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EVIDENCE

[Recorded by Electronic Apparatus]

Monday, November 4, 1996

.0915

[Translation]

The Chairman: Order, please. The House of Commons Standing Committee on Finance is very pleased to be sitting in Montreal this morning to hear testimony regarding our next budget.

Our witnesses today are: from the Quebec Jewellers Association, André Marchand; from the Conseil du patronat du Québec, Ghislain Dufour and Jacques Garon; from the Confédération des Caisses populaires Desjardins, Yves Morency and Raynald Corriveau; from Positron Industries Inc., Reg Weiser; from the Confédération des syndicats nationaux (CSN), Pierre Paquette and Peter Bakvis; from the Task Force on tax reform, John McKellar; and from Agropur, Rita Proulx. Welcome everyone. We could begin with introductory remarks of a few minutes each, please.

Mr. Marchand.

Mr. André Marchand (President, Quebec Jewellers Association): I owe my presence here today to the Canadian Jewellers Association, whose representative will be here in a few minutes.

Concerning the notorious excise tax, we find it completely iniquitous and absolutely unfair because we are the only retail business forced to pay it and remit it to various levels of government, especially the federal government, of course. We would really like it to be abolished because it's a luxury tax and we are not the only the industry that sells luxury products. For instance, there is fur, photography, etc. We think it is very unfair because we are the only ones assessed for this tax.

At the very least, we would appreciate it if this tax were treated somewhat like GST inputs, that is we retailers not have to support this tax but rather pay it when the product is sold.

There is very little turnover in the jewellery trade. We have to keep our merchandise for many years before we can sell it, which represents large sums, our inventories being very large.

I will be pleased to speak again if you wish.

The Chairman: Thank you very much, Mr. Marchand.

Welcome, Mr. Dufour.

Mr. Ghislain Dufour (President, Conseil du patronat du Québec): I will deal very briefly with five points. First of all, I would like to discuss balancing the budget.

We want to congratulate Minister Martin for the efforts he has made in order to balance the budget some day. In fact, the latest news is very good in the sense that the deficit is $3 or $4 billion lower than had been anticipated, and about this we must rejoice. Given the fact that things are going very well, we think we should now change our objectives for a zero deficit and plan for this to happen around 1999 or 2000. The target of 3% of GDP now seems easily attainable and we surely have to have an objective that is more difficult to achieve.

My second comment is about the Bank of Canada's monetary policy.

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As we all know, inflation is now around 2% and interest rates have been greatly reduced. Excellent! However, we are among those who think that we could continue to lower interest rates, especially so that consumers, who are always the driving force of economic development, can have some assurance of the stability of interest rates. Obviously, very low interest rates do not suit everyone. I'm thinking, for example, of retired persons and certain financial sectors, but we have to have a trend towards stability, I repeat, as this is necessary to retain the confidence of consumers and businesses.

My third comment, which we have been reiterating now for five years, deals with the much discussed question of the possible non-deductibility of payroll taxes and on the capital in the taxes that businesses pay in the provinces, including Quebec.

This famous provision of the Wilson budget of 1991 has never been eliminated. Every year, after hours and hours of negotiation, we manage to convince the minister that he must postpone that provision indefinitely, but he always postpones it from one year to the next. Therefore, this means that every January 1st, we always have this sword of Damocles hanging over us. In Quebec, this represents about $150 million which is a lot.

Fourth, and here I'm really addressing Mr. Martin, there's the whole matter of the decentralization of certain powers and shift to the provinces. Of course, there were moments where, at the federal level, there was talk of decentralizing powers and devolving them to the provinces in the past year. We are among those who are in favour of this decentralization except that in the main proposals that were made, excluding the issue of the labour force, power does not seem to be accompanied by money.

It is quite obvious that if powers are decentralized although without any money accompanying that decentralization, in the current context, the provinces cannot absorb the costs that the management of these various responsibilities entails. Therefore, we say yes to the decentralization of powers, but with the necessary funds to assume these new responsibilities.

Lastly, let's discuss unemployment insurance premiums. We all know that the unemployment insurance fund will have a surplus of nearly $5 billion at the end of 1996 and almost $8 billion at the end of 1997. Human Resource Development data even refers to $10 billion for the end of 1997.

Obviously, the reduction that has been discussed - I'm not saying that it's a formal decision by Mr. Martin, but it's currently floating around - , namely a reduction of 5¢ in workers premiums, is in our opinion completely insufficient. We do not go so far as to demand $2.50 like some large employers associations have done in Canada, but we think that we could easily obtain $2.60 or $2.65.

I will close by saying that 5¢ is purely symbolic. We cannot create jobs with that. We can't get anywhere with 5¢; that represents about $12 to $15 per worker. Therefore, since the fund allows it, we should see a significant reduction. We keep pestering the Quebec government about a reduction in payroll taxes. Why not badger Ottawa as well? This is a major payroll tax. A reduction in that tan could create jobs.

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The Chairman: Thank you very much. Our next witnesses are Cameron Charlebois and Douglas Pascal of the Institut du développement urbain du Québec.

Mr. Cameron Charlebois (Institut du développement urbain du Québec): We will reserve our comments for the time being. As you know, we are a real estate industry which is not significantly affected by federal policy, but we do appreciate this opportunity to take part in this morning's meeting. For the time being, we will give the floor over to the next witnesses.

The Chairman: Thank you. From the Confédération des Caisses populaires Desjardins,Mr. Yves Morency and Mr. Raynald Corriveau.

Mr. Yves Morency (Vice-President, Public Affairs, Confédération des Caisses populaires Desjardins): We would also like to applaud the efforts made by the federal government in the past two years to achieve its objectives in public spending. The Canadian economy is already feeling the positive effects of these significant efforts. We enjoin the minister to continue and to stay the course in accordance with the objectives he has set for the coming years.

We are certain that in the coming year, economic growth will be significant and will sustain job creation and the development of economic activity. We think that economic growth in Canada will reach 3.5% during 1997. However, we remind you that Quebec's growth rate will be significantly lower. We estimate that it will be approximately 2.6%.

We also feel that because of the growth in economic activity, and notably the significant reduction in interest rates, the federal government will largely surpass its objectives in the next fiscal year, which are in the order of $5 billion.

What we are proposing is that part or all of this sum be used on the one hand to postpone the reduction in federal transfer payments to the provinces for health care and social programs. We are requesting this because we think that the provinces, particularly Quebec and Ontario, need a bit of breathing space to allow them to achieve their deficit reduction objectives. However we do not think that these sums should be earmarked for renewal of the infrastructure program or even for a tax cut.

We also request that the federal government reduce premiums paid into the unemployment insurance fund, which will have a surplus of approximately $5 billion. This reduction is in fact a reduction in the payroll tax and will have the same effect as a reduction in income or sale taxes.

In addition, following the last Quebec government economic and employment summit, which brought together various partners, a consensus was reached to ask the federal government to grant Quebec fair compensation for the harmonization of its sales tax with the GST.

Lastly, we have given the various participants a document in which we outline measures to make the corporate tax system simpler, more effective and more competitive. First of all, we must introduce the mechanism to avoid having a corporation pay its shareholders dividends that entitle them to a tax credit for deferred taxes and, in addition, implement a mechanism for the transfer of tax losses between corporation within a single group.

During our discussions, we will have an opportunity to explore this in more detail.

Thank you.

The Chairman: Thank you very much. Reg Weiser, please.

[English]

Mr. Reg Weiser (President, Positron Industries Inc.): As a representative of a high-tech centre, I'd like to indicate what is hardly even recognized today, that a number of years ago the telecom industry surpassed the employment in all natural resource industries. The high-tech sectors in industry out-employ the automotive, finance and banking, and natural resources sectors combined. It is the largest industrial sector in Canada today and it's performing extremely well.

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This is the prime driving and exporting sector of the Canadian economy. The typical profile of the Canadian Advanced Technology Association member is export oriented; 80% of their members export over 80% of their product. So we're definitely world class, but we also have to recognize that we're small by international standards. This has come about with the assistance of government policy, and I strongly recommend that the current policies be maintained and even augmented; that is, maintaining R and D tax credits, which effectively means that the companies have to invest their own funds in their research and development activities and then obtain tax credits for this helping make them more competitive.

I also suggest tax credits against overseas marketing. It is very expensive. It's even more expensive to market overseas than it is to do the research and development in the first place. So a form of tax credit for this type of activity would certainly act as an incentive. As a matter of fact, in the case of my own company, we started exporting when we were employed by the government to participate in some shows internationally, and they gave us some funding to help us participate. That started us off on our exporting drive, and we haven't looked back since.

We certainly feel very strongly and positively about the free trade initiatives done, which have been very helpful for the high-tech sector. We'd like to see that increased to embody more countries. However, with regard to foreign markets, I'd also like to propose that Canada flex its muscles in some regard. If other governments do not give equivalent access to Canadian products as we do to theirs, then I recommend that we impose strong tariffs and barriers. I'm saying that if we're strong in, let's say, telecom products and they're strong in other sectors, we should hit them back exactly where they're hurting Canadian companies. A typical example would be France, which does not give any easy access for telecom products to its markets. So I'd like to say that perhaps we need a minister to sink a ship from France carrying perfumes and wines here to start the ball rolling.

