GOVERNMENT ORDERS

EXCISE TAX ACT

Mr. Barry Campbell (Parliamentary Secretary to Minister of Finance, Lib.): Mr. Speaker, I am pleased to lead off second reading of important and historic legislation, the introduction of a new harmonized sales tax, or HST, throughout most of Atlantic Canada. With the inauguration of the HST we have begun a process for replacing the GST and providing all Canadians with a better sales tax system.

Today's legislation will enable the federal government and the provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador to introduce a new harmonized tax effective April 1, 1997. But as the benefits of the HST become clear and concrete, benefits for consumers, for businesses and for the economy as a whole, I am confident that other provinces will put the interests of consumers first and sign on to the HST.

This is extensive legislation covering as it must changes to the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act and the Income Tax Act and related acts. In my remarks today I want to highlight the key elements of the HST and to remind this House why these are important and positive steps forward.

When the current government came to power we said: ``A Liberal government will replace the GST with a system that generates equivalent revenues, is fairer to consumers and to small business, minimizes disruption to small business, and promotes federal-provincial co-operation and harmonization''. These then were the principles that guided us as we examined all the options for replacing the GST: fairness; equivalent revenues; federal-provincial co-operation and harmonization; and simplification.

[Translation]

The new government followed through with its election promise. As members might recall, the process to replace the GST was initiated immediately following the election.

In fact, it is at that time that we asked the House Standing Committee on Finance to look into every possible alternative to replace the GST and to consult Canadians on the various options.

The committee heard close to 500 witnesses, namely tax experts, business people and consumers from across Canada, and received over 700 briefs.

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After reviewing 20 different options, committee members came to the conclusion that a large majority favoured harmonization, that is replacing the current mosaic of federal and provincial sales taxes with a single value added tax.

The Standing Committee on Finance made four key recommendations. First, it came down in favour of a value added tax. Second, it recommended harmonizing the federal GST and provincial retail sales taxes without delay. Third, it recommended streamlining the tax. And last, it recognized the importance of including the tax in the price, so that the price consumers see on the shelf is what they pay at the cash.

The Standing Committee on Finance looked closely into the economic impact of the proposals it received as well as their acceptability to businesses and consumers across Canada. What is more, the committee's recommendations were entirely in keeping with the government's red book commitments.

That is why we are actively promoting the implementation of a new tax based on harmonization with the provinces as the best alternative to the GST.

[English]

To help smooth the way for harmonization and make the harmonized tax as simple and fair as possible, we put together a major package of streamlining initiatives. These initiatives will help to fulfil the recommendation of the finance committee and the commitment of the red book to a simpler sales tax system.

The streamlining package includes over 100 measures. Many of them are technical and sector specific. Quite a few have been recognized as major positive changes for the many sectors they will affect. The proposed changes include new and simpler rules for many areas of the GST, for example for charities and non-profit organizations, for employee benefits, health care and used goods.

Since the streamlining package was announced last April, the federal government also announced on October 23 a 100 per cent rebate for the GST or the federal portion of the HST on books purchased by a broad range of educational institutions and public sector bodies across Canada. This reflects this government's firm commitment to supporting literacy in as cost effective and fiscally responsible manner as possible.

In short the streamlining changes will help to make the harmonized tax a better tax and improve the operation of the GST in the non-participating provinces.

At the same time that we announced this package, we also announced that a memorandum of understanding on a harmonized sales tax had been reached with the three participating provinces. Taken together this signalled the inauguration of a process for harmonization, one under which provinces can come on board with the HST as they are ready. Subsequently on October 23, the governments of Canada, Nova Scotia, New Brunswick and Newfoundland and Labrador announced detailed agreements to replace the GST and the provincial retail sales taxes in the three Atlantic provinces with a harmonized sales tax.

The new HST will apply at a single rate of 15 per cent on the same base of goods and services as the current GST. The rules governing the operation of the HST will be set out in the Excise Tax Act and will generally be those rules on which the GST currently operates subject to the streamlining changes I have already mentioned.

Under the terms of the agreements which are before us now in legislative form, the HST will be administered initially by Revenue Canada and eventually by the proposed border and revenue agency. Businesses that are registered for the GST will automatically be registered for the HST and will continue to use the current GST return. There are no changes there.

The HST base will be the same as the GST base. Vendors will be required to price on a tax included basis to ensure that consumers are aware of the final price before they reach the cash register.

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At the same time, because the HST is in large measure about federal-provincial co-operation, the specific situations and the specific priorities of participating provinces are fully reflected in the agreements. The participating provinces will for example provide point of sale rebates for book sales in those provinces. The rules governing rebates for housing and public sector bodies will reflect the particular circumstances of each province.

A further important reflection of the spirit of federal-provincial co-operation that gave rise to these agreements is the transitional assistance that the federal government will provide to help offset revenue shortfalls in participating provinces. Hon. members know that this government has never shied away from important structural change. It has always recognized the importance of providing transitional assistance to make such changes possible, be it with regard to removing subsidies from the agricultural sector or promoting important sales tax harmonization.

In adopting the HST, the Atlantic provinces have replaced a system that is cumbersome, costly and complicated with one that is simpler, cheaper and a lot more efficient. For consumers, businesses and taxpayers in the participating provinces, the result will be one sales tax not two, one tax base not two, one tax rate not two, one sales tax administration not two, and one price not two. These changes will add up to a simpler, fairer system and a stronger economy.

Consumers in participating provinces will benefit in a number of important ways. First among those will be the lower rate of tax. For Nova Scotia and New Brunswick the combined rate of 15 per cent will represent a decrease of nearly four percentage points in the effective sales tax rate. In Newfoundland and Labrador the rate decrease will be close to 5 per cent. Consumers will also benefit from the removal of provincial retail sales tax from business inputs and from lower compliance costs for businesses.

The overall impact of the tax from the perspective of consumers is that prices on most goods will be lower as will the overall sales tax burden.

[Translation]

Including the HST in the prices displayed gives consumers another important advantage. It puts an end to the surprise they get at the cash register, which is one of the most annoying features of the current system. However, the consumers will still know the amount of tax they are paying since the exact amount, or the tax rate, will be printed on receipts and bills.

This approach will reduce unfair competition between businesses that are located in participating provinces and those that are not. Furthermore, businesses will be able to continue using the cash

registers they have now and still comply with the requirement that the tax be included in the price.

[English]

Businesses, like consumers, will benefit from the lower combined tax rate. In addition they will now have to deal with only one set of tax forms, one set of operating rules and one tax administration. By thus reducing the paper burden and administrative hassle associated with a two tier system, the HST will reduce compliance costs for businesses.

The Canadian Institute of Chartered Accountants has estimated that if all non-harmonized provinces were to join in a national sales tax system, Canadian businesses would save between $400 million and $700 million in administrative costs alone. The benefits of lower compliance costs will be particularly advantageous for small businesses which bear disproportionately the costs of dealing with the current two systems.

A further benefit to businesses in the participating provinces will be the recovery of HST payable on their inputs. In fact, harmonization will eliminate over $700 million in hidden sales taxes on business inputs, taxes which have been passed on in the past to consumers. Harmonization will eliminate $280 million in hidden sales taxes in Nova Scotia, $265 million in New Brunswick and $180 million in Newfoundland and Labrador. The elimination of this hidden tax drag will promote the competitiveness of businesses in Atlantic Canada. It will also promote fairness between different kinds of businesses since the tax will not impact differently on businesses just because they are structured differently. The broadening of the tax base will also help ensure a level playing field between businesses that sell different kinds of products.

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The proposed legislation also includes rules to ensure a level playing field for all businesses selling in participating provinces. Under the proposed approach, businesses across Canada that are registered for the GST will be required to collect and remit the HST on goods and services sold into a participating province or shipped to a consumer in that province.

[Translation]

I want to stress the fact that this is not a new tax on goods and services sold in the participating provinces. Interprovincial sales have always been subject to the sales tax. The new approach simply makes collecting and paying the tax easier.

Not only will the HST benefit consumers and be simpler and more equitable for businesses, it will also generate some overall economic advantages, especially because the provincial retail sales taxes will be abolished on all the business inputs I have just mentioned.

The elimination of provincial retail sales taxes on those business inputs is a benefit not only for the businesses directly affected. It is important to realize that this measure will reduce the overall cost of exports from participating provinces and eliminate the competitive advantage that is now unintentionally extended to imports.

Furthermore, because it will ensure fair competition among various types of products and business structures, the elimination of the tax on inputs will simplify the context for investment decision making.

[English]

All of this translates into more economic activity for Atlantic Canada and more jobs. Government administrative costs will also be reduced through the elimination of overlap and duplication in the administration of federal and provincial sales taxes.

As I said earlier, these changes will add up to a simpler, fairer system and a stronger economy. They clearly meet the criteria set out in the red book and in the recommendations of the finance committee for replacing the GST. Equally important, they represent the significant first stage in a process by which I am confident other provinces will come on board. They will do that sooner or later because harmonization offers significant benefits. The more provinces that join in, the greater those benefits because most existing provincial sales tax systems are inefficient and distorting and the provinces know that.

In provinces across Canada, existing retail sales taxes are killing businesses and jobs. Personally I believe the provincial governments recognize this just as they recognize that taxes on business inputs are taxes that are hidden and are currently being passed on to consumers.

The legislation before us improves the operation of the GST across Canada. For the participating Atlantic provinces it provides an even better system, a system that will benefit consumers with lower tax rates and on many goods, lower prices. They will also know the full price of goods before they get to the cash register.

It is a system that will benefit businesses because they will deal with only one tax, one rate, one base, one set of forms, one administration. That system will benefit the economy of Atlantic Canada by making its exports more competitive. It is a system and a bill that deserves the unqualified support of every member of the House.

[Translation]

Mr. Yvan Loubier (Saint-Hyacinthe-Bagot, BQ): Mr. Speaker, contrary to my habit, I am not pleased to speak to this bill, since the government has acquired the unfortunate habit of ``tossing''-I think this is the exact term-a bill of over 350 pages on the table about 16 hours before the debate in this House.

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On an issue as important as this one, it was inappropriate for the government to table this document yesterday afternoon, as we were forced to work in the evening and all night to do our job as official opposition and find in what ways the government is misleading the people.

Although this is inappropriate, the government has acquired this habit in the last few weeks. I hope this is simply an administrative problem, which I seriously doubt, given the nature of the subject.

You know the GST is a sensitive issue. In the minds of Quebecers and Canadians, the GST is the current Liberal government's worst failure, in that it really betrayed its promise to abolish the GST.

I think this is a rather hypocritical way of ensuring that the debate is quick, succinct and also lends itself to quick analysis and implementation. This is not the way things work in a democracy. I thought that, in a democracy, the government ought to have the courage of its convictions, of the measures announced to the people and give the official opposition time to analyze, criticize and also propose ways to improve bills, because it is our role to make constructive recommendations. I see this is not the case and it is the first thing for which I blame the government.

Bill C-70 is aimed at harmonizing the GST with sales taxes in the three maritime provinces and at providing a federal tax exemption for books that are bought by literacy centres, schools, colleges and so on, without eliminating the GST on books bought by the general public.

This bill is the embodiment of untruthfulness, of the show the Liberals have been putting on for us since the last election. I remind you of the solemn promise the Liberals made with one hand on their heart while looking at the Canadian flag: ``That damn GST, we will abolish it when we come to office''.

Very interesting quotations were made by Liberals in the last three or four years, including the Deputy Prime Minister and member for Hamilton East who said on March 11, 1996:

[English]

``I have already said personally and very directly that if the GST is not abolished I will resign''. She resigned, but only for a few weeks. She resigned, but for show, and this show cost Canadians more than half a million dollars for her re-election.

[Translation]

The Deputy Prime Minister had said she would resign if the GST was not abolished. Normally, people who have convictions and are loyal to their beliefs and to the public as well do not resign for show as the Deputy Prime Minister did. They resign and go home, because it looks like the public was deceived.

The Deputy Prime Minister was away for a few weeks and came back with a smile, saying: ``The people of Canada have forgiven me; the people of Hamilton East have forgiven me''. The Canadian electorate will not forgive the government for breaking such an important promise, one the Liberals used to score political points while in opposition, during the election campaign and, in a different way, with Bill C-70. It is not right to keep deliberately deceiving the public in that way.

I will refer our listeners and our constituents to an article published in Le Soleil on Wednesday, June 19. I would say this editorial by Gilbert Lavoie summarizes quite well what the Deputy Prime Minister has put us through by first resigning and then coming back for show.

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Let me read you some excerpts from this excellent editorial written by Gilbert Lavoie. The original text has been slightly modified to avoid using the name of the Deputy Prime Minister. It says the following: ``Her victory in the Hamilton East by-election on Monday did not prove a thing, except perhaps the cynicism and arrogance of a certain political class. She had promised to resign if the government did not abolish the GST as promised. She did resign, but only to get immediately re-elected in a by-election, standing for the same party, the same government, the same GST. The cost of this operation, amounting to $500,000, was borne by Canadian taxpayers''. Half a million dollars so she could pretend to try to clear her name and that of her government.

I read on, because this is too interesting an editorial not to take full advantage of it: ``In politics, anyone who resigns on a question of principle is expected to leave the party to go and sit as an independent member or to found a new party as Lucien Bouchard did. It is, however, difficult to understand how the Deputy Prime Minister, who explained when she resigned that she could no longer look voters in the eye, can now feel comfortable about resuming her functions within the Liberal government. During the by-election campaign, the member for Hamilton East explained her attitude as follows: `The GST ranks eighth among public concerns, far behind jobs and the preservation of social services. Its importance should therefore not-and I am still quoting the Deputy Prime Minister-be overestimated'''.

I will stop quoting the article for a moment to point out that the importance of the GST issue is due to the Liberals themselves, who overreacted at the time, under the Tory government. For a few weeks, they put up a bitter fight over the GST, tearing at their shirts, shouting themselves hoarse, and demanding the GST be scrapped, the hated GST as they then referred to it. You certainly remember that time, Mr. Speaker.

