Minority Opinion by the Bloc Québécois Members of the House of Commons Standing Committee on Finance

1. Reduction of the federal deficit in large measure artificial

On December 6 last, the Canadian Minister of Finance gave an update on the federal government's budgetary situation. He announced, with great pomp and ceremony, that he would succeed, as forecast in his budget, in reducing the federal government deficit to $32.7 billion this year. Furthermore, he reiterated his goal of reducing the deficit to $24.3 billion next year and expressed a desire to lower it to $17 billion in two years' time.

It is the opinion of the Bloc Québécois that the Liberals are artificially reducing the federal government deficit, by accounting manoeuvres, at the expense of the unemployed and by dumping its deficit into the provincial backyards.

The federal government is consciously using the surplus in the Unemployment Insurance Account to artificially reduce its deficit by 5 billion dollars. Since 1990, it has not paid a cent into the Unemployment Insurance Account which is entirely financed by the contributions of employers and workers. In these circumstances, how can one justify the federal government's action in using the surplus from the Unemployment Insurance Account in order to reduce its deficit?

- Canadian Actuaries confirm artificial reduction of the deficit

A task force on unemployment insurance, set up by the Canadian Institute of Actuaries (CIA), stated in its report of September, 1994: Given that the unemployment insurance program is entirely self-financed (by the contributions of employees and business), the present mechanism distorts the government's budgetary outcome. In short, the CIA states that the balance in the Unemployment Insurance Account should have no impact upon the federal deficit, as is the case at the present time. If we adjusted the deficit to take into consideration the surplus in the Unemployment Insurance Account this year, the deficit would amount to $37.7 billion and not $32.7 billion as forecast by the Minister of Finance.

Questioned by the Bloc Québécois on this matter, the Minister of Finance finally admitted that the annual surplus in the Unemployment Insurance Account reduced the federal decifit, thus flatly contradicting the Minister of Labour who stated recently, on the program Le Point, that the government set aside, in a separate reserve, the annual surplus from the Unemployment Insurance Account and that the latter was not used to lower the federal deficit.

For the next two years the situation will get even worse; in addition to using the surplus once more in the Unemployment Insurance Account artificially reduce its deficit, the federal government will dump 7 billion dollars of federal deficit into the provincial backyard.

In fact, the cuts in the transfers to the provinces contained in the last federal budget contribute to an underestimation in the federal deficit of $2.5 billion in 1996-97 and of $4.5 billion in 1997-98. In effect, those cuts do not represent a real reduction in the total public deficits borne by the taxpayers, but simply a dumping of the federal deficit into the backyard of the provinces. If we took into consideration both the surplus in the Unemployment Insurance Account and the cuts in the transfers to the provinces, the federal deficit forecast by the Minister of Finance would not be $24.3 billion in 1996-97 but $31.8 billion and, for 1997-98, it would not be $17 billion but $26.5 billion.

The Liberal MPs on the Finance Committee are artificially reducing the federal deficit in order to justify their inability and their unwillingness to really clean up government finances. In effect, while endorsing the federal government's artificially low budgetary targets, the Liberal majority MPs assert in their report that: Hitting the 2% target for 1997-98 should require few, if any, new budget measures before then. As a result of this reasoning, almost no specific deficit reduction recommendations are formulated, apart from implicitly proposing cuts in old age pensions and unloading the federal deficit into the provincial backyard. Such an irresponsible attitude means that the Liberals are playing Russian roulette with federal government finances. In these times of almost zero net job creation and of feeble economic growth, this irresponsible attitude on the part of the Liberal MP s on the Finance Committee does nothing to restore confidence in their economic future among Québecers and Canadians. The Liberal MP s on the Finance Committee go so far as to state in the majority report that: As a result of the major cuts already made in the 1994 and 1995 budgets, however, options for further cuts are limited. One has to assume that the Liberals believe there is no wastage or unnecessary expenditure within the government, that there are no overlaps between the various levels of government, that there are no unfair tax expenses (tax shelters), etc. In short, the Liberals consider that no trimming, streamlining or decentralization is required in the federal government.

