other jurisdictions.
Of course, there are other jurisdictions that have an embedded sales tax. It's not quite the same, but for those who have the value-add pass-through system of sales tax, it is certainly a competitive advantage. This is why it is important, from a manufacturing point of view, from a services point of view, from a business point of view, that we support the provinces' decision to harmonize their taxes.
We heard earlier, Mr. Chair, that this is just for business. I would challenge anybody to name one business in this country--or any country--that can run without employees, that has no employees. Name me one business. Businesses are people, Mr. Chair. It's about jobs. It's about wages. It's about benefits for the community. There is not one single business.
I had people in the pipe business in my office today who move oil or natural gas from the refinery to the marketplace across the country. It's basically a pipe that's buried under the ground. There are a lot more pipes buried under the ground than I knew of, but I know about it now. That business would not operate without people.
That's why the argument that this HST is just about savings for business.... It is about creating jobs. It's about supporting people who have invested in businesses to create wealth in this country and provide the standard of living that we all enjoy. It's a standard of living that generations past have tried to improve for the next generation and that I am trying to improve for my kids by supporting the HST in my province of Ontario.
The report goes on:
||Fortunately, the new harmonized sales tax will exempt business inputs, thereby reducing costs and the tax penalty on new business investment. Thus, reducing taxes on new business investment will improve the incentives for [such investment].
Mr. Chair, the industry committee had a meeting today with the Canadian Chamber of Commerce. They were able to talk about a number of issues, including the importance of allowing the provinces to amalgamate their sales taxes so that there is a more competitive environment, not necessarily just among provinces, Mr. Chair, but across borders. It is not just across the U.S. border that we now need to compete. It's clear that we can't just rely on the U.S. customer as we may have in the past. We have to compete worldwide.
The Canadian chamber was there telling us two things. One was that we have to continue the process of improving our tax structure so that business can compete on that level. The other was to improve the incentives for investment, whether it is venture capital, or other direct investments from individuals, or from the stock market, or wherever businesses can get money. Our ability to be more competitive from a tax perspective will make a difference in those investments and support the creation of jobs here in Canada.
||Past experience with sales tax harmonization in Canada provides evidence that harmonizing sales taxes can boost investment.
This is from a report from Smart in 2007. I think it was mentioned earlier by one of the people we had in front of us from the Canadian Manufacturers & Exporters. They talked about the Smart report. It was Michael Smart in 2007. Here it is.
If you want to look it up—I know my friend from the NDP will want to do that—it's called “Lessons in Harmony: What Experience in the Atlantic Provinces Shows About the Benefits of a Harmonized Sales Tax”, and it's on the C.D. Howe Institute website. It's another think tank.
I know Mr. Mulcair probably reads those reports every week. He gets them.
Some day I'd like to be able to do it in French, to be honest with you. I've been working on it, but I'm not very good so I'm not going to try tonight.
The Chair: Thank goodness for small mercies.
Mr. Mike Wallace: I'll continue:
||In 1997 three Atlantic provinces (Newfoundland and Labrador, New Brunswick, and Nova Scotia) harmonized their previously independent provincial sales taxes with the federal GST. Professor Michael Smart of the University of Toronto...
—he wrote for C.D. Howe, but he is a professor at the University of Toronto, so you have to give him some credibility for that—
||...examined the effects of the harmonization in Atlantic Canada and found that, after the 1997 reforms, per capita investment rose by more than 11% in the harmonized provinces compared to the non-harmonized provinces.
People have been asking us to prove that it works. Well, we have a report here showing that 12 years ago there was an 11% increase in investment. Investment in machinery increased by more than 12% above the level of investment that existed prior to the 1997 reforms. All that is included in Professor Smart's report.
Another report is quoted here. It says:
||Harmonization will also reduce unproductive tax compliance costs for businesses.... Currently, the group of goods and services upon which BC’s PST is applied (the tax base) differs from the tax base used for the GST. Differing tax bases, along with a host of different rules, force businesses that collect sales taxes to operate with two sets of sales records and two sets of compliance and reporting requirements. By simplifying the recording and reporting processes, harmonization is estimated to save BC businesses approximately $150 million annually in tax compliance costs.
||Unfortunately, British Columbians will likely be exposed to many faulty objections and misperceptions regarding the HST over the coming weeks and months by those seeking to derail this reform.
||A common misperception is that harmonizing the provincial sales tax with the GST results in a shift of the tax burden from business to individuals. This stems from the fact that business inputs will be exempt from the HST while a whole host of goods and services will be added to the tax base. Indeed, the expansion of the tax base is the primary reason why harmonization can occur at the existing 7% PST rate in a revenue neutral fashion.