They are now saying that the importance of the GST must not be exaggerated, but they were elected partly under false pretences, saying they would abolish the GST. They are now telling us not to exaggerate the importance of the GST. This is incredible. No wonder politicians are at the very bottom of the credibility list. When people are deceived in this way by a certain cynical and arrogant political class, it is perfectly normal to find that class at the bottom of the list.

Let me quote Gilbert Lavoie's article again, as it is very interesting and informative: ``But her fake resignation from government-from the Liberal Party-is nonetheless sad buffoonery from someone whose presence in politics has always been based on public morality. She has in turn contributed to Canadians' increasingly cynical view of their politicians''.

As a Montrealer, Émile Boudreau summed it up very well in a letter to the editor of Le Devoir, which reflects public opinion: ``You resign, you shed a tear before the cameras, and the very same day you run as a candidate and you are re-elected. You resurface clean, clean, clean. The Liberal Party goes up one notch in the public's opinion, and life could not better be''.

Mr. Lavoie's article and Mr. Boudreau's letter reflect a profound public discontent toward politicians. They also reflect the reason politicians feel increasingly criticized by the public, and deservedly so.

When you see an attitude such as the one displayed regarding the GST issue, when you see the Deputy Prime Minister's attitude, when you see the secretary of state introduce a measure like this one as if it included incredible improvements, you realize why people are fed up and why my constituents in the riding of Saint-Hyacinthe-Bagot are also fed up with the federal government and the ``frame-up'' that is really starting to get on their nerves.

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The Deputy Prime Minister was not the only one, with her spectacular resignation, to reflect the whole GST issue. The current Prime Minister had also said, before, during and even after the election campaign, that the GST had to be abolished.

However, there is no mention of abolishing the GST in this bill. This measure is a result of a political agreement signed with three maritime provinces, an agreement which will cost Canadians $1 billion in political compensation, just to give the impression that the government has done something about the GST.

The Liberals did not promise, during the campaign, to sign an agreement with the maritime provinces and then waste $1 billion to buy the maritimes' approval regarding the GST. They promised to abolish the GST. The Prime Minister said it over and over again. During the 1993 election campaign, he said: ``We will scrap the GST''. To ``scrap'' means to tear up, to throw out, to get rid of the current GST system and to replace it.

On May 2, 1994, after his election, the Prime Minister said, and I quote: ``We hate the GST and we will kill it''. But the GST is still there. The only change is that the tax is included in the price. It is now a hidden tax. In the maritimes, people do not realize that the federal government is charging them a 15 per cent tax on goods and services.

I listened to the secretary of state who said the government had extensive consultations with tax experts and the public, in an attempt to justify the government's lack or action on the GST. The Liberals also consulted tax experts and other people before introducing their election platform and telling the public they would abolish the GST, either that or they were saying just about anything during the election campaign.

If they say just about anything during the campaign and could not care less about people, when the next election comes, the people of Quebec and Canada should remember that every time a member of the Liberal Party opens his or her mouth it is to say things that will not withstand close scrutiny, to make promises they will not keep and say any old thing to lie to people.

I think people are beginning to understand what is going on with this government and also that members of the Liberal Party: Liberal MPs and the Liberal candidates in the next election are people who show considerable cynicism and unequalled arrogance. When the next election comes, their cynicism and their arrogance will cost them dearly.

Talking about the government's arrogance, cynicism and total disregard for the public, we must remember there was also a time when the Liberals were the official opposition. There was a time when the Liberals were sitting on these benches. At that time, also, the Liberals were saying just about anything. They made promises they are not keeping today. I would like to recall what the Liberal majority wrote in the finance committee report in 1994: ``It would just not be appropriate to hide the GST in the sales price''. Yet, the agreement signed with the three maritime provinces includes a provision that will in fact hide the GST in the sales price.

When they were in opposition, the Liberals, in 1989, stated in the dissenting report they tabled that, if the GST were hidden in the sales price, it would make it that much easier for the government to raise it later on. They were condemning the fact that the government wanted to hide the goods and services tax in the sales price. Now, there is no problem. In 1989, they were adamantly against hiding the GST in the sales price, stating that it was a ploy used by the government to be able to raise the tax rate later on without the taxpayer noticing it. And, now, in Bill C-70, in the agreement between the federal government and the maritimes, they are saying there is no problem. It has been hidden in the price. The Liberals tore their hair out, played holier than thou for months and even

years under the Conservative government, but now there is no problem.

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How can we trust this government? Every time eminent members of the government party rise in this House and say: ``We are going to do this and that'', how can we believe them, when they keep saying just about anything that comes to mind, as they have done with the GST, reneging on their promises and forgetting all about their commitments? The people have to realize that the government could not care less about them.

Let us talk about patronage. The agreement reached with the three maritime provinces is akin to patronage. Given the pressure exerted by Canadians, who wanted the government to keep its promise to get rid of the GST, the finance minister thought it would be better to do something, to pretend once again that he was solving the problem. And that is when he signed the deal with the three maritime provinces.

This agreement came with a price, a compensation of around $1 billion handed out to the three maritime provinces. The finance minister bought the three provinces with $1 billion in compensation. He told the maritimes: ``I need you to grandstand, to act as if the Canadian government is doing something about the GST, is trying to harmonize it''. First, the tax was supposed to be abolished, now it was going to be harmonized.

The maritimes replied: ``Minister, if you want to, we will go along with you, but there will be a price to pay''. And the finance minister, known for his generosity and his wise management of the public funds, agreed to put $1 billion on the table. Is it enough? This is $1 billion the finance minister took out of his pocket, meaning out of our pockets. This is the money that Revenue Canada takes out of taxpayers' pockets year after year.

Given his generosity and his tendency to waste our money, the finance minister has taken out $1 billion to give it to the maritime provinces. This is $1 billion that Quebecers and Canadians outside the maritime provinces will have to pay. They will have to pay for this generous gift by the finance minister.

The provinces and especially Quebec are angry about this, but not the three maritime provinces, which will receive $1 billion. No, those provinces are not upset. But, outside the maritime provinces, people are very angry, particularly in Quebec. Quebec will have to take $250 million out of its own pocket to pay the three maritime provinces, to pay for the finance minister's patronage.

Quebecers are even more upset, since Quebec has already harmonized its provincial sales tax with the GST. I have been saying and repeating it for a long time because, if there is an example of true harmonization as well as true harmony between the federal government and Quebec, it is the GST.

The Quebec government has acted in good faith. We harmonized the tax. We even agreed to administer it on behalf of the federal government. We are nice in Quebec, but we did not get one penny for all our efforts. The federal government did not compensate us despite giving $1 billion to the maritime provinces.

The Quebec government is entitled to some kind of compensation, since it has harmonized its tax. To give $1 billion to the maritime provinces is unfair to Quebec and to the other provinces, which could come on board with the HST but oppose any preferential treatment. If the maritime provinces get to keep the $1 billion, they want to be compensated as well.

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On behalf of the Government of Quebec, the Deputy Premier and finance minister of Quebec, Bernard Landry, repeatedly asked the federal government and the federal finance minister to provide him with the formula used to work out this famous $1 billion compensation for the maritimes. We have asked for it day after day, we have asked the minister to make the formula used to come up with this $1 billion public.

By stubbornly refusing to reveal the formula, the government showed that this agreement was a political one, that the agreement providing for the payment of $1 billion to the maritimes was concluded for the sole purpose of buying the maritimes off. And we can assume that, in the discussions with the finance minister, the maritimes set a very high price for accepting the political ``frame-up'' that this minister offered them.

The people will also remember this waste of public funds. It is all very well for the finance minister to say to everyone that he is responsible for today's economic situation, but we know he only coasted along with the growth in the economy, he only took advantage of an overall economic climate that was favourable to him, and he only took advantage of extremely low interest rates.

Do you know why interest rates are extremely low? There are three main reasons. First, it is because of the state of the U.S. economy. Second, it is because of the domestic economic climate, that is the chronic lack of jobs for 800,000 Canadians. Eight hundred thousand unemployed means that there are also 800,000 fewer consumers. If there are fewer consumers, prices are lower, so inflation is less likely to increase. And when inflation is low, and even too low-that is close to 1 per cent as it is now-interest rates also go down.

The finance minister is only taking advantage of this situation. If he had been here in 1990 and 1984, the finance minister would have received quite a beating. I will remind you of certain facts that make you smile. You will remember that during those two periods it was not easy to be the Canadian Minister of Finance because

economic conditions were very unfavourable for a flamboyant character in that office.

But the present minister takes advantage of the situation. However, people will remember that he is wasting public funds. He has no right to waste $1 billion as he is doing right now on the GST to hide the inertia of his government and its inability to fulfil its promises.

One billion dollars will be paid out, and the Minister of Finance tells us that this is only the beginning. Quebecers and Canadians will have to pay this $1 billion in political compensation to the maritimes for many years to come. Do you know why? I will give you a technical but very short and, I hope, not too tedious explanation.

The finance minister offered to replace the provincial sales taxes in the maritimes and the GST with a single 15 per cent sales tax. In the maritime provinces, the total of both the PST and the GST averages 19 per cent. The finance minister said: ``I will replace those taxes totalling 19 per cent with a unique 15 per cent sales tax''. Therefore, the sales tax dropped by 4 per cent in the maritimes. But who is going to pay for that? Who will compensate for lost revenues in the maritime provinces? We, the people from the other provinces, will. And do you know why? Because of something called the equalization formula.

Few people, even on the government benches, understand this formula, but it can be understood if one takes the time to study it carefully. This formula is used when a province, for example one of Canada's poorest provinces, needs help because it is difficult for that province to collect enough taxes from its population to provide public services equivalent to what is provided elsewhere across Canada. That is where this formula comes in.

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When a province's tax base-that is its ability to collect taxes-is reduced, the federal government uses the equalization formula to compensate.

In the case of the maritimes, once again, the finance minister, generous as he is with taxpayers' money, told the Atlantic provinces that he would reduce the general sales tax and that the federal government would compensate them for the missing 4 per cent, year after year, until the end of time.

The equalization formula is used automatically when the tax base is reduced. The Minister of Finance has reduced the tax base. Therefore, we, as Quebecers and Canadians, will always be paying for that. As a Quebecer, I am not so sure of that because, one day, we will get out of that system. However, starting next year, Quebecers and Canadians will be paying for the loss of revenues from provincial sales taxes in the maritimes.

So on top of the $1 billion that the finance minister is wasting shamelessly for purely political reasons, which is already too much, Quebecers and Canadians will have to pay hundreds of millions more each year to the maritime provinces to compensate for this political decision. This is getting to be very expensive for mere window dressing.

Half a million dollars for the Deputy Prime Minister's election, a billion in political compensation to the maritimes and now the equalization formula that will be there forever, or until the day the decision is made to do away with it within the federal system, or until the day, coming soon, when we decide to withdraw totally from this system, which has nothing going for it. So that is bill C-70, concerning the agreement with the maritimes.

There are two other points I would like to speak to, in order to clarify things for the public. The first concerns the famous national revenue commission. The Minister of Finance has presented us with this agreement with the maritime provinces as a model of harmonization, a blueprint for the rest of Canada.

First of all, if it is a model, it is a very poor one, a very costly one. Second, if it is an augur for the future in the rest of Canada, that is extremely worrisome. It is a deliberate attack on provincial autonomy in collecting taxes. The Minister of Finance has established a national revenue commission which will replace all of the government bodies in the maritime provinces which used to collect taxes on goods and services.

This commission was announced in the government's throne speech, and the government is holding stubbornly on to it. Its intent, using the GST and the maritimes as an example, is to have the federal government one day become the only body within the Canadian federation to collect income tax, and other taxes, from Quebecers and Canadians. Quite a neat trick, especially where Quebec is concerned.

I am very familiar with Quebec taxation history, even what went on in meetings in the time of Messrs. Pearson and Lesage. They started off discussing the exchange of tax points at a time when the idea was to restore the provinces' taxation autonomy, of which they had been deprived during the first world war. Income tax, and other things, were borrowed.

Given this background, the numerous constitutional conferences, the meetings of finance ministers over thirty or so years, I am convinced that, if this is what the federal government has in mind, it will run into a brick wall in Quebec, where they are fed up with the federal government's designs on its taxation autonomy.

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Quebecers wanted to have their own taxation system and autonomous institutions in areas like education and others. They would see it as an attack on their own history and their identity if the federal government considered the possibility of introducing a bill allowing a Canada revenue commission to replace Revenu Québec.

I cannot understand the political logic behind such a measure, unless the federal government is looking for a fight with Quebec. I believe this is what we are heading for. Let us harmonize, no problem. Quebec will receive no compensation while the maritime provinces received a billion dollars. And now this government wants to create a Canada revenue commission. What is it looking for? Sometimes I have a feeling that the federal government is looking for trouble.

Once it has created problems, it pulls out and puts the blame on the separatists of Quebec, on sovereignists who are allegedly against any agreement with the federal government. This is, to a certain extent, the game the Liberals have been playing since they came to power three years ago.

Quebec has some news for the Liberal government if it thinks it will be able to create a national revenue commission and sideline Quebec. We will be ready for them and we will have the official opposition on our side.

I wish to end on a more positive note about the bill. We always keep dessert for the end. There is one small positive aspect to Bill C-70 which is due to the official opposition and it has to do with the partial removal of the tax on books.

In the bill, the government suggests that books purchased by literacy and educational organizations not be taxed. Not just in the maritimes, but throughout Canada. This is good news, but it is not enough.

Most of the books bought in Quebec and in Canada are not bought by educational and literacy organizations. If the government wanted to do something, it should remove the tax on all books sold, because it is just taxing ignorance. We have all heard the slogans about GST on books chanted by those concerned with literacy and the transmission of culture.

I would like to take this opportunity to point out two things. The first is that there is no provincial sales tax on books in Quebec. Zero PST. Culture is important.