I'd also like to say a few words about Montreal. Montreal produces more technical papers than any other city in North America. It is a tremendous high-tech centre now, and is growing very well. It will rival, I believe, Boston and other areas. While in some other industrial sectors, and overall, there is an economic decline in Montreal, the high-tech sector is still growing. It's very attractive here, and I'd like to see any and all activities that can be done to help promote Montreal as a city. Thank you.

[Translation]

The Chairman: Thank you very much. From the Confédération des syndicats nationaux,Mr. Pierre Paquette.

Mr. Pierre Paquette (Corporate Secretary, Confédération des syndicats nationaux (CSN): Thank you for inviting us to take part in your consultation.

In the year that has just ended, we have noted the impact of budget cuts by various governments, including the federal government. The assessment made of this and which is shared even by the Bank of Canada is that 1% of real growth would have been affected by all these cuts.

Moreover, we do know that various levels of government have all created unemployment. With regard to Quebec, if we look at statistics for July and September, we can see that most of the job losses have taken place in the public and parapublic sectors. This is true both for the federal and provincial governments. Against this backdrop, while we agree with deficit reduction, we feel that the federal government should take note of the fact that growth is anemic and that the unemployment rate continues to be unacceptable. Therefore, we must strike a balance between the gains that we may have obtained through the reduction of short-term interest rates and the objectives to aim for in 1997.

On the same subject of monetary policy, we are pleased to see that rates are adjusting to reality somewhat. Like the Conseil du patronat, we feel there is still some room to manoeuvre in terms of the differential with American rates. Given the inflation rate, the bank of Canada must certainly not repeat its error of early 1995, when for some unknown reason, it felt that the economy was overheating and started to raise interest rates.

Thus, the Minister must make a commitment to do everything in his power to ensure that the leadership of the Bank of Canada is on the right track in its economic forecasts.

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As I was saying, we agree that we must continue to reduce the deficit, but we don't want this to be done exclusively through spending. A great deal of progress has been made on the spending side. Now we must concentrate on revenue and, more particularly, on job creation.

We have a few suggestions. As Mr. Dufour said, we think that it would be quite appropriate for the federal government to harmonize Employment Insurance Fund contributions in the framework of the program that resulted from the Social Economic Summit, namely, that job-creating businesses be given a premium holiday.

In Quebec, we have already taken steps to ensure that employers will be given a one-year holiday on health fund premiums, which represent 4.26 of the payroll tax, indeed 4.26 of taxes, for jobs created. We feel that the federal government would also be making a good move if it were to introduce targeted measures like this rather than more general measures, even if the general rate could drop as a result of the current reserves. We are therefore inviting you to harmonize with the program that was designed during the Social Economic Summit.

Secondly, we feel that it is important to adjust the Canadian Social Transfer to take into account the impact of Employment Insurance reform. Statistics Canada has stated that the number of people receiving unemployment insurance is the lowest it has been in 19 years, but conceded that this was due to the fact that it was now more difficult to become eligible for these benefits as a result of the reform.

Now many people go immediately on welfare, which is paid primarily by the provincial governments - in our case, the Government of Quebec - and in Quebec we know that this represents 800,000 people. This forces the Government of Quebec to make some inhumane choices. Given the changing interest rates, we believe that we could adjust the Canadian Social Transfer to reflect this reality, in proportion to the transfer of individuals.

As I was saying, this should be done through supplementary income. Tax spending must be gone over with a fine tooth comb. I know that the process has already begun, but we must continue along this line.

For instance, we must review the partial capital gains exemption. Right now, there is a 75% exemption. The Commission sur la fiscalité et le financement des services publics, which was established by the Government of Quebec, proposed 100% taxation of capital gains. We think that the federal government should be moving in this direction as well. We should be reducing the costs of contributions to RRSPs and pension plans in proportion with the objectives sought in terms of maintaining public services and job creation measures.

The hospitality deductions for entertainment expenses must be totally eliminated. Over the past year, I do not know how many times I have been told: ``Why does a company that purchases a box from the Molson Centre get a tax deduction whereas a father who brings his son to the Centre has to pay full price for the price of the ticket, without being able to deduct anything whatsoever?'' When you talk about tax equity, this is without doubt one of the most striking illustrations.

As for the matter of family trusts, the government announced that there will be a deadline, January 1, 1999. You will recall that family trusts should have started being opened, to use this expression, back in 1993. We will support this deadline, providing that the Minister of Finance, in the Budget Speech, assures us that this will not be changed and that the movement of capital outside Canada will be closely monitored.

The federal government should also examine, in co-operation with the provinces, the possibility of bringing back succession duty starting at a certain level. We think this figure should be $1 million and over. Consideration should also be given to the possibility of creating a tax on financial transactions. This is about the only area where GST does not apply.

On the matter of job creation, I have already talked about the tax measure proposed at the Social Economic Summit, that I would again invite you to take a look at. As for the infrastructure program, we would be in favour of a Phase II, but we would want it to be more targeted. Quebec announced a whole series of projects during the Social Economic Summit, which will require public sector support. The Government of Quebec has already made a commitment, but we feel that the federal government could provide more targeted and more equitably funded support.

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We realized, and I think this became obvious to everyone, that under Phase I, which was cost-shared on an equal basis by the federal, provincial and municipal governments, the big beneficiary was the federal government because the program allows people to get off unemployment insurance. This even had an impact on transfer payments to the provinces. we have estimated that 75 per cent of the positive tax spinoffs of the infrastructure program were pocketed by the federal government. Consequently, we need to take a second look at the way that the second phase is funded. I would suggest that the federal government pick up half of the cost, with the other half being paid by the Government of Quebec and the municipalities.

I'm in complete agreement with the recommendation made by the Confédération des Caisses populaires Desjardins, which suggests fair compensation for Quebec for harmonization with the GST.

To conclude, I would invite the federal government to follow up on the Quebec consensus regarding manpower. In other words, through the negotiation process with Minister Pettigrew, speed up things so that Quebec can repatriate manpower. There is also the matter of the contribution to the UI fund for maternity leave. This will enable the Quebec Government to go ahead with a project discussed during the Social Economic Summit to create a maternity leave fund.

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This is my initial reaction to your consultation process. We have many other ideas, but we will keep them for the discussion.

The Chairman: Thank you very much and may you live a long life. Mr. McKellar.

Mr. Paquette: Perhaps I will be Minister of Finance one day, but not under this government.

Mr. John McKellar (Chair, Task Force on Tax Reform): Mr. Chairman, I would like to speak in English.

[English]

I am delighted to be here, Mr. Chairman, in my capacity as chairman of the Canada Council Task Force on Incentives for the Arts. We were particularly pleased in the last budget that the Minister of Finance chose to introduce certain incentives for the arts and made reference to our report and of course this committee.

I'm particularly happy to be here today to advise you that we are continuing. We will make further recommendations to the minister, and hopefully if this committee makes similar recommendations as we did before, the Minister of Finance will take some further action.

Indeed, you will recall he said in his last budget that more may need to be done to promote the arts and charities. Although my first interest in this particular case is the arts, we recognize that incentives of this kind will also help other charities, all of which are suffering with government cutbacks. The most donors in the position to give, those 65 years and older, find themselves with less money, and the so-called baby boomers coming along have responsibilities to their families and the children moving back and so on. All sorts of incentives for the arts and other charities are really needed.

We have made some before. As I mentioned, some were introduced. The big one that wasn't quite introduced was the one you also made, which was to exclude capital gains from being taxed on donations of gifts in kind. We still feel this is a very important incentive that will assist donors of substantial funds and substantial objets d'art and other things to give to charity, and particularly to some in the arts, museums and others.

Ministry officials have told us that this is going to be very difficult, and they always do, but the answer simply in that issue is that if the United States can do it and solve the areas of fraud that they allege may be around, surely we can too.

Some of the other incentives that we are currently reviewing are the so-called stretch incentives, which ministry officials are contemplating and on which they have had several meetings. This is an incentive whereby revenue will monitor the gifts people have made to charity. If you make a gift hopefully next year larger than any you've ever made before, you get a tax credit not of 17% and not of 29%, but perhaps 40%.

This is very interesting, we think, and particularly would help the smaller donors to stretch. This is one I'm sure we will be recommending in our second task force, which we'll present to the minister in the next couple of weeks.

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There are a number of other ones that we think are helpful, collectively perhaps small and not costing the government too much money, but well worth doing. These include eliminating the tax on gifts to charities from RRSPs, allowing charities to establish pooled income funds so they can satisfy the minimum balance requirements for charitable funds to include the recaptured depreciation on gifts in kind in the annual giving limit.

We also hear that Department of Finance officials are contemplating, so-called for simplicity, reducing the tax credits to charities, which, as you know, are 17% in the first $200 and 29% thereafter, into some single rate that is somewhere in the middle. We think that would be a most serious mistake and is exactly the wrong way. We don't think it's too offensive, given an Income Tax Act of x million pages, to have two simple rates for charity.

We do hear that Department of Finance officials are considering amalgamating those rates. We think this would be most serious and would certainly make representations on that regard.

