[Recorded by Electronic Apparatus]
Monday, November 4, 1996
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[Translation]
The Chairman: Order, please. The Finance Committee of the House of Commons is very pleased to have you as witnesses here this afternoon.
We have Brent Mooney and Morris Weinstock from Bell Canada Enterprises Inc., Professor Luc Vallée of the École des Hautes études commerciales, Richard Langlois from the Centrale de l'enseignement du Québec, Pierre Dubuc, Martin Poirier and Sylvain Charron of the University of Quebec in Montréal, and Manuel Dussault from the Alliance des manufacturiers et des exportateurs du Québec.
Thank you for coming. I believe we could start with a three- or four-minute summary of your presentations, then we will let the members ask you questions. Perhaps we could start with you,Mr. Mooney and Mr. Weinstock.
[English]
Mr. Brent Mooney (Assistant Vice-President, Taxation, Bell Canada Enterprises Inc.): Good afternoon. I'm the assistant vice-president for taxation of BCE Inc. and I'm here today representing Bell Canada and several other of our subsidiaries.
BCE is a strategic management and holding corporation whose principal subsidiaries and associated companies are providers of telecommunications services and suppliers of telecommunications equipment. We fully understand the importance of the budget consultation process in Canada, and therefore we appreciate the opportunity to speak to you today and provide our views on the issues that we believe the federal government and the provinces must address in their upcoming budgets.
As a bit of background, during 1995 the BCE group of companies - whose subsidiaries include Bell Canada, Nortel and BCE Mobile, and with investments in the maritime provinces and in the north - employed 83,000 Canadians with an aggregate payroll of $4.2 billion. Furthermore, during 1995 the group made some $2.4 billion in capital expenditures and $1.2 billion in R and D expenditures in Canada, which have created many more spin-off jobs for Canadians.
We have an annual tax bill of some $1.3 billion that is paid to the federal government and the provincial and municipal governments. One of these taxes, the gross receipts tax or revenue tax, is a specific tax charged, particularly in Ontario, to Bell Canada only and not to all of its existing and future competitors. With the introduction of convergence in Canada, tax policies that target one company and not its competitors put that company at a serious disadvantage.
The telecommunications industry in which our group operates is very much an industry in transition. BCE's principal utility arm, Bell Canada, has lost its position as a monopoly utility within the industry and now it must operate as a growth company. Bell has to position itself to be able to meet today's competitive global business environment head-on, and investors will no longer evaluate Bell's results solely against its Canadian competitors. International competition is a reality, and Canadians must be competitive or we just won't survive.
Our message to you for this year's budget is that the deficit must be kept under control through policies designed to eliminate cost-inefficient practices and not policies for tax increases. A declining deficit has provided tangible results for businesses, interest rates are down, exports are up, and the dollar is strengthening. Just as businesses constantly review their inputs to maximize the value of each revenue dollar, the government must continue to analyse its expenditures and eliminate those that are not producing economic benefits for, or that are not in the best interests of, all Canadians.
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For example, we applaud the government's efforts towards achieving a national sales tax in Canada. We ask that it continue a strong dialogue with the abstaining provinces with the goal of achieving full harmonization across Canada. Two separately administered sales taxes for a province like Ontario are an incredible waste of financial resources. As well, non-harmonized provinces are at a competitive disadvantage vis-à-vis harmonized provinces, because they will not permit the credit for sales taxes paid on business inputs.
We believe that permitting this trend to continue will cause provincial sales taxes to become part of the decision-making process for where a business is located, and this is dangerous from a Canadian point of view. There are substantial compliance and collection costs that could be saved by both the federal and provincial governments from harmonization, and these savings could be passed on to taxpayers through rate decreases.
Furthermore, don't stop the harmonization effort at sales taxes. Most provinces have other tax regimes that are similar in substance to the federal taxes. For example, a uniform definition of the taxable base for capital tax would be a significant improvement to what we have today. Businesses spend significant amounts of money complying with two substantially similar, yet separately administered taxes.
It would be simple for me to come here today and suggest to the committee that the next budget should contain sweeping tax cuts for businesses. However, we understand the government's constraints regarding revenue neutrality, and we appreciate the difficulty they would have in providing such tax cuts while maintaining the social make-up of our country.
Furthermore, it is evident that the government is under great pressure to maintain tax dollars in Canada to pay for the services it provides. Yet the committee must remember that Canada has the fourth highest corporate tax rate among OECD countries. Therefore, the future must contain rate reductions for business if we have any chance at all of competing in the global marketplace on a level playing field with companies from the other OECD countries.
If governments can be more efficient in the collection and administration of the wide range of taxes imposed on businesses, these cost savings could be passed on to taxpayers by bringing tax rates down to levels competitive with the other countries.
The creation of the information highway in Canada will require billions of dollars of capital. If Canadian companies in the telecommunications industry are required to pay a greater level of taxes than their foreign counterparts, they will not be competitive and there will be less incentive for us to make that level of investment.
If implemented appropriately across Canada, the introduction of formal loss consolidation rules would result in Canadian companies being more competitive against their foreign competitors. But it should not result in a loss of tax revenues to government.
Within many of the telecommunications companies, as you might expect, there are different companies that have been formed for regulatory purposes or to provide different services. Each of these companies effectively becomes a separate individual taxpayer, which means that each of them must file their own separate tax return. You may well wind up with situations where you have losses in one company and profits in another, and this inefficient tax situation requires very complicated structures and tax planning to prevent.
In our view, if we were to move towards consolidated tax returns in Canada, this would ease both the economic and compliance burden to business, but also free up valuable resources for government. It is interesting to note that where we receive most of our competition is from the United States, which clearly has adopted these policies. Hopefully consolidated returns would lead to consistent calculations of taxable income and taxable capital, combined instalment refunds, etc. - cost savings for government and businesses both.
I'd like to direct the remainder of my comments towards an unsettling trend in tax law and practices in Canada today, and that's uncertainty. Many of the companies in our group are going through a difficult period trying to get acceptance from Revenue Canada for their R and D claim for prior years. We are finding that revenue is creating the tax rules and interpretations for R and D today, but they are being applied very much on a retroactive basis.
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The telecommunications industry, like the high-tech industry, undergoes rapid changes on a daily basis. A technological advancement today will seem like a routine development five years from now when the claims are audited. It will be impossible for auditors to fairly assess that claim when it is based on what will exist five years from now.
Companies are not disposed to spend money on R and D activity when there is a very real risk that when the R and D expenditures are audited in five years time the rules will have changed. Retroactive legislation in administrative practices creates uncertainty, and uncertainty kills economic growth, and ultimately jobs.
Businesses are wasting millions of dollars trying to substantiate their R and D claims to auditors who have often developed outdated notions of what R and D is and who the eligible applicants are. This money could be better spent on investing in the R and D area. This will ultimately result in the creation of high-level jobs needed to retain our university graduates in Canada.
But a far more dangerous risk is allowing the existing uncertainty in the regimes in the R and D field to be continued. The basic reality for us is that the telecommunications marketplace worldwide will be opened up to all Canadian and foreign interests by the end of this century. Any actions taken by this government to discourage the performance of scientific research and experimental development in Canada will impact upon the ability of Canadian telecommunication companies to compete in the global marketplace.
The Chairman: Thank you, Mr. Mooney. If you don't mind, I'm going to cut you off there. I'll give you enough time to come back and complete your presentation. I just want everybody to have an opportunity to present their case.
Mr. Mooney: I'm at my last paragraph, if you'd let me finish.
The Chairman: Okay.
Mr. Mooney: Thank you.
In conclusion, the time is now for the federal government to send the correct message to business in its upcoming budget. While cuts in income taxes may put negative pressure on the deficit cuts, cuts in payroll taxes such as in the employment insurance area, where a current surplus exists, will help businesses remain competitive at a crucial time. We must eliminate the unnecessary uncertainty in the tax regime in order to give business an incentive to vest in the future of Canada.
Thank you very much.
The Chairman: Thank you, Mr. Mooney.
[Translation]
Professor Luc Vallée, please.
Professor Luc Vallée (Department of Economics, École des Hautes études commerciales): Thank you. Since we don't have a lot of time, I'm going to focus on one issue that is important to me, the reform of private and public pension plans and RRSPs. I believe it is time we addressed this problem on an urgent basis.
Most pension plans are under-capitalized and, in the way in which they are constructed, are unfair in a number of respects. For example, it is impossible or very difficult to transfer funds from one plan to another or from a plan to an RRSP. This problem is very important since Canadians today are being asked to become employable. There's a great deal of talk about employability and they are being asked to agree to change jobs much more often. If we continue to operate with plans that are constructed for workers who keep their jobs all their lives, we are depriving these workers, who are playing the game they're being asked to play, of a pension plan or a fair and equitable pension.
I'm going to give you an even more concrete example. Take individual A, who saves all his life in a job that is guaranteed for life and finds himself with a good and sufficient pension for his retirement, while another employee who was unable to keep his job or who, because he was asked to be flexible in future, played the game and, at the end of his life, does not have a sufficient pension plan to ensure his survival and that of his family.
It is therefore becoming urgent that we consider being consistent in our requests and give people the means to meet their needs. This case is of particular concern to me since I expect to change jobs in the next few weeks or months. One of the reasons why I'm accepting a new job is that I know what's going to be done with my pension plan, to which I have contributed for nearly 10 years and which will likely go into the garbage can. I will get a certain amount back, but an amount that will not be equivalent to the amount I could have put into my RRSP if I had been permitted to contribute individually.
So what recommendations should be made? There are a number.
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First of all, all pension funds should be privatized and individualized so that each person can carry them from point A to point B or point C at any time. Second, deductible contributions and taxable benefits must be replaced by non-deductible contributions and non-taxable benefits. Rather than contribute $6,000 this year and obtain a $6,000 deduction from my income, I would no longer be entitled to that deduction. However, the money that was put in my individual pension fund, an RRSP or other plan, would not be taxable on retirement. This would have a number of benefits.
First, it would be good for the deficit since we would be eliminating the deduction for the contribution, which greatly increases the deficit.