The second thing is that, even before the Bloc Quebecois became an official party, back when there were only seven members, with Lucien Bouchard as their leader, those seven members took every opportunity that came their way to rise in their places and criticize GST on books.

They fought against it outside the House too, because back then their time in the House was limited. Those whose decision it was to limit the time available to the Bloc Quebecois must be regretting it bitterly today. They must remember it. We certainly do.

The seven Bloc Quebecois members, including the eminent members for Rosemont and Richelieu whom I can see today, worked very hard to keep the GST off books. When I see a timid little measure, which is a step in the right direction, but not big enough, I cannot help but praise the seven founding members of the Bloc Quebecois for their determined efforts.

Politics is a drawn out process sometimes, but eventually one gets results. And in this case, the result is a watered down one, but it is still a result. I would now like to urge the government, and I think I speak for all my colleagues in the Bloc Quebecois, to remove the tax on all books sold in Quebec and in Canada.

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The two founding nations have a duty to promote cultural awareness. They have a duty to see that people read Quebec and Canadian authors. The government has a duty to make sure that our authors can sell their works at competitive prices. The Minister of Finance says public finances are quite healthy, so perhaps he should do something to help culture, to ensure its survival.

That concludes my remarks on Bill C-70. I would like to table an amendment. I move, seconded by my colleague, the member for Trois-Rivières:

That the motion be amended by deleting all the words after the word ``That'' and substituting the following:

``Bill C-70, An Act to amend the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the Income Tax Act, the Debt Servicing and Reduction Account Act and related Acts, be not now read a second time but that it be read a second time this day six months hence.''

[English]

Mr. Monte Solberg (Medicine Hat, Ref.): Mr. Speaker, it is a pleasure to speak to Bill C-70, an act to amend the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the Income Tax Act, the Debt Servicing and Reduction Account Act and related acts. Really what this has to do with is the harmonization of the GST in Atlantic Canada.

Before I speak specifically about Atlantic Canada it is important to go back and discuss the chronology of events which led us to this point.

It is accurate to say that this legislation was born of very dubious parentage. We had a promise born of a loose lipped government member and we had a father who could only be called political opportunism. How sad that this young harmonized GST had to be raised in such a dysfunctional home, or should I say house?

Since 1990 it has become very clear that the government was being very opportunistic in discussing the GST and in suggesting to Canadians that when it came to power somehow the GST would magically disappear.

Just to remind hon. members across the way what exactly their record is on this, let me refer to some quotes that came from government members over the last several years with respect to the GST to remind them how far they have gone astray from their original promise.

Let us go back to government members when they were in opposition, in the wake of the GST coming into place under the Conservative government. Let me start by quoting some members who now hold prominent positions in the cabinet of the Liberal government.

First, let us go to a quote which came from the current Liberal House leader back in the days following the GST coming into place under the Conservative government.

(1130 )

The current Liberal House leader said: ``Not only do the Liberals oppose the GST now, that opposition will continue even if the bill is passed. We are not interested in tinkering with the GST. We do not want it at all''.

Meanwhile, the current finance minister said: ``I would abolish the GST''. The Prime Minister said: ``I want the tax dead''. One of the quotes that came from the Toronto Star back then was: ``The Liberals will scrap the goods and services tax if they win the next general election, the leader of the party said. He said: `I am opposed to the GST. I have always been opposed to it and I will be opposed to it always'''.

We saw the climax of the quotes that came from all the various members in October 1993 on the eve of the election when the current Deputy Prime Minister, on national television-that image will be frozen forever in my mind and probably in the minds of Canadians everywhere-said: ``If the GST is not abolished under a Liberal government I will resign''.

We all know that Liberal MPs campaigned in many ridings on the promise to abolish the GST. I know members will say that the red book stated it would be replaced. However, I need to point out that the government did not find the courage to bring the red book out until about a month before the election. They only produced about 70,000 copies. They did not talk about their promise with respect to the GST. Instead, they allowed people to think that they were going to still do what they said they would do early on which is to get rid of the GST altogether, scrap, axe and abolish the GST. However, that is not what they did.

All of this, of course, led up to the event last spring when the government was under great pressure to fulfil the promise made by the Deputy Prime Minister on national television. First the finance minister said that perhaps they had made a mistake. However, a lot of Canadians felt that he was pressured into that position and it was not coming from his heart.

Ultimately the Deputy Prime Minister was forced to resign. She went to great lengths to make it look like she was doing the honourable thing, but we know she polled her constituents first to find out whether she still had enough credibility to win the election in Hamilton East. Then of course she announced that she had been at the bank machine and could not look anybody in the eye and felt she had to resign. Well, $500,000 later she was back in the House of Commons.

The whole incident was a black mark on the history of parliamentary promises. There have been a lot of broken promises over the years but none more blatant than that broken GST promise of this Liberal government. I do not think that the government has yet paid the full price for it.

I want to set those incidents aside for a moment and talk about some of the aspects of the bill, the harmonized GST. First I would argue that the harmonized GST is extremely divisive the way the government has brought it in.

Members will recall that the government, to get Newfoundland, New Brunswick and Nova Scotia on side, had to go to them with an offer of $1 billion if they would come on board. It had to try and save face with $1 billion because although there was always the opportunity for any province to come on board and say that they were very interested in the new harmonized GST, there were no takers. The government was under great pressure at that point. Therefore, the only thing the government could think to do to bring governments on board was to offer up a billion dollars. It went to the Atlantic premiers and said if they came on board it had a cool $1 billion in hush money for them. That is insulting and causes great divisions in the country. It encourages dependency. It encourages the provinces to be under the thumb of the federal government. That is not acceptable as we approach the 21st century.

(1135)

Some provinces are becoming very responsible. They have certainly shown more responsibility in dealing with their finances than the federal government has. They have taken leadership roles in all kinds of other areas. For the government to say it is going to pay $1 billion for those provinces to come on board if they are kind of quiet about things and just go along with it is insulting.

I want to talk about how divisive that is. I and my friends in the Reform Party, and Liberals if they are honest about it, probably have had constituents come to them and ask why are they are paying more taxes so the government can come up with $1 billion to give to three Atlantic premiers? It is very divisive.

I received a fax not too long ago from Lorne Taylor, the MLA for Medicine Hat-Cyprus in Alberta. He pointed out that the Alberta treasury had produced a document that said the effect of giving $1 billion to Atlantic Canada, except for P.E.I., was to lower the GST in those provinces to 5.5 per cent for the first two years of the deal. In speaking up for his constituents, which is the right thing to do, he asked why Alberta did not get that deal.

Ontario asked why in the world did it not get the same kind of deal. If Ontario were to harmonize, it would cost about $3 billion. The finance minister in Ontario, speaking for the people of his province, said $3 billion is what Ontario would require of this so-called adjustment money if Ontario was to come on board.

If I remember correctly, Manitoba and Saskatchewan came up with figures too. They were asking for money as well. I do not blame them. They were simply asking for what the premiers in Atlantic Canada got.

What did the government do? The government said no way, they are not getting any money, it is for those three provinces alone. It is divisive when one or three provinces are treated in a special way and the others are not treated the same way.

This has always been the way of the Liberal Party. It has made a career out of creating these types of divisions. Obviously it has served them well but it has not served the interests of Canadians as a whole. That is one very important reason why Reform is speaking against Bill C-70.

Another concern I have with this legislation is that it raises taxes. I know the government will say that all it is doing is broadening the base in Atlantic Canada and it will be a wash. It just is not so. It is not true.

This is a huge bill with many different aspects to it. It addresses all kinds of different things. One of the most pernicious aspects of the bill is the removal of the notional input tax credit. That was done back in April. I remember when it was announced. A lot of people did not know what it meant. An accounting firm in Winnipeg picked up on it right away. It said that it could amount to as much as $1 billion a year tax grab for the government.

The government had removed the input credit on used goods thereby ensuring that every time a used good changed hands the tax would cascade. In other words, if that good was bought after someone else had owned it and someone before that had owned it and someone before that had owned it, pretty soon there would be tax on tax on tax paid. There is no input credit going to the person who sold it. Pretty soon the value of that item would be inflated way out of proportion because of tax on tax on tax.

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The result is that the government will reap all kinds of new revenue. Of course, a lot of the higher costs would be passed on to consumers. Potentially the government reaps a billion dollars more a year in new revenue.

It is a hidden tax grab, one that was never really debated. We raised it many times in the House. We received responses from RV and car dealers who were concerned and upset about it. To this date, the government has not given an adequate answer on how it can go ahead with it. People need to be made aware of it and that is why I am raising it right now.

That is not the only way the bill raises taxes. On April 1, when the bill comes into law, as undoubtedly it will, capital taxes will go up in New Brunswick and Nova Scotia. That is one provision of the bill. It allows the provinces to implement capital taxes. That is precisely what two provinces are going to do. The provinces will be given a new lever to raise taxes.

The Nova Scotia finance minister and the Halifax Chamber of Commerce have pointed out that one of the consequences of this bill will be that property taxes in Nova Scotia are going to go up. That is another aspect of the bill that leads to higher taxes.

I want to move on to a related area. This bill will not only raise taxes it will entrench higher taxes. Something which has not been discussed enough is the fact that changes to the provincial portion of the tax are going to be quite complicated, in fact, almost impossible, if governments want to lower the tax, but much easier if they want to raise the tax.

I do not know if members realize that it will require unanimity of all the provinces, should sales taxes be harmonized across the country, to lower the provincial portion of the tax. The provinces are being asked to do what they have probably almost never done before, and that is for the 10 of them agree on one thing at one time, to lower taxes. But they only need a simple majority if they want to raise taxes.

Obviously this gives the governments of the provinces a powerful new tool to go about raising taxes if the government gets its wish and the GST is harmonized across the country.

There is an ongoing debate in the country about taxes and tax increases. However, the debate is not about how high they should be raised, it is about how low they should go. The government has put in a provision to raises taxes, not to lower them. That is ridiculous. Reform cannot support that. Canadians will be outraged when they discover that one aspect of Bill C-70, the act to implement the harmonized GST in Atlantic Canada.

It is important to point out that it is not only the Reform Party that has raised this concern. Back in 1990 when the current finance minister was running for the leadership, and a lot of people would argue that he has never quit running for it, he pointed out that he thought he would scrap the GST. Not only that, he made special reference to the fact that once a harmonized GST is in place across the country, it could not be removed. Taxes could not be lowered.

If he felt so strongly about it then, what happened between 1990 and now? When did the conversion of Paul on the road to Damascus take place? What precisely influenced him to think that

now all of a sudden the provinces are going to fall into line, all 10 at once, and agree to decrease the provincial portion of the GST? It simply will not happen. It is simply not going to happen; 10 provinces agreeing to cut the tax. The finance minister was right in 1990 when he said that it is not going to happen. I think it is right today that it simply will not happen. At a time when we are having a debate about taxes in this country we should be finding ways to lower taxes, not to increase them.

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I want to say another word about entrenched taxes and about why harmonization is a bad idea. One of the great benefits of not harmonizing is that it encourages a competition between different jurisdictions to keep taxes low.

We all know about competition in the marketplace but I think competition in government is just as important. That is why for instance in my native province of Alberta, where we have no sales tax, we have low income taxes, we have the great Alberta advantage and people in our province have paid a price to have that advantage. We have had to cut back on our spending so that we could afford to keep those taxes nice and low. Now that we have got to that point, we want to benefit from that advantage. We want to attract business from all over the world. In fact, we are.

The very fact that Alberta has those low tax rates is, believe it or not, a great benefit to the rest of the country not only because the rest of the country gets spin-off benefits from what happens in Alberta and Alberta sends a lot of money into equalization payments, but because it puts a pressure on the province next to it, and the province next to it, and the province next to it to get their taxes into line.

I know many people in the business community have spoken in favour of a harmonized GST. They have made the argument that it would be simpler. The paper work would not be as onerous and all that kind of thing. But that is a minor benefit compared to the benefit of having competition between different jurisdictions to keep taxes low.

I do not understand how that was missed by so many groups when they talked about harmonizing the GST. To me it just does not make any sense.

I would encourage people to look at some of the examples not only in Canada where we have Alberta with the low tax rates but in North America and around the world. When we have low tax rates, when we have competition between jurisdictions ultimately it leads to lower taxes across the board which means that people have more money in their pockets. It means that they have more opportunity and they can create their own prosperity for themselves. They are not dependent on a government.

If there is one thing we have to get rid of in this country it is this dependency mentality that governments tend to breed. They tend to

breed it and ultimately it is to the detriment of the entire country and to all of society. We have seen it over and over again, and not just limited to Liberal governments. Tory governments have done it over and over again as well. They should be ashamed especially now that they can see the fruits of their actions of the past where we have entire economies becoming dependent on government programs.

This is a very important aspect that the legislation does not address and ignores, the fact that we need some competition between different jurisdictions.

The fifth point I want to make is that this bill will mean, at least in the short run, and I think members have to acknowledge this across the way, higher costs for business in Nova Scotia, New Brunswick and Newfoundland.

I am not going to ask members to take my word for it. I am going to ask them to listen to the words of the Retail Council of Canada. The Retail Council of Canada is in favour of harmonization. It is in favour of it but what it is against is the government's bringing harmonization into three provinces and leaving the rest of the country unharmonized. They are saying to themselves: ``Why are we pushing ahead with tax in pricing in particular when the government knows full well that it is going to hurt business in Atlantic Canada and if it hurts business it is going to hurt the Atlantic Canada economy?'' Of course there is no economy in the country that needs help more than Atlantic Canada.

Why out of a sort of perverse need to try to fulfil a wonky election promise is the government pushing ahead with this when it knows it is going to hurt Atlantic Canada?

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I am not going to ask members to accept my word for it. I am going to quote from a letter written on November 29 by the Retail Council of Canada which was sent to the current finance minister. This letter is rather lengthy so I ask for members' indulgence because the points raised are very important: ``Retail council provided you with early estimates of the cost attached to tax in pricing in July of this year. At about the same time, seven national retailers also prepared a paper which explained how tax in pricing harmed their operations and provided estimates of the costs they faced.