Those are my initial thoughts, Mr. Chairman.

The Chairman: What makes you think that finance officials have any say as to what goes into the budget?

[Translation]

Thank you very much.

Rita Proulx, please.

[English]

Ms Rita Proulx (Corporate Controller, Agropur): In line with Mr. Weiser, although Agropur is not in the high-tech industry but in the food industry, I would simply like to underline the R and D support the Canadian government has been giving to industry. It is making a difference. I strongly urge the Canadian government to continue in this direction, as it is helping us focus on what counts in the near future.

[Translation]

The Chairman: Thank you very much. That was very precise.

From the Canadian Jewellers' Association, Pierre Akkelian and Jonathan Birks.

[English]

Mr. Pierre Akkelian (President, Canadian Jewellers' Association): I apologize for our tardiness this morning, Mr. Chairman.

The Chairman: No problem.

Mr. Akkelian: Thank you. I represent the Canadian jewellers industry. I am the president of the Canadian Jewellers' Association, with members all over Canada.

Mr. Chairman and members of the finance committee, we thank you for this opportunity to present our views to help us better contribute to the economic development of Canada.

The Canadian jewellery and watch sector includes over 5,000 companies, which employ more than 35,000 Canadians. Total retail sales are close to $3 billion annually, $1 billion of which is in the underground economy. I'm sure my colleague from Quebec has mentioned that.

We are here today because we believe this committee can play a critical role in recommending finance policy changes that should be introduced in the next federal budget. We do believe this committee makes a difference, Mr. Chairman. Not only the Finance officials make it; you can make a difference.

With proper regulations, our industry can create more employment, export more products, while at the same time drastically reducing the underground economy, thereby broadening the tax base for both federal and provincial governments.

A great deal of effort and money has been spent every year for you to put on this show across the country. This is the third time in as many years that we presented to you our views and consensus. Two years ago we met you in Ottawa and last year it was here in Montreal.

Mr. Chairman, as far as we're concerned, to date this consultation process has been a futile exercise and a waste of taxpayers' hard-earned money. On the last two occasions your committee listened but did not take any stance on the issues that are so critical to our industry. Your final reports make no reference to our pleas for help. We certainly hope that this time around you will act in favour of progress and fairness.

Our industry respectfully asks that one way or another this year's report from your committee includes a definite position on the only luxury surtax in Canada. The Canadian public, like most politicians, is not aware that jewellery and watch products are the only product in Canada that are subject to a hidden luxury tax. No other product in Canada is luxury taxed.

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Luxury boats costing millions of dollars, $250,000 Ferraris and Mercedes, $20,000 for coats, hotel suites, golf clubs, designer clothing, cosmetics or perfume that can cost $250 per bottle are not taxed as a luxury. Yet a $10 earring for a baby girl or the average $150 wedding ring that most of you here got married with is taxed as a luxury item and subjected to a 10% excise tax. Not even costume jewellery that is gold-plated or silver-plated is exempt, even if it's made of plastic.

Endless studies have been carried out on the counter-productiveness of this particular tax, the most recent being in September of this year by the Auditor General of Canada, which confirms our claim. I quote from the Auditor General's report:

The goods and services tax, GST, which was introduced by the Mulroney government, was a tough tax for many Canadians to swallow, but it had one virtue. It swept away the federal sales tax needs of the past, with the singular exception of our industry, the only industry that is subjected to the antiquated administrative tax regime. All justifications and arguments that were given to get rid of the old sales tax system in favour of GST still apply to the jewellery luxury tax.

We are not here to ask you for special treatment, Mr. Chairman, or special exemption. We are here to ask the federal government not to discriminate against our industry. We are not here to seek special treatment, but are here to seek equitable treatment.

Another report that some of you are familiar with is the 1993 Ernst & Young report on the jewellery industry. The report commissioned by the finance department at the cost of $65,000 also confirms our claims, and I quote again:

The report had many shortcomings, mainly the limited scope of the mandate given by the finance officials. Had the Ernst & Young report looked at the unemployment insurance abuses, the personal and corporate tax impact or the provincial interest, the benefits of removing the tax would have been overwhelming.

The status quo guardians of the finance department in Ottawa for the last three years have been propagating the belief that the Ernst & Young report did not support the elimination of the jewellery tax. We would like to inform this committee that the author of the report, previously a director in the finance department himself, is on the record supporting the abolishment of the tax.

Another fact that finance officials refuse to admit is that due to the higher retail mark-ups of our industry, the GST has produced far greater revenues than the old sales and excise taxes combined. The additional gouging of the unsuspecting consumer with a hidden luxury tax to the tune of $60 million is simply not ethical or acceptable.

[Translation]

The Chairman: I would encourage you to conclude, please. I will give you enough time for your conclusion.

Mr. Akkelian: I have almost finished, Mr. Chairman.

[English]

An argument we have heard time and time again from government MPs is how do you expect us to get rid of a tax for the rich when we plan to introduce a tax on baby diapers? This was from Michael Wilson and his team when they were about to introduce the GST. We hear the same type of arguments from the present MPs, who ask how they could give the rich a break when they are cutting all kinds of social programs.

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Allow me, Mr. Chairman, to clarify some misperceptions about our industry. Contrary to the popular belief, this industry is not truly only in the luxury business. The tax is not paid by the privileged few. We would like you to know that per capita expenditure of jewellery in Canada is less than $100 and Wal-Mart is the largest retail jeweller in North America followed by Avon, which are hardly your typical luxury group.

I don't want to go through the whole thing. I have just a few paragraphs. Please have patience to listen. We are very frustrated, as you can see through my speech.

[Translation]

The Chairman: Other witnesses have limited their comments to three minutes, but, if everyone is in agreement, I will give you what you want. Is that all right?

[English]

Mr. Akkelian: Would you allow me to go just two more minutes, please. I appreciate this.

On an individual basis, all politicians from the Prime Minister on down, the revenue ministry, industry and commerce, the RCMP, and most bureaucrats who are familiar with our case, support our industry's right to be working on a level playing field with other commodities.

Unfortunately, some high-level bureaucrats at Finance have decided to keep this tax in place no matter what the arguments and regardless of the damage their intransigence causes. It is up to you, our elected representatives, to take charge and introduce the sanity and fairness that are desperately needed to stop the deception of a hidden luxury sales tax and at the same time save our industry from further demise.

We appreciate the support we have received from all political parties that are represented here today. Mr. Grubel, we appreciate your personal support and that of Reform for the elimination of the tax. The Bloc Québécois, when we met them last year, were also on side. They recognized the problems of Quebec, especially in this domain.

For the sake of all Canadians, please hope that next year at this time, thanks to your leadership, Mr. Chairman, and that of your committee, we in the industry will not be living and working with the threat of the luxury tax guillotine over our heads.

Thank you very much.

[Translation]

The Chairman: Thank you very much, Mr. Akkelian.

I would like to know whether or not Mr. Dufour and Mr. Paquette could give us their opinion on this tax later on.

René Laurin, please.

Mr. Laurin (Joliette): I have a question for Mr. Dufour. I would like him to provide me with a short explanation on the position taken by employers. Mr. Dufour referred to the drop in interest rates, but what do you think about the federal government's policy to fight inflation?

In the past, we know that the government's monetary policy was designed primarily to fight inflation. Today, we have managed to do this. In your opinion, should the government continue with his policy or should it design a new monetary policy with a view to creating jobs, even if this results in a slight growth in inflation, such as was the case in the United States over the past few years?

Mr. Dufour: I will ask Jacques Garon, our economist, to provide additional comments. I will talk in very general terms.

We completely agree with the decline of interest rates that has occurred over the past year. As for the inflation rate, which is sitting just under 2%, we obviously agree with this as well. However, and Pierre Paquette spoke about this as well, when you take a look at our interest rates and bear in mind the fact that inflation is more or less under control, you see that they're still high. An examination of residential construction or goods and equipment procurement reveals that consumers' confidence has not yet been restored. We must therefore restore consumers' confidence if we want to get the economy back on track in the not too distant future.

.1005

We also have to have an inflation rate that is as low as possible, of course. We think there is still some room for bringing interest rates down further. Moreover, at present even certain banks - this is somewhat surprising to hear bankers say this - fear that there is still some room for bringing interest rates down further.

We are by no means in favour of high inflation. We must strengthen the economy and restore confidence. This is possible only if interest rates are low. Right now unemployment is too high. People are skittish and if the rates were to be maintained at the current level or start climbing they could withdraw from the economy.

This is the political analysis. Now we need to do an economic analysis.

Mr. Jacques Garon (Director of Social Economic Research, Conseil du patronat du Québec): The Bank of Canada has always had a range varying from 1 to 3%, which gives it some elbow-room in case the inflation rate should ever exceed 2%. I think that this could happen. This has always been the Bank's official policy.

Now, as for the decrease in rates, the 5% preferred rate does not mean that when consumers or businesses borrow - and here I'm referring to small businesses - , that they pay 5%. Businesses pay 5% plus 2 or 3%.