Second, in this way, I would not have to plan my retirement based on chance changes and the moods of the government, which can increase or reduce taxes, which is a definite benefit. In this way, I know that, when I retire, I will have that amount available to me and that it will not be taxed.
Third, I believe that this would enable the middle and lower classes to save more since their deductions at the moment are very small. Someone earning $20,000 a year, even if he can contribute some money to an RRSP, only receives a deduction less than 20 percent. So his $1,000 RRSP costs him $800 and the government pays $200. Someone who earns $60,000 a year will make a $6,000 or $7,000 contribution to an RRSP, depending whether he has an employer-sponsored pension plan, and 53 percent of this contribution will be paid for by the provincial and federal governments. This completes my comments. Thank you.
The Chairman: Thank you, Prof. Vallée. Mr. Langlois, please.
Mr. Richard Langlois (Economist, Centrale de l'enseignement du Québec): Thank you, Mr. Chairman.
First, I would like to thank the members of the Standing Committee on Finance for allowing me to come and say a few words on behalf of my organization, the Centrale de l'enseignement du Québec. The Central is a union federation representing 130,000 members in Quebec, mainly in the education sector, but also in the health and recreation sectors and other fields of activity.
For us at the CEQ, the principal economic problem in the country at present is still unemployment, which, despite the progress achieved over the past few years, remains too high in our view. There has been a certain degree of stagnation in the past year or so and no real progress has been achieved on this front. Consequently, we are concerned about this and are examining the options and what is being done politically. For example, we note there has been a welcome softening in the government's stance on monetary policy, although we hope this softening will continue because we have not yet begun to see its effects. We hope the Bank of Canada's objective of zero inflation will be set aside in favour of a more flexible and slightly more realistic objective.
As for the next budget, it appears that the idea of a great national cooperative effort on employment would be an appropriate idea in this context. The unemployment rate is currently 9.3 or 9.4 percent. It seems to me the government could set an objective, as the partners did at the Economic Summit Conference which just closed in Quebec did - and perhaps invite Canadian society to make a cooperative effort on employment over the next three or four years, with a specific and realistic target of reducing the unemployment rate from 9.3 or 9.4 percent to seven percent, which is the figure that was almost achieved in Canada in 1989.
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With respect to budgetary policy, we agree with the idea of continuing efforts to restore fiscal health, but we believe that progress on deficit reduction is going quite well for the government at this time. We are achieving better results than expected and we believe that restoring the public finances must come through an effort that is more evenly balanced between expenditures and revenues.
We believe that too great an effort is being made on the public expenditure side. This is having very serious effects on unemployment throughout the country and also on the public finances of the provinces.
We believe that, in its next budget, the government should open up the revenue column and institute tax reform based on what has just been introduced in Quebec.
I took part in this commission as a commissioner. I think you were told about that this morning and I believe very promising ideas were put forward which the federal government could draw on. The commission filed a report that was unanimously approved.
The report obviously contained proposals which apply only to the Quebec tax system, but there were also proposals that could apply to both the Quebec and Canadian tax systems and there are very definitely good reasons for considering it.
I am going to put a few of those proposals to you. Perhaps it would be a good idea to review tax expenditures together. We know that the federal government was the first to prepare a list of tax expenditures which made it possible to determine which tax expenditures existed and their total cost.
Perhaps we should go further and review all tax expenditures each year and perhaps reconsider a few of those expenditures starting with the next budget. As you know, over the past few years, some of those expenditures have been abolished or restructured, and efforts should perhaps be pursued in this direction.
RRSPs, for example, which cost the government a great deal of money, as the previous speaker mentioned, could perhaps be reconsidered. It may be a good idea to revise this deduction.
I am also thinking of the capital gains exemption. There is a recommendation to abolish this exemption. I'm also thinking of other measures in which the federal government's liability is very great and very clear, such as the issue of taxing financial transactions and taxing luxury goods under the GST.
During the discussion, we could review other measures, but we believe the question of tax reform should be on the table during the next budget.
Perhaps we can discuss these matters at somewhat greater length while considering specific measures.
Thank you.
The Chairman: Messrs. Langlois, Poirier and Charron.
Mr. Martin Poirier (Researcher, University of Quebec in Montréal): Thank you,Mr. Chairman.
If we had to review everything we don't like in the present tax system, I believe we would be here until tomorrow morning. For that reason, we are going to limit ourselves to two points that we consider very important.
First, I'm going to talk about the abuses committed in transferring corporate profits to tax havens, then Sylvain Charron can talk to us about the idea of introducing a minimum tax system for corporations.
It is a well-known fact that billions of dollars are diverted to tax havens each year without being taxed in Canada at the rates at which they should be taxed.
The Auditor General of Canada raised this point in 1993. Although he denounced the situation at that time, no corrective action was subsequently taken. In our brief to the Quebec Commission on Taxation last August, we denounced the excessive use of tax havens. However, no amendments were made to tax provisions either.
Is it normal for Canadian banks to have tens of subsidiaries in tax havens to provide special services to their customers? We are all familiar with tax havens: the Isle of Man, the Channel Islands, certain islands in the West Indies, Liechtenstein, Luxembourg and so on.
Many countries have tax treaties with Canada which permit Canadian corporations to transfer their revenue there tax-free. Is it normal for companies such as Bombardier and Vidéotron to have a number of subsidiaries in tax havens in order to the advantage of these benefits?
Is it normal for CA Magazine, the professional accountants magazine, to promote tax havens openly?
I believe this farce has gone on long enough and I claim that strong measures must be taken to put an end to tax havens, whose existence is a well-known fact.
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Among other things, we must simply prohibit Canadian corporations from having subsidiaries in certain countries such as Bermuda, Barbados and Trinidad and Tobago. What is the point in having subsidiaries there except to enable companies to transfer their revenues?
We should also review the entire issue of transfer pricing. Measures can definitely be taken in this area. Thousands of inspectors are currently being hired to investigate the situation regarding clandestine employment, to inspect individual workers. Why couldn't the same thing be done in the case of large corporations to determine exactly what they are doing in the way of transferring funds to tax havens?
In light of the amounts in question, the measures taken by the Canadian government may not, in my view, be sufficient.
I will now give the floor over to Sylvain Charron, who will talk about the minimum corporate tax.
Mr. Sylvain Charron (Université du Québec à Montréal): Good afternoon.
Although our main trade competitor, the United States, has lower corporate rates than ours, it has reduced the size of the problem since 1987 by means of a minimum corporate tax.
As you know, the IMF has warned us that, in the current budget crisis, Canadian businesses could pay more tax. We must take the warning of a right-wing organization such as the IMF seriously.
We are suggesting that the committee consider the possibility of levying a minimum tax on corporations. This tax would probably provide relief to businesses that are already paying their fair share of tax. Experience in the United States has shown that the number of profitable corporations not paying tax has fallen from 38 percent to 23 percent, whereas the amount of standard tax has risen 69 percent, even though standard corporate tax rates have fallen. This shows that, as a result of the minimum corporate tax, corporations that were not paying their fair share of tax have been unable to avoid doing so.
We recognize that there is a problem behind this. Tax privileges are granted to corporations which, from the outset, are not as accountable as they should be. Consider the case of inter-corporate dividends. These dividends are allowed on the initial assumption that the corporation has already been taxed at the regular corporate tax rate.
A corporation located in Barbados may transfer to Canada a dividend that is taxed at 2.5 percent and receive a dividend tax credit so that tax is not collected on the difference between the minimum tax to which the corporations are subject in Canada and the 2.5 percent which has been paid through the Bahamas. I believe this privilege should be reviewed if a minimum tax is to be imposed on corporations.
The number of tax incentives granted to corporations often means that corporations that make pre-tax accounting profits are often permitted to claim for tax purposes. The United States solved the problem in part by placing an annual ceiling on tax incentives.
Some tax incentives in Canada have economic merit and we recognize that fact, but others should be reviewed. If a certain amount is exceeded, corporations may arrange matters so as to avoid any minimum tax that must be paid for the year.
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We also know that, in 1950, corporate tax represented 49 percent of the Canadian government's tax revenues, compared to 50.8 percent for individuals, and that, 43 years later, in 1993, individual tax receipts amounted to 88.6 percent of the total and corporate taxes 11.4 percent. We should therefore determine whether we are delaying efforts to heed the IMF's warning.
There are other measures that we could point out, but time is at a premium. At the very least, let's talk about the taxation of capital gains on a 75 percent basis. There is a major legal issue before the Tax Court of Canada as to the difference between business income and capital gains. When a gain is made, corporations try to report it as a capital gain which is taxed on a 75 percent basis. When there is a loss, corporations try to deduct it from business income because it is wholly deductible. In my view, the underlying problem and pressure on the legal process would be greatly alleviated if the case could be settled once and for all. The taxed portion of capital gains was increased from 50 percent to 75 percent between 1987 and 1990. Let's take the final step in order to solve the problem.
Thank you.
The Chairman: Thank you, Mr. Charron. Mr. Dussault, please.
Mr. Manuel Dussault (Research Director, Alliance des manufacturiers et des exportateurs du Québec): The Alliance des manufacturiers et des exportateurs du Québec thanks you for this opportunity to put forward its pre-budget comments.
The Alliance is the voice of the Quebec manufacturing and export sectors. My name is Manuel Dussault and I am its research and analysis director.
Manufacturers represent 19 percent of Canada's GDP and exports account for 40 percent of our economy. The Alliance supports the federal government's deficit reduction strategy and congratulates the federal government for its success in controlling its public finances. It is essential that the government achieve its debt reduction objectives and even exceed them, if possible. The government will soon begin to pay down its debt and should take no measure that will reverse or slow its efforts to achieve this objective.
The Alliance shares the Minister of Finance's conviction that the best strategy for increasing consumer spending and kick-starting the domestic economy is to ensure real interest rates remain low and to contain inflation. Only an economy that creates jobs and is growing through new investment can guarantee economic security for everyone. Canada must be certain that industrial investment is maintained and increased in order to ensure job creation and long-term growth.