``Since then, retail council members have worked to get a clearer understanding of the cost impacts. Ten members accounting for roughly 30 per cent of Canadian retail sales have given us in confidence their detailed estimates of the impacts for their firms.

``As the attached chart shows, these companies alone will incur annual ongoing costs of almost $34 million. This is only slightly

offset by input tax credit and other savings of $6 million, leaving these firms with a continuing annual net cost of $28 million''.

This is for firms that represent only 30 per cent of the retail sector in the three provinces which have recently agreed to harmonization. It continues:

``Other RCC members have indicated that they will provide similar information on their costs to you directly. Nor are these costs incurred only by national firms. The expert distribution, warehousing and logistics costs incurred by the suppliers to independent and small chain retailers will almost certainly be passed on given the relatively weak negotiating position of smaller firms.

``Second, many of their suppliers are located in provinces that are not harmonizing so they will not benefit from any ITCs''-input tax credits-``in respect to provincial taxes.

``Third, small firms that receive prepriced merchandise will incur the same reticketing costs as larger regional and national retailers. Retailers operating only in the harmonized provinces will face one time costs to reprogram their computer systems but will not face the same continuing system integration costs that come with operating in harmonized and non-harmonized provinces.

``As part of the harmonization agreement, the federal government facilitated the imposition of capital and payroll taxes. Nova Scotia and New Brunswick have taken this opportunity to introduce new corporate capital taxes as of April 1, 1997, further increasing the costs attached to harmonization''.

The letter goes on and on but I will not read any more in the interest of time. It is fairly clear this is a group that is arguing harmonization is a good idea. It wants harmonization but it is saying that the government should not go ahead in three provinces while it leaves the rest of the country without the harmonized tax. The group points out is will cost millions of dollars.

It will not cost the businesses millions of dollars ultimately. They will pass the costs on. So who pays for it? Consumers. Consumers pay through the nose for a broken Liberal government promise.

It would be bad enough if Canadians in general paid for that promise, but it is the people of Atlantic Canada. It is the economy that can least afford to take a tax hit of any region in the entire country. But the government did not care. It was so desperate to save the Deputy Prime Minister's skin that it went ahead and pushed through this ridiculous measure and it did not care that it cost people in Atlantic Canada jobs. It meant more money out of their pockets. It did not care for a moment.

The government does not care that it is divisive to the country. At a time when we are trying to hold the country together, the government gives Canadians one more reason to be cynical about its desire to treat everybody equally.

I must ask a question that I am dying to know the answer to. Where are the members from Atlantic Canada? Why are they not standing up for their constituents? We know there is a grassroots revolt in Atlantic Canada against the harmonized GST. Recently Greenberg Stores Ltd. announced it was closing a number of stores in New Brunswick. It was closing stores in different ridings. It was closing stores in Beauséjour, Restigouche-Chaleur, Acadie-Bathurst, Fundy-Royal, Moncton and also in Saint John. When stores close as a result of government action and 79 people in Atlantic Canada are thrown out of work, the MPs from those ridings should be on their feet. Where is the defence minister? He should be standing up for his constituents. Where is the junior minister of agriculture? Why is that minister not standing up for his constituents? What about the Conservative member for Saint John? We know that they are lock, stock and tomahawk in favour of harmonization and they are not standing up for their constituents.

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That lays out how important it is for us to reform this place so that MPs have the power to stand up for their constituents. My goodness, if that had happened in my province, I would like to think that my colleagues would have jumped to their feet and said: ``This is unacceptable. I do not care if it is my leader who is bringing it in. My constituents say it is wrong and I am going to stand up for them and vote against it''.

Where are they? Where are the Liberal members from Atlantic Canada? There are 16,000 names on a petition against this. Where are the MPs from Atlantic Canada? Where are those Liberal MPs? Why are they not standing up for their people?

Their silence speaks eloquently of the need to reform this place. It speaks eloquently of the government's insensitivity to Atlantic Canada. It speaks volumes about its approach to treating provinces differently, as opposed to treating them equally, something the Reform Party truly stands for.

I am going to conclude my remarks by saying that our party does not believe in this approach. It is wrong. The government should have fulfilled its promise. It made a promise. It said it would get rid of the GST. Its members went door to door and promised it would be gone if they were elected. They were elected in spades; 177 seats and still the GST sits there as a permanent reminder that governments cannot be trusted. People cannot be trusted to come through with their promises when they make them on the doorsteps during an election campaign. The government should have followed through and gotten rid of the GST. That was its commitment to voters. The Deputy Prime Minister said so on national television. It was said over and over again.

I do not think the government has listened closely enough and, frankly, I do not think a lot of people have listened closely enough to the argument that there has to be competition between jurisdictions. If we do not, we are entrenching higher taxes. The finance minister said it in 1990. That is a very compelling reason to vote against a harmonized GST. We have to have competition. If we do we can all enjoy lower taxes in this country. However, under the current formula, which requires unanimity to lower the provincial portion of the GST, that will never happen, as hon. members know.

Canadians want lower taxes, not different taxes. We are having a massive debate in the House about how we are going to change taxes. When I go around to doorsteps, when I have my town hall meetings in Manyberries, Alberta or in Taber, Brooks or Medicine Hat, Suffield or Empress, or wherever, people do not say: ``Boy, I wish the taxes were different''. They do say: ``I wish the taxes were lower. I wish I could keep more money in my pocket. The government gets its share''. It gets 46 per cent of the average person's income. ``Then I have to go out and provide my food, shelter and clothing for me and my family. There is not much left''. There is hardly anything left, which is why we have record high levels of personal debt in this country. It is why we have record bankruptcies in this country.

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Instead of debating how we are going to change taxes, why not have a debate in here about how we can lower taxes? I think Canadians have had it with the government having its own agenda which simply does not reflect at all what the agenda of Canadians is. This bill does nothing to address the overriding concern of Canadians that too much of their money is being spent and wasted in many cases by the government. They want that money left in their pockets.

In conclusion, I urge hon. members not only to listen to my arguments, I ask them to listen to the arguments of people in the provinces where this tax is being harmonized. Opposition parties are raising Cain in the various provincial legislatures saying they are against it. The Retail Council of Canada, the Canadian Real Estate Association, the Halifax Chamber of Commerce and many others are pointing out that the way this tax is being introduced is going to kill jobs in Atlantic Canada. I cannot believe a government that ran on the promise of jobs, jobs, jobs is going to push through with this even though it is going to kill jobs in Atlantic Canada. This is contrary to common sense.

If Liberal MPs in Atlantic Canada will not listen, I ask all members to listen to this. Why will they not listen to the people who have made it clear that they do not want this tax? There were 16,000 names on one petition alone. There may be other petitions out there but I am only aware of one. There are 16,000 people who are opposed to the harmonized GST in Atlantic Canada.

If the Liberals will not listen to me and my colleagues in the Reform Party, then I urge them, especially the Atlantic Canadian MPs, to at least listen to their own constituents and vote against this bill and to forever forget the idea of introducing a harmonized GST across the country.

Mr. Alex Shepherd (Durham, Lib.): Mr. Speaker, I will be sharing my time with the hon. member for St. Boniface.

Bill C-70 is really about re-engineering the Canadian economy. We live in very changing times economically. Surely as if we had lived back in the 1800s when the horse was replaced by the iron horse, today our society is changing dramatically before our very eyes.

When we talk about Atlantic Canada, for instance in the province of Nova Scotia more people today are engaged in education than in the fishery and forestry combined. It tells us that the nature of our society is changing. We have to change our internal and external trade mechanisms because this is becoming a very competitive world.

The harmonization of the GST is just part and parcel of a general program to make our economy much more efficient by stopping the duplication of various taxes and the overlap it causes and make our economies efficient and competitive as we move toward the 21st century.

We have talked about the WTO. It was the Atlantic provinces when they first came into Confederation back in 1867 that were the engines of growth at that time, the creators of wealth and the builders of ships. It is to their credit that those provinces have realized the importance of a harmonized GST system and of doing away with duplication and overlap to create more efficient economies for their people which will create jobs in the future.

We need a more homogeneous Canadian market, a Canadian trading system. This is just part of the parcel to do that.

Let me first address the whole concept of provincial sales taxes. Each one of our provinces at various times has implemented provincial sales taxes. They have come along and changed them, applied them to some things in one province and others in another province.

When I served on the finance committee I travelled to Atlantic Canada. I talked to the people about the kinds of administrations that existed in the provincial sales tax system. We get the same thing in my province of Ontario. It likes to protect children's clothing so it is exempted from the PST. Prince Edward Island is very concerned about home heating fuel so it is exempted. In other words, there is a patchwork of provincial sales taxes and rates which go from 12 per cent to 7 per cent and to 0 per cent in Alberta.

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There is a hodge-podge of provincial sales taxes across the country. In and of itself what has that created? I am surprised that members of the Reform Party who talk about making this a better economy cannot see the importance of changing this outmoded system of individual provincial sales tax regimes.

When I was in the province of Newfoundland I was surprised and shocked to find that businesses were complaining about mail order businesses which operated out of Ontario and shipped products to Newfoundland because the retail sales tax in Ontario was less than that in Newfoundland. In other words, somebody would not buy something in their own neighbourhood because they could buy it cheaper through a mail order business in Ontario because of the difference in the provincial sales taxes.

These are some of the very basic problems a harmonized system is attempting to address. It is long overdue. It is not a matter of change for the sake of change. I hear some people say that the Liberals just want to change the GST and harmonize the sales tax so that they can meet their election commitments. Nothing could be further from the truth. This concept of integrating the two taxes is very important for our future as a country and for our economic well-being.

It is very important to have a similar system across the country from coast to coast to coast. That is my ideal. Some members of the Reform Party will say that we did it in only three provinces. Those three provinces are three more than we had a year ago. At this rate we will have harmonization across the country in a few years.

I would like to talk about the difference between a multistage tax and a single stage tax which basically is what the provincial sales tax is. The value added tax is a more efficient tax, if the people listening believe that there is such a thing as an efficient tax. It is an efficient tax in that it taxes at all stages of consumption. The provincial sales tax is not efficient for a number of reasons. One very real reason is that the provincial sales taxes invariably become embedded in manufactured goods. What do I mean by that?

I mentioned initially the importance of re-engineering our economy, creating a more robust economy in Canada. Another aspect is our export sector which has been the engine of growth and the engine of employment. Many people come to the industry committee week after week and say that to start a small or medium size business in Canada they have to start with the assumption that 70 per cent of their sales will go outside the country. What does that have to do with taxes?

The bottom line is that with the provincial sales tax system, we incorporate and compound the taxes on our export sales because there is no mechanism to relieve our exports of the provincial sales tax. The whole concept of the GST or a value added tax is that when we export something, we do not include those taxes in the export selling price. In other words, it makes our products much more competitive in the world environment. I will give an example.

In my riding even though we do not have a General Motors plant, General Motors is a big player in the economy. General Motors currently would pay provincial sales tax in its operations. Everyone knows there is no such thing as a business tax per se. We hear the province of Ontario argue back and forth that it does not want to shift the taxes from businesses to individuals. I would like to suggest that there is no such thing as business taxes. The only taxes are on individuals. We are all paying the tax on a personal basis whether it is in that car or the products that we buy daily, our telephones, refrigerators and so on. We are all paying the tax. Sometimes we see it, sometimes we do not. That is the essence of the problem of provincial sales tax.

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It is amazing that members of the Bloc have not noticed that their own system is a very efficient one. It is completely harmonized with the existing GST system. The automotive sector is one of the growing engines of our economy. It is one of the things that has kept people employed and has allowed our economy to go forward in the last few years. A car produced in Oshawa when sold in the United States has PST, provincial sales tax, embedded in the selling price but a similar car produced in Ste-Thérèse, Quebec does not. All things being equal, the car produced in Ste-Thérèse, Quebec and shipped into the American market is cheaper than the one produced in Ontario.

Everyone can understand why I believe that Ontario and most other provinces will eventually harmonize. It is just good business, just good sense and just good for the economy.

The interesting aspect about this is that moving toward a truly harmonized system means that we have a common base, a common rate and a single administration. One of the most important things is a single administration so that we end the duplication and overlap which exists in the system.

I would like to mention a person I contacted just this morning, Fred Shaw from St. Anthony, Newfoundland. Fred is an accountant. In his own practice, because of the harmonization process he is actually going to end up charging more on his invoices but he said that his customers are going to be a lot better off under a harmonized system. The province of Newfoundland is going to be better off by millions of dollars by harmonizing its administration system.

Mr. Shaw talked about buying a load of gravel. Before, he would have had to pay the PST and the GST on a load of gravel but if the same truck had spread it over his front lawn he would not have had

to pay the PST. This is the sort of ridiculous argument we are all doing away with under this system.

In conclusion the object of a harmonized system is to create a more robust engine within Canada and to create a more dynamic economy as Canada competes in the 21st century against many other competitors that are doing the same thing.

[Translation]

Mr. Ronald J. Duhamel (St. Boniface, Lib.): Madam Speaker, the purpose of our debate today is to take a serious look at this bill, to stay away from the political partisanship that arises from time to time when discussing these issues and to make a thorough analysis based on the following: does this bill provide more benefits for business, yes or no?

I think our comments should aim to improve instead of simply to attack, criticize, denigrate and crush this bill.

[English]

I do not want to take up valuable time with further justification of a restructured harmonized federal-provincial sales tax. The facts have been clearly and convincingly addressed by my colleagues.

[Translation]

The facts are there. What we have to do now is improve this bill if we can.

(1215)

[English]

As we all know, the harmonized sales tax will eliminate hidden taxes that inflate prices and hurt exports. It is simpler, more transparent for consumers and for business, and an integrated approach makes possible a lower overall sales tax rate. We know that, those are realities. If people do not agree with the facts they should attack them and show us why.