If you look at what happened in other provinces that harmonized—and I think it was mentioned by speakers earlier tonight—in Newfoundland and Labrador, if there had been a complete amalgamation of the rates it would have been 18%, but it's actually 15%. That's because the province decided to reduce the number at the time of the amalgamation of the GST with their provincial sales tax. So there are options, but those options are provincial decisions.
Since the last amalgamation of GST and PST we've reduced the GST from 7% to 5%. I think we've done our share in reducing the sales tax burden that exists on our value-added tax. There is an option for provinces that are looking at amalgamating, if that's a choice they would like to make. I think it's still a choice, because the implementation of the new HST won't occur until the summer of next year.
I've encouraged my local folks to talk to their provincial counterparts, who are going to be able to make the decision, to look at what exemptions they're offering. In my view, a better system would be to look at reducing the actual portion of the HST that the province is collecting. So reduce from the 8% that's there now to maybe 7% or even 6% in Ontario. I'm not sure that's going to happen. But that's my suggestion on the approach for people who are not excited about the HST.
It's a provincial decision. What we're doing is putting in a framework, treating all provinces equally. Twelve years ago provinces were able to amalgamate their sales taxes. There's no reason we wouldn't allow additional provinces to continue that process. It's their choice, and that's exactly what this bill does: it provides choice for those provinces to do so. We're hearing from Ontario and British Columbia, of course. Manitoba has thus far indicated it's not that interested. I haven't heard from Saskatchewan, but maybe it's decided. I think for them to be competitive they will all have to look at it eventually.
Fortunately, if you live in Alberta, there is no provincial sales tax, so it's very difficult for it to amalgamate something it doesn't have--we'll see what happens in the future.
The article goes on:
||However, the tax shift argument ignores the fact that the provincial sales tax is embedded in the price of many of the goods and services that are currently exempt from the PST. Since business inputs (goods and services) are taxed, consumers pay higher prices, even if the final good or service is not taxed. In his study of the Atlantic provinces Professor Smart found that...consumer prices in the harmonizing provinces...fell after the 1997 reforms...
--which somewhat offset the imposition of the sales tax.
We heard that from officials and people from the Chamber of Commerce. They couldn't put their fingers on exact numbers, of course. There was a reference to the experience that Canadians on the east coast had. Professor Smart at the University of Toronto, on behalf of the C.D. Howe Institute, has indicated that savings were passed on, and “As a result, overall consumer prices in the harmonizing provinces actually fell after the 1997 reforms. In addition, the tax shift argument fails to recognize that the burden of all taxes ultimately falls on people”--which is true. Eventually most companies or all companies, whatever taxes they're paying, add it to the price of their goods and they pass it on to the next individual, whether it's an input to the next company or to their final consumer, “in the form of higher prices, lower wages, and/or reduced rates of return on investments”.
||BC's harmonized plan does have one critical flaw, however:
This is B.C. I think it's fair. I want to read you what Mr. Smart has to say. He feels its date should have been sooner:
||Delaying implementation until mid-2010 may cause some businesses to hold off on major capital purchases--the opposite of what is needed in the current economic environment.
I'd remind you that this article was published this past September, obviously when things were not great. This was probably written before that, it's a middle-of-the-recession piece. His comment was that the province should have moved on it more quickly and not waited.
In reality, when there's this kind of change, giving businesses an opportunity to adjust is probably the correct thing. The author does make the point that it's possible businesses would have waited to make their capital purchases. The argument could be made the other way, that some things may be taxed in the future, which has got people to purchase in advance or move things up--home purchases, those kinds of things. So I think there's a balance there.