It is probably too soon to reduce corporate taxation as a whole, but Canada must maintain and improve its investment-related tax measures such as tax credits for scientific research and experimental development and manufacturing and processing. Our personal tax rates are high compared to those of our partners and competitors. The high tech industries require personnel with specialized skills. As soon as the government's financial situation permits, tax relief should be considered for business managers and technicians.
The Alliance supports the government's statement in its Red Book that payroll taxes are job killers. We are concerned about the surplus in the employment insurance fund. We believe that, in order to reduce the deficit, the government should lower its spending rather than accumulate funds. We have asked that employee and employer contributions be reduced.
The Alliance des manufacturiers du Québec also requests that the federal government give the Government of Quebec its fair share in respect of the harmonization of the QST and GST, as stated in the unanimous resolution passed at the Summit Conference on the Economy and Employment.
Thank you for your attention.
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The Chairman: Thank you, Mr. Dussault. We will now turn to the question period. The floor is yours, Mr. Laurin.
Mr. Laurin (Joliette): I would like to come back to the suggestion by Mr. Vallée, from HEC, that pension plan contributions no longer be tax deductible and to the issue of pension taxation. I don't see any clear benefit in that, at least for the individual involved. It seems to me there is currently more of a benefit in being taxed later, upon retirement, because you will probably be taxed at a lower rate than if you were taxed now.
Would this undermine the incentive to save for retirement?
Prof. Vallée: It could indeed be a problem for certain individuals, particularly those who have already put their money into RRSPs.
However, from the way the system operates, I would say most people are taxed at 53 percent while they make their contributions to RRSPs and will be taxed at the same rate later on as well. This is my case, and I'm not enormously rich and I am young. I already know that I'm making contributions that are deductible on a 53 percent basis, that are taxed at 53 percent and perhaps more.
An individual who is 35 years of age is being told to save today, while he is earning $50,000 a year, because the tax rate will be lower in future. When I see the deficit that has accumulated over the years, I am not convinced that this will be true. We have seen tax rates of 57 percent. Why couldn't I enjoy deductions today at 35 years of age?
Obviously, if the tax system did not change, the marginal tax rate could be 25 percent when I retire, but it could also be 45 or 50 percent.
Clearly, in your opinion, when most people decide to save, they assume they will be poor or poorer when they retire.
Mr. Laurin: The optimist's assumption -
Prof. Vallée: The optimist's assumption is just the opposite: he believes he'll be richer. I believe I'll be richer and I believe my marginal tax rate will be the same since, in any case, it's at the maximum level already. If I were poor, it would increase.
The second aspect of the question is this: most people and, as I've already said, those who contribute are already taxed at this level. This is therefore a marginal rate. Perhaps you should think of a clever way to leave them with this benefit and transform the system in the way I'm proposing.
The amounts affected by what you say are very small. I, who am just starting out in life, don't think that way. I don't think today that, being taxed at 53 percent, I'm going to save because I'll be taxed at 35 percent later. You don't think about that at 35 or 40 years of age. Perhaps you begin to think that way at 50, but you're usually taxed at 53 percent at 50 anyway.
So there's no gain. Your argument is entirely correct, but I think that, in practice, it applies only to nominal amounts. Of course, you could always give me the example of an aunt who, having earned a meagre salary all her life and with some savings, can say when she retires that she can draw down her RRSP at a lower marginal tax rate. But, once again, this is not empirically significant.
Besides, I believe you have to add another effect to that. And that is that, when you're poor and taxed at a marginal rate of only 20 percent, it's not really worth your while to contribute to an RRSP. It's more worth my while since I am taxed at 53 percent. So the social justice aspect we were speaking of is diluted by other untoward of the system. There are even economists from McGill who have shown that RRSPs discourage savings among Canadians in macroeconomic terms.
These are difficult conclusions to accept, but that's the way it is. RRSPs do not encourage savings. These professors have shown this using an empirical method, working with money that the Department of Finance has given them. They have also shown it mathematically. This means, then, that it is logical in certain conditions for this to occur.
All this leads me to say is that the RRSP system must be reformed. I have made one recommendation. Others could be made, but that doesn't seem all that fair to me.
Mr. Laurin: I thought you were going to give me an irrebuttable argument, but my impression is that your argument is based on a fictitious choice. You think you will be richer later and that, if you think you're going to be richer, you don't need to invest in an RRSP today. If you're rich, you don't need a retirement fund.
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You're saying that it's all the same because you're taxed at 53 percent now and that you'll be taxed even more in 20 years and that there will therefore be no gain. However, there won't be any loss either.
I'll give you the other argument, which is based more on an optimistic assumption, and that is that I hope to be taxed at a lower rate than today when I retire. That's the optimistic assumption. You, on the other hand, are assuming that the tax will perhaps be higher when you have to pay it.
Prof. Vallée: That's possible.
Mr. Laurin: Perhaps you're right and I may be right too. However, from an economic point of view, basing a budget on that means relying on choices that we make on the basis of the future that we foresee.
Prof. Vallée: Yes, but -
Mr. Laurin: In fact, you are defending your situation, not that of a group of citizens.
Prof. Vallée: No, and I said so. From a macroeconomic point of view, the situation you are describing is not likely to occur. Few people who put a lot of money into RRSPs are taxed at lower tax rates.
Mr. Laurin: Yes.
Prof. Vallée: If you observe changes in taxation over the past 30 years, you see that, on the contrary, you've been put at a disadvantage by putting your money into an RRSP.
Mr. Laurin: All right. My other question, Mr. Chairman, is for the representative of UQAM, Mr. Poirier, who suggested earlier that perhaps we should prohibit Canadian corporations from having subsidiaries in certain foreign countries. Is that correct?
Mr. Poirier: That is quite correct.
Mr. Laurin: I agree with you that we have to find a way to limit tax havens, but I'm not sure that the measure you suggest would be effective. Are we going to prohibit Canadian corporations from expanding, from developing outside Canada?
Mr. Poirier: Not at all, absolutely not.
Mr. Laurin: But if we prohibit them from having foreign branches, I'm afraid that that will remain wishful thinking.
Mr. Poirier: The idea is not to prohibit them from having foreign branches, but rather from having branches in certain foreign countries which are clearly tax havens and where Canadian operations are marginal. There are the Cayman Islands, Barbados, Bermuda, Liechtenstein and so on.
Mr. Laurin: However, since tax havens depend to a large degree on agreements that the Canadian government signs with those countries, would it not be simpler, in order to achieve the same result, to demand that the government enter into more restrictive agreements, rather than prohibit Canadian corporations from founding foreign branches?
Mr. Poirier: Both options can be considered, depending on the case. Of course, you have to see -
Mr. Laurin: Because I think it's dangerous to prohibit Canadian corporations from having branches in certain countries.
Mr. Poirier: Then nothing would prevent a Canadian corporation from having a branch in the southern United States and still do business in the West Indies. It would then be taxed at a normal and decent rate, not at zero or four or five percent, as is the case in the West Indies.
Mr. Laurin: What you are contemplating is not the West Indies, but rather the conditions that are established between the West Indies and Canada.
I find the measure you're suggesting would seem discriminatory to the foreign country and I fear this kind of policy would give Canada a bad reputation in the rest of the world.
In international terms, it seems to me that, in order to achieve the same results - and I'm in complete agreement on the objective you are pursuing - we would be better off revising our agreements that permit the existence of tax havens rather than simply prohibiting the founding of foreign branches.
Well, that's a comment. I would like to have your reaction to it.
Mr. Poirier: I would like to make a final brief comment. Even if we review the tax treaties, that will not prevent corporations from sending their profits to tax havens, and even if dividends are completely taxed when paid from the subsidiary to the parent company, during the entire time when they remain in the tax havens, that will not prevent them from earning investment profits that will not be taxed.
It's somewhat the same principle as for RRSPs. Ultimately, when you invest money in an RRSP, you are making money that is not taxed unless it is brought back to Canada and taxed at40 percent. That does not solve the problem. It solves part of the problem, the problem of tax-free dividends that then return to Canada, but that does not solve the entire problem.
Mr. Laurin: Very well. My final question, Mr. Chairman, is for the representative of the CEQ. He suggests taxing financial transactions. I would like to know whether the CEQ has conducted a study of this issue. Has the financial impact that this suggestion could have on government revenues been assessed?
Mr. Langlois: What we're saying on this point, Mr. -
Mr. Laurin: Laurin, a former member of the CEQ, incidentally.
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Mr. Langlois: So we are with people from the same organization.
On this point, I would say that we have followed the public debate that has been held over the past few years now. We are aware of the fact that Canada cannot unilaterally undertake to impose a Tobin tax. However, we feel the federal government has the responsibility to bring the issue to the public's attention by addressing the appropriate authorities, such as the OECD or other international organizations of that kind. We believe the federal government could take the initiative and try to promote this type of tax measure in all the appropriate international forums.
Now, if the federal government took the initiative to the point where it imposed one in Canada before all the other countries, it would, I agree, have to be nominal. I believe evaluations have been conducted. Besides, we don't need to set a very high rate; the tax base in the financial transactions field is so broad that, using a rate of 0.01 percent, we would raise considerable revenues, on the assumption of course that this tax base is not eroded by tax evasion.
So we're aware we can't proceed. We're not proposing that a Tobin tax be introduced in Canada tomorrow. That's not what I'm saying. The idea is to put the idea to our other OECD partners. This issue is currently under discussion virtually everywhere in the world.
Mr. Laurin: Yes, that's correct. However, securities transactions usually fall under provincial jurisdiction. What, in your view, would happen if the federal government introduced a federal tax on securities transactions and the provinces, Quebec, for example, being concerned about their independence, did not want securities transactions to be taxed?
Mr. Langlois: We're not saying that the federal government should introduce a tax, but rather that it should discuss this issue, not only with the provinces, but also internationally with the other OECD countries.
The Chairman: Thank you, Mr. Laurin.
Mr. Langlois: May I add something?
The Chairman: Yes.
Mr. Langlois: On the RRSP issue, Mr. Laurin, if I correctly understood the gentleman's position, the idea was really to abolish the deduction completely. We had a good discussion on this point in the Commission on Taxation. Many groups and individuals came to talk to us about the limits of this tax expenditure. I am not calling this a tax shelter, but rather a tax expenditure. It's ultimately a tax expenditure for retirement purposes.
