[Recorded by Electronic Apparatus]
Monday, January 20, 1997
.1304 
[English]
The Chairman: Order, please.
The finance committee of the House of Commons is very pleased to continue its hearings into Bill C-70. We're pleased to have with us this afternoon, from the Tourism Industry Association of Canada, Debra Ward, president, and John McKay; from the Alliance of Canadian Travel Associations, Hugh Campbell, president, and Doug Crozier, ACTA counsel; from the Canadian Federation of Agriculture, Mr. Jim Burrow; from the Air Transport Association of Canada, Howard Goldberg, vice-president and secretary; and from the Direct Sellers Assoication, Ross Creber, president, and Jack Millar, counsel.
Welcome. We very much appreciate your being with us.
.1305
I was hoping we might limit initial remarks to three minutes or so. We want to make sure all of you have enough time during the course of our entire hearings to have everything on record that you want to see there.
Perhaps we could start with you, Debra Ward. Welcome once again to our finance committee.
Ms Debra Ward (President, Tourism Industry Association of Canada): Thank you very much, Mr. Chairman. I didn't realize I would be the first one up.
It's a pleasure to be here again to discuss a matter of great importance with all of you and to see many people around the table with whom we have met before. I expect a full and open and interesting discussion today.
The Chairman: As always with our committee, Ms Ward.
Ms Ward: As always, sir. It is always interesting to be here.
Tourism is a $42 billion industry in Canada. Almost $11 billion of that is in foreign exchange. That makes tourism, the last I saw it, the third-largest export industry in Canada, after automobiles and auto parts and bank business services. It employs 488,000 people.
It's made up mostly of small business, and it's unique in its ability to create jobs and generate wealth in virtually every corner or Canada and every region of this country. It's also unique in some of its challenges. It's unlike any other commodity in how and where purchase decisions are made. It is because of that uniqueness that we are here today to address you on the subject of Bill C-70.
As you are aware, the Tourism Industry Association of Canada has supported a value-added tax and has also supported the federal government's move towards a harmonized sales tax in Canada. The initial discussion began on a very promising note. Not to go over old history, when we first started talking about this we were looking at a national value-added tax with a combined rate of 10%. We've looked at 12% across the board. At those rates it was very easy to say yes to the idea and we felt very strongly the ease of compliance and the simplicity of the system, combined with the robustness of the visitors' rebate program under a harmonized system not to exceed 12%, would likely outweigh the impact of additional taxes on specific tourism products and services.
However, when we were looking at the various scenarios we never really fully considered the impact and issues around a partially harmonized system until we got the announcement last year. This idea, this concept, has added a level of complexity the GST and the national sales tax concept were created to eliminate, in our belief. With the roll-out of a truly national sales tax highly uncertain at this time, our concerns about how successfully we can roll out partial harmonization and the complexity of two systems and how we make that work become very critical, because we may all have to live with this for a very long time, or for a considerable time to come.
This government, and indeed this committee, have been very supportive of tourism and its fundamental role in the economy of Canada. Your support has been validated in a number of key ways. Our travel trade deficit is now down to $3.5 billion. Tourism grew by 7.1% in 1995, well above the national economy's rate of growth. We also anticipate a strong showing for 1996. Our successes speak for themselves; and they are in part, I believe, a result of the open manner in which the tourism industry and the government have been able to address issues.
It is for this reason that we urge the utmost care when implementing the HST. A decision to visit a region, whether for leisure or for convention travel, can be made or unmade in an instant. Any action which could lead to confusion, cost, or complexity may turn a potential visitor from a Canadian destination. Partial harmonization may cause all of the above.
From a compliance standpoint, tourism businesses are in the marketplace with brochures, national and international magazines, television ads, frequently seen cross-border, 1-800 lines, and the Internet. These same tools must serve local, Canadian, and international inquiries, as well as be competitive and comparable with other Canadian and international tourism products. It's important, we believe, for government to realize fully the implications of a partially harmonized tax system for the sale and purchase of tourism goods and products. We therefore respectfully request that the Government of Canada take action in the following manner.
First, we request that it work with the tourism industry to monitor and evaluate the impact of partial harmonization and taxation policy on tourism sales and purchases, both within and outside the harmonized regions. Second, we request that in partnership with the tourism industry the government work to maintain, improve, and/or develop appropriate programs and initiatives to support the continued growth of tourism. And third, we request that in partnership with the tourism industry the government continue to improve the visitors rebate program to ensure its effectiveness as a tool to enhance economic activity and visitation.
.1310
Again, we would like to commend the government as well as this committee and the minister and Department of Finance on their support of tourism. We hope we can continue to work together in an open and frank manner to build on the achievements we have attained, to the betterment of not only the tourism industry but Canadians and Canada.
I think that was under three minutes, Mr. Chairman. Thank you very much.
The Chairman: It was wonderful; and I know everyone will follow your example, Ms Ward. Thank you very much.
Mr. Campbell.
Mr. Hugh Campbell (President, Alliance of Canadian Travel Associations): I should preface my remarks by saying that if my voice cracks during this presentation it's not nerves, it's just that since I'm from Alberta, talking about a 15% tax causes strange things to happen.
The Chairman: It does exactly the same to me when I contemplate the fact that some day Ontario might discover vast oil reserves, sir.
Mr. H. Campbell: Thank you, Mr. Chairman, for the invitation you and your committee members have extended to us to participate in this hearing process. The topic is large, our time is short, so let me summarize the key points of our written submission.
As you know from our previous appearances before this committee, ACTA is the trade association for Canada's travel industry. Our constituency is national. To a certain extent it and our mandate complement those of TIAC and ATAC, which are with us today. Our distinction and our relevance come from one key fact. We represent the retail travel agency and the wholesale tour operators' segment of the massive tourism and travel market to an extent that neither of them does or professes to.
In the past we have opposed the harmonization of the federal GST with provincial sales taxes, or PSTs. We have done so for one understandable reason. A harmonized tax would see both levels of government tax all travel services, which to this point have not been subject to PST. To us ``harmonize'' is a synonym for ``increase''.
In the context of Bill C-70, the increase in the bottom-line cost to the consumer would be 8%. This is a tremendous increase. Travel industry profit margins are slim. Consumer demand is very sensitive to price fluctuations. An 8% increase will have a great negative effect.
Ours is already a heavily taxed industry. We and the consumers of our services already pay our fair share. Hence our opposition to the concept of a harmonized tax and the prospect of an even greater tax burden.
Nevertheless, three provincial governments have agreed with the federal government that these taxes should be harmonized. This political decision having been made, ACTA has concluded some sort of harmonized sales tax will sooner or later be implemented. We therefore want to work with you to make it a fair tax. To do so, our written submission makes several suggestions. You will want to refer to it for elaboration. Let me highlight our recommendations.