In order for a small business to borrow at, let's say, 7.5%, adding the risk factored-in by most banking institutions, the small business's real rate of return has to be at least 8 or 9% so that it has something left over at the end of the day. In the current context, 8 or 9% is excessively high. This is why, despite the low interest rates, the profits of businesses have been falling on a regular basis over the past five quarters.

In other words, this drop in interest rates that we have experienced this year will probably not be felt in the economy until the second part of 1997, and at that point, the economic benefits will be accelerated.

In order for this trend to continue, we must, and this is essential, ensure that interest rates do not go up and down like a yoyo. It is absolutely essential that we have stability at a level as close as possible to the inflation rate with respect to short-term interest rates, so that consumers and businesses will truly regain confidence. This is the only way that we will have very very tangible benefits for employment in the not too distant future.

Mr. Laurin: My second question is intended for Mr. Morency, who represents the Confédération des Caisses populaires Desjardins.

You referred to the lower deficit - and I'm not sure that I understood you correctly, and to the deferment of the reduction in provincial transfer payments. If I haven't understood this correctly, I would like you to clarify this matter.

Mr. Morency: According to our analysis of the evolution of government objectives in its fight against the deficit, there will be some room for manoeuvring in the 1997-98 budget. We are asking the government to stay the course, but given the drop in interest rates that we are currently experiencing, additional money will be freed up. We propose that the Infrastructure Program not be maintained or renewed, but that instead some oxygen be given to the provinces, which spend nearly 60% of their budgets on salaries, so that they can attain their objectives. They may be forced to cut back in employment.

We are asking you to give the provinces some leeway, namely Ontario and Quebec, by allowing them to slightly reduce the programs that were agreed to in terms of transfers to the provinces. Still give them part of that amount and give them some choices. There is some interest in the infrastructure program. There is job creation, but we do not think it will lead to long-term jobs.

Let the provinces set their own priorities. I am referring primarily to health and education in Quebec.

.1010

They will have no choice but to limit and cut jobs. If you give them that leeway, they will be able to keep jobs and consumer confidence which, for all intents and purposes, is lower than it has ever been in the past. That is the intent of our recommendation.

Mr. Laurin: I realize that I had clearly understood your message. Of course, you can count on the official Opposition to support those demands. We fully agree that cuts to transfer payments to the provinces must be stopped.

I have another question for the representatives from the Confederation of National Trade Unions.

The Chairman: We could come back to them during the second round.

Mr. Laurin: You are leading the debate. Normally, we have ten minutes, and in the second round, five minutes. How do you want to proceed?

The Chairman: As you wish.

Mr. Laurin: I was off to a good start.

The Confederation of National Trade Unions' suggestion to do a second phase of infrastructure work with 50% federal participation is excellent. I hope everyone heard you clearly.

You also talked about using the Unemployment Insurance Fund surplus to create jobs, but you did not mention professional training. However, the issue is of great concern in the province of Quebec. I was surprised to see that you did not mention it. Is it because you have decided to abandon the objective, or is it simply because you decided to focus on something else?

Mr. Paquette: Perhaps I went too quickly, but I concluded by saying that when we talk about active measures, that obviously includes professional training. At the Social Economic Summit, the social partners tabled a national employment policy that included professional training, but which goes a lot further than that. So when we talk about active measures, we are including that aspect. It is still a concern, and we hope that it can be resolved quickly.

We still support the demand put forth by management, the unions and the Government of Quebec to repatriate the money spent out of the Unemployment Insurance Fund, now called the Employment Insurance fund, for active employment measures, including professional training.

Mr. Laurin: Do you agree with the Quebec Government's request, which will be sent in shortly, for $250 million to set up a new family policy?

Mr. Paquette: Yes, we fully agree. There was also consensus at the Social Economic Summit. Particularly in the current context, that would enable us to have a much more generous system than the one that currently exists with respect to the Unemployment Insurance Fund, because our birth rate is lower and we contribute like the rest of Canada. So, with the cash contribution rate, maternity leave could be improved for Quebec.

Mr. Laurin: As for my last question, Mr. Paquette...

The Chairman: I am sorry Mr. Laurin, but there are a lot of members here today and I would like to give each of them an opportunity to participate. I will come back to you if possible.

Mr. Weiser.

[English]

Mr. Weiser: It appears that everything is happening right with the economy - deficit reduction, low consumption of imports, high exports and low interest rates. That is fabulous, but I'd like stress that a low Canadian dollar is critical to this growth and Canada's competitive position. For the first time in at least memorable history, Canadian rates are lower than American rates. In spite of that, the Canadian dollar is rising.

What the government is doing is absolutely fabulous and appears also as a recognition that this is a very important factor - maintaining low interest rates to try to keep the dollar down and maintain our competitive position. That may even be more important than other factors related to the low interest rates.

The Chairman: Mr. Grubel, please.

Mr. Grubel (Capilano - Howe Sound): Thank you, Mr. Chairman. I would like to welcome again Mr. Akkelian and Mr. Birks and their colleagues from Quebec.

I fully support the position and I think it is almost a scandal that the government keeps insisting on having a tax that may have been an effective luxury tax before the modern age of transportation and communication. I would like to add one little argument to their bag. In fact, it is the rich people who don't pay it. It is the lower-income people who end up paying it when they go to Avon and Wal-Mart and other outlets.

.1015

I was in Hong Kong not so long ago, which is where the rich people go, or professors who have their way paid, and I bought a little jewellery. Without my asking, the jeweller said to fill out my address on an envelope and they would mail me my credit card receipt. As it turns out, the only time customs can discover that you have bought jewellery abroad is when they ask you to open your wallet and present receipts for what you have spent. Most people, for family bookkeeping, keep their receipts, and that's how they nail you. But in Hong Kong, where the rich go to buy their jewellery, they have already institutionalized a system to avoid it.

.1020

But the poor people who have to buy their wedding rings at... [Technical Difficulty - Editor]

I think the revenue from other sources of taxation will more than make up for that 10% simply because the underground economy will be so strongly discouraged.

Mr. Chairman, I have several questions for Mr. Paquette; perhaps he could keep the answers short.

Could you explain to me what you mean by adjusting the maternity leave system? You mentioned at the end of your list of recommendations that you wanted to do something about the maternity leave program.

[Translation]

Mr. Paquette: I would like to say very quickly that at the Social Economic Summit last week, the Premier tabled a family policy proposal that included a maternity fund to replace the Unemployment Insurance Fund to cover maternity leave. That would obviously require repatriating the portion of our contributions paid to cover maternity leave in order to create a Quebec fund.

[English]

Mr. Grubel: Yes, I have been pushing this line generally with Reform as a separation of the functions. It is really a social welfare decision that we subsidize the families that have children, and it has nothing to do with unemployment. It should be in the department of social welfare. That's where it belongs. The money is the same. It gets taken away from some Canadians and given to some others, except that we remove the pretence that it is part of the unemployment issue.

Could you outline for me what you mean by opening up family trusts?

[Translation]

Mr. Paquette: I would just like to add a short comment on maternity leave. For a long time now, the Conseil du patronat has been requesting that costs for maternity leave be removed from the Unemployment Insurance Fund. We have always been in favour of that as long as something equivalent is set up. It comes under health and safety, and is therefore a provincial jurisdiction. There must be harmonization.

A maternity fund would open the door to a broad range of possibilities.

As regards family trusts, you must understand the origin of these trusts. When the federal government started to tax capital gains in 1972, it allowed the creation of family trusts at the same time to cover the transition.

Normally, people who set up a trust in 1972 should have started paying their taxes in 1993. When the Conservative government came into power, it introduced another rule, and when the liberals came back into power, they changed the date to 1999.

Normally, people who had set up a family trust 25 years ago should have started paying taxes in 1993, but that was not the case.

In 1999, they will start paying tax on the money put in family trusts in the early 70s.

To avoid fluctuations, as was mentioned for interest rates, everyone has agreed to the date being 1999. However, there must be some control to prevent flights of capital as we have experienced for roughly a year and half. Like the $2 billion that went to the United States tax free.

[English]

Mr. Grubel: I must tell you that I have sat through many, many hours of expert witnesses. The representation of $2 billion left tax-free is simply false. It gets repeated by the Bloc Québécois continually in their presentations. I have made every effort I can to understand it, but it is not at all clear what is coming out.

I have another question for Mr. Paquette, and I'd like to involve Mr. Weiser in this. MaybeMr. Weiser, as a businessman, can tell Mr. Paquette what would happen if in fact taxes on RRSPs were raised. We would have the elimination of entertainment expense deductions and financial transactions, higher taxes on capital gains. How would that affect the competitiveness and the employment growth in the big job machine called the high-tech industry in Canada?

Mr. Weiser: Let's talk about the capital gains side. Already many Canadian high-tech companies are going to NASDAQ rather than Canadian sources of funds. That's because of a combination of things. Maybe Americans are prepared to take larger risks. Higher capital gains may accelerate it or make it worse.

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With regard to entertainment deductions, it gets to be a bit difficult. Let us say that one takes out one's staff or a large part of the staff to have a party or to entertain them. That then gets charged almost as a personal expense.

I guess the main thing I would say is let's maintain a competitive position with the U.S. I think it would be too self-serving to comment on the entertainment deductions.