Most people didn't tell us it should be abolished, but rather that it should be limited and that alternatives should be considered. One option among others was to lower the limit. I believe this is also being discussed at the federal level. Another scenario was that only 75 percent would be deducted and only 75 percent would be taxed at retirement. These are a number of scenarios that could be examined. However, this would have to be done jointly by the federal government and the provinces because this is not something that can be done at only one of those levels.
Prof. Vallée: The idea would be to apply the same deduction to everyone. If it was $5,000, it would be $5,000 for everyone, whatever your income level. It would be a tax expenditure that everyone could enjoy, particularly since it accumulates as time goes by, rather than setting it as $10,000 for Luc Vallée, $5,000 for Richard Langlois and zero for someone else. It's true that, if it is seen as a tax expenditure, as I said, I would be getting the greatest benefit.
Mr. Langlois: There's an unfair aspect to the measure; that much is certain. It's also very costly for the state. So there may be good reason to revise it in the current budgetary context. One thing is clear: it's still a significant way of funding retirement for a large portion of the middle class, particularly in a context where governments are tending to withdraw from public plans and many private businesses no longer offer pension plans. So for many people, this is still an important instrument.
The Chairman: Thank you, Mr. Laurin.
[English]
Mr. Grubel.
Mr. Grubel (Capilano - Howe Sound): Thank you, Mr. Chairman.
I have a comment on the Tobin tax. Mr. Tobin was my teacher. I skied with him and I know him very well.
He wrote that article in the 1960s or early 1970s, and he can't believe that a throwaway remark like this is taking on such a life of its own. He never intended it to be for revenue. He was concerned about national monetary sovereignty in a world of increasingly elastic capital flow. The idea was that he wanted to restore national monetary sovereignty, and it was long before there was this capital integration. There was this electronic network without ability of governments to intervene.
.1455
You're very cautious, Mr. Langlois, and I congratulate on you that, but this is a totally loony idea. It will not work. All we need is one province in one government in the world deciding that it will not levy this tax, and it will get the electronic industry of the world invested there. All the international monetary capital flows will be booked through this, and you won't get a penny.
If you put it on heavily, the tax base will disappear. You say it's tiny. Do you know how tiny the margins of profit are on this money that is flowing around the world?
It's a loony idea. Professor Vallée has studied this. He knows it.
Prof. Vallée: [Inaudible - Editor] dollars makes a dollar, so that tells you -
Mr. Grubel: It is just totally out there. Mr. Chairman, I'm so depressed about the way in which.... I wish these gentlemen would listen. I'm really depressed by the way in which in Quebec the solution is believed to lie in magic bullets, and somehow keeping the system and just tightening a little bit -
We have listened here, because of the pressure of people like you, to dozens of witnesses. Please document and explain to us, and through us to the Department of Finance, where all of these tax loopholes are. The government would love to have an extra few billion dollars and not incur the political cost of reducing expenditures.
Because of Mr. Loubier - you people don't stop - the minister now has appointed a study commission to look into reform of corporate income taxes, to see whether anything can be done. We will see, but I'm not hopeful.
I would like to ask you a question, Mr. Poirier and Mr. Charron. Who owns corporations?
[Translation]
Mr. Poirier: That's easy: it's the shareholders.
Mr. Grubel: I beg your pardon.
[English]
And who are the shareholders?
[Translation]
Mr. Poirier: Well, that depends on the corporation. Here in Canada, we unfortunately have no information. We don't know who the shareholders are or the concentrations of share ownership.
However, we do have this information for the corporations that I have just studied, the English water utilities that have been privatized since 1989. Four-tenths of one percent of shareholders control 75 percent of the shares. The big holders of blocks of shares are mainly banks, trust companies and certain individuals, but the -
[English]
Mr. Grubel: Who owns the bank? Who owns the trust?
[Translation]
Mr. Poirier: Well, we come back to the same problem again. If there is an absolute concentration in the water industry, why would there not be the same concentration elsewhere?
[English]
Mr. Grubel: Obviously you don't know, but if you go at it in a logical -
[Translation]
Mr. Poirier: Look, 0.4 per cent of shareholders control 75 percent of the shares. I believe that's fairly clear. I don't see why it would be different for the banks and other industries. I cited an individual case. Now prove the contrary. Tell me that shares are more widely held in the other industries and we'll see.
[English]
Mr. Grubel: Mr. Poirier, let me say something. The teacher's pension fund - where does the caisse populaire invest the money it gets from pensioners?
[Translation]
Mr. Poirier: I was going to answer precisely that question earlier. In the water industry, the pension funds hold 2.5 percent of the shares. That's very small; 2.5 percent is a marginal amount.
[English]
Mr. Grubel: I don't know where you get your number, but surveys of stockholders -
[Translation]
Mr. Poirier: In the financial directory of English corporations.
[English]
Mr. Grubel: - that I have seen, and maybe Mr. Vallée can help me, show that 70% of all stocks are held by pension funds. Where do you think this huge demand that drives up stock market prices every year comes from?
.1500
[Translation]
Mr. Poirier: I would like to have your figures. Unfortunately, that's information we can never have. We requested it with respect to the banks and we never obtained it. I would like to have your figures. I would be very interested in looking at them.
[English]
Mr. Grubel: The pension funds of unions and teachers and professors - ultimately, even if it is held not by them, who do you think holds it? It's individuals.
I am two years from retirement.
A voice: No!
Mr. Grubel: I have slaved like you have. I have started -
[Translation]
Mr. Poirier: Do you have a specific question with regard to what I said about tax havens?
[English]
Mr. Grubel: I am asking the questions and you're not giving me any answers.
[Translation]
Mr. Poirier: No, I believe I did give you answers. Mr. Chairman, did I in fact answer the questions? I believe I was clear.
Mr. Charron: Mr. Chairman, we get the opportunity to speak here in committees such as this perhaps once every three years in order to try to change either a tax policy or budgetary policy. Who controls the shares of this kind of corporation? Look, the pension funds definitely control them and that may be the subject of another debate. Should we allow the pension funds, which have received tax deductions, to invest 20 to 25 percent of their assets outside Canada in businesses which may possibly compete with us? That's a completely different issue.
I believe each person here has raised points. I'm quite prepared to give you a list of all the shareholders in Canada. If you want, we'll bring it to the next round table on the budget. That won't be any problem for me. However, I believe it would be better, in the little time available to us, to round out the discussion by asking some specific questions. I hope Mr. Grubel will retire with a very good pension, which will have been funded by the state and which will have achieved a good yield. I know that the federal MPs pension fund is very good. So I wish him a very good retirement. However, I would like us to ask somewhat more specific questions.
[English]
The Chairman: With respect -
Mr. Grubel: Mr. Charron, I have no pension from the federal government. I renounced it because I think it is too rich. That is number one. Number two, we are here partly to set the stage for a question, and I do not appreciate being told to shut up.
Mr. Charron: I never said that to you.
Mr. Grubel: That's the way it sounded to me.
Now, let me tell you. I am extremely saddened by what I heard here, including by this document that you gave to me. Let me ask you a question: do you think corporations have to come to Canada or stay in Canada? What forces them to come here or stay here?
Mr. Charron: To make money, and only that.
Mr. Grubel: Okay. There has been a lot of trouble getting corporations to come to Quebec, isn't that correct? We heard that. Why do you think that has happened?
Mr. Charron: You are wrong to say that.
Mr. Grubel: We hear at these meetings.... Last week I flew to a meeting at the McGill Faculty Club because people were concerned that there is not enough investment in Quebec. Investment has dropped off sharply, corporations are leaving. Okay? It is a fact. Do you agree with that?
[Translation]
Mr. Charron: That businesses are leaving Quebec?
Mr. Grubel: Yes.
Mr. Charron: Look, what's needed are some statistics showing how many jobs have been lost and how many gained. Every day there are threats from businesses that want to leave Quebec and every day businesses start up in Quebec. This isn't an area where... It's difficult to prove. I know that this is the subject of widespread debate because the entire political issue is being contested at the same time as the tax issue. Normally, a business considers many factors in determining whether it should leave or set up in Quebec. Tax is one of those factors, but there are a number of others, including the political situation, subsidies and, mainly, whether it is possible to make a profit in the place where it sets up.
[English]
Mr. Grubel: I spent a lot of time with the the people who own some of these corporations. Whatever the political situation is, whatever the other factors are, do you think it will help to threaten them with higher taxes?
.1505
[Translation]
Mr. Charron: The objective is not to threaten businesses. It seems to me we are all aware that businesses, once established in Canada, can still move. And they do so to an excessive degree. There are places outside Canada where tax rates are lower. If they stay in Quebec or in Canada, it's no doubt because they find some benefit in doing so.
We don't doubt for a moment that the tax aspect is important or that, although corporate rates are probably less competitive, businesses have little room to manoeuvre. However, we're saying that, even if some businesses pay their fair share of tax, even if some are good corporate citizens, there are others that should become good corporate citizens. We're also saying that, if they don't do so on their own, tax legislation may be one of the ways to make them.
If you want to establish job creation measures or lead other businesses to set up here, go ahead. Introduce lots of neo-liberal measures like the capital gains exemption.
.1510
When a concession is made to business, such as the last concession granted to Quebec businesses in the form of a payroll tax deduction in exchange for job creation, I have no trouble accepting it. The result of a reduced corporate tax burden might be that we could keep those businesses in Canada. Perhaps that's a factor.
We don't think this is the first factor in a business's location decision. If it is the first factor for you and for the people you are talking to, then set the corporate rate at zero, exempt them from the GST and cancel all their obligations. They'll all come here by the dozens and we'll all get rich. GDP will go through the roof. So do it -
[English]
Mr. Grubel: Some people have actually suggested that this might not be a bad idea, that if you want to have all this money that is now allegedly going to Bermuda come to Canada, make Canada the Switzerland of North America, make it the Hong Kong, the Singapore of North America. That's how you get lots and lots of capital and zero unemployment.