First, defer implementation. Ideally, if there is to be an HST, all provinces will participate. The current proposal builds boundaries and distinctions between Canadians. It forces Canadian businesses to treat some Canadians differently from others. It obliges business people outside the participating provinces to understand and apply complex rules which will affect only a small portion of their trade. This is neither efficient in a practical sense nor advisable in concept. Until the new tax regime can be made applicable coast to coast it should be shelved. At the very least it should be shelved until there is sufficient time for solutions to the many confusing aspects of the proposal and sufficient lead time for businesses to react to the new rules.
Second, zero-rate all international travel, including that between Canada and the United States.
Third, offset the extra tax burden on our already heavily taxed industry by adjusting downward other taxes which are now imposed upon it. This will allow our industry to participate fully in the HST regime without making it unnecessarily uncompetitive.
Fourth, eliminate the cascading of one tax upon another. This can be achieved either by eliminating the air transportation tax or by confirming that to the extent it continues to exist it is collected as a constituent part of the HST and is therefore incapable of being compounded.
Fifth, when a workable HST is effected, provide sufficient lead time to allow our industry to understand the clear rules that govern its collection and give effect to them in all pricing processes. This may require up to six months of advance notice, not six weeks.
We look forward to elaborating on these themes in the round table discussion that follows. Thank you again, Mr. Chairman, for the opportunity to present our views.
The Chairman: Thank you very much, Mr. Campbell.
From the Canadian Federation of Agriculture, Mr. Jim Burrow.
Mr. Jim Burrow (Canadian Federation of Agriculture): Thank you, Mr. Chairman.
I'm here today on behalf of the Canadian Federation of Agriculture, which is a national federation of provincial farm organizations and interprovincial or national commodity organizations. It speaks for farmers across Canada.
.1315
I'm here as a farmer from Nova Scotia, one of the three provinces impacted by this proposed new tax, and I feel confident that I can answer your questions regarding the impact of this on the farmers in our province and throughout the region.
Generally, this change is viewed as positive for the agricultural sector. How positive? As I travelled throughout our province last fall through the federation's activities, how positive depends on how close people are to major capital expenditures, which would be the most advantageous to them if that were the case.
I'm not going to read the presentation here. I just what to highlight two major points we see for concern. As I said, we're generally supportive of this, but there are a couple of concerns.
One is with regard to the zero-rated list. Within agriculture a number of items have been zero-rated to eliminate having to pay the sales tax at the point of sale. We see there are a number of inconsistencies in this list and we request that this list be reviewed by a joint committee comprised of tax authorities and farmers' representatives to ensure that no agricultural sector is penalized for the HST.
The back page has an example of some of the items that we think should be added to this list. It is not all-inclusive. There are others that need to be added, but we feel there is need right now for a commitment to study and evaluate this list to deal with the problems that farmers see.
The second major importance has to do with the cashflow problem. As you may or may not be aware, where food is zero-rated - and don't think for a moment I'm suggesting that food should be taxable; I'm using this as an example - it puts farmers in a unique position. We do not collect GST, or in the future will not collect HST. This creates a cashflow problem. Where we do not collect it, we are always remitters of the same, because we are always paying it on the inputs that are not zero-rated. There are considerable inputs that are not zero-rated on the farm.
By way of example, our province did a little bit of a survey of some farms. The average dairy farm in Nova Scotia pays approximately $5,000 a year in GST. Yes, you get it back, but it takes time. Compound this to be the HST, and that farm will be asked to carry $10,000 over a period of a year. We see this as presenting a cashflow problem to the farmers and would encourage your committee to look for ways to alleviate this problem.
The last paragraph of the brief alludes to one suggestion we have, that one way to alleviate this hardship would be for tax authorities to issue a cheque to farmers at the beginning of each month, quarter or year, depending on their remitting program, the amount of the average claim for the past period. This would have the effect of financing the tax for farm businesses to ensure that any negative impact is not factored into the cost of agricultural products. France has a similar system to this and we think it would be worth looking at.
Thank you. I'll certainly be willing to answer any questions to clarify these points further.
The Chairman: Thank you very much.
From the Air Transport Association of Canada, Mr. Howard Goldberg, please.
Mr. Howard Goldberg (Vice-President and Secretary, Air Transport Association of Canada): Good afternoon, Mr. Chairman. I'm very pleased to be here today to represent Canada's commercial aviation industry.
ATAC's membership rolls include all of Canada's major scheduled and charter operators, all regional carriers, many of the largest U.S. carriers operating into Canada and a significant number of helicopter, air taxi and flight training schools. Collectively, ATAC's members account for more then 96% of the $9 billion this industry earns each year.
Bill C-70 impacts all segments of our membership throughout Canada. On Friday I delivered to the clerk of the committee a brief that outlines the concerns of the airline industry with respect to Bill C-70. I hope that information is useful to the committee, and I look forward to answering any questions that might arise from it.
ATAC has been involved in a number of consultations with officials from the departments of Finance and Revenue Canada regarding the HST. We're very pleased to note that the government listened to and accepted some of the industry's concerns early on. These include not imposing the harmonized sales tax on transborder flights and the relief from the application of HST on the importation of aircraft and other equipment into the three harmonized provinces. I would point out, however, that the application of GST to the importation of aircraft and major aircraft components continues to be a significant concern. This is a matter that is included in our brief.
I would also like to note that since the imposition of the GST, ATAC has opposed the application of GST to transborder air travel. As mentioned by our friends from ACTA, we continue to oppose this. Travel to the United States is international air transportation. Canada is a party to the Chicago Convention on International Civil Aviation, an international treaty that obliges states not to collect tax on international travel. Canada complies with this in all respects of other international air transportation. Under the GST it even relieves train and bus transportation from taxing the transborder services. Only air transportation is taxed on the transborder.
.1320
Although not specifically mentioned in our brief, we would urge the committee to level the competitive playing field and recognize Canada's international obligations and zero-rate transborder air travel.
In our brief ATAC raises four issues we think need to be addressed legislatively. Three of these deal with the GST per se. These include inter-line settlement of air transportation, importation of aircraft and aircraft components, and the definition of the continuous journey. Tax-inclusive pricing, which is unique to Bill C-70 and HST, is also a significant concern and is addressed in our brief. As I noted in the brief, adopting the recommendations we've made in those four areas in the brief does not cost the Government of Canada one red cent. It does, however, represent significant costs to air carriers and impacts on our ability to do business.
I look forward to addressing these issues during our round table discussions, Mr. Chairman. Thank you.
The Chairman: Thank you, Mr. Goldberg.
From the Direct Sellers Association, Mr. Ross Creber, please.
Mr. Ross Creber (President, Direct Sellers Association): Thank you, Mr. Chairman. We've appeared before your committee on numerous occasions during the past few years. I won't take any of the valuable time we have today talking about our association or our member companies. I refer you to pages 1 and 2 of our submission.