[Translation]

We know perfectly well this is a better, more straightforward and less costly approach that will help meet the needs of people in a far more flexible way.

[English]

Today I want to focus on an aspect of this legislation that has too often been attacked by those who place partisan politics and narrow regionalism ahead of clear objective thought.

The issue of course is a decision by the government to provide a formula for short term adjustment assistance to provinces when they face significant structural cost to participate in the new integrated system. That is the prime issue I want to address today.

[Translation]

There will be assistance when assistance is necessary. There will be a formula that will indicate clearly, fairly and objectively the type and amount of assistance the government will provide.

[English]

Under this legislation adjustment assistance becomes available to provinces which experience a revenue shortfall in excess of 5 per cent of their current retail sales tax receipts because they moved to a single harmonized sales tax system.

For qualifying provinces, in this case Newfoundland, New Brunswick and Nova Scotia, the formula means that the federal government will provide, and this is very important, first of all, full compensation for the revenue shortfall, that is the shortfall over 5 per cent of the current retail sales tax in year one; that same full compensation for the shortfalls in year two; half the amount of the shortfall in year three; 25 per cent of the provincial revenue shortfall in year four.

[Translation]

Now we have measures that are concrete, specific and fair.

[English]

This assistance is a necessary investment in making Canada stronger through helping disadvantaged regions move to a modern tax to meet modern challenges. It is a 21st century type of investment reflecting the fact that government must change how it involves itself in economic development.

[Translation]

We see profound changes taking place aross the country.

[English]

Businesses have made it clear that the best role for government is to give firms and workers the environment to compete and that is what it is doing with sales tax harmonization, and that is what responsible government and leadership means.

The assistance formula developed applies equally to all. There is no discrimination, no favouritism, no bribery. It is clear, concrete and objective. It applies equally to all. Any province that faces a transitional revenue loss exceeding 5 per cent because of harmonization qualifies for assistance over that amount on a 50-50 basis. After four years those provinces are on their own.

That means that B.C., Alberta and Ontario would not meet the threshold. They will not lose money on harmonization, just as Quebec did not when it harmonized. In fact, I am told that Quebec

made money through its staged harmonization approach, that it was clever in doing so and it should be commended for that.

Not every province has the economic size and scale to become instant winners under harmonization. For the three Atlantic provinces, with their less developed economies and such problems as the fish stocks, harmonization does carry a painful near term cost. That is why this government has developed a compensation formula and why those governments will receive about $960 million in assistance.

Under the same formula Saskatchewan and Manitoba will also deserve assistance. They would be entitled to over $550 million for the four year period when they decide to harmonize, a fact that is not propagated loudly or widely by either of those governments. I want to mention that under the same formula Saskatchewan and Manitoba would also deserve assistance. They would be entitled to over $550 million for the four year period when they decide to harmonize.

It is surprising and to some frustrating that this government's approach has been turned into a political football. There is a tragic cynicism at work, the type of cynicism that knows the price of everything and the value of nothing. ``Let's do what we can in order to enhance our popularity which is plummeting, and let's do whatever in order to noticed''.

(1220)

Who can argue the value of helping provinces provide the environment to industry that would help them fly? It is not just one or two sectors but all businesses in a region. This is particularly true for the Atlantic region which is why it has moved to accept the harmonized approach.

By what illogical leap can it be suggested that because the Atlantic provinces or Manitoba or Saskatchewan qualify for assistance, equal financial benefits should be provided by provinces that do not suffer major losses?

[Translation]

How can anyone rationalize such an approach? What kind of approach do they want when they say we should not distribute wealth according to the needs of a province or a region?

[English]

That is not a prescription for fairness. If we do not share in a way that responds to needs and loss it is a premise for selfishness. Statistical uniformity in no way builds economic futures or preserves a vibrant Canadian society. One size does not fit all in a nation as diverse as Canada. It never has and I do not think any provincial politician in their heart of hearts believes any different.

For example, Quebec and Ontario are the major beneficiaries of our federal tax regime for research and development, the most beneficial in the G-7. Do those governments want these credits to be proportioned on the basis of geography rather than economic reality? I think not.

[Translation]

No, certainly not. So why, when we are looking at another program, do they want the same? Is this not a contradiction? Is it not unfair and insensitive? I think so.

[English]

That is the heart of the issue and the key to fairness. Government assistance should be determined by the principles of need and performance. That is the way to be effective. That is the way to be cost efficient and that is the way to build a 21st century economy.

Let me repeat this is not a political issue, or it need not be. It is not an accounting debate. Rather, it is a question of Canada's economy today and into the next century. Sales tax harmonization is a solution that gives Canada's affected provinces an effective, more fair and competitive tax.

Our challenges are too pressing, our opportunities too real to squander on petty partisan politics. Let us get on with looking at the issues clearly rather than applying emotional blinkers or dog in the manger logic or simply saying something in order to help the party's flagging popularity.

Yes, our approach and assistance will make the maritimes more competitive. Any province can seize a clear and concrete solution to the problem by getting onboard themselves. The solution does not involve a dramatic fiscal cost. They will benefit quickly and surely through greater competitiveness and real cost savings to their businesses. That should be carrot enough and reward in full.

There are provinces like those in the Atlantic region. They want to make the transformation but face a tough short term downside. That is a barrier they cannot overcome by themselves so we have developed a cost shared short term solution to help them over the hump. That is the essence of partnership and of real national leadership.

Different players bring to the table different problems and different resources. By working together, drawing on our strengths and compensating for our weaknesses we all emerge stronger. The strength of a value added sales tax regime is that it is a better tax for today's economy.

For Canada's place in that economy we face the problem that its advantages have not been fully harmonized with provincial-federal taxes. If we work together through the format and approach our government has set up, the result will be a tax system that makes us stronger, that helps deliver more jobs and that is fairer to us all.

[Translation]

This is the end of my remarks, but I could have gone on for hours, because at last we have an approach that makes sense.

(1225)

[English]

Mr. Monte Solberg (Medicine Hat, Ref.): Madam Speaker, given the opposition of the Retail Council of Canada and many independent retailers to this deal, precisely because it is being brought into only one region, and they point out that it will mean higher costs for them and ultimately for consumers, and knowing the impact on Atlantic Canada will be especially difficult to deal with given the state of its economy, how can the member justify pushing for this deal when he knows it will hurt consumers in Atlantic Canada?

Mr. Duhamel: Madam Speaker, I thank my colleague for his question. I know that he takes these questions seriously.

I thought I had shown quite clearly in my address that this was as fair an approach as could be found. I have not heard one political party, not one politician, come forward with something that is more sensitive or sensible which responds to the needs that have been articulated. I am befuddled.

I suspect he probably has another question. Surely he listened to what I said. I said let there be no doubt that all systems are imperfect. Let there be no doubt that this has imperfections, but let me see something that is better, let me see something that will respond more significantly to the needs of Atlantic and other Canadians.

The major point here is that it treats Canadians fairly. The opportunities that were given to the Atlantic provinces are also available to Manitoba and Saskatchewan. There is a formula. It is not discrimination. It is not biased.

Of course, when one talks about taxes in general we are not going to find a whole lot of people who are going to agree with any level of taxation or any adjustments to the taxation system. Clearly what we have now is not efficient. Clearly what is being proposed here is much better. It is much more sensitive. It is much more workable.

Surely if my colleague has another option, he or his party will put it forward and then we will let people look at it and decide which of the two options is better.

Mr. Jay Hill (Prince George-Peace River, Ref.): Madam Speaker, it is necessary to make the point right now to the hon. member that the Reform Party, as much as it should be, is not the Government of Canada. Therefore it is not up to us to put forward options for this particular tax. Certainly during the election campaign we will be putting forward options on a whole range of issues so that Canadians can choose between the various parties and their platforms.

In this particular case, given that the hon. member and his party campaigned during the 1993 election campaign on scrapping, abolishing, doing away with the GST, how can he reconcile that with the present plan to harmonize it? How can he reconcile harmonization with the promises that were made by him and his party during the 1993 election campaign?

He states what is fair. What is fair to the Canadian people is for the government to live up to its election promises.

Mr. Duhamel: Indeed, Madam Speaker. My colleague has no doubt seen an accounting by the Prime Minister of Canada with respect to the promises made on the electoral platform. The majority of those promises have been honoured.

My hon. colleague who asked the question knows full well that setting aside the GST was one of a number of options. Harmonization was in the electoral platform. My colleague knows that. My colleague is intentionally trying to make it an issue when it is not. Why would my colleague not read the relevant sections into the record? Harmonization was clearly an option. Harmonization was mentioned on a number of occasions. My colleague knows that.

The other thing that I find extremely strange is, as I understand it, every party in the House of Commons is in favour of harmonization. Every single party. If I am wrong, let them stand up and say so. As I understand it, businesses are in favour of harmonization. Yes, there is additional work that needs to be done. Yes, the systems need to be fine tuned. However, let them stand up and be counted. Let us have no more rhetoric. Let us look at this initiative as it is intended to be, to make the system fairer, simpler and less costly. Let us look at it from that perspective.

(1230)

[Translation]

Mr. Richard Bélisle (La Prairie, BQ): Madam Speaker, I listened with interest to the remarks of my colleague opposite, and I would like to say that the bill is nothing more, in the opinion of the Bloc, than a collection of amendments to the GST.

In addition to several dozen small technical changes on exemptions from payment of the GST, there are a series of amendments providing for the harmonization of the GST with the sales taxes of the three maritime provinces. In Bill C-70, the GST becomes a harmonized sales tax, as the Minister of Finance describes it.

The bill also provides an exemption from federal sales tax, and this applies right across the country, for books bought by public libraries, schools, colleges, universities and other organizations involved in literacy programs.

We received this bill at the last minute and we in the official opposition deplore the way the Minister of Finance tabled these documents. The official opposition had less than 24 hours to examine the text of a bill of over 300 pages, which came without any explanatory notes. In this way, the government is trying to avoid debate and to keep the real issues hidden from the people of Canada.

The Liberals do not keep their promises, to say the least. The Deputy Prime Minister should resign again. The GST is with us for the duration, as Bill C-70 pointedly indicates. The Prime Minister promised transparency in the last election campaign. The Liberals are doing now what they criticized the Conservatives for doing in the past. The new GST is a hidden tax, because it is buried in the selling price of goods and services.

The 1994 Liberal majority report stated that it would simply be wrong to keep Canadians in the dark as to what they were paying in taxes to their governments, and a hidden tax would make it difficult for them to force the government to account for the way taxes are collected and, to a lesser extent, for the way public funds are spent.

The Minister of Finance is today presenting us with the hidden tax he criticized at the time. Furthermore, in 1989, the dissenting report of the minority Liberal opposition stated: ``In addition, if the GST is hidden in the selling price, it will be much easier for the government to increase it later on''.

The old Liberal federal sales tax was hidden in the price. The Conservatives made it visible by creating the GST as we know it. With the proposed agreement with the maritimes before us today, the Liberals are again hiding this much hated tax. There is always this double talk: They say one thing when in opposition and another when in office.

In 1989, the Liberals tore out their hair over this issue, but now that they are in office, they are hiding the GST as if nothing had happened, as if this tax had never existed.

This is a disgrace. This shows selective memory. The Liberals boast about listening to businesses. But when the Canadian Chamber of Commerce surveyed its members in 1994, it concluded that 70 per cent of Canadian businesses were against hiding this tax. In February 1996, the same organization surveyed its members again, only to find again that 76 per cent of them were against hiding this tax. For a government that boasts about listening to business, it does not seem to be listening very well.

(1235)

Let us take a look at the compensation formula, which is in fact a $1 billion political present. But the real cost is that of harmonizing with the maritime provinces.

In a shameless exercise in window dressing, the Minister of Finance has paid off the maritimes so that they would help him honour an election promise that had not been acted on. One billion dollars is what Quebecers and Canadians from the other provinces will have to pay for an election promise that was not kept by the Minister of Finance and the Prime Minister. One billion dollars is what this measure is really costing us.

There is no mention of the compensation formula in Bill C-70. The MOUs provided for some $961 million in compensation. We are still waiting for the Minister of Finance to unveil the criteria for his compensation package and to clearly show that Quebec is not entitled to such compensation.

In spite of Quebec's repeated requests to that effect, the federal government has turned a deaf ear. The objective is always the same: to penalize Quebec and particularly Quebecers, who elected a sovereignist government. This compensation may be a political gift to make the Liberal UI reform, which adversely affects seasonal workers in the maritimes, more palatable to the population of these provinces. Otherwise, why would Ontario, Quebec and the other provinces not be entitled to such compensation for harmonizing their sales tax with the federal one?

This cost of $1 billion over the next four years will be largely exceeded. The result of reducing the tax base at the consumer's level from 19 per cent down to 15 per cent will be that, in future, Quebecers and Canadians from the other provinces will have to pay more equalization to the maritimes.

These additional equalization costs will be paid by all taxpayers in Canada and Quebec. The commitment made by the finance minister to the governments of the maritime provinces is not acceptable, when you compare the cushy deal reached with the maritime provinces on harmonization with what happened in Quebec in recent years.

The agreement reached by the federal government and the three maritime provinces will eventually be expanded to include all Canadian provinces. At the present time, the majority of Canadians are against the minister's plan, against the introduction of a single 15 per cent tax, to be collected by the Canadian revenue commission the government wants to set up.

The tax burden would thus increase in Quebec, in Ontario, and in several other Canadian provinces. Bill C-70 will have a number of consequences for Quebec. For many years now, the Government of Quebec has made a genuine effort to harmonize federal and provincial tax bases. Quebec collects and administers for the federal government the GST such as we now know it in Quebec. We have therefore worked very hard in Quebec to bring about this harmonization at no cost to other Canadians.

This bill is unfair to Quebec on more than one count. Quebec's fiscal autonomy would be undermined by the Canadian revenue commission, which would be responsible for administering the new 15 per cent GST. The present harmonization worked out

between Quebec and Ottawa is therefore a far cry from the minister of finance's bill, whatever the Liberals might say.