Some people have suggested that. But please, I understand your fervour, your desire for equity, for good spending projects to be financed by more taxes.
When I was young like you I thought very much like you do. But I urge you, please, think about it. You cannot simply say you think that if we raise taxes we won't lose any corporations. That is not good enough. You have to look around the world at countries that have done this. You owe it to yourself and to your children.
[Translation]
Mr. Charron: It seems to me our recommendation was clear. Never, at any time, did we talk about increasing corporate taxes, not at this time. We spoke about a minimum corporate tax. Once it has been shown that a business is profitable, if it does not pay a minimum income tax, I believe we should wonder whether we shouldn't increase the corporate tax rate.
We didn't make this suggestion because I don't feel there's any intention to do so immediately. We're talking about a minimum corporate tax for corporations which, whether through tax incentives, deferred losses or inter-corporate dividends, reduce their tax burdens to such low levels that they're not acceptable in the current budgetary context. It seems to me this is a simple suggestion.
[English]
Mr. Grubel: Mr. Charron, with all due respect to the last point, when a corporation now faces a certain amount of taxes and - just for clear thinking - next year with whatever alleged loopholes they have, the same level of profit, there will be a minimum tax, that corporation will write to its headquarters and say, taxes have just gone up in Canada, we don't think we should invest more here, and as soon as we can we should get out of here.
Now, don't play with words like this. It's very dangerous to say that imposing a minimum tax on people who didn't pay any taxes before is therefore not a tax increase. This is logically incorrect, however emotionally you're involved in wanting not to call it a tax increase.
[Translation]
Mr. Charron: I would like to make a final comment because, of course, I can't comment on that. In the United States, they were not afraid to impose a stiff minimum tax on corporations. I won't give you a long speech on this point. The U.S. economy is in very good shape at this time and this has not made businesses move or made them change their operating context or anything else. This probably won't be the major factor leading a business to make major changes.
The Chairman: We can return to this issue later. Thank you very much, Mr. Grubel.
Mr. St. Denis.
[English]
Mr. St. Denis (Algoma): I thank you all for being here. It's a very stimulating discussion. I would like to ask a couple of questions on the same area but from a different point of view.
I have a rural riding, and I'm sure whether an MP has a rural or urban riding we get questions from our taxpayers about corporate taxes. Whether they understand what's going on or not doesn't matter; they ask the questions. They are concerned about it. But at the same time, there are investors and those who hold capital outside the country who have questions from a different point of view about investing in Canada. So it seems to me that the two sides of the debate, being the small individual taxpayer on the one side in Canada and the holder of capital outside, are two worlds that don't understand each other.
.1515
Because capital is fungible, money moves around so easily, and Canada must maintain its relative position in the world so that capital comes in and doesn't go out, can you tell me first, Mr. Poirier, Mr. Charron or Mr. Langlois - anyone - where do we fit in the industrialized world as far as corporate taxes are concerned, and how do we fit in the world in terms of being able to attract investment that can then lead to jobs? A third part of that question is how can we educate ourselves and the public so that we understand better the nature of corporations and corporate taxation? I think it would be helpful to the public.
I'm looking at Mr. Poirier and Mr. Charron first.
[Translation]
Mr. Charron: You're not asking me an easy question. It's a complex subject because there is the tax on profits, but there are other types of taxes that a corporation must pay. There are payroll taxes and all that.
In a context of competitiveness, you have to consider what's going on elsewhere. You also have to consider the services offered by the government. Necessarily, when we compare ourselves to the United States, we of course see the Americans have lower tax rates. They don't have to finance health care because that's paid for by private insurance. In these circumstances, comparing tax rates and elements of taxation may have a pernicious effect. You have to do it in a broader context, that is to say on a comparable basis. When you compare an income tax rate elsewhere with ours, you expect that no other indirect taxes will be added. You expect that the income tax rate will cover the same or equivalent services.
To answer your specific question, I'm not in a position to do so. I could look at it more closely and provide you with a more thorough analysis at a future meeting, but I can't answer you point blank today. Unfortunately, it's a fairly pointed question.
Mr. Poirier: I would like to make a comment on this point. There's always talk about corporate taxation: if we tax businesses, if we ask them to pay this or that, they're going to leave, they're going to move. There's one factor that is completely excluded from the debate. Mr. Yves Séguin, a former Quebec Minister of Revenue, pointed this out very clearly. Corporations use approximately half of the programs funded by government. They use the infrastructures, the personnel trained out of public funds and the health system. As Mr. Charron indicated, Canadian corporations do not have to pay private insurance, as is the case in the United States. They use government subsidies, of course.
Thus, corporations and individuals are asked to pay taxes in order to fund government programs, but those government programs in turn attract corporations. They come here instead of going to Zaire because we have trained personnel and because, in Zaire, they would have to ask Americans to go work there. They would have to pay bonuses, travel expenses and so on. We have a power of attraction because of our social and government programs. That should not be forgotten. We should not only look at what is asked of them. We must also see what we're giving them.
The Chairman: Mr. Langlois.
Mr. Langlois: Mr. St. Denis, there are a few comparative studies showing that the tax environment of Canadian businesses, compared to the tax environment of competing businesses in the OECD countries, is not that much of a handicap for Canadian businesses. They are not in such a bad position. You really have to put things in their proper perspective.
Again, in the context of the Commission on Taxation, a study was recently conducted, mainly in Quebec, but which could be conducted for the rest of Canada as well.
.1520
It was a comparative study of taxation for a business setting up in Quebec relative to the tax structure to which it would be subject if it set up in neighbouring jurisdictions in North America, in the rest of Canada or the United States.
This study, which was conducted by Price Waterhouse, was recently made public and shows that Quebec's tax system - and here we're talking about the tax environment, federal taxes, local taxes and provincial taxes, and that's including incidental tax charges - is very favourable to business. There may be a small difference relative to Ontario, where it is a little more favourable for business.
Quebec is at a distinct advantage relative to the rest of Canada and other North American jurisdictions. When you also include all the para-fiscal charges that U.S. businesses have to pay in order to fund health and social programs in the United States, the Quebec tax environment is even more favourable.
It would be possible to conduct this kind of study for the rest of Canada. Once again, I believe you would come to the conclusion that Canada is not a tax hell, contrary to what many people seem to believe. To a large extent, this feeling stems from growing anti-tax and tax revolt movements. In my view, there should be a certain counterweight to these views in the public debate.
The federal government could try - and I believe it would probably have the support of many on this point - to place greater emphasis on the tax system and public contributions through an awareness campaign on the importance of taxation as a way of ensuring citizenship in the country. A contribution to a common fund is not a wrong gesture. On the contrary, it is a gesture of solidarity and commitment to securing common services and programs.
Unfortunately, the social consensus on taxation has eroded in both Quebec and Canada. This erosion must be stopped, failing which many of our social institutions will be increasingly threatened. Consequently, a public awareness campaign could be an option worth considering. This is a recommendation that we on the Commission on Taxation adopted for Quebec, and I believe it would be desirable to do so for the country as a whole.
The Chairman: Thank you, Mr. Langlois. Mr. Dussault.
Mr. Dussault: This is definitely a good debate. These are questions that must be debated. I believe we must have studies to support our arguments. However, to a certain point, as you say in English, the proof of the pudding is in the eating. In other words, we also have to look at results.
In Canada, we see that business investment is insufficient to replace the capital stock. We were talking about investment in Quebec, which represented 19 percent of the Canadian total in 1994,18 percent in 1995 and 17.5 percent in 1996, and that's for businesses, private investments, compared to 23 percent of the economy and 25 percent of the population. In other words, we're not attracting investment, but we have to attract it. That's what we have to look at.
Taxation is only one of the factors. If we say that it's too high, we're told: ``Yes, but it isn't much higher because you're providing services.'' At one point, our partners are going to have to consider the problems and the reasons why investment is not coming in. We also need answers to that.
The Chairman: Thank you, Professor. Mr. Mooney, you've been so nice and quiet.
[English]
Mr. Mooney: I'm a good listener.
I wanted to respond to Mr. St. Denis' question as to what it is going to take to get businesses to come to Canada. I think that was one of the fundamental questions you had asked. It's a very good question, because Canada is competing against every other country in the world to attract investment, to attract companies to come here, sell their goods, and perform their services.
.1525
We are in a dogfight against countries like China, which offers a population of 1.2 billion. Mind you, only about 30% of those are what we would call consumers, but still that's 360 million people compared to the number we have.
So when a company wants to set up a business, it looks at two things: it looks at revenues, and it looks at costs. I believe Canada has a good revenue base for companies, and that's why I think companies come to Canada.
On the other hand, the other component I mentioned was the cost side. And if you want to get radical and talk about increasing taxes, what if I got radical and suggested we lower the minimum wage to $2 a hour? Both are an input, both represent a cost to business, a cost of functioning in your business. Taxes are no different from salaries. They're no different from the cost of buying paper, buying computers, or whatever.
So it's very simple for people to say corporations should bear the brunt of the tax burden, corporations should pay more taxes. That's going to be very counter-productive. It will not attract businesses to Canada. It's fundamental.
[Translation]
The Chairman: Mr. Poirier, you're the last person to answer Mr. St. Denis.
Mr. Poirier: I would like to speak on the entire issue of attracting businesses here and that of insufficient investment. Think about it properly. How long have we been debating this issue? How long have we had problems with investment in Canada? How long have businesses been moving away? For about five years. What happened five years ago? We signed the Free Trade Agreement. It's since then that we've had so many problems with businesses, that we've had a knife to our throats and that businesses have been telling us: ``We're going to move away if you don't do this, if you don't do that.''
Mr. Chrétien wanted to review the Free Trade Agreement, but he has not done so. I believe this is a fundamental problem. We have to stop laying the blame on the tax system. We haven't talked about the Free Trade Agreement at all. It has been removed from the debate, and I believe it should be put back on the table.
The Chairman: Thank you very much, Mr. St. Denis. Mrs. Brushett, please.
[English]
Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chair.