With me today is Mr. Jack Millar, senior partner of Millar Wyslobicky Kreklewetz and tax counsel to the Direct Sellers Association.
Mr. Chairman, hon. members, I would refer you to the summary of our recommendations which can be found on page 3 of our submission. The first section deals with recommendations to amend the direct sellers mechanism under GST, which we are pleased to note has been carried forward in the HST-enacting bill as being beneficial to both government and the direct selling industry, especially the hundreds of thousands of independent sales contractors across the country.
I want to emphasize that the direct sellers mechanism has operated to everyone's benefit, and it is very important to understand, as we have outlined on page 5 of our brief, that the government has received more GST revenue than it would have otherwise, had the direct sellers mechanism not been enacted. Administrative costs for the government have also been significantly reduced as a result of thousands of independent sales contractors either not being required or not being inclined to become registered.
The amendments to the direct sellers mechanism which we are proposing address four inequities and will ensure these two significant benefits will be retained and enhanced. We have outlined these inequities on pages 5 through 10 of our submission and have discussed them before with this committee on previous appearances. They have similarly been discussed with the Department of Finance on numerous occasions and they have received a positive response. However, with the change in government in 1992 and the current focus on HST, the Direct Sellers Association has been patiently standing by in good faith to assist in their implementation.
We were very surprised and disappointed when the technical paper and draft legislation were introduced and these concerns were not addressed, even though other amendments, such as the two-year limitation on input tax credits, on which we comment on pages 11 and 12 in our brief, were proposed for the direct sellers mechanism. In the event that the proposed amendments we have been recommending are not accepted, there is less incentive to the independent sales contractors and the direct selling companies to continue to be part of the direct sellers mechanism, causing more independent sales contractors to become registered to receive the input tax credits which they are currently unable to claim but which are available to all other registrants.
The DSA strongly recommends that legislative action be taken to address these recommendations. As a matter of fact, the DSA has drafted suggested wording to address the treatment of shipping and handling charges and is prepared to work with the committee and department officials to achieve the desired results.
A moment ago I made reference to the two-year limitation on input tax credits which had been proposed for the direct sellers mechanism. The DSA sees no basis on which this proposed restriction should be retained. It discriminates against members of our industry. All other taxable suppliers are given four years in which to claim input tax credits. Direct sellers and distributors are being limited to two years in which to claim these deductions. This is not a level playing field and needs to be corrected.
Mr. Chairman, hon. members, I would now like to direct my comments and your attention to our second set of recommendations, which can be found in the harmonized sales tax section of our brief, on page 4.
.1325
The DSA is supportive of the concept of sales tax harmonization and sees it as being a positive step that should reduce costs and improve efficiencies for both government and business alike. The DSA does, however, have a number of serious concerns, detailed on pages 12 through 17 of our submission.
While we have no difficulty with the introduction of HST on April 1, 1997, we strongly recommend that the implementation date for tax-inclusive pricing be extended to January 1, 1998, to enable business and the various governments to make an orderly transition into this aspect of the harmonized sales tax system as opposed to the chaotic environment we currently face in terms of tax-included pricing, especially in view of the extreme penal consequences for non-compliance that have been proposed.
The Chairman: We're taking them out. We took them out this morning.
Mr. Creber: Thank you.
The Chairman: Ross, maybe some people would disagree with me, but we felt you shouldn't go to jail.
Some hon. members: Oh, oh.
Mr. Creber: We appreciate that, Mr. Peterson.
We are most concerned with respect to the definitions of a national catalogue and the impact that the criteria to qualify to be deemed ``national'' will have on business and consumers, criteria such as the requirement that in order to qualify no more than 49% of the products in a catalogue can be offered at a discounted price, or the catalogue pricing must be in effect for a minimum of two months, or that no more than 10% of a company's catalogues can be distributed in the participating provinces.
We ask you, Mr. Chairman, hon. members, with all due respect, what do these criteria have to do with whether or not a catalogue is a ``national catalogue''?
For the reasons set out on pages 14 through 17 of our brief, we find these criteria to be overly intrusive and discriminatory. If not rethought, they will force companies to change the marketing practices they have been following for years, even decades. Not only are these criteria intrusive but they are also absolutely absurd and show a complete lack of understanding of the realities of the marketplace.
As an example I would like to draw your attention to appendix A in our brief on page 20. We have provided examples of the disclaimer that would be required to meet the proposed 1/32-of-page requirement. This is designed to meet the requirements on an 8.5-by-11-inch catalogue, a very common catalogue size used in the marketplace.
The disclaimer for the 8.5-by-11-inch catalogue is six to eight times the size of the copy used to describe the products. This is not only absurd but it also discriminates against the catalogue merchandiser who has an 8.5-by-11-inch catalogue and one who has a 5.5-by-8.5-inch one. Clearly a requirement that the disclaimer be the same size as the copy in the body of the catalogue should be sufficient. We believe business and consumers should be given credit for having some basic intelligence.
In summary, the DSA believes catalogues are not hazardous to one's health and strongly objects to the government's proposed intrusiveness in dictating how we say it, where we place it and in what size we say it.
The DSA believes the manner in which proposed paragraph 366(3)(b)'s legislative requirements are met, that the disclaimer be indicated ``in a clear and unambiguous manner and in readily readable print'', should be left to the determination of the individual catalogue merchandiser. Nonetheless, to the extent minimum standards are thought to be necessary, those standards should be much less onerous than those that have currently been proposed.
Thank you, Mr. Chairman.
The Chairman: May I ask you, Mr. Creber, if you've had a chance to discuss these submissions in detail with officials from Finance.
Mr. Creber: Not in detail.
The Chairman: I don't feel capable, having just read your submission, of knowing the full implication of it, although your one picture about the size of the disclaimer is fairly telling. I would hope you could sit down with Finance officials and work through some of these issues.
Mr. Creber: I'd certainly be prepared to do that, Mr. Chairman.
The Chairman: Thank you.
[Translation]
Mr. Loubier, do you want to start?
Mr. Loubier (Saint-Hyacinthe - Bagot): I'll pass. I'll come back later.
The Chairman: Are you sick?
Mr. Loubier: No, I'm fine.
[English]
The Chairman: Mr. Solberg.
I'm sorry, did I miss someone?
Mr. McKay, I'm sorry I missed you. I apologize. I assumed you were with Ms Ward.
Ms Ward: We look that way a bit, don't we.
The Chairman: Well, he seems very happy sitting there.
Some hon. members: Oh, oh.
.1330
Mr. John McKay, MLA (Chairman, Government Caucus, Legislative Assembly of New Brunswick): Mr. Chairman, tourism broadens your horizons.
I'm the chairman of the government caucus of the New Brunswick legislature. I originally intended to come as an observer, but was invited by your clerk to make a submission. I'm not speaking on behalf of the Minister of Finance, but I do have some observations that may be of some assistance to the committee.