He goes on:
||While it could be moving more quickly, the BC government should be commended for its decision to implement a harmonized sales tax. Improving the investment climate, increasing the competitiveness of BC-made products, and reducing tax compliance costs with little or no effect on consumer prices is wise economic policy. And that wise policy will ultimately benefit British Columbians through higher rates of economic growth, more opportunities, and a higher standard of living.
Mr. Chair, that's the end of that particular article.
There are quite a few references and notes, but I have others that I would like to talk to you about. In the meantime, I would like to thank the Library of Parliament for the work and reporting they've done. There is an excellent chart at the back of their report. It talks about the RST versus the value-added tax. I wanted to point that piece out.
One group that I thought was interesting and that provided us with some valuable information was the Tax Executives Institute. We heard from this group during the review of our pre-budget consultations. Who are the tax executives? I think it's an important group. These are the people in relatively large companies who actually calculate the taxes, the tax experts within these organizations.
We have tax experts here from the ministry, and we appreciate the work they do. We work around here, but the vast majority of government work is done by its bureaucracy, and I want to thank them for that. They're here at 9:45 listening to politicians talking about stuff they already know. It's not quite there yet. I appreciate every time we have an opportunity to have you in front of us. I appreciate the answers. I may not always agree, but I'm sure they're factual. I have been wrong in the past and will be wrong again. But there is so much to know. Members of the committee can't know everything. Having you and your expertise and experience should give us comfort that there are people of talent looking after things for us.
They are still working, unfortunately.
But here's what the Tax Executives Institute had to say:
||Harmonization of Federal and Provincial Tax Bases and Administrative Systems
|| The federal government has undertaken several initiatives to encourage the provinces...
—and I want to underline it's “to encourage the provinces”. It's not forcing the provinces to do anything; it's “encouraging the provinces”, and that's what this act is about, right, John?
||...to adopt tax policies that promote Canada's competitiveness and to approve the administrative efficiency of the provincial systems.
They don't say “of the federal system” but “of the provincial systems”. That applies to all provinces, including Quebec.
||We commend the government for providing financial incentives to the provinces to eliminate their capital taxes.... We urge the Standing Committee to consider additional incentives to the provinces in order to accelerate elimination of...provincial capital taxes and to promote additional investment in Canada.
They are clear in their submission—and I'm going to read a little more of it—that the role of government isn't to pick winners and losers, but to have a tax structure system to make us more competitive from a tax perspective compared to not only our internal competitors from province to province but internationally. And I think that's really where their focus was: to make sure that we can be the areas with the lowest taxes in North America, to encourage investment to come into Canada, not to go out of Canada, and to allow us to be competitive on a much more global stage.
As we know, there are other markets--including India or China, which the Prime Minister recently visited--that can be a double-edged sword if we're not ready for them. So from a tax perspective, we need to have our companies in a position to be competitive with those marketplaces so that we can take advantage of that new and growing middle class that's happening in both of those marketplaces and so that we can be competitive.
Now, we can't be competitive on everything, but the value that Canada can add in terms of the quality of companies that we have here and the types of services and products we provide, whether financial services or other types of development, health care and all those other areas, will be in high demand in those jurisdictions, and we need to be ready for those.
||We also commend the federal agreement with Ontario whereby Ontario will conform its corporate income tax base to the federal corporate tax base and the federal government will assume administration of Ontario's corporate income tax system.
So they're saying in this that it's not just about sales tax—and I'll get there in a second—but it's also about the corporate tax system that we have been advocating for and improving. They're thanking us, but we should be thanking the provinces, which have moved to improve their corporate income tax system to try to be as competitive as possible.
Similar moves by other provinces would improve the overall efficiency of Canada's business tax structure.
|| We also recommend that the Standing Committee encourage the provincial governments to...review...their corporate income and sales tax policies and [effect] rate reductions and tax base changes to [enhance Canada's tax] competitiveness.
Mr. Chair, this is exactly what I was referring to earlier. When they talk about encouraging the province to review their sales tax policies and effect rate reductions, that is why I think we should be encouraging, through this bill that we have in front of us, and allowing provinces to amalgamate, absolutely, but, in addition to that, we should look at the results and the benefits that have happened in the Atlantic provinces. I like to use Newfoundland as an example, where they have made some changes to their rates on the sales tax side, which has made a difference.
I was at an annual meeting, as I said earlier, this past weekend. The speaker—