Before I ask my questions, I must refute what has just been said by Mr. Poirier. It is our export surplus that is driving our economy today, and most of that is consumption by our American partners to the south, through the NAFTA agreement. So the little companies in Nova Scotia, throughout Quebec, rural Quebec and throughout this country.... But it's the exports, and they're here. So this is not due to companies not moving because of the free trade agreement. They're actually overproducing, and it's the surplus of that export, the highest in our history this recent month.... So I think it's fair to put that on the record.
I have three questions.
[Translation]
The Chairman: Congratulations to the manufacturers and exporters.
Mr. Poirier: I would like to make a brief comment on what has been said.
The Chairman: You'll have the chance.
[English]
Mrs. Brushett: I have three questions, Mr. Chairman, and really they're directed toMr. Mooney, who initiated this discussion.
I want very specific details as to why you think these are problems. You indicated that if we could formalize the consolidation of losses, it would help to free up resources for government. I wonder if you would elaborate on that.
The second point was to define clearly a uniform capital tax base. Would you give us a little more explanation of that definition you're looking for.
The third point is on the harmonization of the sales tax. You've indicated that companies would actually consider relocating to a province that had done the harmonization. What advantages are there besides the internal paper shuffling? What are the specific advantages that gives to a company?
Mr. Mooney: With respect to your first question, you can look at what a corporation has to do to file tax returns each year. It has to file a federal return, and it has to file provincial returns. It has to file one for each company in the corporate group. I believe the benefit that can be derived from tax consolidation is the savings that can be generated, yes, by corporations by not having to pay the money to file six, seven, or ten different types of returns for each company.
.1530
But that can also be derived by not having two people, one office in Quebec City and one office in Ottawa, assessing what is substantially the same tax return. That's where I believe the government resources can be freed up.
Tax consolidation is not an issue that's just new to this discussion. It's been talked about for years and years. I remember when I first got into tax, I thought we were very close to having it, and that was in the mid-1980s. Something happened there.
But you know, Ms Brushett, in fact what's happening at Revenue Canada today is that they are permitting tax loss consolidation within a related corporate group. They have permitted it. They are accepting that mechanism. But the hoops and whistles you have to go through to get to that point cost corporations thousands and thousands of dollars. What we're looking for is just a method that will simplify what we're already doing today from the federal level.
Maybe the simplest way for me to put uniform capital tax base is to say let's take the best of both worlds. I don't really think businesses are concerned about how the calculation is done; they just want to see one calculation done, one for federal, one for Ontario. All the provinces buy into that one unified method.
We don't care what goes in, what's left out; it's just the cost of having to do three, four, five and six different calculations just because you've chosen to sell your products or your services in six different provinces.
On the harmonization of the GST, I did not say that I am aware of situations where people are setting up their businesses in different provinces just because of the harmonization. What I said was that is my fear of what could happen.
Quebec right now has the harmonized sales tax, and business inputs.... If you spend money on a business input, and you pay the QST and the GST, in Quebec you're entitled to get a full refund for both those amounts. Currently in a province like Ontario, which competes significantly with Quebec for revenue dollars, products and sales services, they do not permit the input tax credit to be claimed for the PST portion of the provincial sales tax portion.
So if you look at it in a pure vacuum, all other things being equal between the two provinces, the company operating in Ontario is potentially at a competitive disadvantage. It has to pay that 8% PST and therefore has to pass that on to its customers.
Mrs. Brushett: Then maybe I can conclude that when Nova Scotia gets theirs harmonized, we'll have an influx of companies coming to Nova Scotia to reap advantages?
Mr. Mooney: Well, I don't think you -
The Chairman: From my riding in Ontario, Mrs. Brushett.
Mrs. Brushett: I hope so.
Mr. Mooney: - need the harmonized sales tax to get companies into Nova Scotia, but Nova Scotia will be fighting with New Brunswick and with Newfoundland. Right now P.E.I. is the one that's out in the cold, so to speak.
The Chairman: Thank you, Ms Brushett. Ms Chamberlain.
Mrs. Chamberlain (Guelph - Wellington): Right now there is a philosophy different parties are looking at for the next election, and obviously for the pre-budget era. I just wanted to know what your feelings were on personal tax cuts. Do you think there's any merit in those for people at this time when we still have a deficit to work on? I don't want to get into a huge, lengthy discussion, but I'd like to know what each group feels on that.
[Translation]
The Chairman: Would anyone around the table support a tax cut in the next budget?
[English]
Who wants a tax cut? One, two -
Mr. Langlois: I don't want a tax cut; I want to talk about a tax cut.
Voices: Oh, oh!
The Chairman: Mr. Langlois.
[Translation]
Mr. Langlois: It would be completely inappropriate to consider tax cuts in the next budget. I believe it's much more appropriate to continue readjusting the public finances in a very methodical way. As I said at the outset in my remarks, I believe the effort must be rebalanced a little more toward the revenue side because spending cuts are currently hurting the economy a great deal.
.1535
Eventually, if we manage to restart the economy and readjust the public finances, we may be able to consider tax relief in the future, and this seems to me to be a little far away in the present context. For the moment, if we went the tax reform route, it would be much more in order to restructure the tax system than to reduce taxes.
The Chairman: Mr. Charron.
Mr. Charron: This is still a two-part debate. Ask people if they want a dollar and everyone will say yes. I believe we're all the same. Ask people if they want to pay less tax so that the government can then withdraw from that service and pay for it in the form of a hidden tax. It amounts to the same thing.
We want a balanced tax system. The Income Tax Act contains nearly 1,500 pages, very few of which apply to employees because those people have very few tax opportunities. What we are asking for is a fair tax system. There's a way to review certain tax privileges without hurting anyone whatever, except those who benefit from them. This is a vague issue, but the objective of a tax statute is supposed to be simplicity. That was the primary objective when the tax statute was passed. When it reached 1,500 pages, I believe we lost sight of the tax system.
The Chairman: Thank you very much.
Mr. Morris Weinstock (Senior Tax Manager, Income Tax, Bell Canada Enterprises Inc.): I would like to answer your question. I agree with Mr. Langlois that this may not be the appropriate time for cuts. The benefits arising from deficit reduction, lower interest rates and so on, are preferable to tax cuts at this time.
The Chairman: Yes.
Mr. Dussault: Look, the federal strategy has worked extremely well to date. I don't think it should be changed.
Furthermore, I disagree with Mr. Langlois. I don't believe we should look at the revenue side. In Canada, the tax burden represents 39 percent of GDP, which is much higher than in the United States or Japan, if we take those two countries as examples. Salaries have declined in real terms in Quebec in recent months.
Government revenues should not be increased because consumer confidence is also an extremely important factor in the domestic economy's recovery.
With respect to readjustments, we supported Mr. Mintz's initiative, which was to see how we could attract more investment and more jobs in a context of restructuring. I believe that's the way the problem should be addressed.
The Chairman: Thank you very much and thank you Ms. Chamberlain. Could I askMr. Charron a question? Is it true we have no minimum corporate tax at the federal level?
Mr. Charron: There is a capital tax, with which I'm not very familiar, I must say, for very large corporations with assets of more than $10 million. This tax of course has nothing to do with profitability, only with the business's capital. That does not mean that this minimum tax is paid by all corporations with assets of $10 million. For example, it is detrimental to businesses that make a profit for tax reporting purposes and that pay their fair share of tax relative to others that manage to reduce their tax profit.
The Chairman: It's a minimum tax. It doesn't depend on the parties.
Mr. Charron: It's a tax on capital, not a minimum tax. All businesses with assets of $10 million have to pay this tax based on the value of their capital.
The Chairman: And you don't like that? You're not in favour of this tax for large corporations?
Mr. Charron: I didn't say that. The tax on capital is a factor. I'm talking about the tax on profits, on the basis that each corporation has a tax to pay on profits, a tax that takes into account the corporate tax table. Although some corporations report a pre-tax accounting profit, they manage not to pay tax and to be entitled to a refund.
A capital tax should not be confused with a tax on profits. If you want to talk about all the types of taxes paid by businesses, there are a lot. Do we consider them all as a form of minimum tax? No, I don't believe so. We're talking about a tax on profits.
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The Chairman: That is to say a tax on profits?
Mr. Charron: That's the suggestion we're making.
The Chairman: Instead of a tax on capital, there should be a tax on profits. Is that correct? I may not have understood you correctly.
Mr. Charron: No.
The Chairman: Perhaps the minimum you are suggesting at this time for corporations -
Mr. Charron: It's for profits.
The Chairman: For profits.
Mr. Charron: It's on profits. I have no idea how much the capital tax on large corporations brings in, but I want to add a very important factor that must be taken into account here. Since 1991, the figures on corporations have all been forgotten. We have no idea where such and such an expenditure account comes from and how it is applied at the corporate level. The statistics on corporations, unlike those on individuals, have all been forgotten since 1991. So it's impossible to know the various types of information that would be helpful in properly analyzing the issue as a whole.
The Chairman: Perhaps you could suggest a way of enforcing this minimum tax.
Mr. Poirier, when a Canadian corporation has a branch in a tax haven, is it to minimize Canadian direct and indirect taxes or foreign direct and indirect taxes?
Mr. Poirier: I don't really understand your question.
The Chairman: You spoke of Canadian corporations with branches in tax havens, didn't you?
Mr. Poirier: Yes.
The Chairman: Do they do so in order to minimize Canadian taxes or foreign taxes?
Mr. Poirier: When you say foreign taxes, would that be tax on -
The Chairman: Non-Canadian taxes, the taxes paid in other countries of the world.
Mr. Poirier: In other countries, in France or...?
The Chairman: Yes.
Mr. Poirier: Well, it may be both.
The Chairman: Excuse me. Is it to minimize Canadian taxes, yes or no?
Mr. Poirier: Yes.
The Chairman: It's to minimize taxes outside Canada?
Mr. Poirier: Exactly, yes.
The Chairman: I agree with the second part of your answer. It's to minimize taxes outside Canada. But how under the Act can a Canadian or manufacturing corporation such as Bell use a tax haven to minimize Canadian taxes? Can you tell me how that can be done? Give me an example.