On the whole, New Brunswick is very enthusiastic about this tax reform, the harmonization. It's going to be good for New Brunswick. For example, we're going to see our combined tax, which stands at 18.77%, drop to 15%. New Brunswick businesses will now have a considerable competitive advantage in Canada thanks to the comprehensive interprovincial sales policy. We're going to press this advantage, especially as long as it exists before all of the other provinces decide to get in on the harmonization.
New Brunswick is an exporting province. Per capita it is the largest exporting province in Canada, and 60% of our economy is export-related. We're expecting the GDP to increase by 0.5% to 1% annually as a result of this measure, which will result in anywhere from 1,600 to 3,200 new jobs. We also feel that this is going to allow us the leeway, in part, to begin to ratchet down our provincial income tax. Accompanying the province's decision to go along with harmonization New Brunswick has announced a 10% reduction in its provincial income tax.
The only thing that still is a concern is how it will affect the people in the lower-income bracket. New Brunswick is coming up with a rebate system to assist low-income families. The other issue that's been very widely referred to is the tax-inclusive issue. It seems to me there is general agreement with the principle of harmonization. If there's agreement in principle then surely there's a mechanism - and I'm sure this committee will recommend it - as to how we can make the mechanics more acceptable.
Mr. Chairman, those are my comments.
The Chairman: I'm delighted you've been able to be with us, Mr. McKay.
[Translation]
Mr. Loubier would now like to put some questions. He has just changed his mind.
Mr. Loubier: When I heard what Mr. McKay had to say, I just had to react. Welcome,Mr. McKay. Welcome all.
Mr. McKay, I had a bit of a reaction when I heard you speaking. You drew us a very nice picture of New Brunswick's economy, job prospects, economic growth, tax decreases and so forth. Given these prospects, what is the justification for your Premier's raids in Quebec and Ontario businesses to draw them to New Brunswick and how can accepting that be justified? As Canadian taxpayers from other provinces, how can we accept to pay some $400 million in compensation to New Brunswick to harmonize its sales tax with the GST?
Don't you think that's unfair competition that New Brunswick businesses are engaging in with the other Canadian provinces using federal money?
[English]
Mr. McKay: This harmonization is certainly going to give the businesses in Nova Scotia, New Brunswick and Newfoundland an advantage. With the income tax credits it's certainly very attractive.
I should point out that when the GST was originally implemented to replace the old MST, there was a tremendous advantage to the manufacturers in central Canada, particularly in Ontario and Quebec. This may in some way help level the playing field.
.1335
I think in the long run you're going to see harmonization across the board. In the short run, the maritime provinces and Newfoundland have decided to go into this.
No, New Brunswick is not a wealthy province. New Brunswick is a severely disadvantaged province. It has the admirable goal of achieving self-sufficiency and becoming a net contributor to the Canadian family. That's what we want. If we can try to get enough business into our province to make ourselves self-sufficient, that has to be good for the Canadian situation.
[Translation]
Mr. Loubier: Mr. McKay, do you think it's normal to take money from all Canadian taxpayers, federal money, to give a subsidy to three maritime provinces thus giving them a competitive advantage which will allow them to engage in unfair and subsidized competition against businesses in the other Canadian provinces? Do you think that's normal?
Do you think it's normal to use these means to get New Brunswick and the other Atlantic provinces away from their dependency? Do you think it's normal to crush others using federal money? If you believe in this federation, it seems to me that's not how you encourage healthy competition. Federation isn't there to provide a tax advantage to one partner to the detriment of another and help crush him.
[English]
Mr. McKay: Mr. Chairman, members of the committee, the advantage only exists because of the sporadic phase-in of the harmonization. Once harmonization is applied across the board, there will be no advantage to any province as far as the tax advantage to business is concerned.
It was mentioned at an earlier hearing that medicare did not come in uniformly. Some provinces were in before others, and that obviously had its advantages for those provinces.
The assistance to the provinces was essential, because to go from an 11.77% sales tax down to an 8% sales tax without some type of financial consideration would have been very devastating to the New Brunswick economy, certainly in the short run.
I guess this is what Canadian federalism is all about. When a weak province, a small province, a province in difficult financial straits, with an economy that's not as robust as one we would like...if we can get a little helping hand to, as I say, achieve self-sufficiency, then it's good for all Canadians.
The Chairman: Merci, M. Loubier.
Mr. Solberg.
Mr. Solberg (Medicine Hat): Thank you very much, Mr. Chairman.
Welcome to everyone.
I think there are three big issues surrounding the harmonization agreement. One of them is the billion-dollar pay-out, or subsidy, or whatever you want to call it. Another issue is the issue of administrative problems, tax-in pricing and things like that, some of the problems that Mr. Campbell has referred to. The third is one that I don't think gets enough discussion. I think Mr. Campbell kind of alluded to it. It's the issue of tax competition and the need for tax competition between jurisdictions to keep a downward pressure on taxes. I think if you end up with a harmonized tax across the country and one rate, then you no longer have that downward pressure, and the tendency, especially with what has been written into this deal, will be for taxes to go up. I think that's a much bigger problem than tinkering with efficiencies and the tax system today. I think the overall tax rate is one of our biggest problems.
I do want to say something to Mr. McKay. First of all, I don't blame New Brunswick or Newfoundland or Nova Scotia for accepting a billion dollars that comes their way. To me, that's the most natural thing in the world. If we're apportioning blame here, I think the federal government deserves the blame, frankly, because I think they had a big political problem and they felt they had to do just about anything to get rid of it, including paying a billion dollars out to these Atlantic provinces.
I know the chairman will suggest I'm being cynical, but I think we need to say that.
.1340
I have a question for Mr. Campbell. Have you, sir, taken the time to figure out what kind of impact the harmonized sales tax will have on your industry if you have to bear that cost, if you're not zero-rated?
Mr. H. Campbell: The Conference Board of Canada did a survey and a report based on the tickets that had been issued through our bank settlement plan. I have that with me, and I can let you have a look at it. It did determine that a considerable number of tickets will not be sold if this tax goes through, because, as I said before, it's a very price-sensitive thing.
From their figures, based on what's sold now, the number of tickets not issued would be in the thousands, because a lot of those people would decide either not to travel or to travel some other way.
The dollar volume is there as well. I can let you have a copy of that report.
Mr. Solberg: We've already heard some witnesses this morning talking about the effects on tourism. There are so many different aspects to it, having to do with some of the things you've referred to.
Also this morning we had people talking about the psychological impact when people inside Atlantic Canada are advertising and they have to advertise with the tax-inclusive price and people in other jurisdictions don't have to advertise with the tax-inclusive price. Therefore there's a big advantage to those jurisdictions outside of the harmonized region when it comes to attracting tourists or consumers.
In the case, for instance, of American tourists, people may not take the time to figure out that they can get back the rebate. Of course in the case of other provinces there's no rebate, but all they see is that tax-in price. They don't know it includes all of the taxes and they don't take the time to distinguish between the bare retail price in their own area and the tax-in price in other provinces in the harmonized region.