Not only are the Liberal MP s artifically reducing the deficit, but they indulge in an act of faith with their assertion that, once the deficit is lowered to the equivalent of 3% of the GDP, the debt will increase less rapidly than the rate of economic growth. The Bloc Québécois is of the opinion that, in order to ensure this outcome, the Finance Committee ought to have put forward many more specific recommendations for fighting the deficit. The Liberal MP s on the Finance Committee have chosen, instead, budgetary imprudence.

- The federal government continues its attack on the poorest members of our society

The Liberal majority MP s on the Finance Committee are pursuing the same policies adopted in the Finance Minister's last two budgets: attack the poorest members of our society - this time by envisaging cuts in old age pensions - and unload even more of the federal deficit into the backyard of the provinces - by taxing lottery winnings.

After attacking the unemployed, now we see the Liberal majority MP s implicitly endorsing the Minister of Finance's intention, as of the next budget, to attack the elderly. The federal government even wants to increase the retirement age from 65 to 67. The Bloc Québécois is firmly opposed to these policies and proposes other avenues for deficit reduction.

2. Just like the federal Minister of Finance, the Liberal MP s on the Finance Committee make proposals that imply cuts in payments to the elderly.

In the Finance Committee majority report, the Liberal MP s indirectly acknowledge that the federal government is presently undertaking a revision of old age pensions. Along the same lines, the proposal by the Liberal majority on the Finance Committee implies that the aim of this exercise should be to cut old age pensions and thus reduce government spending. (See Retirement Income in the section Options for Additional Spending Reductions of the Liberal majority report.)

The Liberal MP s state that the fiscal deficit must not be replaced by a social deficit. Well, that is exactly what they are doing by envisaging new cuts in the old age pensions and in endorsing cuts in transfers to the provinces. While fully supporting the federal government's budgetary policy which rests principally upon cuts at the expense of the unemployed and in the financing of social programs (through the introduction of the Canada Health and Social Transfer), the Liberal majority MP s have the audacity to comment that Those who are the least equipped to bear the costs of change should not have to bear the brunt of debt and deficit reduction.

Even the Liberal MP s' commendable and virtuous proposals concerning changes in the tax treatment of charitable donations are nothing more than a roundabout way of achieving a more rapid reduction in the deficit by permitting the federal government to make cuts in direct aid to charitable organizations. In fact, it is stated in the Liberal majority report that, from the point of view of government finance, the proposed changes to the tax treatment for charitable donations would, all in all, have little impact upon the federal deficit. This is explained by the fact that the federal government will cut direct aid to charitable organizations by an amount which will be equal to or higher than the possible benefits that these organizations could derive from the new treatment accorded to charitable donations. In other words, the federal government is proposing to withdraw with one hand what it gives with the other, with the aim of reducing its deficit more rapidly by making immediate cuts in direct aid to charitable organizations.

3. By proposing, as they did last year, to tax lottery winnings, the Liberal MP s are once more proposing that the federal deficit be dumped into the backyard of the provinces.

The Liberal majority MP s on the Finance Committee are recommending, for a second consecutive year, to tax (government) lottery winnings of more than $ 600, which would represent additional taxes of $ 200 million. This proposal is unacceptable, since it represents another way of dumping the federal deficit into the provincial backyard. For example, in the case of Québec, that measure would reduce revenues for Loto-Québec, which would have an impact upon the revenues of the Government of Québec. In effect, the Liberals are proposing that Ottawa tax the revenues of the government of Québec. In addition, this new tax would be complicated and costly to administer.

4. Other Liberal budgetary recommendations

The Liberal majority on the Finance Committee proposes to increase once more the taxes on cigarettes and suggests that the rate of this federal tax be equalized between the provinces (which would penalize Québec even more) without showing, however, that such an increase would not contribute to bringing back smuggling in full force.

The Liberal MP s on the Finance Committee also propose to introduce new taxes on gasoline. The Bloc Québécois believes that there are more effective means of attacking the federal deficit than by introducing a new tax measure.