I think one important area in which people should be encouraged is RRSPs. I believe the government is also trying to encourage them to take care of themselves rather than having government take care of them. This is one very positive thing. If any, it should absolutely be maintained as a -

Mr. Grubel: Excuse me, Mr. Weiser, you are saying that the main effect of higher capital gains taxes is simply to shift the financing abroad, not the amount of capital available for high-risk investments.

Mr. Weiser: That's also a factor, yes. I'm just giving a cause and effect. You're quite right.

Mr. Grubel: Are you worried about this, Mr. Paquette, that in fact the amount of capital and employment growth that would result from the recommendations you have made would be counter-productive?

Mr. Paquette: No, to make it....

[Translation]

There is a lot of capital in Canada and in Quebec, and the problem is more the global economic environment. If, to ensure economic and social safety in Canada, we have to maintain a kind of social and financial safety net, I think that even on the management side, we would be willing to consider a certain number of things.

I'd like to mention something else. When I talk about capital gains, I am not talking about dividends. Capital gains are not the same as dividends. When someone earns money through a stock exchange or other type of transaction, the money should be considered the same way as money the person earns working.

[English]

A buck is a buck.

[Translation]

However, dividends are different. Businesses are already taxed, and to avoid double taxation, we are willing to accept different rules for dividends. But a distinction between the two will have to be made. For us, it's a question of equity.

As regards the Canadian Jewellers' Association, we feel it is unfair for them to be specifically taxed. We believe that if there is to be a luxury tax, it must apply to all luxury goods, or luxury goods should not be taxed, but another way should be found to make wealthy members of our society pay. In order to be fair, I would fully agree with the representations that were made.

It's the same thing for the task force. Here, when we talk about charitable donations, I agree with them that charitable donations should also be taxed. The deduction should be the same for everyone, regardless of the amount. In Quebec, it is 20% for all amounts with a ceiling. It is a question of fairness.

[English]

Mr. Grubel: Mr. Paquette, I beg your pardon, but we have heard a lot of people stressing how important the high-tech industry is. As you know, high-tech is very risky. Maybe only one out of ten people make it big. The other nine break even, make little money, or even go bankrupt.

You need to have the opportunity, as in a lottery, to be able to make a lot of money to get those ten, for the one person out of ten who makes all the money will have very large capital gains. Once he is rich, your argument says he got rich in an unfair manner, and now we must take everything away from him. I beg your pardon, but that's what capital gains taxation is.

[Translation]

Mr. Paquette: No, no, no. A dollar earned through an investment equals a dollar earned working.

Having said that, I wanted to mention that for research and development, we have the most generous tax credits in the western world. That is our contribution to help high tech industry.

[English]

Mr. Grubel: I'm sorry. I didn't understand you. You're telling me that the one out of ten who is going to become a millionaire because he played the lottery of high-tech industry investment now will have to pay, according to your proposal, a capital gains tax that is equal to 100% of the capital gains put into his income tax. So practically one half of it will be taxed away through capital gains. Is that what you're saying, or are you not saying it?

.1030

[Translation]

Mr. Paquette: I am saying that a dollar in capital gains earned must be 100% taxed, because a dollar earned on the job is 100% taxed.

I am also saying that we have a tax credit system in Canada, and in Quebec in particular, which goes a long way to promoting research and development.

[English]

Mr. Grubel: Mr. Weiser, maybe you can say it rather than my saying it. Mr. Paquette and his organization should be aware of the fact that if he does that, he will significantly reduce the amount of money flowing into that industry and therefore job growth.

Sir, you're shaking your head. Listen to Mr. Weiser and the people we have had come here and tell us that your judgment is wrong on that subject.

Thank you very much, Mr. Chairman.

The Chairman: Mr. Dufour wanted to add something as well.

[Translation]

Mr. Dufour: First of all, I would like to underline our agreement with the jewellers' position. But that is not what I want to talk about. My comments are directed to the Quebec members of Parliament in Ottawa, Mr. Discepola, Ms Finestone and Mr. Laurin, regarding what happened last week in Quebec on the issue of maternity leave.

As you know, in Quebec, the money a woman receives on maternity leave currently comes from three sources: provincial policies, the Unemployment Insurance Fund, and the Commission de la santé et de la sécurité du travail. We would like to see a single fund made up of those three funds.

That presupposes, and there was consensus on the issue last week, that we would ask Ottawa for the portion of the Unemployment Insurance Fund that covers maternity leave. The focus of the debate is no longer professional training, because that is a given. There is agreement with the federal government. It is just a question as to when it will be resolved.

We are opening up another front with maternity leave. The reason is - and I would not want to see the debate dragging on for five years - that maternity leave is covered by family policy. Family policies are under provincial jurisdiction.

We are not asking for passive measures from the Unemployment Insurance Fund to be transferred, let's make that clear. It is purely the transfer of the maternity leave component which, at any rate, has nothing to do with unemployment insurance fund. It is there by chance, but it has nothing to do with unemployment. That component, which is part of family policy, must be transferred to the provinces that want it.

That will cause problems for Mr. Martin, because the Unemployment Insurance Fund will be subsequently reduced. But in terms of principle, it's the same as professional training: it is an element that is under provincial jurisdiction.

The Chairman: Briefly, Mr. Paquette.

Mr. Paquette: I would just like to point out to Mr. Grubel that the Commission on Taxation that tabled its report a few weeks ago in Quebec and that was made up of union and management representatives reached recommendation 30. It asked the government of Quebec to fully tax capital gains, to make capital losses fully deductible and to give it the mandate to coordinate this with the federal government.

It is not an issue of irresponsibility. It was in the context of a global economy and of having a fair system that they reached that conclusion. It wasn't just union representatives; there were also representatives from management. I assumed they studied the entire issue.

I would invite the Standing Committee on Finance to read the full report of the Commission on Taxation and Public Services Funding.

[English]

Mr. Grubel: Just as long as Mr. Paquette and the authors of this report acknowledge the fact that fairness comes at a cost. It comes at the cost of unemployment, because you are not going to get as much capital. The supply curve for capital is upward sloping. The lower the rate of return, the less capital will be available - unless in Quebec the laws of economics don't apply. It could be possible.

[Translation]

Mr. Paquette: I think we are mixing up three things: profits, dividends and capital gains. Here we're talking about capital gains.

[English]

Mr. Grubel: You do. I don't.

[Translation]

The Chairman: Thank you very much, Mr. Grubel and Mr. Paquette.

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We will now move on to Mr. Discepola.

[English]

Mr. Discepola (Vaudreuil): Mr. Grubel, we have distinct economic conditions in Quebec.

Mr. Grubel: I believe it.

[Translation]

I have two questions, Mr. Chairman, one for Mr. Dufour, that I would also like to raise withMr. Akkelian.

Mr. Dufour, in your presentation you said that interest rates, which are at their lowest level in 40 years, should above all help stimulate consumption. But as far as I know, on the contrary, consumption hasn't gone up. Can you tell us, in your view, what is preventing consumption from going up? Is it a lack of confidence?

You also said that decentralization of powers to the provinces should be accompanied by the necessary funds. I agree with you, but I'd like to know from you or your organization what kind of powers should be negotiated with the provinces.

In the speech from the Throne, four or five powers were suggested as being transferable and negotiable with the provinces. We wanted to show it could be done. More likely than not, you know how long it took to negotiate the transfer of manpower and training with Quebec. I'd like you to give me more details. What kind of powers should we transfer to provinces on a priority basis?

You could also address the subject of national standards in this area of transfer of powers.

Mr. Dufour: I wouldn't want you to drag me into a constitutional debate, this morning,Mr. Discepola.

We have no objection whatsoever to the delegation of those powers to the provinces in the five sectors announced by Mr. Chrétien in the speech from the Throne. However, they're not necessarily the hottest issues around: forestry, mining and so forth. In any case, those sectors are already a provincial responsibility.

A real hot issue is the one addressed this morning, the maternity leave as part of family policy. That will be much more a matter of debate in the coming months than the transfer of forestry or mines.

The only thing I have to say this morning is that no matter what sectors might be identified, you have to make sure that when you offer provinces a power in a given area that the delegation of that power is accompanied by the money that goes with it. I, for one, don't want to keep on paying Ottawa for that service if the provinces are going to give it from that date on. It's clear the province is going to be asking me to pay before it. So you have to have an automatic transfer of funding.

As for interest rates, I think Mr. Garon and I have said why we would wish them to be maintained and even see them decrease because consumers are not yet confident that this rate will be maintained. You don't buy a house when you think the interest rate could skyrock by another three or four points. So it has to be stabilized over a long enough period for consumers and businesses to regain confidence. The same goes for any business going to see their banker: they need to be sure that the rate will be stable over a certain period of time.

I can't address all the problems underlying the economic slump we're in, but if you don't mind I would like to add something. It's clear that Canadian taxation of both business and individuals is too high and that the deficit is still too high even though things are going well. All that means that the economy just isn't turning itself around.

In any case, you're always telling us that you're not the ones in control of the interest rates and that the bank of Canada is.

Mr. Discepola: In his presentation, Mr. Morency said that Canada's growth rate would be 3.5 per cent while Quebec's would be 2.6 per cent. Are the interest rates due to uncertainty, to irresponsibility? How much is the fact that their growth rate is inferior to Canada's average rate, costing Quebec's citizens?