I wonder if you've heard anything about this, or maybe Ms Ward would like to comment on this. Have you any idea what the impact might be?
Ms Ward: Yes, I would like to respond.
Our major concern - and I think it's been expressed very well around this table - is that, in our best attempt to create an equal tax that is fair for all Canadians, we now have something that is patently unequal and has a pretty inelegant interface between different regions of Canada.
Having said that, the question now becomes what do you do with it. We have had a great concern about how our products would be seen in the marketplace under partial harmonization, not only between a product in Halifax, say, and a product in Toronto, but also a Canadian product versus an American product versus a European product versus an Asian product. Tourism is highly competitive. It's very sensitive to price changes and to bad marketing.
We have worked with Finance quite closely and through this committee on these issues all along. A key thing we need to have is the full commitment from this government to work with us to ensure that the information in the marketplace is doing what it's supposed to do, which is to be fair and simple. If it is not fair and simple, then it is not doing its job and the promises the government has made will not be fulfilled.
We are holding the government to its word in the sense that when it says we are in the marketplace with this kind of policy for fairness, we have to ensure that fairness is followed through in all aspects of marketing tourism. It's really key, because one ad, one brochure or one piece of information can be seen by people locally, in unharmonized areas, and at international points, and all of those places would be taxed at a different rate. Some would get rebates and some wouldn't.
There is a commitment and certainly an obligation on the part of this government to ensure that those messages in the marketplace are clear and that they are helpful to the tourism industry and not hurtful to it.
.1345
Mr. Solberg: Although many people have spoken in favour of harmonization, one of the frustrations I've seen expressed to this point in the hearings is they cannot understand why tax-in pricing has to be a component of it at this point. A number of you have talked to Finance officials, and I'm wondering what kind of response you heard from Finance officials when you raised this.
Here we are, several months after the agreement was first announced, and people have protested, I think, in every province - and Mr. McKay, probably even in your legislature - that this doesn't make any sense at all. In fact I believe the provincial governments have said they don't care if there's tax-in pricing at this point.
So I'm wondering what you people have heard from Finance officials about why we're pushing forward with tax-in pricing when there's been absolutely no desire expressed by the people in the harmonized region for tax-in pricing at this point.
Ms Ward: I can't speak on behalf of the Department of Finance. We have asked throughout this process that tax-in not happen until we have full harmonization across Canada so you're comparing apples to apples. The latest information on tax-in has a number of ways of trying to come around that, but you're asking the wrong people. You should be asking the department for that, sir.
Mr. Solberg: Thank you.
The Chairman: Mrs. Brushett.
Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman. I have several questions, so you'll just have to cut me off when you feel it's the relevant time.
The first question is to the Direct Sellers Association. You recommend that implementation for tax-inclusive pricing commence January 1, 1998. What would you hope to gain by putting it off for six months?
Mr. Creber: One of the things we would hope to achieve, as I stated in my opening remarks, is an easier transition for businesses, governments, and consumers alike at this point in time. The comments that have been made around this particular table and probably in the earlier hearings support the fact that there is a lot of confusion out there in the marketplace.
Due to the fact that some of the rules were just released on Friday in the news release, we implore that the marketplace, business, and the various governments be given an opportunity to have time to make the transition to these rules more easily.
Mrs. Brushett: Are you recommending as well that we put off the harmonization until that date?
Mr. Creber: No.
Mrs. Brushett: Thank you.
I'd like to go to Mr. Burrow from Truro and welcome him here. It's nice to see a farmer here from my hometown.
Thank you for your input. It's very constructive.
You have made a list of additional supplies utilized in agriculture and fishery that should be GST-HST exempt. Have you gone over this list with the department in any way?
Mr. Burrow: No, we have not gone over this list with the department. As we indicated in our brief, our request today is that there be the opportunity for a review of this list.
I should clarify these are not items that are exempt. I believe the term is ``zero-rated''. These are some suggestions of items that it would be realistic to add to the list.
The reason we suggest this is there are a number of inconsistencies. For example, if you look at item number 13 on the list, to pick an unlucky number, it indicates such things as forage wagons. The forage harvester to chop the forage is zero-rated, but the wagon you pay GST on. There are other examples along this line, such as manure pumps. You pay the GST on them; the manure spreader is zero-rated. There are inconsistencies.
Other inconsistencies there are from the point of view of different commodity groups. A major input in the livestock sector is feed. It's zero-rated. A major input in the horticulture industry and the greenhouse industry is electricity and fuel, and that is not zero-rated.
That is why we are requesting that this list be reviewed. To date we haven't gone any further than to request. It would be a logical move to review it so it is appropriate for the future.
Mrs. Brushett: I haven't noticed very many things on here from the fishermen. I have had calls and requests from some of the fishing sector on certain specific items as well that would fall in this same category.
.1350
I wanted to follow up, Mr. Burrow, on your comment on how France implements its system in terms of the credits so that you maintain a cashflow, because this is a concern that we keep our farms economically viable and healthy and that they are able to compete. Have you presented this to Department of Finance officials?
Mr. Burrow: No, we have not presented to the Department of Finance. I believe we have a copy of some information on the France situation. I'm not entirely familiar with it, but it does provide a mechanism for providing the money up front rather than behind the times, which is the case on the farms now. In the examples I give here, this relates to everyday operating costs, as opposed to capital expenditures that you run into on the farm.
Just to clarify a little further, currently this is avoided in the provinces because a number of these items are exempt at point of sale. That apparently has not been an acceptable process under the GST, and we did not include it in our submission here. We're suggesting an alternative that has been used in other countries. But certainly once again we are looking for opportunities to alleviate this problem on the farms.
Mrs. Brushett: I had one more question, and it comes back to our air transport association. From your submission you were making two recommendations that would ease the administrative and financial burden on imported aircraft. You talk about many thousands of dollars that would be tied up in tax and that you'd have to go borrow. Again, it comes back to a cashflow situation. If I'm reading this correctly, the recommendations you're making are either to exempt imported aircraft or have them zero-rated. Have you discussed either one of these with the officials at the department?
Mr. Goldberg: This issue is not new. It's been around since the beginning of the GST. We have on several occasions raised it with the department in an attempt to get importing of large aircraft treated similarly to the way real estate deals are handled: either that there are no dollars but you just report the tax and report the input tax credit at the same time, or zero-rate, which allows us the input tax credit still on the other activities we do. Either one would work for us.
It is a significant difficulty and cashflow problem for us. Either one of the two recommendations would work, either zero-rating the import or allowing us some sort of administrative form filing that recognizes the tax but recognizes the input tax credit at the same time.
Mrs. Brushett: You have suggested in the past that you do a paper transaction only, to prevent the erosion of the cashflow. What's been the result from the finance department?