Quebec will never agree to take part in such a fiscal regime. This new attempt by the federal government to interfere in provincial jurisdiction must be denounced.

Far from harmonizing federal and provincial sales taxes, this bill stands a good chance of jeopardizing several years of efforts by Quebec to achieve harmonization with federal taxation. The existing harmonization in Quebec was accomplished with the consent of both parties, and in all good will.

Today, the Minister of Finance is scrapping all the agreements signed with Quebec and trying to replace them with a bill that is nothing more than a pre-election ploy.

(1240)

The government has made only partial use of a measure proposed by the Bloc Quebecois, so the public ends up with a half-victory. In our opinion, however, even with this GST credit on books, the government is not going far enough.

Ever since Quebec introduced the QST, all books have been exempt from the provincial sales tax, and not just those purchased by literacy institutions, schools, public libraries and so on. All books are QST exempt, including those purchased by consumers in bookstores, which represent the bulk of GST revenues on book sales.

The measure announced by the Minister of Finance is, therefore, a cosmetic one, designed merely to enable the Liberals to boast that they have eliminated the GST on books, when in fact they have not done anything of the sort. Taxing books means taxing knowledge, making it even less accessible to certain members of society.

This does, however, represent a half-victory for the Bloc Quebecois and for the public, in that we have been battling from the very beginning, even as far back as when the Conservatives were in power, to eliminate the tax on books. For this to become a total victory, however, all books would have to be exempted from this GST disguised as a harmonized sales tax, not just books bought by literacy and educational organizations.

What the Liberals are aiming at with Bill C-70 is, in fact, nothing more than a whitewash, a diversionary tactic, at which they are experts, and which is what has kept them in power for so many years. The moment of truth is at hand. They will have to answer to the Canadian public in the next election. Then their poor track record will speak for itself.

Rather than passing this bill, the Bloc Quebecois proposes a concrete revision of the corporate taxation system. According to our analysis, the federal government could recover up to $3 billion annually by revising or abolishing certain outmoded, inefficient and unfair tax expenditures, using the money instead to encourage businesses to create jobs.

In today's struggling labour market, the purpose of corporate taxation ought to be to encourage the creation of good, lasting jobs, while ensuring that the funding of public services is equitably divided between corporations and individuals, and among the corporations themselves.

A number of analysts see a problem in the way taxes are collected in Canada: While the tax rate on profits is lower than elsewhere in the world, capital and payroll taxes are higher. This discourages job creation. Instead of remedying this situation, the Liberal government is attempting to hide yet another broken election promise. What a poor record the Liberals have to show for themselves after three years in power.

[English]

Mr. Barry Campbell (Parliamentary Secretary to Minister of Finance, Lib.): Madam Speaker, I listened with interest to the comments of the hon. member opposite and, as usual, there was the litany of complaints. But he did allude to the fact that of course Quebec has a harmonized tax. I would like him to tell this House whether that is an improvement over the situation which prevailed previously when there was a separate Quebec sales tax and a federal GST.

Is the hon. member supportive of harmonization as it has been working in Quebec and, if so, why would he deny the same opportunity to other regions of the country?

[Translation]

Mr. Bélisle: Madam Speaker, I can inform the parliamentary secretary that yes, I strongly support harmonization as implemented in Quebec. What I want to say today, before this House, is that Quebec received no compensation for its efforts to put together a harmonized federal and provincial sales tax.

Why has the federal government committed nearly $1 billion in compensation for the three maritime provinces, the plan we are discussing today, while Quebec is not entitled to any compensation? I deplore this double standard.

(1245)

It is the same old story. In the end, the federal government is trying to make amends for its new employment insurance policy.

In the three maritime provinces, there are many seasonal workers who will be penalized. The government is providing a disguised subsidy of nearly $1 billion just before a federal election is called, in an attempt to make its employment insurance policy more palatable to the maritimes and make seasonal workers in these three provinces forget they have been penalized. They want to

make them forget about that before the next federal election. That is what I find intolerable.

[English]

Mr. Campbell: Madam Speaker, Quebec did not receive compensation at the time that it harmonized. It would not qualify for compensation under the formula that was announced, debated and passed by this House several months ago.

That formula requires a province to incur a net loss of tax revenues of over 5 per cent in order to qualify for assistance on any measure. Quebec would not be in a position to benefit from that formula, nor might I add would Ontario were it to harmonize now or British Columbia. Other provinces would qualify. The maritimes do quality and that is the simple answer.

Not only did the province of Quebec not lose revenue on harmonizing in the manner in which it did several years ago, but in fact gained revenue by operating two systems simultaneously for a period of time. I wonder if the hon. member is aware of that.

[Translation]

Mr. Bélisle: Madam Speaker, I can inform the parliamentary secretary that I know all that. They say that according to the formula that was approved, Quebec and Ontario are not entitled to compensation, but what is particularly galling is that 25 per cent or about $250 million of the $961 million in compensation being granted today to the three maritime provinces will be paid for by taxpayers in Quebec. I think this is something we and Quebec taxpayers cannot accept.

In addition, the equalization formula will be modified, which will also affect the three maritime provinces that will get this compensation. In the end, these three provinces will not be getting $1 billion and Quebec taxpayers will not be paying $250 million. It will be a much larger amount. That is what the people of Quebec refuse to go along with and that is the point I wanted to make today.

[English]

Mr. Peter Adams (Peterborough, Lib.): Madam Speaker, it is a great pleasure for me to join this debate on Bill C-70. It is the act that will harmonize the GST and the sales taxes in the Atlantic provinces.

As members are aware, one of the government's objectives is to have a fully harmonized sales tax system across Canada. Bill C-70, dealing with Atlantic provinces only, takes us significantly closer to that goal.

Harmonization is a first step toward replacing the GST with a truly national sales tax system. The bill provides for a single harmonized or combined value added tax called the harmonized sales tax, or HST, to replace the current retail sales taxes in Nova Scotia, New Brunswick, Newfoundland and Labrador and the federal GST in those provinces on April 1, 1997. On that date the three Atlantic provinces will have a simpler, less costly and more efficient sales tax system.

I should mention that this bill by no means diminishes the government's commitment to working with the remaining provinces to make this a single harmonized sales tax system for Canada. I urge the people of Ontario to follow this debate very closely because harmonization in the Atlantic provinces will give those provinces a clear competitive advantage over Ontario which is not at the present time moving toward harmonization.

(1250 )

In addition to replacing the current system, the harmonized sales tax will reduce the current combined sales tax rates to 15 per cent in the Atlantic provinces, will establish a single administration of both federal and provincial sales taxes, introduce tax inclusive pricing so that consumers will know exactly what they are paying in advance and ensure a level playing field for businesses in the participating provinces.

The new combined sales tax and GST rate of 15 per cent, for example, in the province of Newfoundland is a reduction of somewhere between 4 per cent and 5 per cent of the current total taxes paid by the people in that province.

Businesses in the three provinces should be particularly pleased with having to deal with only one tax, one set of forms, one administration, one rate and one base instead of two of everything as is the case now. This is particularly important for very small businesses which simply lack the staff to deal with multiple levels of taxation.

Under the current provincial retail tax system all businesses pay tax on the goods and services they purchase to operate their businesses. These taxes are hidden in the final price of all goods and services sold in the provinces so prices are inflated by several layers of provincial sales tax. The new harmonized sales tax will eliminate these hidden taxes by allowing businesses to claim an input tax credit for sales taxes paid on goods and services purchased to make their products and run their operations.

Businesses in the three Atlantic provinces now pay over $700 million in hidden sales taxes to their provincial governments. Eliminating these hidden taxes will mean that the cost of manufacturing, wholesaling and retailing will come down, making prices in those provinces more competitive.

Exports from those provinces should strengthen because goods produced in Nova Scotia, New Brunswick and Newfoundland and Labrador will no longer have hidden taxes embedded in their prices when they are shipped abroad. This could also be true in the province of Ontario if the Queen's Park government would move toward harmonizing the GST and the provincial sales tax.

This change is not an abstract, accountant based benefit. Canada is a trading nation with about one-third of its economy currently dependent on exports. Just as important, it is the export sector that has been creating the new jobs over the past few years. Therefore, it is vital that our exports be as competitive as possible.

It is not only exports that will gain under the new harmonized sales tax. Removing the currently buried taxes will mean that goods produced in the Atlantic provinces will be more competitive than goods imported into those provinces. Lower prices will be a greater incentive to buy items made at home by workers in the participating three provinces.

I would also like to mention that the system of input tax credits will also help to combat the underground economy. With input tax credits available at the 15 per cent harmonized tax rate, instead of covering only the current 7 per cent GST, there will be a substantially increased incentive for businesses to operate within the sales tax system rather than outside it.

I mentioned before that businesses in the participating provinces will deal with a single tax administration under the new harmonized sales tax. At the moment businesses are faced with two separate sales tax systems, two sets of forms and two sets of auditors. Businesses, and in particular small businesses which now deal with two or more separate sales tax systems on a daily basis, will save because of the reduced compliance burden. This could also be true in Ontario if it moved to harmonize the GST and sales tax.

One sales tax system means less time and money spent on paperwork. Small businesses, the micro businesses, with less than $30,000 in taxable sales, will not even have to register for either the federal or the provincial sales tax in the maritimes.

(1255)

Also helpful will be the fact that businesses currently registered for the GST will automatically be registered for the new tax. Registrants will continue to use the current GST return to calculate net tax remittances.

When reporting tax collected and remitted and input tax credits claimed, there will be no need to separately identify the federal and provincial components of the harmonized sales tax at the 15 per cent rate or tax collected or payable at the 7 per cent rate. It will be much less complicated.

There is clear evidence also that businesses will pass on savings in the form of lower prices in the competitive marketplace. Past studies in Canada and in other countries show that when sales taxes are replaced with value added taxes, savings are passed on to consumers. This helps to refute some critics of the harmonized sales tax who claim that harmonization will hurt low income earners more than high income earners because of increased taxes on basic necessities like home heating fuel and clothing.

The cost of goods should actually decrease because of the lower combined tax rate and the removal of the hidden provincial retail sales tax already included in the price of those goods.

One issue of concern to retailers under the new harmonized sales tax is tax inclusive pricing, which is the answer to consumers wanting to know the total tax included price in advance of their purchases. This is a matter of including taxes in the price listed in the supermarket or wherever. The government's objective in this respect is to ensure transparency. The tax will be clearly shown on receipts.

Retailers have expressed concern that tax inclusive pricing will cost them money, make them less competitive and result in higher prices. The rules are flexible enough to minimize competitive inequities since businesses will have the option of displaying tax excluded prices alongside tax included pricing.

On April 1, 1997 the three Atlantic provinces will have a simpler, less costly and more efficient sales tax system. I hope that the other provinces, including Ontario, will soon follow suit. I urge all my colleagues in the House to support Bill C-70.

Mr. John Cummins (Delta, Ref.): Madam Speaker, the member opposite suggests that making it easier to pay taxes somehow makes it more attractive, something like turning vinegar into wine.

Why should retailers or anyone else feel better about paying this tax?

Mr. Adams: Madam Speaker, one thing about the harmonization process we are going through, which has already taken place in the province of Quebec, is that it simplifies and cheapens tax collection. Like the member, I do not like paying taxes, but I certainly do not like paying taxes unnecessarily to have my taxes collected, which is the situation now.

Where there is a sales tax and a GST there are two sets of tax collectors, two sets of forms, different dates for submission of the taxes. All of that costs money. As a result, the amount of tax being paid is greater. I believe that a simpler, harmonized tax system that lowers the tax we pay is better than the current complicated and expensive tax system.

(1300 )

Mrs. Brenda Chamberlain (Guelph-Wellington, Lib.): Madam Speaker, I am pleased to speak to Bill C-70 which amends a number of acts but, most important, provides for the implementation of agreements between the federal government and the governments of Nova Scotia, New Brunswick and Newfoundland and Labrador to harmonize the federal and provincial sales taxes effective April 1, 1997.

This legislation is an important step in our election promise regarding the GST. Let me remind the House, especially members of the Reform Party, of our promise. The red book states: ``A Liberal government will replace the GST with a system that generates equivalent revenues, is fair to consumers and to small business, minimizes disruption to small business and promotes federal-provincial co-operation and harmonization''.

This is the promise that I made to the people of Guelph-Wellington in the fall of 1993 and it is a promise that I look forward to seeing to its completion right across Canada.

We promised to replace the GST with a system that generates equivalent revenues. At a time when the people of Guelph-Wellington are demanding fiscal responsibility and restraint from their federal government it is important not to overlook the $18 billion that is currently raised by the GST. Any realistic Canadian knows that we cannot continue to provide social programs, reduce the deficit and care for our people without revenue.

It is also important to note that all net revenue from the GST is deposited into the debt servicing and reduction account. This means that all moneys generated by the GST go to fight the deficit. We have had a clear picture from Canadians of what they want us to do with the deficit.

We promised to replace the GST with a system that is fair to consumers and to small business. The cry for tax fairness is loud and clear in Guelph-Wellington. My constituents do not mind paying their fair share, but they want a tax system which distributes the burden.

We know that the Standing Committee on Finance worked long and hard to find alternatives to the GST. I congratulate my colleagues on the committee for their work. As a relative newcomer to the committee, I appreciate the long hours that members faced in looking for an alternative to the GST. The result of this work was the national VAT, and its recommendations are seen in the agreements signed between the federal government and the governments of the three Atlantic provinces.

The recommendations of the committee received an important endorsement, one which I would like to remind the House of: ``It is simply unacceptable that Canada remains the only country in the world with ten different sales tax regimes''. This person went on to say: ``We commend the government on its attempt to harmonize the tax with the provinces''. That endorsement came from the Reform Party in June of 1994. I look forward to its support of this legislation.

We promised an alternative to the GST which would minimize disruption to small business. I polled small business in Guelph-Wellington in November of 1994 on this issue. Sixty-four per cent of respondents said they believed that a harmonized VAT would be simpler and more fair.