Mr. Poirier: It can be done through transfer pricing, among other things. For example, a company carries on manufacturing operations in Mexico. Instead of sending its products directly to Canada, it ships them through Barbados. The subsidiary buys from the Mexican subsidiary at a low price and sells to the Canadian subsidiary at a high price. All the profits then remain in Barbados and those profits are not taxed. That's one of the ways of doing it.
The Chairman: Excuse me. In that case, what should the Canadian tax between Barbados and Canada be?
Mr. Poirier: Tax rules exist for that purpose but are not enforced.
The Chairman: What are those tax rules you speak of?
Mr. Poirier: Transfer prices normally cannot be excessive. They must be roughly equal to market value.
The Chairman: Precisely, and there are a great many rules to reinforce that. Is that correct or not?
Mr. Poirier: It should be enforced. A corporation should not be permitted to transfer profits to tax havens, as is currently done.
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The Chairman: In Ottawa, there are a lot of public servants whose sole duty is to ensure that prices between Canada and the tax havens are set at arm's length and are reasonable in the circumstances. Companies therefore do not avoid paying Canadian taxes in those cases. Do you have another example of the way one could avoid or minimize Canadian taxes?
Mr. Poirier: If the work is done as well as you say with regard to internal transfer pricing, how is it that all the large corporations and banks have so many branches in the tax havens? I'm asking you the question.
The Chairman: That's obvious. Most multinationals use subsidiaries in tax havens because there are tax treaties. If a Canadian has a manufacturing operation in Mexico and sells products around the world, the profits from the distribution to Barbados, for example, are taxable in that country. Manufacturing profits are taxable in Mexico. So the remaining profits would return to Canada.
Mr. Poirier: You are implicitly saying that companies do indeed use tax havens to divert profits.
The Chairman: To maximize profits. It's not to avoid paying Canadian taxes. I have never seen a situation where one could legally use a tax haven to avoid paying Canadian taxes. It is done to avoid paying taxes in foreign countries, yes, but perhaps you have more experience in this field than I do.
Mr. Poirier: Look, I find it hard to see how a company could use tax havens to avoid taxes in Mexico, the United States or Venezuela and not to do so to avoid taxes in Canada. I find that illogical.
The Chairman: All right. You prefer that they pay more taxes in Mexico instead of returning maximum profits to Canada, even if Mexico says: ``Our administration and our tax system are as follows and you must comply with them.'' Perhaps you believe that Canadian corporations with multinational operations should pay more tax in other countries. That has nothing to do with the real world, but that's your opinion.
Mr. Charron: May I add a remark to that? I hope we've told you nothing new today about tax haven schemes. The Auditor General denounces them completely in his report each year. When it's not corporate tax havens, it's family trusts.
How do they use them? I would ask you to consult the Auditor General's report for this year. He names roughly 20 schemes. They're quite a bit more complex than what the ordinary mortal can understand. It will be no secret to you that these corporations, in Barbados, are shell corporations sitting on the shelves of law firms. They don't have a single employee and, when there is one, he merely puts the file on the shelf until he receives documents.
You shouldn't think we're crazy when we talk about matters regarding tax havens and say: ``They do that to ensure the business remains a going concern because it's good for business.'' There's an objective behind all this. You can indeed reduce Canadian income tax to zero, but it is immoral that companies should be able to profit from the Canadian infrastructure, health care and labour training and succeed in diverting such large amounts of capital without anyone saying -
I hope that when the Auditor General puts that on the table... When he denounced family trusts, we all said to ourselves: ``Wow!'' We learned about that five years later and the mistake was probably in not making this known at the outset.
In any case, I hope I'm not telling you anything new today.
The Chairman: Pardon me?
Mr. Charron: I hope we are not telling you anything new about tax havens. You asked us to talk to you about the mechanisms that exist. We told you that the Auditor General completely denounced them in his report for this year.
The Chairman: Yes, and we fully complied with the Auditor General's recommendations. I would like to ask you the same question with respect to family trusts. We have taken many measures to correct this situation, as you well know.
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But when it comes to Canadian multinationals such as Bell, I don't know. I imagine Bell has a lot of branches in tax havens, in Europe or elsewhere. Most of the major manufacturing concerns in the world do. It's my impression that most of your clients, Mr. Dussault, use tax havens, but not to avoid Canadian taxes. Perhaps you could give me examples in which that could be done.
Mr. Charron: I don't want to give you a list of examples. I'm not a specialist on the issue. I didn't bring the Auditor General's report with me. He denounces 25 schemes.
The Chairman: He did'nt say that all tax havens should be abolished. He said in a few of this reports that there were abuses and he made suggestions. It was my impression you said that the purpose of each use of tax havens was to avoid Canadian taxes.
Mr. Charron: I agree with you completely that, if a subsidiary is used for the purposes of actual operations -
The Chairman: That is the law at present.
[English]
Mr. Mooney: To get into a useful discussion on foreign taxes, there's a couple of fundamental facts that people have to keep in mind. The first one is that Canada's tax system is based on residency. It doesn't matter where you earn your income. Whether it's in your foreign jurisdiction, your tax haven or in the U.S., the U.K. or in China, if you're a resident of Canada you pay tax in Canada on your worldwide income.
So I concur with Mr. Peterson's comments: tax havens have no effect on the Canadian tax base. And you may not want to hear that. I'm sorry, but that's the reality.
Secondly, when you look at residency from a corporation point of view, a corporation is resident in the jurisdiction where its board of directors meet. Therefore, again, if your board of directors meet in their residence of Canada, you're taxed in Canada on your worldwide income. So if you have a branch in Jamaica, or in these other places you're referring to, it doesn't matter, you're taxed in Canada. You pay the Canadian tax rate on that income. And that's just the fundamental truth.
So I don't want to start second-guessing what the motives of the Auditor General were in his report. It's one thing to raise a whole bunch of issues that might be causing a problem in the tax base. The majority of us who are familiar with some of those comments know otherwise. But that's his job, and I'm going to leave him to do his job.
To make a blind statement that Canadian corporations like Bell, which is what I heard, are taking advantage of tax havens to save taxes in Canada is blatantly wrong, misguided and pretty unintelligent.
[Translation]
The Chairman: Perhaps I could give you an example. When the Government of Canada owed Texas Gulf Sulphur 20 years ago, a large Texas Gulf Sulphur mine in the United States went bankrupt. They owned large properties in the United States. Instead of directly taxing the shares of Texas Gulf Sulphur because that would have forced them to pay taxes of 15 percent on dividends coming into Canada from the United States, the Government of Canada used a tax haven. It used a corporation in the Dutch West Indies and one in Europe. Indirect control reduced the U.S. taxes from 15 to five percent. In other words, more profits were able to return to Canada. That's only one example. This is done in order to be competitive and to be able to minimize the foreign tax burden. Most large Canadian corporations use branches in tax havens.
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Mr. Laurin: Mr. Chairman, I don't much like the turn the discussion is taking. We are leading witnesses to say things that they have never stated and using their arguments to prove that there is no problem.
There is a problem. Large companies are using this loophole in order to be taxed at 10 or15 percent in Barbados, whereas they would be taxed at 40 or 50 percent if they were registered in Canada. That's what is being denounced.
The names of shell companies are being used so as to avoid paying taxes that should normally be paid in Canada. I would not like us to try to pull the witnesses' legs. They're here to try to denounce situations and to inform us. Let us hear their testimony and, if we doubt their word, we'll conduct checks. There is a problem that has been denounced by the Auditor General, and we have often denounced it ourselves and continue to do so. The Bloc québécois has denounced family trusts and tax havens on numerous occasions.
We know that marginally honest procedures are used to save money at the expense of Canadian tax authorities, not foreign tax authorities. That is what we have always denounced and that is the problem that persists. We are asking the Minister of Finance to take measures in his next budget to limit the harmful effects of these procedures. That's the message that you must take from our witnesses today.
I would like to put my question to Mr. Mooney. I'm not certain I properly understood the mechanism he was discussing with respect to the transfer of losses or the consolidation of losses. Are we talking about the consolidation of losses between the parent company and its subsidiaries and filing a single return?
In your answer to Mrs. Brushett, you seemed to say it was a question of tax harmonization, whereas, in your first explanation, I thought I understood that the idea was to consolidate the profits of a parent company with those of its subsidiaries so as to file only one return, which could make it possible to transfer losses from one company to another.
I believe I understood, but after the answer you gave Mrs. Brushett, I got the impression I no longer understood. Could you explain that to me using an example?
[English]
Mr. Mooney: Sure, fine. Our companies work in a regulated environment, as you know. Quite often it's required that we set up different business ventures in separate companies for various reasons - and I won't go into all of them. Quite often we will have companies in our group that have profits and we will also have companies in our group that have losses.
The tax consolidation is intended to recognize that the group as a whole, when you put all the parts together, has just made a certain level of net income or net loss. As opposed to looking at the companies that have profits and making them pay an excessive rate of tax on those profits, and looking at the ones that have lost money and giving them no benefit for those losses in the current year, the tax consolidation recognizes the related group as one big taxpayer. You combine the losses and the profits into one amount and tax that group based on this one amount.
I guess consolidation is like a harmonization. Let's look at a situation where two governments in Canada are assessing, collecting, and administering the same type of tax. Instead of having two groups of people doing the same thing, one for the province and one from the federal government, let's combine the two. They're still going to collect the same amount of tax, whether it's sales tax or capital tax, but there's only one group looking after it.
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That's just a matter of cost savings to the government, and also of savings to companies that don't have to spend the extra money to comply with two sets of laws that effectively deal with one tax. Is this okay?
[Translation]
Mr. Laurin: Is there the same problem when your company has a parent company in Canada and a subsidiary in the United States or in another country? Don't you have the same problem then? You can't consolidate your losses and you therefore have to file two tax returns in accordance with the statutes of the two different countries, don't you?
[English]
Mr. Mooney: Yes, when you operate a branch outside of Canada, you are generally required to report income taxes and file tax returns based on the laws of that country. In the same way, if a U.S. company had a branch operation in Canada, it would be required to file tax returns in that jurisdiction in Canada as well as in the U.S.