The Bloc Québécois MP s on the Finance Committee are strongly opposed to the recommendation by the Liberal MP s on the Committee to the effect that Ottawa supervise the employees' risk capital funds established under provincial law (such as the Fonds de solidarié de la FTQ). It must be understood that employees' risk capital funds set up by provincial charter respond to economic development objectives fixed by the provinces according to their specific needs.

5. The Liberal MP s on the Finance Committee are hiding behind the screen of political uncertainty in order to disguise the failure of their economic policy

According to the Liberals, political uncertainty is responsible for the difficulties in the job market and for high interests rates. They even go so far as to assert that, apart from a possible recession, only political uncertainty would force the federal government to introduce new measures for cleaning up federal public finances and streamlining government. It was those same Liberals who stated, during the Referendum campaign, that a NO would put an end to political uncertainty. They are prepared to say just about anything. In addition, the Liberal majority on the Committee is wrong in asserting that the Caisse de dépôt et de placement du Québec intervened to support the Canadian dollar during the referendum campaign. In fact, the actions on the part of the Caisse de dépôt occurred in the normal course of its daily operations.

The Liberals need to be called to order by the Governor of the Bank of Canada who stated, during a recent appearance before the Finance Committee, that the main source of uncertainty in the economy was the deplorable state of government finances in Canada. Instead of artificially reducing the federal deficit and asserting that almost no action is required by the government in order to clean up federal public finances, they should have proposed an overall plan to fight the deficit.

On October 12, 1994, the Governor of the Bank of Canada went so far as to state that: It is only because of the high levels of debt and deficit that the political uncertainty is adding a cause for concern. The onus for the uncertainty lies therefore with the Minister of Finance and with the ineptitude of the federal government.

The Prime Minister of Canada is also responsible for the economic uncertainty.

Mr. Chrétien should remember that he bears prime responsibility for the political uncertainty created by the unilateral repatriation of the constitution in 1982 and the failure of the Meech Lake Accord. It should also be noted that Mr. Chrétien, by refusing to commit himself to negotiate an economic and political partnership with Québec, in the event of a referendum YES, contributed to the anxiety on the financial markets.

The federal government's economic policies are directely responsible for the current poor performance of the economy, especially in the building sector. Residential investment and construction in Canada - areas that are particularly sensitive to fluctuations in interest rates - seem to be unable to recover. When he appeared before the Finance Committee, the Governor of the Bank of Canada stated that this year's economic slow-down was due in large measure to the increase in interest rates in the winter of 1994, and that the Bank had not foreseen the extent of the economic decline. The Governor even admitted that if the Bank of Canada had accurately forecast the economic slow-down, it would have changed its monetary policy. If the federal government had relaxed its monetary policy at the end of 1994, as demanded by the Official Opposition, we would have avoided a good part of the economic decline and the stagnation in the job market that we are now experiencing.

The Liberals note the importance of not harming job creation by maintaining unemployment insurance contributions at too high a level. In the Finance Minister's economic and financial update, it is clearly stated that, while still respecting its budgetary objectives, the government could have reduced the unemployment insurance contribution rate to $2.93 on $100 of insurable earnings. But the federal government has chosen, instead, to lower that contribution to $2.95. According to the Department of Finance's own figures, the decision of the federal government to lower the contribution rate to $2.95 rather than $2.93 will result in a loss to the Canadian economy of 12,000 jobs.

6. The Bloc Québécois makes the following recommendations concerning the fight against the deficit and unemployment.

i) Essential tax reforms

The Liberal MP s recommend that taxpayers with low incomes that fluctuate widely from year to year, such as artists and writers, be permitted, for tax purposes, to average their income over the years. The Bloc Québécois believes that this proposal would remove one of the inequities in the tax system. But there are many more. We are disappointed that the Liberal majority on the Finance Committee does not propose a complete fiscal review.

The Bloc Québécois recommends that a complete review of the tax system be undertaken, with the aim of simplifying the tax act and of restoring equity by eliminating those fiscal inequities that favour large corporations and high income taxpayers.

In particular, the Bloc Québécois recommends that the federal government review all tax agreements signed with countries viewed as tax havens. According to the Auditor General, many hundreds of millions of dollars are lost to the Canadian tax department as a result of the existence of such tax agreements.