Mr. Goldberg: We've not been very successful in convincing them over the last number of years to move to this. They've not given us a whole lot more than... There's been no answer, to be candid.
Mrs. Brushett: Thank you.
The Chairman: Ms Whelan, please.
Ms Whelan (Essex - Windsor): I wanted to ask a question with regard to the tourism industry, maybe directed to Ms Ward.
You talk about the packaging and the pricing. I'm having a little bit of difficulty with people not accepting the fact that Canadians buying tours do understand the difference in pricing. Maybe I just see this more coming from a border community, but we often see tour brochures or catalogues advertising cruises or packages in the United States and the Caribbean in U.S. dollars. It doesn't seem to confuse the individual when they're trying to figure out how much it's going to cost in Canadian dollars. They sit down and do the pricing before they make that kind of decision. So I'm not sure I follow the rationale as to why an inclusive price would be at a disadvantage over any of these other types of pricing that aren't in Canadian dollars and don't have everything included.
Ms Ward: You raise a very good point, Ms Whelan, and it's one I'm happy to address.
For people who are familiar with Canada and how we work, you're quite right, there would be no problem; they'd be able to figure it out quite easily. They're not that stupid - you're right.
Our difficulty is in our attempts to expand our business to new travellers who don't know how Canada works. And you would be amazed at how many people fall into that latter category. There are people who come to Canada and have no idea what our dollar is worth, for example. There are people who don't realize that we don't use American currency in Canada. The list does go on and on.
If we are looking at growing tourism, which is our commitment and I believe this government's commitment, we have to make things very clear to those people who are coming for the first time to Canada: what they pay for, how they pay for it, and what they get for it. I think it's this group of people I'm most concerned about. Those are the ones to whom the messages have to be very clear.
.1355
Ms Whelan: I'm not disagreeing with you. I'd like to encourage the tourism industry in Canada and see it grow and expand, but I think we have to explain as much as possible to people. I've read those tour brochures from other countries, other places, and the fine print explains a lot of the prices that you don't see in the big advertised price. So I think maybe it's a challenge to the tourism industry to explain...
Ms Ward: As long as the fine print is consistent, you're absolutely right. One of the issues we have, and we're not sure how this is going to work out, is the fact that the media we use are seen by different people in different jurisdictions. So a Nova Scotia person can see an ad selling a Nova Scotia product, but they can get it out of Bar Harbor, Maine, in which case tax wouldn't be shown. That's misleading to them if they want to travel within their own province or in a harmonized area. The reverse may be true where you have some leakage between the two countries.
The clearest set of rules is a uniform set of rules across Canada - and some of them market internationally. We believe that happens when you have a national sales tax. If you want to put tax included at that time, that's fine, because then it's equal across the board. Bar Harbor now will have several messages coming to it for different products in different regions of Canada. It adds a level of complexity in a very noisy marketplace with lots of people all wanting tourism dollars.
Ms Whelan: Will you not, in the Atlantic, have an advantage for maybe a short time, maybe a long time, with regard to international tourists being able to have a rebate upon point of departure?
Ms Ward: Yes.
Ms Whelan: I see that as an advantage in a border community right now, where we have GST rebate centres in the duty-free stores with people who are leaving the country.
Ms Ward: I think you hit on one of the key reasons why we have been so supportive of this. We hope to see other jurisdictions sign on because of the rebate potential here. I think it's an enormous advantage for a very touristically attractive part of Canada, and one that will pay off for them.
Having said that, you also have to remember that international travel, as critical as it is, is about 15% of the total numbers. It's the most lucrative part of the travel - they spend more when they get here - but 85% of travel in Canada is still done by Canadians. An awful lot of the smaller industries don't see an international tourist, and we have to look after them as well. So it's an absolute advantage.
I commend the government who worked on the visitor rebate program to commit the visitor rebate program to the entire 15%. I think they will benefit in the long run. And we hope to work with the government to improve the system where we get cash rebates into people's hands just like at the duty-free stores before they leave Canada, so there they are with Canadian bucks and they're in Canada to spend them. That's what we want to see.
Ms Whelan: Thank you.
The Chairman: Mr. St. Denis.
Mr. St. Denis (Algoma): Thank you for being here.
I was quite interested, Mr. Creber, about the difficulties with respect to the catalogue. I think the size issues of print are fairly straightforward. What rationale do you feel led to the decision on the 10%? Is it as arbitrary as you seem to suggest? I'm not married to the 10% idea myself, but I'm confused as to why that would have arisen in the first place.
Mr. Creber: We are not totally aware as to where that 10% figure came from. If you look at the distribution of population, distribution of retail sales, and some of those figures across Canada, maybe there's some basis for coming up with a figure of 10%, with that particular region representing somewhere in the neighbourhood of 5% or a little over 5%.
I think it does discriminate against merchandisers who are maybe not operating all across Canada but are putting products and services into that particular region. It could cause them some concern in that they would be distributing more than perhaps the 10% requirement into that province. But I also think it is somewhat restrictive for companies that might want to expand some business into that particular region. They may be looking at the catalogue distribution numbers and saying we're at 9.5% now, so maybe we shouldn't go the extra distance, because then we will not qualify for a national catalogue.
.1400
As you recall from the news release, the criteria for national catalogues was that you had to meet all seven conditions.
Mr. St. Denis: So in fact the 10% rule may end up interfering with the natural movement in the marketplace.
Mr. Creber: That's right.
Mr. St. Denis: I trust you'll take the chairman's suggestion to speak directly to officials. I'm hoping there is some way to work around that.
Ms Ward, did you raise the tourism rebate issue? You made it fairly clear that the disadvantage, if there is any, has to do with the fact that it's a partial harmonization in the country. That issue aside, from previous testimony, the harmonization is generally a good idea for the tourism sector. Am I remembering correctly?
Ms Ward: That's right.
Mr. St. Denis: If so, do you have any quantitative idea of what the impact of tourists to that region, let's say from the U.S., might be if they were to qualify for a double rebate of the purchases in the region of hotel space and goods returned back to their country of origin?
Ms Ward: That's a question we hope to answer. One of the things we are looking at is putting into place a series of pilot programs in the harmonized regions, where we can measure these things and qualify them and quantify them and evaluate what the impact is. We do know a couple of things that indicate that it should be quite interesting.
For certain long-distance visitors - and I think the Japanese and perhaps the Koreans are probably the ones who are most outstanding - you can almost draw an exact point-to-point correlation between the value of the Canadian dollar and visitations. This is an astonishing kind of thing to do, but it's virtually identical. The same is true for countries such as France, the way you can see a correlation. The only country that doesn't show a large correlation is the United States. That tells us that we're extremely price-sensitive to international travel.
From that, we can further infer that the ability to offer 8% on accommodations and goods for export, as well as well convention services, can only help our competitive edge, particularly as our dollar is starting to climb. That is the concern of some of the inbound tour operators right now.