If you have a branch operation, the loss you've incurred in that branch operation is combined with the other components of your income for Canadian tax purposes, because as I said earlier, a corporation or an individual who's resident in Canada is taxed on their worldwide income.
So if you have a branch in the U.S. and you're a Canadian corporation, you have to pay Canadian tax on the income generated in that U.S. branch, albeit the current mechanism in the Income Tax Act permits certain mechanisms that alleviate double taxation, paying tax on the same profit in two jurisdictions.
[Translation]
Mr. Laurin: In your example, you talked about consolidating losses. There won't be just a consolidation of losses, but also a consolidation of profits as well. If none of the companies and subsidiaries had losses and both made profits, there would be an accumulation of profits that would be taxed on a different scale because they would be consolidated. Is that what would occur, in your opinion?
[English]
Mr. Mooney: No, under the existing rules for corporate income taxes, with the exception of the small business deduction that would not apply to most multinational companies, you pay tax on your taxable income, generally based on one rate. So whether you had combined 10/100 or you had 1/100, you would pay tax at the same rate under current corporate law.
[Translation]
Mr. Laurin: Then aren't you asking for measures that would enable you to enjoy benefits when you have losses, while limiting the disadvantages when you have taxable income? Is that in fact what you want? If there are losses, you want to benefit from them and, if there is income, you don't want to be taxed. Have I understood correctly? Do you want to limit the taxation of consolidated profits?
[English]
Mr. Mooney: No, I'm not saying that. What I'm saying is that if you have five corporations that have $100 of profit and they're in a 50% tax rate, they're each going to pay $50 of tax under the current legislation. If you combine them, there's $500 of combined profit paying tax at 50%, so you still pay the same $250.
What loss consolidation recognizes is that if you have one company that has $500 of profit, and one company in your group that has lost $100, the group as a whole only made $400 and therefore should only pay a tax of 50% on the $400.
I'm not suggesting anything new here. As I said earlier, loss consolidation is recognized currently by Revenue Canada and the Department of Finance. All we're asking for is a simpler, easier method that doesn't require us to restructure and move companies around in our group just to take advantage of something that the government is allowing us to take advantage of right now. We're just asking for a simpler method to do what we're already doing and which is legislatively permitted.
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[Translation]
Mr. Laurin: Don't companies pay more tax when their profits are higher? Is there a graduated scale of income tax, as there is for individuals, or is corporate tax always at the same rate, let's say25 percent? Regardless of the company's profit, whether its $100,000 or $5 million, is the tax rate the same? Is that correct?
[English]
Mr. Mooney: Yes, it is correct.
Mr. Laurin: Okay.
[Translation]
The Chairman: Thank you, Mr. Laurin. We only have two minutes left.
Mr. Grubel.
[English]
Mr. Grubel: I would just read into the record the answer to a question raised by Mr. St. Denis. I think, just as a reminder for some witnesses today, that it is one thing to be ideologically extremely glib and informed, but it is another thing to be informed about the real world.
On page 38 of this weekend's The Financial Post, there is a table that shows tax revenue as a percentage of GDP. The source is revenue statistics of the OECD-member countries. The corporate income tax raised in Canada is 2.4% of national income. For our most important trading partner, which as many witnesses have told us is where we have to look for guidance, the percentage rate is 2%. If we want to talk about Europe, in France it was 1.6% and in Germany it was 1.1%.
The point I was trying to make is that by whatever mechanism we're going to raise the amount of taxes paid by corporations in Canada, we will no longer be competitive with the United States by definition.
[Translation]
Mr. Charron: That brings us back to the issue I raised earlier. That doesn't include the other charges that corporations in the United States or in other countries have to pay for services that are not provided by the government. This is a study that draws no general comparisons, unlike the study by Price Waterhouse, which, as Mr. Langlois said, showed that Quebec was competitive with respect to tax, and that takes into account what employers have to pay for the private health system in the United States, for example. When you conclude a study such as that, you have to go a little beyond that.
[English]
Mr. Grubel: Please, Mr. Chairman. This is one of the greatest falsehoods. The United States' private sector health costs are 5% of national income. Ours are approximately 6%, roughly the same number. And almost all of the people who have private health insurance in the United States are getting it from companies. It is not correct.
I have on record a quote in one of my books, which says that Chrysler pays more per car for medicare embodied in that car than they pay for steel. Why? Because instead of taxes, they're paying it in premiums for health insurance for their workers. This is a left-wing myth you're propagating.
Prof. Vallée: I think the committee is not here to educate the population. There might be a need for that. I listened to that carefully. I'm very frustrated because it's at the level of economics 101. There are a lot of innovative ideas that should be introduced in the taxation system. There is a lot of frustration on the part of citizens. You guys are here to listen to them and then come up with some ideas to erase the appearance of unfairness in the system.
So you might as well argue with these guys for hours about the unfairness of their views and how it's a left-wing thing. They're not going to change their ideas today. But we have a lot of ideas to promote and a lot of things to say to some people about how we should reform taxes. I wanted to talk about pension reform. There are a lot of ideas. You should have all these ideas put forward and discuss how to implement these ideas rather than try to educate us, or them.
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Those two young fellows were the victims today of a little abuse on the part of the committee. I think it's fair to say that. I don't think they're right. I think they're wrong about business taxation. But they should be sent to HEC. It's true, and I'm not being condescending towards them.
But at the same time, they have pointed to something that monsieur le député has recognized. Even some experts have said there are unfair things and those have to be cleared up. They're right in this respect.
There are, of course, improvements in the way we can have discussions, but I think the goal of the committee shouldn't be to educate, but just to listen to us and to our ideas.
[Translation]
Mr. Charron: He says we should go to the HEC. That shows that, from the outset, Prof. Vallée has come here to further his personal interests. When it wasn't for his own pension fund, it was for his university.
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The Chairman: [Technical difficulties - Ed.] ...with the committee.
Mr. Dussault.
Mr. Dussault: If I were you, I would look at Price Waterhouse's Quebec study, but I wouldn't necessarily adhere to it in every respect because a lot of things in it are questionable.
The message I'll leave with you concerns the importance of investment and competitiveness for creating employment.
The Chairman: Thank you. Mr. Charron.
Mr. Charron: Throughout my studies leading to my masters degree in taxation, I learned to save on taxes. What is bizarre is that the training given at all universities concerns ways to save tax. We must consider the fact that the government has a role to play in the economy and that it needs money to play its role.
The Chairman: Thank you, Mr. Charron. Mr. Poirier.
Mr. Poirier: I would like to take this opportunity to answer Mrs. Brushett. I didn't have the opportunity to do so on the matter of free trade. It's true that exports bring wealth to Canada and that this must be considered, but I believe that there is a middle road that we should try to find between the protectionism of the last century and the total elimination of all tariffs.
The Chairman: Thank you, Mr. Poirier. Mr. Langlois.
Mr. Langlois: If the committee has a major recommendation to pass on to the Minister of Finance for the next budget, it is that Canada is ripe for tax reform. There is already a committee,Mr. Mintz's committee on corporate taxation, but the tax system as a whole must be examined in a broader perspective.
I will borrow Mr. Mooney's remarks in closing. For businesses, tax is merely one of a number of costs. It is not a factor on which you should become fixated. All the other factors must be considered as a whole.
The Chairman: Thank you, Mr. Langlois. Professor Vallée.
Prof. Vallée: I would like to repeat that pension plans must be reformed. Canadians are being required to make a fundamental shift. They are going to be forced to shift from an economy in which they had guaranteed jobs to another kind of economy. Given the way the pension plans are currently structured, it's not possible for them to plan a profitable and pleasant retirement.
The Chairman: Thank you.
[English]
Mr. Mooney.
Mr. Mooney: We appreciate the opportunity to come here today and raise our views. Please continue to tackle the deficit. Thank you.
[Translation]
The Chairman: Thank you. Mr. Weinstock.
[English]
Mr. Weinstock: I would just reiterate the same comments about the tax and the deficit.
[Translation]
The Chairman: On behalf of all the members around this table, I would like to thank you. This has been the longest sitting and you have struck various chords.
Bell Canada spoke about administration, consolidation and retroactive assessing policies and all those possibilities. I get the impression that we as politicians at the provincial and federal levels are entitled to minimize overlap and duplication between the two levels of government and to harmonize statutes as far as possible so that all Canadians can have a more effective and simpler system.
When you spoke about pensions, Professor Vallée, you hit me close to home. This is one of the biggest problems and we have not yet addressed it. You suggested some points to us.
[English]
What are we going to do for the poorer people if we're going to abandon slowly or even in part the public pension systems? It's not fair right now that if I'm in the lower income bracket the government puts up only 20% of my contribution, whereas if I'm in the high bracket the government puts up 54% of it. I find it difficult going to bed thinking about that problem. You presented us with one solution that we'll take into consideration.
[Translation]
Thank you very much.
Richard Langlois, like a few other participants, you spoke about job creation and about what we could do to establish a fairer and more equitable tax system.
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That is still our goal. You said that, each year, we attempt to fine tune the system instead of considering it as a whole. The last time we tried to examine it as a whole, that was with the Carter Commission, which studied it for five or six years. Some recommendations were adopted during the first years, but most were rejected in light of subsequent experience. You said it is necessary to conduct a review of the overall tax system.
I didn't know you were a student. I thought you were a professor. Excuse me. As to your suggestion regarding a minimum tax for corporations, I imagine we must realize that capital cost allowance provisions would not be applied and that profits would be taxed. Perhaps I'm mistaken, but you may have more specific ideas.
If tax havens are being abused, I would like to know about them because it's not fair that anyone should be able to avoid paying taxes. You are studying this system and I would like to get in touch with you so that we can continue this exchange of ideas.
Now I must tell Professor Vallée that there was no question of us teaching him anything. The purpose of the discussion was to have a public exchange of ideas. Pardon me if I became overly professorial.
Mr. Dussault, you represent some of the key sectors such as telecommunications and so on. In recent years, the taxes you have had to pay have increased sharply. I believe there has been a50 percent increase in the past four years. Congratulations on job creation. We are going to work with you to create more jobs.
To all members and all of you, thank you very much.
The committee adjourned.