I asked business people in my riding because they are directly affected by changes to the GST. They know that a harmonized sales tax is good for business. Businesses must currently pay two separate taxes and deal with two separate bureaucracies.

The Canadian Institute of Chartered Accountants estimates that harmonization will save businesses between $400 million and $700 million annually.

The idea of harmonization received another important endorsement in June of 1994. Let me remind the House of what this person had to say: ``I want something that works. And I'll tell you this, that if we had one VAT, one base, one bureaucracy to collect it, the manufacturers and the businesses of Ontario would save over a billion dollars by being able to deduct those costs that you cannot deduct today on the sales tax''. This person went on to say: ``It has been one of the areas of major competitive disadvantages that Ontario manufacturers have had and Ontario businesses have had, and I say stop the rhetoric, stop the politics, stop the finger pointing. Get on with harmonization and simplification of the GST, or whatever the new initials are, and the PST''.

(1305)

That endorsement comes from Mike Harris, then the leader of the third party in Ontario and now premier of the province. I look forward to his support for a harmonized sales tax in Ontario.

We promised an alternative to the GST that promotes federal-provincial co-operation and harmonization. I have said in this House before that my constituents are tired of governments that blame other levels of government. They want us to work together with all our partners for their betterment and to secure a better future for Canada.

They are proud of our Team Canada approach to international trade and they want to see that approach in solving all our problems. Bill C-70 is an important step in a Team Canada type effort in sales tax harmonization.

The efforts that have resulted in this legislation were not easy. It is important to remember that the Standing Committee on Finance reviewed suggestions and comments from over 1,200 individuals and representatives from various associations. They rejected many suggestions because they did not generate the revenue they needed or because they were simply unworkable.

I believe that the proposals that we are debating today go a long way in fulfilling our promise. Our country continues to face serious problems. It is simply irresponsible for this government to abandon its deficit reduction efforts by ignoring the revenues generated by the GST. Nor did we promise to do so.

Deficit reduction and our future remain our priority. In doing so, we are fulfilling another important promise, to generate and create opportunity and in doing so creating hope and growth for our country.

We made a promise to replace the GST. Reformers, on the other hand, promised to keep it as it is until the deficit was eliminated. We know that their deficit reduction target seems not to matter to them any more. Irresponsible tax cuts and more spending are election promises that Canadians will be hearing from Reformers. Deficit reduction, promise keeping and sound administration is what Canadians are seeing from this Liberal government.

This is important legislation. When it passes, Canadians living in New Brunswick, Nova Scotia, Newfoundland and Labrador will save time and energy for their businesses. They will have a tax that is better for consumers and they will have promoted federal and provincial co-operation.

The premier of Ontario, Mike Harris, said in opposition: ``Stop the rhetoric, stop the politics, stop the finger pointing. Get on with harmonization and simplification''.

We have taken his advice in Atlantic Canada at least. This legislation deserves our support.

Mr. Myron Thompson (Wild Rose, Ref.): Madam Speaker, I appreciate hearing the member speak on this issue. I have to smile a little when she talks about the keeping of promises. That is getting to be a joke to the people across Canada in terms of what the Liberals have done.

I would like the member to comment on a statement that was made in 1994 by the then revenue minister from Vancouver, now the transport minister, who predicted that voters will punish any provincial government that fails to merge its sales tax with a revamped goods and services tax. If that would be the case I wonder if this member can tell me why the results in P.E.I. recently.

Mrs. Chamberlain: Madam Speaker, first, I am very glad I made the member smile. As we know, newspapers say that Reformers do not smile very often. So I am very happy to have helped him along today.

I also would like to say that I think the reality of this initiative is something like our health care initiative. The reality is that particular initiative across Canada had to start in two or three provinces. The GST is being implemented in the same way in two or three provinces. As we move across Canada we will eventually have a GST in place that will help the retailers an awful lot.

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The reality of this is reflected in a poll I conducted in early 1994. My retailers told me very loudly and clearly that it was very important to have a tax at the end of the sale that is not visible. The retailers originally asked the Conservative government 10 years ago to make the tax visible. They have since come forward to the finance committee and admitted they made a very serious error, that it has really hurt the growth, the competitiveness and the buying patterns of all Canadians. That is what we are hoping to achieve with this change.

Mr. Thompson: Madam Speaker, there is one nice thing about asking a question in Government Orders as opposed to question period. In question period we do not get a second chance. I did not hear the member make any comments with regard to the voters punishing the government that will not go along with this. The voters in P.E.I. sent a very loud message that they are not interested. Could the member comment on the results of the P.E.I. election?

Mrs. Chamberlain: Madam Speaker, in reality, as I said in my speech, if the member was listening, we have to look toward the provinces co-operating. We also need a solution that is proper for each province. At this time P.E.I. has decided to have a second look, which is fine. We have to work together in harmony although I know the Reform Party has difficulty with that. But we will take our time, we will go slowly and we will do it right.

Mr. Herb Grubel (Capilano-Howe Sound, Ref.): Madam Speaker, the Minister of Finance has asked this House to approve the blended tax deal he has made with the Atlantic provinces. The Reform Party opposes this legislation on several grounds.

First, it does not fulfil the election promise to kill the GST. The red book fine print may have hedged on this issue but the impression left with the public was quite clear. The Liberal Party had been in a historic fight with the Conservative government's Brian Mulroney against the GST. With such a fight under its belt, it would use the opportunity of being in office to scrap the hated tax. The resignation of the Deputy Prime Minister and the parliamentary protest actions of the members for York South-Weston and Broadview-Greenwood support this view.

Second, the blended tax deal comes with too high a price tag for the rest of Canada. Why should taxpayers outside the Atlantic provinces pay nearly $1 billion to the governments of those provinces which have voluntarily agreed to go along with the federal government's plan? They have no moral right to be compensated for an action which was essentially voluntary. It is quite clear that the transfer was a political bribe by the federal government so that it could pretend that it had begun to deliver on its election promise to scrap the tax.

Third, the blended tax does nothing to get rid of the fundamental flaws of the GST system as enacted by the Mulroney government.

As an economist, I was a strong supporter of the policy that would replace the manufacturer's excise tax by a value added tax. The latter promised to eliminate the cascading of taxes, distortions between industry's prices, be good for exports and leave a paper trail that discourages tax evasion. However, the value added tax

which eventually emerged from the Conservative's deliberations as the GST fell far short of the ideal found in academic studies of such a tax.

The most serious problem stems from the failure to apply the tax to the broadest base possible. Once the political decision to exclude food had been reached, a Pandora's box of other exemptions and so-called zero rating became subject to successful political lobbying.

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The result is a special treatment of the so-called MUSH sector covering municipalities, universities, schools and hospitals which are exempted from the tax. Doctors and professionals are zero rated which means that they do not charge the GST, but they do not get a rebate on the GST they paid on the materials they bought while providing their services.

Hearings by the finance committee produced many stories about the nightmarish complexity and administrative costs of the GST in general. These stories went from the inequity of having five doughnuts taxed because they are assumed to embody food service delivery, while six doughnuts are not taxed since they are pure food, to the false incentives implicit in the taxation of garbage collection services delivered by a private firm and non-taxation of municipal garbage collection services. Imagine what that does to the privatization of the often much more costly municipal garbage collection services.

From evidence produced by the witnesses, it is clear that the GST did not discourage but encouraged tax evasion. Firms in construction, in home, shoe and automobile repairs and a variety of other service industries that pay the GST face serious competition from many that do not. In addition, participants in the scam to defraud the GST are alleged also to be avoiding paying income tax.

One of the most dramatic presentations was by a witness who owned a business selling used goods. The GST has virtually bankrupted him primarily because of competition from used goods dealers that do not charge the GST. Similar stories were told by legitimate dealers in used cars. The notional GST return on used goods did not prevent the erosion of the nationally important legitimate trade in used goods and automobiles.

The paperwork involved in paying the tax and claiming rebates is very significant. For larger firms the day to day operations have reached a reasonable level of cost as a result of the intensive use of computers. For small businesses the cost remains high in spite of the government's willingness to accommodate the special needs of such firms.

In sum, all of these costs and false incentives of the Canadian GST system still affect the blended tax. In some ways they have become worse because of the need to integrate the provincial sales tax with the GST. The rates are higher, the incentives to evade are larger and so on.

Fourth therefore are the inequities resulting from the harmonization of the sales tax of individual provinces with each other and the GST. This harmonization produced a number of inequities.

Historically, provincial governments have used the sales tax to engage in social and economic engineering according to the demands of their electorates. This explains why some provinces exempt food, children's clothing, reading materials, some services and medical supplies from sales taxes while others tax such items, some at different rates from those charged in other provinces.

On top of this there were differences in the rates of taxation depending on how much money provincial governments had to raise by this method. Some taxed people and companies at different rates; some spent more than others; all of which determined the average provincial sales tax rate in the individual province.

The GST has a much broader base of taxation than the provincial sales taxes. Blending them therefore meant that provincial taxes had to be put on to many items of consumption that were previously untaxed. However this broadening of the tax base meant that provinces could raise the same amount of money at lower tax rates. This fact underlies the Liberal assertion that provincial tax rates are lower in favour of consumers. This of course is a shell game. By definition the average consumer pays the same with the blended sales tax as she did with the GST plus the provincial sales tax. Otherwise it would have been a tax grab and we would have heard the screams all across the country.

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Averages hide a lot of variations in gains and losses to individuals under different circumstances. People who buy a lot of reading material may or may not make up the extra taxes they pay through reductions in the rates paid on other consumer purchases. People who find their tax obligations have increased are justified in complaining to the Liberals since they voted for the elimination of the GST, not a change which costs them personally.

A fifth reason Reform opposes the blended tax legislation is that the Liberals have claimed that the administration of the blended tax will result in substantial savings in administrative costs to governments and taxpayers. Returns have to be filed and audits only have to deal with one bureaucracy rather than two. Such savings are real. However the question arises as to how large these savings will be in

relation to the extra costs involved in switching to the new system and in the day to day operations.

As it turns out, one provision in the legislation has resulted in a significant increase in costs. I will discuss this briefly by describing the problem that it attempted to address. It is the so-called tax-in provision of the legislation.

This provision requires merchants to display all prices including the taxes paid and not show the taxes separately. This mandated tax inclusive pricing works very well in Europe. It removes many of the annoyances consumers experience when under the present system they are faced with a bill for their goods and services, often inflated unexpectedly much by the GST and provincial sales taxes whenever they reach the check-out counter. European shoppers became quickly used to tax-in pricing and merchants adjusted their operations quickly.

Many in Europe and in Canada had opposed the inclusion of tax-in pricing requirements in the GST legislation because of the fear that it would permit governments to raise GST rates of taxation surreptitiously without explicit consultation and the kind of openness and resistance which is brought when people are required to file their personal income taxes. According to the experience in Europe, it turns out that this fear was not well placed.

When the Government of Germany recently tried to raise the GST tax by one percentage point, it ran into a storm of opposition. In the end it was forced to drop the plan for this increased tax. I believe the same would occur in Canada.

It is for all these reasons that show an advantage of tax-in pricing that the Reform Party in its minority report to the study on the GST endorsed the tax-in pricing provision for a national sales tax. However, the problem is that we do not have a national sales tax. We have what has been called a blended sales tax in order to distinguish it from the national sales tax. In fact it applies only to four of the Atlantic provinces.

As it turns out, I have no doubt that there may be savings for individual retailers from having only one sales tax, the blended sales tax. I have not seen how big these savings are. Therefore I am not able to relate them to the kinds of costs the tax-in pricing provision has imposed on these retailers and which costs they are required to pass on to the consumers in the provinces which are subjected to this legislation.

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What are these costs? There is the once and for all cost required of individual firms to switch their system of calculating the price charged at the till. This requires not only reprogramming computers, but it is very important that it also requires the retraining of the individuals serving the consumers. These once and for all costs may be justifiable in light of the savings on the other side by not having to deal with two authorities.

It turns out that there are also very large costs associated with day to day operations which will go on for as long as there is a blended sales tax in that region and the GST and provincial sales taxes in the other provinces. What are these costs?

According to an independent study by Ernst and Young, prices that have been attached to labels on goods manufactured, let us say in the United States or Ontario, to be marketed throughout Canada will have to be changed. Tags will have to be removed by hand and replaced on the goods that are being sold in that area. In some cases the price is printed on the good, such as on greeting cards the price is printed on the back at the bottom. Stores will have to relabel all of those cards.

Major retailers base many of their marketing campaigns on the use of flyers and house to house distribution of material. Right now the copy is prepared only once with the prices and conditions applying to all of Canada. In that particular region, special copies will have to be written and separate copies will have to be printed. It is a very serious increase in costs.

We should also note that warehousing and cost of distribution are expensive parts of retailing. Those of us who have never been in that business do not realize what it takes to keep the shelves filled with goods of the required size, quality, quantity and variety that consumers want. One problem is that the varieties, quantities and qualities are not predictable.

Retailers now have as an option that if in one region their sales have exceeded those expected and they require more goods from another region, they can go to the warehouse in another region and ship the goods to the area with the shortage. There will now be an invisible barrier at the edge of the blended tax zone which means they cannot get something from the other warehouses. The studies said that truckers who deliver goods in regions on either side of the invisible barrier may now have to shift the goods around in their trucks to get at those goods which have the appropriate label for the area. This is not a fantasy. This is not something made up. Some estimates are that these costs may be as high as $100 million for this region.

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Let us say that half of it involves continuous costs every year. Who is going to pay those costs? The consumers in that region. Eaton's and other big national retailers cannot pass them on to the rest of the country because there is too much competition, forcing them to keep prices down, not allowing them to raise prices.

We believe that the very least the government can do in order to help the consumers of the Atlantic provinces is to postpone the

required tax in pricing approach until a blended sales tax or a national sales tax exists throughout the country.