Profitable businesses that pay nothing in taxes

The Liberal MP s on the Finance Committee confirm the existence of thousands of profitable business that do not pay a cent in taxes, but they stop short of suggesting measures that would eliminate this flagrant injustice. In fact, according to the Canadian Minister of Finance, in 1990, 77,000 profitable businesses did not pay a cent in taxes. All that the Liberals propose is a review of the number of years over which businesses can carry forward losses incurred during difficult periods. This recommendation is interesting but clearly insufficient.

The Bloc Québécois does not call into question the possibility for businesses to carry over losses suffered during difficult years, but it is of the opinion that this provision should not result in profitable businesses not paying a single cent to Revenue Canada.

Out of fairness to those businesses and taxpayers who do pay taxes to the government, the Bloc Québécois recommends that the federal government establish a true minimum tax on corporate profits. This minimum tax is not aimed at increasing the fiscal burden on business; it is aimed solely at those profitable businesses which manage to pay not a single cent in taxes.

ii) The Canada Health and Social Transfer

By introducing the Canadian Social Transfer in the last budget, the federal government had two principal objectives: to dump billions from its deficit into the backyard of the provinces and to provide itself with the means to impose new national standards in the areas of education, welfare and health, all within provincial jurisdiction. In this regard, several of the recommendations by the Liberal majority MP s on the Committee have the effect of increasing federal interventions in fields of provincial jurisdiction. In addition to permitting greater centralization of the Canadian federation, a multiplication of overlaps and inconsistencies, federal interference in areas of provincial jurisdiction is harmful to job creation, as it prevents Québec from establishing an integrated job creation policy on the basis of workforce training, education and cooperation among all the actors in the socio-economic field. There is a consensus among the latter to the effect that it is the Québec government that is in the best position to take care of those sectors.

For almost a year now, the Bloc Québécois has been recommending that the federal government give up the idea of the Canada Health and Social Transfer and withdraw from the financing of social programs and other areas of provincial jurisduction, providing full compensation to the provinces in the form of a transfer of tax points. This proposal would permit the provinces to eliminate considerable duplication and to allow Québec to take control of more levers, enabling it to establish an integrated job creation policy. By contributing to recovery in the job market and by eliminating overlaps, this recommendation would reduce the deficits at the various levels of

iii) Recommendations for an effective attack on unemployment

The majority of economists and socio-economic stakeholders agree that job training and education are the most effective tools in the fight against the structural and chronic unemployment that is eroding our economy. It is absolutely essential that the Québec and Canadian workforce be equipped with all the means necessary to take on international competition. All the socio-economic stakeholders in Québec are in agreement that the government of Québec must control all the levers in the matter of manpower policy, as it is in the best position to deal with those areas.

In order to attack unemployment, the Bloc Québécois recommends that the federal government withdraw from manpower policies and pay full compensation to the provinces, in the form of a transfer of tax points. The Liberal representatives on the Committee choose, however, to endorse the centralizing drive represented by the Canada Health and Social Transfer and propose that the federal government intervene directly in areas of provincial jurisdiction. In order to attack structural unemployment, decentralization is required, not more centralization as proposed by the Liberals.

In the same vein, the Bloc Québécois recommends that the federal government withdraw from programs for regional development and tourism, providing full compensation to the provinces in the form of a transfer of tax points. The Québec government is better placed than is Ottawa to take care of these sectors. Furthermore, the Auditor General, in his latest report, deplores the inefficiency of federal interventions in the area of regional development, a sector which is vital to regional job creation.

Bearing in mind the importance of technological development in order to ensure the international competitiveness of Québec and Canada, the Bloc Québécois recommends that the federal government put forward a military conversion program.

iv) National defence:

The Liberal MP s on the Finance Committee suggest further reductions in the National Defence budget, without however specifying the amount.

The Bloc Québécois recommends that the federal government reduce Defence Department expenditures by 1.5 billion dollars, starting next year. Given that Québec only receives 17.9% of National Defence expenditures, the Bloc Québécois asks that the cuts be made in such a way as to ensure that Québec receives, in the end, 25% of Defence spending.