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I found it curious that at the Social Economic Summit Quebec adopted a policy of job creation to reach the across Canada level. It seems to me Quebec is doing some catching up rather than taking charge.

Mr. Dufour: I'll answer you very quickly on that one. It's true. I'm one of those who believe that part of this is due to constitutional uncertainty. How many percentage points? Broadly speaking, we don't know.

But it's clear that Quebec has other problems. We have very high taxes and our regulations are far too restrictive. The unemployment rate is way up so the state is getting less revenue. So there is a whole series of factors. But I'm one of those who think that political instability is part of our problems.

The Chairman: Mr. Paquette.

Mr. Paquette: The determining factor in the difference of growth between Quebec and Canada is mainly a matter of demographics. Per capita growth has been exactly the same during these last few years as in the rest of Canada but our demographic growth being lower, growth as such is...

At the Economic Summit, what we were looking for was to reach the average job growth rate for Canada in 1999. I read the Mouvement Desjardins document and it seems we might reach it as soon as next year. But to improve the unemployment rate, to be able to have an unemployment rate lower than the Canadian average, that would be in coming years. It's the stage we have to go through rather quickly as our objective is to improve the situation in Quebec through means slightly different than those being used in Ontario and several other Canadian provinces.

[English]

Mr. Discepola: With your permission, Mr. Chair, I'd like to ask Mr. Akkelian a few questions.

Do you have any idea of what the excise tax revenue on jewellery and watches would be for the federal coffers?

Mr. Akkelian: First of all, thank you for your support. I appreciate it.

Mr. Discepola: Wait until I finish.

Mr. Akkelian: You said before that you support us. Don't change your mind now. We will be handing out some papers to you that explain all these figures.

Mr. Discepola: Do you have a rough figure?

Mr. Akkelian: It was $59 million the last time they had records. The Auditor General's report confirms that figure.

Mr. Discepola: My problem as a politician is that I would dearly love to eliminate all taxes. We live in a dream world. However, we're under severe financial restrictions, as you know, so any loss in revenue has to be offset somehow.

By my calculations with the GST on the roughly $2 billion, notwithstanding the underground economy, we're still talking in excess of $200 million in lost revenue if we remove that.

If you take into account that we have similar excise taxes on tobacco, when you take into account that we have similar excise taxes on alcohol, for example, how could we justify the government removing it for you but not the other industries? I didn't even mention the excise tax on gasoline, for example. You see, we're opening the flood gates if we take that exception.

Mr. Akkelian: Not necessarily. We heard this argument in Ottawa. We explained to them that the tobacco excise tax is justified because there are certain costs to society when people get sick because of tobacco smoking, and society has to care for them. There are certain societal costs that are incurred later on. So there is certain justification for that tax.

The same thing is true for gasoline. You build roads. You have to clean up pollution. You have to spend $10 million to bring up barges that were sunk 30 years ago. There are certain costs that justify taxing the other products. It's the same thing with alcohol, even though it's excessive. Alcohol has excise tax, too.

Mr. Discepola: Let's speak about your issue, then. Where would we get the additional revenue?

Mr. Akkelian: As I mentioned in my presentation, you will make up the difference in increased activity coming above board. That's definitely one. Don't take my word for it. The report of Ernst & Young says that at the end of the day, if you were to take the positive scenario, you will make up for the losses in revenue. At the same time, another argument is that when GST came -

Mr. Discepola: Let me just read you the Ernst & Young report. It suggests that the underground economy consists of between 30% and 60% in this sector. But they also say that the industry practices necessary to do so are.... They're talking about transactions in the underground economy. I do not believe that we're going to get all the underground economy; obviously there is still going to be a shortfall. That's my concern.

.1045

Mr. Akkelian: Absolutely. As long as there are taxes there will be an underground economy, but how much of it will come above board? The latest joke in our industry is that we're not dealing under the table any more. We're dealing over the table in cash money. It's finished.

More than half the business done in Quebec is under the table or over the table with no invoices, wherever you want to take it. It's prevalent. It's destroying our industry. It's becoming a culture of unemployment abuses and all kinds of other thing. If you were to take a careful look at it you would see that you would make up the revenue.

But there are more than revenue aspects here, there's also a question of justice here. Why pick on our industry alone?

Mr. Discepola: We're not picking on just your industry. I gave you the other two examples.

Mr. Akkelian: No, I told you they are -

Mr. Discepola: You said the others are justified because there's a social cost.

Mr. Akkelian: David Dodge agreed that, yes, we can't put them in the same group. The Minister of Finance said, yes, we cannot put you with the same group. Your group has a luxury tax and that's all it is. It's not an excise tax.

Mr. Discepola: Would it make it correct if we then introduced a luxury tax for the Mercedes that you quoted, the luxury boat that you quoted? We used to have that in the past and in the United States they have it. Would that make it right?

Mr. Akkelian: They got rid of it in the United States. It was over $10,000. In Canada it's over $2, less than $3 -

Mr. Discepola: Okay, give us the examples. Should we make it luxury cars over $20,000, luxury items over $30,000? Would that make it right for your industry?

Mr. Akkelian: I would like to present my industry's view. Personally, I would be against all luxury taxes, but if that's what society accepts, if Canadians all want to pay luxury taxes for a certain level and over, it's not up to me to comment on.

.1050

Mr. Discepola: What I'm getting at is this. Let's say we were shortfalled of $200 million and we want to be equitable throughout -

Mr. Akkelian: How could you have a shortfall of $200 million?

Mr. Discepola: I'm just using it as a figure. Let's say we have a shortfall of x million dollars and we want to be equitable. Should the Department of Finance then take that x million dollars and translate it into some form of equitably distributed luxury tax on certain items, not just targeting your industry?

Mr. Akkelian: That's the finance minister's problem, I think. I respectfully stay away from his domain when it comes to this kind of decision.

Mr. Discepola: You're not answering it. I think you should.

Mr. Akkelian: Maybe Jonathan Birks can help you.

Mr. Jonathan Birks (Chairman, Government Relations Committee, Canadian Jewellers' Association): I'll just respond as well as I can, and I think Mr. Grubel would probably confirm this.

Historically, almost any time a luxury tax, or a so-called luxury tax, has been repealed, the broadening of the tax base has more than compensated in terms of being tax revenue positive. We're doing a study right now.

We had a discussion with Mr. Grubel a little while ago on this, and I think he'd confirm that if you went back to almost any country in the world, say a luxury tax on champagne in Germany, or a tax on silver product in Peru, you'd find that in every case your tax base has broadened and the revenues you generate more than compensate for the revenues that you're generating through the imposition of the luxury tax.

Mr. Discepola: I think you're -

Mr. Birks: I'm sorry, I'd like to add one more thing. If you looked at the other industries that are involved right now in terms of a luxury tax, the number of licences that have been taxed produces tremendous revenues.

If you look at the Auditor General's report as an example, you'll see that in fuels or tobaccos you're generating billions of dollars worth of revenues for a considerably smaller number of licences. In our industry's case you're looking at about 890 licences generating somewhere between $52 million and $59 million worth of revenues annually.

In terms of the administrative costs, we've had a number of meetings with the Revenue people, who have confirmed that their costs and the time to try to control our industry are just incredible. So the costs as a percentage of the revenues being perceived are far higher than they are in the other vice industries if I may add that. That's something to bear in mind.

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Mr. Discepola: I'll close because the chair has cut me off here. I would suggest that your challenge as an industry should be to convince Mr. Martin that it can be revenue neutral, and if so, then there would be no reason not to go ahead with your recommendation.

Mr. Birks: Our challenge is much more a political challenge than it is a technical challenge.

[Translation]

The Chairman: Thank you, Mr. Discepola. Mrs. Finestone, please.

Mrs. Finestone (Mont-Royal): Thank you.

First of all, I'd like to congratulate all the participants who have worked so hard to really get things going here, in Quebec. Witnessing what went on during those three days, we felt happy and content. We hope that from these discussions will flow job opportunities, quality jobs, that quality of life will be improved for everyone, for Mr. and Mrs. Commoner working here in Quebec, within Canada.

I would like to point out that I also find that the political situation isn't helping the economy. I hope that will abate for at least 10 years.

I'd also like to talk about the matter of family policy and maternity leave with you, Mr. Dufour. But first, I'd like to add two things.

First, I'd like to support what Mr. Akkelian and Mr. Birks were saying. I think it's inconceivable that a luxury tax still exists so long after the GST was brought in. It's the only area and the only sector of the market where you have a tax that's really a luxury tax. But it was kept nonetheless.

Second, I'd like to point something out to Mr. McKellar.

[English]

I think you could in a sense challenge Reg Weiser as to which sector of society produces and sustains the most jobs in society. Not everybody can be a high-tech wizard, an engineer or a qualified technologist, but we certainly have enormous creative talent that defines us as Canadians.