In the meantime, however, there are so many flaws in this bill and in this approach to replace the GST that I believe Reform is acting in a socially responsible manner by opposing it.

Mr. Barry Campbell (Parliamentary Secretary to Minister of Finance, Lib.): Madam Speaker, I would like to thank the hon. member opposite for his comments. Unfortunately, one gets used to a lot of the rhetoric coming from the other side, so the hon. member's candour and honesty is very refreshing.

He endorses harmonization. I would not expect otherwise, in the light of the Reform Party's position after the GST review. He endorses tax included pricing. He is widely recognized as a prominent economist. I would be surprised if he said otherwise. He accepts, in all fairness, that there will be one time costs, but in the light of ongoing savings they may well be offset in the long run. All of that is refreshing and welcome. I would be surprised if the hon. member had said otherwise. He also has some doubts and some concerns. That is also fair.

I want to make one observation and ask him one quick question. The observation is on tax included pricing. Is he aware of the accommodations that the government has made in consultation with businesses in responding to the very concerns he raised about implementing a harmonized system in one region and not others? For instance, accommodations are being made which will allow catalogue publishers and retailers that produce catalogues to overcome the concerns they have. They need not print the prices in the harmonized provinces, as long as they indicate in the catalogue that their prices do not include taxes.

Is he aware that discussions are ongoing and regulations will reflect that the government and retailers have agreed to allow bin pricing for those items that are labelled, which would otherwise have to be relabelled individually? That would be a tremendous imposition on business so the government has accepted the principle of allowing small items that are prelabelled to be placed in bins, with the prices indicated on the bin. In modern retailing that is often the way things are done. We only have to think of our neighbourhood stores.

Is he also aware that the opportunity still exists for retailers to indicate sale prices that are exclusive of taxes as long as the tax included price is also indicated?

Is he aware that there are ongoing discussions toward improving the system more as regulations are drafted? He may not have been aware of those things. I am sure he will welcome all of those comments.

The question is to him as an economist, because he stood and spoke as an economist and less so as a politician. We welcome that in debates on critical issues such as this.

He did not speak, at least not at length, about the inefficiencies in provincial sales taxes, particularly where hidden taxes are concerned, which is a cascading of taxes, tax on tax. The ultimate consumer pays for all those hidden taxes.

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I wonder if he would comment on whether a harmonized system where input credits are available now, not just for those taxes paid under the GST system, but for the component of provincial taxes would also be available, is a much more efficient system. I ask him what a rational retailer business person would do in light of those savings.

Mr. Grubel: Madam Speaker, I appreciate the kind words of the member opposite.

The steps now being taken in order to deal with the shortcomings of the tax in pricing provision are a typical Liberal approach: ``There is no sense in admitting that we made a mistake and drop the whole thing but let us patch it up''.

The member and I sat together in finance committee hearings about the GST. The length of the horror stories about the different provisions and difficulties that business has was caused by a previous government's unwillingness to do the right thing and say: ``We made a mistake. Let's drop it. Let us go, say, for a broad based tax. Instead of 7 per cent, let us have it on everything but only 4 per cent''. That is what we heard all the time.

I predict that if the member is going to sit in the finance committee two years from now he will hear horror stories about the administrative costs, the difficulties of going from bin pricing to all kinds of other provisions that he has mentioned. The government is going in the right direction but why does it not swallow its pride and say: ``We'll suspend the tax in pricing provision for this legislation in order to get the other advantages''.

I agree with him. This is why with all intellectual honesty we came to Ottawa and said that when the government does something right, proposes something that is good for Canada, we will support it. We will not play pure politics. That is why we said in our minority report that we believe harmonization of provincial sales taxes and the GST is a good idea. We still think so.

However, we did not endorse and we cannot honestly endorse the imposition of such a tax in a particular region only and having the rest of the country pay substantial sums for this to be acceptable to those regions.

I feel that the thrust of what I said remains unchallenged by the points made by the member opposite. This is not a good piece of legislation. At the very least Canadians should expect that the tax in pricing provision be removed.

Mr. Campbell: Madam Speaker, I thank the hon. member for his responses. He did not comment on the second part of the question and I want to give him an opportunity to do so. I asked him about the credits on inputs and how that will work in a harmonized system. Does it make good economic sense and what will happen to those savings?

Mr. Grubel: Madam Speaker, I thought that I indirectly admitted the correctness of this position. This is exactly why Reform supported the idea that we should have a national sales tax. Though I must say to the hon. member that after the very lengthy study of the GST as it is in operation I have really changed my mind about the merit of such a value added tax unless we could start from scratch and do what the New Zealand government did: put it broadly on everything.

The administrative nightmare, the distortions that I have mentioned in my speech that are caused by exemptions, zero rating and various other twists that are too complicated to explain here have made the tax into a nightmare. I do not believe it can be fixed. To come forward and say that we need a valued added tax on everything, including food, simply will not go in this political system, however good it would be.

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For this reason I believe the country needs fundamental tax reform which would lead to flatter rates: flatter personal income tax rates, the elimination of double taxation on income from property and lower rates or maybe even the elimination of capital gains taxes. Economists agree that all those measures would do wonders for the efficiency and the growth of an economy.

In the process of having such tax reform I believe that it would be appropriate to eliminate the GST and impose the revenue loss on the other forms of taxation. We have done some very preliminary calculations which involve a flat tax. This is not Reform Party policy but we are doing our homework which is expected of us as elected members of Parliament. We are expected to do our homework, to investigate the costs and benefits of different types of taxation.

When we ran simulations of different tax rates on the computer, we discovered that the average flat tax rate would have to increase by only about three percentage points to afford to get rid of the GST with all the nightmares associated with it, including the need to send monthly cheques to individuals in Canada with lower incomes. Members know how much it costs to write, print and keep track of cheques, yet the GST and the blended sales tax require the government to send out those kinds of cheques to people with low incomes. They can be helped some other way.

[Translation]

Mr. Yves Rocheleau (Trois-Rivières, BQ): Mr. Speaker, it is with considerable pleasure that I rise to take my turn in the debate on Bill C-70, which concerns various amendments to legislation pertaining to the goods and services tax in Canada, commonly known as the GST.

This bill is the recognition in fact of action taken by the current federal government to harmonize the GST with the provincial sales tax in three maritime provinces, with the combined tax becoming the HST or harmonized sales tax. The HST does not apply to the purchase of books anywhere in Canada by public corporations, such as public libraries, schools, colleges and universities. All organizations involved in literacy programs are also now exempt under this bill from paying the GST on books.

We have many reservations about this bill. About its form, to start with. This is, by the way, a very technical bill of some 300 pages in length. It was delivered to the official opposition late yesterday afternoon. Opposition members therefore had little time to properly prepare criticism, which we had hoped would be more articulate and thorough, because of the lack of time and the size of the document.

It is at once intriguing and distressing, because it must be remembered that the government's position on this is not clear. The history of the debate on the GST is not a high point in the history of the Liberal Party of Canada.

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While very important promises to kill the GST were made by the Liberal Party in its red book, this does not even come close. This is about harmonization, with the maritimes in this case.

In an area where the government party does not keep its promises, we would have expected them to at least have an open and truly honourable debate on this issue, after giving the opposition parties more time so we could have been better prepared than we are now.

The government had made a clear, simple and specific commitment, but so far it has not kept its promises, quite the contrary. On an individual level, this has been illustrated by the behaviour of the Deputy Prime Minister and member for Hamilton East, and the promises she made, hopefully in good faith. Unless they were made in good faith and with intellectual honesty, this will confirm every preconceived idea the people of this country have about politicians not weighing their words.

That is what the Liberal candidate for Hamilton East did at the time, when stating that she would resign if the GST was not abolished. When the GST was not abolished, she had to resign,

which she did, not out of intellectual honesty, but under pressure she could not resist. She resigned for form's sake. The very next day, the Prime Minister called a by-election in her riding and she was re-elected with, fortunately, a clear warning from the people that she must not play that little game again.

During a difficult time of fiscal restraint, this little game has cost Canadian taxpayers $500,000, just because one person did not keep her word, but pretended to, in order to save face at public expense.

Let me quote the hon. member. Not too long ago, on March 11, 1996, the Globe and Mail reported something she had said as a candidate:

[English]

``I have already said personally and very directly that if the GST is not abolished, I will resign''.

[Translation]

She did resign, but it was for appearances' sake, a symbolic resignation. She did not resign as a matter of principle, saying: ``Since the government to which I belong did not do this, I would be ashamed to be a part of it''. No, she resigned for appearaances' sake, because she could not withstand the pressure brought to bear on her. Then, taxpayers had to pay for the intellectual irresponsibility displayed regarding this issue.

You will agree that the Prime Minister does not fare much better. The Prime Minister said, with typical clarity and transparency, using carefully chosen words: ``We will scrap the GST''. As you know, to scrap means to get rid of something. The yard is now full of scrap. The Prime Minister, in his great wisdom, and also with indignation and all the sincerity that he could display, said time and again, in reference to the Liberals' red book: ``We will scrap the GST''.

What is the situation now? The Prime Minister cannot claim he is unable to take action. After all, he is in office, he is the Prime Minister. We are not quoting some backbencher, we are quoting the Prime Minister, the leader of the Liberal Party of Canada, who came into office on October 25, 1993, following an election campaign that included written and oral commitments, including this one, which could not be any clearer: ``We will scrap the GST''. This promise is not worth much more than this other slogan of the time: ``jobs, jobs, jobs''. What happened to that other commitment? ``We will scrap the GST'' and ``jobs, jobs, jobs'' are pretty well on a par. People say just about anything they want, including the Liberal candidates who ran in the ridings of Hamilton East and Saint-Maurice.

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They say anything that comes to mind, that they will resign or that they will scrap the GST. The Prime Minister said as clearly as could be that he disagreed with this tax, when he said: ``We hate the GST and we will kill it''. This is an unequivocal statement. It does not leave much room for interpretation. The Prime Minister did not make many clear and specific commitments during his career, but he did promise to get rid of the GST.

Today, we can see what is happening on this issue. The government no longer mentions it, except to try to harmonize that tax. We saw what the Liberals accomplished in three maritime provinces. A harmonization process did take place. It was explained that, before this harmonization, provincial and federal taxes amounted to 19 per cent of the consumer price. An agreement was reached to lower this 19 per cent to 15 per cent.

The shortfall was made up in two ways. First, there was the immediate payment of approximately one billion dollars to these three maritime provinces, using money from the taxes paid by the other seven provinces. This money did not just drop out of the sky. It came from the other provinces. And the way the accounts are figured out in Canada, almost $250 million of this came from Quebec taxpayers.

That is harmonization for you. That is Canada's idea of distributing the wealth fairly. We are used to this game, but we will not put up with it, and it is one of many reasons why Quebecers are giving more and more thought to whether they want to remain in this country and why they came within a hair of deciding to leave on October 30, 1995. It must be remembered, and there is no reason not to say it, that on that day 60 per cent of francophones made a decision to leave Canada, and we will keep pointing this out.

Here we have a wonderful example of what it means to belong to Canada and what it costs. As we see it, staying with federalism is costing the Quebec economy. Every year, we come up short, unless you factor in, as the federal government does, what we receive in unemployment insurance and social assistance. Unless we boast that Quebec is poorer than the other provinces. And this is the diabolical logic the federalists are stuck with when they try to sell federalism in Quebec.

It therefore looks like the people, the governments of the three maritime provinces in question were, to put it bluntly, bought, given one billion dollars in exchange for agreeing to harmonize the tax, as it were.

The second way of making up the shortfall of 4 per cent mentioned earlier, the 19 per cent that turned into 15 per cent in return for one billion up front, is that they said that from now on, transfer payments would be the way to ensure that these three maritime provinces were not penalized. In other words, year after year, almost automatically, the maritime provinces, through equalization payments, will be compensated for this loss of 4 per cent, a practice we condemn.

This is one of the aspects that we feel shows a great lack of regard for other Canadians and other provinces. Another aspect, which is more likely to affect consumers, is the decision that was made as part of this harmonization with the maritime provinces to put taxes which are now visible under wraps once more, taxes that

consumers could see so they could figure, when they paid for a meal or for an item of clothing, how much they were paying in federal taxes. At the time that was something new, but now it seems that harmonization will again put this tax under wraps.

This is probably typical of the way the government runs the country, because when it is not actually hiding something, it is at least trying to.

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This is a partial harmonization because it also harmonizes a lack of transparency. The public will be even less aware of how much it pays for services it receives from the federal government. This does not augur well.

At a time when there is so much talk about proper management of public moneys, when all consumers are being asked to do more and more in this respect, I think it is rather insulting that the government should go ahead and hide the GST, although the Liberals, and this was part of the abolition scenario, had made a clear commitment to keep a visible GST.

A typical example is what happened to the report of the finance committee where, in 1994, the Liberal majority said it would be improper to hide from Canadians the taxes they were paying to their governments and that creating a hidden tax would make it difficult for them to make the government accountable for the way these taxes were collected and, to a lesser extent, how public moneys were spent.

In fact, in a dissenting report by the Liberal minority in 1989, under the Conservatives, the Liberals said that if the GST was hidden in the sales price, it would be much easier for the government to increase it later on.

When the Liberal government decides to hide the GST, it knows very well what it is doing. It cannot plead ignorance, and it is reversing the positions it formerly held on the issue and doing so publicly.

In concluding, I still think we have reason to be pleased that some representations made by the Bloc Quebecois were partially included, as regards the GST on books. As was pointed out earlier, from now on all public institutions involved in education and literacy training-in culture as well, when we include public libraries, schools, universities, and community colleges-will all be able to buy books without paying the GST. We are pleased because otherwise, it would mean putting a tax on knowledge, research and intellectual curiosity.

We are pleased but we deplore the fact that this exemption on books is not extended to all taxpayers who buy books in this country but reserved only for public institutions.

The Speaker: I may inform the hon. member that we will continue after Oral Question Period. Since it is almost 2 p.m., we will proceed to Statements by Members.

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