The other indication we have that seems to tell us that this will increase demand is on the question of cash rebates, which we were talking about a moment ago. In the duty-free stores that offer cash rebates at the land border crossings and in some European countries where cash rebates are offered between countries, they have tracked spending, and spending has been consistent at 50%. So we know, pretty consistently, that if you put cash in people's hands before they leave the country, at least 50% will stick. This is without even trying and without promoting it and working at it. They will just spend it.
These kinds of things tell us that we can use the vistors rebate program, particularly at 15% or whatever it rolls out to across the country, as a real tool - not as a gift back to people who have been here and may never come again, but as a tool to get them to spend more while they're here and to encourage them to come back. So we're looking for incremental spending and more visitations, but that will take a commitment from the government to this program and will also take a commitment to promote this thing properly and to see this thing as an incentive for growth.
Mr. St. Denis: Thank you, Ms Ward.
The Chairman: Mr. Campbell, I know you had to be away from us for a few minutes, but both Mr. Campbell and Mr. Goldberg suggested that perhaps we should not be imposing the HST on international travel. Perhaps you'd like to address that issue.
Mr. Campbell (St. Paul's): Thank you, Mr. Chairman. And I apologize that I was detained at the start of the session. Some of my colleagues think I should be detained for the entire session.
I want to respond to a couple of things that I understand were said and indeed are in the brief of the Alliance of Canadian Travel Associations.
First of all, as to the comment on the illogical treatment of the United States of America, I understand that the reason for imposing the GST on flights to the United States - or in effect, as you say, not treating the United States as an international destination for GST purposes - is in fact to level the playing field, or maybe I should say to level the runway.
.1405
To give an example, if I'm going to choose among Whistler, Aspen, and Vail as a destination to go skiing this March, my choice might be based on a number of things - weather, ski conditions, and the exchange rate of the dollar - but it shouldn't be affected by the GST. In fact isn't that the reason the United States is treated that way?
Mr. Goldberg: Yes, sir. We were given that explanation back in 1990. To be candid, we didn't ask for it back in 1990 and we aren't asking for it now. To my knowledge, when it was raised with the Tourism Industry Association back then, they also didn't ask for it at the time. So thank you for your help, but we'll compete. Thank you very much.
Yes, it may be an issue, but it certainly wasn't a concern we had. We were prepared to compete and have others compete without the imposition of the tax.
The other important thing to recognize here - and it's something my association did about a year into the tax - is a study on the impact of the GST on the trans-border. We discovered, especially in the lower mainland of B.C., the number of people who used a U.S. airport to depart to their U.S. destination went from one in five to one in three a year after the GST was implemented.
To put it in concrete terms, our consultant at the time said the equivalent of two fully loaded 737s a day weren't leaving Vancouver but in fact were leaving Bellingham or Seattle instead. So the impact of the tax takes folks from our airplanes, because they choose to go somewhere else.
That wasn't the same or as powerful an argument in Ontario. London was perhaps the place in Ontario where there was a balance, because the drive to Pearson is about the same as the drive to Detroit. There you saw that same impact. Buffalo wasn't as big an impact on Toronto because it wasn't as much a hub as Seattle.
But the reality is we lost business and the airport in Vancouver lost business as a result of the imposition of the GST on transborder, because people chose to get on the airplane outside of Canada.
Mr. Campbell (St. Paul's): I don't argue with your data, except from my own personal experience and what I have read lately about the Vancouver airport, it seems extremely busy. I don't doubt that it could be busier.
I do want to make one other point, just to make it clear from the government's perspective. The area of air transport, in particular international air transport, and the GST is still being looked at. It is ongoing. Those consultations with the organizations here continue and will continue over the next year. So we've not reached the end of the piece.
I encourage witnesses who were here and continue to have strong and reasoned concerns to continue the discussions they're having with the department.
Thank you, Mr. Chairman.
The Chairman: On that point, I think the response from Ms Ward would be very important too.
Ms Ward: Thank you, Mr. Chairman.
I also was not involved in that decision, which was ancient history in 1990. I do agree with my colleague that Canada should and must compete, not at the whim of tax policy to give you a break, but on the basis of its product and on the basis of its total pricing. Our total ticket price is a combination of many taxes, only one of which is the PST. We have issues with the aviation fuel tax. We have issues with a number of taxes that keep our ticket prices high in comparison with those of the United States.
I would much rather look at all of the pricing and see how we can rationalize and compete fairly than arbitrarily say ``We'll give you guys a break''. We don't need a break. We need a business relationship.
The Chairman: That's as much as we could ask in terms of an ongoing relationship.
Mr. Solberg.
Mr. Solberg: I feel I should jump in here with respect to the travel into the U.S. and the GST being imposed on those flights. Given the recent experience with Canadian Airlines, I would think all the airlines probably need as much help as they can get with respect to this.
Secondly, it seems ironic, when we're crowing about our exports and when we all agree that we need to promote exports, that we would be dissuading people from travelling to the United States to pursue business opportunities or whatever by imposing these taxes. I hope we don't just talk for another year, but actually come to some agreement on how we're going to deal with the GST.
.1410
The Chairman: Thank you, Mr. Solberg.
Mr. Goldberg.
Mr. Goldberg: There's one other point that I maybe didn't highlight enough in my opening remarks that I'd like to highlight. It's the issue with respect to tax-inclusive pricing at airlines and the fact that federally regulated enterprises - those under the legislative authority of Parliament - will be, as the bill states, required to have tax-inclusive pricing across Canada. No matter where in the country, our ad in that location must reflect the two taxes in the Excise Tax Act.
We do have a concern with the difference between federally regulated enterprises, such as the airline, and the tour operator who resells an airline's capacity, who will not be regulated by this law. We are concerned about the confusion that will bring into the marketplace. We think having two different prices in the same newspaper for the same destination, even though the fares are the same, will lead to some significant confusion.
I would refer you to our brief, and I'd be pleased to talk about it, but that is a concern of ours.
The Chairman: I'm sure Conrad Black, who controls all the papers, could rectify that for us very easily.
Some hon. members: Oh, oh!
The Chairman: Mr. Campbell.
Mr. Campbell (St. Paul's): To follow up on that comment about advertising, would you agree, then, that an ad containing a prominent disclaimer that price does not include applicable sales taxes, or some such wording, would be helpful?
Mr. Goldberg: The issue of how prominent is prominent and all of those things are a concern to us.
Mr. Campbell (St. Paul's): Some disclaimer or some type of -
Mr. Goldberg: If you look at the newspaper today, where tour operators advertise travel, they make the comment now that this is subject to applicable taxes. I should point out there are more than 1,000 different taxes around the world that can go on a ticket. Regrettably it grows almost exponentially. So no matter where in the world you sell a ticket to, taxes are going to apply.