If you want to find the best talent, you have to come to Quebec, and that's not withstanding the fact that we have good talent in the rest of Canada. I believe there's work we should be doing to improve employability and to support the arts and cultural institutions, and that includes broadcasting, television, the film industry, the museum and all the heritage industries. People forget that it is an enormous employer. Reg, I think you'll find that they equal or surpass what you do in the telecommunications industry.

You have 150% support from many of my colleagues in the House of Commons.

[Translation]

I'd like to put this following question. I don't know if you want to answer it, Reg.

Quality of life, sustainable development and employability are long-term goals. We'd like to see the creation of quality jobs. But the goal is also to create jobs that won't always necessarily be of great quality.

If we put money into an infrastructure program, I'd like to know if that infrastructure program will be good enough to support the advances we have to make in technology.

[English]

In other words, do we have stuff for the infrastructure needs so that we can bring in all this new high-tech and make it more easily accessible throughout the country? If you would come back and answer that in a moment, I'd appreciate it.

[Translation]

Mr. Dufour, you know that child poverty and senior poverty require a different approach to train a labour force with new qualifications. At the same time, we might consider maternity leave being withdrawn from the unemployment insurance program and becoming part of a family policy which I support and find quite intelligent, to say the least.

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Having a child isn't a disease. Nor is ensuring the future of our society. This is something important for the survival of our society.

In the context of this family policy the government put forth and that you accepted it together with them, what steps have you agreed to take to promote the creation of jobs and cover the costs for people with children who go to work? Are we going to put them in day care? What are the big companies that you're representing here ready to consider as being an important step?

The Chairman: Mr. Weiser first.

[English]

Mr. Weiser: I'm sorry, your question that I did not answer first...?

[Translation]

The Chairman: We can start with Mr. Dufour.

Mr. Dufour: We didn't debate family policy very much during last week's summit. In fact, it was presented by the premier in a half hour. There was no debate.

It's understood that the problem you are raising and others will be addressed in a white paper which will be submitted for consultation to a parliamentary committee in the fall. So we're in the same situation as you are. There has been no debate on the main components of the family policy and we'll have to wait for that white paper.

What really did come out in this whole matter of family policy is strictly that fund, the single wicket if you will, for women taking maternity leave. On that, I must say that Quebec's premier - what I'm going say is important because I'm sure there are going to be federal-provincial differences - told us that there's already federal legislation allowing a province to ask for the transfer of funds set aside for family leave within the federal fund.

Once the premier made that statement - and doubting a premier's word just is not done - we agreed, but strictly on that point. Some of the people here were at that summit and they will confirm that. This whole matter of family policy will be addressed in a white paper.

Ms Finestone: Mr. Dufour, if I understand what you just said - because I didn't hang on toMr. Bouchard's every word - Mr. Bouchard himself took half an hour to present a family policy which includes maternity leave and the single wicket and said that there were precedents at the federal level. Frankly, I hope that is so. But I've never heard of it. Do you want to comment? Fine.

Some honourable members: Oh! Oh!

Ms Finestone: With a white paper... We'll let that go because maybe the union has an idea on this, but anyway. You will agree that it should be taken out of the employment centre. Have you made any evaluation of the emphasis that will have to be put on child poverty and the lack of training or education, the dropout rate from schools?

Mr. Dufour: The dropout rates.

Ms Finestone: Yes.

The Chairman: Mr. Dufour.

Mr. Dufour: I will repeat, Ms Finestone, that there was no debate about that. That will be part of the white paper and we'll debate it then.

Ms Finestone: Agreed.

The Chairman: Mr. Paquette.

Mr. Paquette: I don't have any questions but I'm ready to continue.

Ms Finestone: The same questions.

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Mr. Paquette: I'd simply like to mention that there was family policy. There will also be reform in the area of the social welfare which will include elements affecting employability and the return of welfare recipients to the job market.

There's also the follow-up on the estates general on education. For example, we were told that as of September, 1997, five-year old children will be going to kindergarten for a full day instead of a half day. It's all those things taken together that will finally answer the concerns you have expressed.

Which leads me to say, concerning federal transfers in the social area, that given the state of Quebec's public finances, if we want it to be able to attain its objectives without exiting the traditional field of health, social services and education, it has to be cut some slack.

As has already been mentioned, the cuts announced to health and education are in the order of about $3 billion out of a total budget of $40 billion. In view of the respite afforded by the decrease in interest rates, I think it would be quite in order for the federal government to support, according to its means, the social responsibilities shouldered by the government of Quebec.

The Chairman: Thank you, Ms Finestone.

Ms Finestone: Mr. Weiser would like to answer.

The Chairman: Yes, Mr. Weiser.

[English]

Mrs. Finestone: Did you want to answer on whether there was something that would enable us to be more globally competitive on an infrastructure project?

Mr. Weiser: On infrastructure, Canada has done remarkably well with its information highway, linking together most of the cities. It's an example that's looked upon with awe around the world. With less money, not only in the United States but at the major show in France, Canada did better transmitting across the ocean than they did from city to city.

Infrastructure is crucial today to help the competitiveness of business. Education and business learning is being pushed very heavily in the United States. Frank McKenna has done a remarkable job in New Brunswick in spending on infrastructure and education, and creating a balanced budget and a highly competitive province.

In the health field, self-diagnosis made available to people will save billions of dollars, and will in fact save much more money than the cost of the infrastructure.

The interesting thing is that a country like Canada, as diverse as it is, has a uniformly high standard of education. To be able to tap into all the resources, all the little towns and nooks and crannies and people working at home - being able to bring them into the mainstream will significantly help our competitiveness.

The other aspect is that Canadian industry is participating with the manufacturers, and not only the manufacturers but content providers. Here we talk about the arts and so forth. There is significant room for joining together of technology with the content providers. This is going to grow, and we are also going to enter into competitive races in the provision of content, and that's a challenge as well for the arts community.

[Translation]

The Chairman: Thank you, Mr. Weiser and Ms Finestone. Ms Brushett.

[English]

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman. I'm pleased to be back in Montreal this year hearing witnesses before the Standing Committee on Finance.

I want to premise my question around this single issue of maternity leave that has come out of the Quebec summit. I will address it to Mr. Dufour, since he has expressed very strongly how important this would be.

You will note that whenever we look at policies, we look at a cost value to the treasury or to the exchange of revenues if we consider any of these ideas. We look at the implications it would have on the entire country as well, because it is the responsibility of the Standing Committee on Finance that we serve Canada equitably and fairly from all of the provinces and territories.

If we look at this policy - I'm sure that if you put it to the forefront of your economic summit discussions, you must have equated a dollar value with it. Per capita for the province of Quebec, what amount of revenue did you estimate would come from Ottawa to fund that? If all provinces and all territories came on board, how much money do you estimate this would take from the human resources investment fund?

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Mr. Dufour: That's a good question. I cannot evaluate that, because the proposal did not come from the employer side or from the union.

[Translation]

It was a spontaneous presentation. I know that the Workers' Compensation Board spends $85 million on preventive withdrawals. The Quebec Government's payments are in excess of $100 million a year under its own policy. As for the amount of money in the unemployment insurance fund, set aside specifically for this purpose, I don't know if Pierre Paquette or Peter Bakvis know the answer, but I do not.

[English]

Mrs. Brushett: Are you saying, sir, that this proposal came from the premier without any financial figures associated with it?

Mr. Dufour: What's new?

[Translation]

Some hon. members: Oh! Oh!

The Chairman: Thank you. Ms Chamberlain, please.

[English]

Mr. Grubel: Just a quick comment.

The Chairman: Mr. Grubel.

Mr. Grubel: The answer ought to be that while the revenues go down the expenses will go down by exactly the same amount. Therefore, the impact on the fiscal overall balance will be zero.

Mrs. Brushett: It's not quite that simple.

The Chairman: Mr. Bakvis, you wanted to add something.

[Translation]

Mr. Peter Bakvis (Confédération des syndicats nationaux): As a matter of fact, Mr. Dufour is the one who asked whether we had a figure.

At the present time, Quebec receives $295 million a year for maternity leave. The suggestion is that this money be recovered, that it remain unspent and not be added to the bill, and Quebec mothers would no longer have access to this amount. It is some $295 million a year.

The Chairman: Thank you, Ms Brushett. Ms Chamberlain, please.

[English]

Mrs. Chamberlain (Guelph - Wellington): Thank you, Mr. Chairman. I have a couple of comments to different presenters.

Mr. Akkelian, I want to speak to you about the jewellery industry. I am chairing a committee on the underground economy at this time and I am quite aware of the jewellery industry's dilemma in this area. It is rampant in your sector; there is no question.

While you talk about the revenues that would be generated by taking the luxury tax off, I think the reality is that we wouldn't balance that out. It wouldn't be enough to compensate the government. However, having said that, if you have any documentation you could provide to me, I would be very interested. Perhaps you could send it along to my office afterwards.

Having made that statement, I think there is a further issue here. That is, we do have a sector that is rampant in society right now, the underground economy, which is hurting people who are above board, who are paying their taxes and who are playing fair. So I think there's a greater issue there. Whether we recoup the money completely or not, I think there's another side issue. Do we try to pursue policies that will in fact reward the people who do pay their taxes and who do play by their rules?

I think that's an additional issue that may not come into whether the revenues balance out or not. How does the government pursue a proper policy in this area? In that I'm in agreement with you, because I think we do have to look at that area. There may be a number of ways we can do that without just saying the luxury tax goes. There may be some other offsetting measures that can happen.

Mr. Akkelian: We are presently in discussion with Finance and Revenue on proposals that the government wants to put forward to us, whether it would be acceptable or not. One of these is whether we bring the limit up from $3 to $50, which is the case for watches.

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On the question of how much of it is prevalent and who it's done by, in most cases when you have underground economy, like alcohol or cigarettes, it's other people doing it. Whether it's Indians or natives or whatever, there are other underground elements.

[Translation]

The Chairman: Be careful, please.

Mr. Akkelian: I'm sorry.

[English]

There are other elements that get involved. In our case it's a tax revolt. It's the industry itself that's doing it. It's not others who are doing it. We are doing it in our own industry. That's one thing.

Secondly, we've asked the finance ministry to look into the fact that if you were to eliminate this tax, there would be other revenues. Please look into the matter. We have been categorically told by the deputy minister that no matter what you said, no matter what you did, even if you proved there would be more revenue on the table for us, they would not be considering eliminating the tax. It's an intransigent position of the finance department and there's nothing to do, even if you were to prove it.

It's a matter of politicians like you taking the stand and saying this is also a fairness issue; it has to be that either we tax everybody else for these luxuries or we eliminate it for the jewellers. Do not wait for another budget. Please do it in the next budget.

The Chairman: Thank you. Ms Chamberlain.

[Translation]

Mr. Marchand would like to add something.

Mr. Marchand: I think the following point is worth making.

You are asking us, Mr. Discepola and Ms Chamberlain, to account for or to prove that we're able to make up for the money that would eventually be lost as a result of this excise tax. Why should we have to account for this ourselves when all the other industries or trades that do not have to pay this tax are not expected to provide any justification? They simply won't pay it. It's a simple matter of equity.

Let me add a last point which may be quite important. You know that there has been a rise in the price of gold for a number of years now. It's gone up from $35, the base price, to $500 or more today. Last week it was at $535. So the price of jewellery has followed the same trend, because the most significant element of the manufacturing cost is the price of gold, the raw material, which is very expensive.

So automatically the GST collected on these increases amounts to compensation. Just look at what we used to pay in excise tax, at 13 per cent, and the federal-provincial tax, and you will see that we are now paying five times more.

Thank you.

[English]

Mrs. Chamberlain: Thank you. Mr. Marchand, I think you've misunderstood me. I don't think it is simply an issue of proving whether the revenues will be put back. I think there is another issue here, that the government needs to work towards a solution in the underground economy in the sectors. Jewellery is not the only one. The construction trade is another one where it's rampant.

I think the government needs to work towards a clear statement eventually, that these people who engage in this activity are crooks. They are nothing more, nothing less. Until we start to move in that direction by a number of initiatives, I think we will continue to have this growing in industries like yours and hurting and penalizing the people who are engaging in above-board practices.

Mr. Akkelian: The people at the Boston Tea Party were also crooks at the time. So I don't think we're all crooks in our industry. We're just fed up with this tax.

Mrs. Chamberlain: That's right.

I wanted to thank Mr. McKellar for his support of the initiatives we have taken in the past budget and also the stretch proposal. We're very interested in it too. We think it has some merit.

Thank you.

[Translation]

The Chairman: Thank you, Ms Chamberlain.

It's almost 11:00 a.m., when we'll be having another round table. I'd like to give each witness a chance to sum up for 10 seconds before we conclude.

But before, Mr. René Laurin has something to say.

Mr. Laurin: Mr. Chairman, the Conseil du patronat du Québec has suggested an amount for the reduction of the unemployment insurance premium. I think it's 30 or 35 cents. Mr. Morency alluded to it without specifying the amount. Could you tell us whether you have an amount to suggest for the reduction of the premium?

Mr. Morency: We don't have any specific suggestion, but we share your view and would like the reduction to be substantial enough to result in the creation of jobs.

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Mr. Laurin: Do you think that the reduction made by the government this year is sufficient?

Mr. Morency: Five cents, that isn't really...

Mr. Laurin: I have one last very important question, Mr. Chairman, for the representatives of the arts.

The Chairman: All your questions are very important.

Mr. Laurin: Thank you, Mr. Chairman. Under the present system, there is no incentive for people to donate works of art because they have to pay tax on the unrealized capital gain.

Would you consider it to be an acceptable solution if the legislation allowed the recipient to be taxed by capital gain rather than the donor at the time when the donation is made? If I were to give you, for example, shares that I paid $10,000 for and that are worth $25,000 at the time of the donation, an amendment to the Act could stipulate that the capital gains tax for $10,000 would be paid by the recipient rather than the donor. Would you consider that to be an acceptable solution?

[English]

Mr. McKellar: That's a very interesting thought. I haven't heard that before.

I guess the difficulty would be that most of the recipients, being charities, aren't taxed at all. Therefore, to impose a tax on them means they have to file and all sorts of things. I would much prefer to have it the other way. Admittedly, it would come out of government coffers, but I'm not so sure that the answer is to have the charities that benefit pay the tax. Many of the pieces of art and such would be shown to the public for years and wouldn't be sold; therefore, they'd have to dig into their coffers to pay the tax.

It's an interesting suggestion, but I would still prefer the concept that these capital gains taxes be permitted to be waived in the case of gifts to charities.

[Translation]

The Chairman: Thank you, Mr. Laurin. We'll now have a 10-second sum up from each of the participants. Mrs. Proulx.

[English]

Ms Proulx: I'll pass, thank you.

The Chairman: Mr. McKellar.

Mr. McKellar: Mr. Chairman, I'm happy to be in Montreal because senior artists such as Denys Arcand and Madame Mercure and others are extraordinarily well known. Quebec has some young artists, 35-year-olds, François Girard, Robert Lepage. We're proud of them across Canada, and what we're trying to do is make sure they flourish as do their compatriots across the country.

[Translation]

The Chairman: Thank you, Mr. Paquette.

Mr. Paquette: There's been lots of talk about interest rates as the determining factor for growth. We also talked about consumer confidence. In my opinion, the problem of jobs remains a priority.

I'd encourage the government to provide job creation measures and to do its utmost as an employer to avoid creating unemployment, that is in its own interest as well as in the interest of the provinces. I think it is a really pivotal issue that we really haven't devoted enough time to in our exchanges this morning.

The Chairman: Mr. Weiser.

[English]

Mr. Weiser: I would say to maintain the tax credits and also provide marketing tax credits; to make some legislative changes to enable banks to finance tax credits as normal receivables, which wouldn't cost the government any money; and to do everything possible to hold down the Canadian dollar. Japan grew with high exports and low consumption.

[Translation]

The Chairman: Thank you. Mr. Morency.

Mr. Morency: We encourage the federal government to stay the course in its fight against the deficit and to support the provincial governments in their same efforts in the knowledge that a large amount of their expenditures is devoted to payroll so that the job situation could be quite adversely affected if the provinces were to achieve their objectives quickly.

The Chairman: Thank you. Mr. Pascal.

[English]

Mr. Douglas Pascal (Executive Member, Urban Development Institute of Quebec): I haven't said anything yet, so I might as well finish.

It's a fascinating experience being here today. I guess everybody wants something and everybody can't get what they want. I can only tell Finance how important it is to maintain a competitive advantage so that at least some of the things that people want around this table can be achieved. If we don't maintain that competitive advantage in terms of low rates, employment and the strength of our dollar, then nobody will get what they want.

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[Translation]

The Chairman: Thank you. Mr. Dufour.

Mr. Dufour: Congratulations for the deficit reduction so far. Keep up your efforts. The 5¢ reduction in unemployment insurance premiums is insufficient. Thirdly, tell Mr. Martin once again that the Wilson provision on non-deductibility must be withdrawn once and for all.

The Chairman: Thank you. Mr. Akkelian.

[English]

Mr. Akkelian: Thank you for the opportunity.

La Corporation des bijoutiers du Québec and Canadian Jewellers' Association ask this committee to support the repeal of this discriminatory tax. The Canadian consumer and our industry deserve better. Thank you.

The Chairman: Thank you. Monsieur Marchand.

[Translation]

Mr. Marchand: Just one point I'd like to add on behalf of the retailers. We would greatly appreciate having both the GST and the QST included in the retail price, as is done in France for VAT. This would help us a great deal with the public. People hate paying taxes, whatever kind they may happen to be. We always feel as if we're adding insult to injury.

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The Chairman: Thank you.

This morning we've heard some of the most important groups of the province and our country: unions, the Conseil de patronat du Québec, the Caisses populaires, the telecommunications industries, the food sector, from culture and jewellers.

We thank you for your recommendations. There are always people, as Mr. Pascal pointed out, who want to get more and we as politicians would like to give you everything you want. It's a big problem for us.

For the first time in the past three years, we've had to say no and this isn't easy. We've received many briefs, we intend to study them and we would be happy to have a look at the studies that you would like to send us, such as those recommended by you, Mr. Paquette, Mr. Akkelian and others. You could always give us a call. Thank you for your presentations.

We'll now break for five minutes.

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