To be candid, even the tax-inclusive price this law requires is to the United States only two taxes and fees out of at least five that will be on the ticket when the passenger buys the ticket. Three of the five are U.S. immigration, U.S. customs, and a PFC. So not all of the taxes are going to be shown on these tickets anyway, no matter which ticket.
Mr. Campbell (St. Paul's): I'm happy to hear much of the advertising contains such a disclaimer, but nothing we're proposing in this bill would affect the freedom to advertise, as you see fit, tax in or tax out. That hasn't been addressed. With the exception of catalogues, which we spoke about earlier, it's all in-store pricing that the legislation addresses at this point. I just wanted to clarify that.
The Chairman: Thank you.
Mr. McKay, followed by Mr. Campbell.
Mr. McKay: There is concern, certainly from people I've spoken with, about the issue of tax-inclusive pricing. The impression I've received is it's certainly something the federal government feels very strongly about, but it seems it's one area that many people have concerns about.
I in particular am not enthusiastic at this time about tax-inclusive pricing, until we get to a point where the tax can be applied across the country. There seems to be a lot of concern about the discrepancy that might apply, or at least the impressions that might be given.
The Chairman: Mr. Hugh Campbell.
Mr. H. Campbell: In response to Mr. Solberg's earlier comment regarding the Conference Board of Canada survey, their study indicated that the tax harmonization in those three provinces would result in 12,500 fewer domestic and trans-border leisure air ticket sales in 1997, and that would increase to 15,600 in 1998. Total taxes on those unsold air tickets amount to $0.68 million in 1997 and $0.84 million in 1998.
The Chairman: Mr. Goldberg.
.1415
Mr. Goldberg: To respond, there is in proposed subsection 365(1) the requirement on those that are federally regulated - those under the legislative authority of Parliament - to in all price information in respect of a service, which includes advertising, give the tax-imposed price. So under the law we will be required to show in our advertising, no matter where it is, the tax-inclusive price for the taxes that are under the law. That's the point I was trying to make.
There's a difference between the scheduled carrier, who's also the vendor, and the tour operator, who's a reseller of transportation. There can be a significance difference in the bold print that shows the price, notwithstanding a disclaimer of some sort on the bottom of the advertising.
Similarly, as we point out in our brief, we will advertise properly in Toronto for Toronto and in Halifax for Halifax. Our passengers often view the reciprocal as being the same fare. So if Air Canada is selling Toronto-Halifax at a rate that includes only the GST, if you, sir, wished to bring your aunt from Halifax to Toronto for a visit, you would discover another 8% on the ticket when you went to make the reservation, because that would not be the tax-inclusive price we would be advertising in Toronto, yet it would be the tax required for the ticket that starts in Halifax.
The Chairman: Ms Whelan.
Ms Whelan: I want to make one quick comment about that. I'm not necessarily saying I agree it makes it easy for you, but if you travel in the United States, which state you land in for connections will change the amount of your ticket, based on those very same reasons. This happens right now, in 1997. This isn't something new. It's been going on for years.
If you want, I can send you a copy of the last ticket I used when I flew from Detroit to visit my aunt. I'll show you what it cost going through one airport on the way down and what it cost going through a different airport in a different state on the way back. It didn't stop me from buying the ticket. I'm just saying this goes on. I'm not saying it's the right answer.
I'm a bit concerned, though, about what you said earlier about us not treating the United States as an international destination. That I have difficulty with. You mentioned London. I come from the area around Windsor, and I'm just wondering if you've done any studies with regard to other border airports. If they were to offer travel into the United States without GST, would there be any increase in the Canadian economy or in Canadian jobs, and what would happen with the recent policy of transferring airports to smaller municipalities to encourage travel?
Mr. Goldberg: No, we haven't done any particularly with regard to southwestern Ontario, and in fact the study I spoke about from 1993 reflected tickets that were taken... Our consultant went into travel agencies and actually took tickets and looked at them to see where they were going and made this work. It was done primarily in Toronto, a little bit in London and a lot in B.C.
Another Conference Board study indicated that for a lot of taxes we are roughly equivalent to the U.S., except in the area of fuel tax. You'll notice, for example, that as of January 1 the Province of Alberta reduced its fuel tax by 70% to all carriers. So there are tax components that impact on it.
Certainly in Windsor, which has Detroit right across the way, the pressure of lower fares that are based on other taxes, as my friend Ms Ward said, also affects this. But I'm convinced in my own mind that the reduction of taking the GST off trans-border then makes the carrier that departs Windsor much more cost-competitive.
If Windsor's airport is significantly less costly to operate in than the Detroit metro airport is, for example, with the new shared border accord work we're doing with INSPASS and CANPASS, you start to remove a lot of the other impediments that then can start to make that airport much more competitive. By taking the 7% GST off the ticket, especially since the U.S. 10% tax is now gone, that difference in ticket price is significantly different now from what it was in December.
Ms Whelan: I would agree with that, but I'd like to go back to the earlier point on travel through the United States and how, depending on which state you land in or which state your connection goes through, your ticket changes. They advertise, ``Fares as low as...'' They don't specify, because depending on which route you take, what seats are available, what time you fly and what days, the advertisement of the fare usually isn't exactly the fare you're going to pay anyhow.
I've seen those same advertisements by the airlines in Canada as well, in all the national papers: ``Fares as low as...''
.1420
Mr. Goldberg: I would agree with you that in fact the lowest advertised fare is often not every seat in the airplane. There are various inventories. And you're correct that with the U.S. passenger facility charges, depending on the airport you land in, there will be a fee or not a fee for that airport, which we are required to collect. That's one of the more than 1,000 various ticket taxes that can be on the ticket.
So what we're saying in terms of tax-inclusive pricing is if you say to the customer or to the passenger that their ticket includes taxes...
The government's press release says there is a significant amount of pressure from consumers. They want to know that the price they see advertised is the price they're going to pay.
Ms Whelan: Right.
Mr. Goldberg: But in fact, depending on where you're going, that may or may not be the case, notwithstanding tax-inclusive pricing. And when carriers have to advertise one set of prices and provincially regulated tour operators don't have to advertise that same price as the lowest price - and our business is very fare-sensitive - you can make decisions on what looks like a $10, $15 or $20 difference. We're just trying to make sure everybody is singing from the same hymn book.
Thank you very much.
The Chairman: So what you're saying is in order to get the business, your advertised price has to be as low as possible, even if it's a fraud and a sham.
Mr. Goldberg: No, sir.
The Chairman: Yes, you are.
Mr. Goldberg: No, sir. What I'm saying is if we're going to have tax-inclusive pricing, then let everyone say what's in it and have everyone advertise the same price. Understand the complexity in ticketing and the complexity of it depending on where you're going and how that affects the price. For example, if you fly from here to Vancouver and come back, unless you know Vancouver Airport, you don't know there's $10 to be paid in the Vancouver Airport before you're allowed to leave. Those kinds of things are all there and are part of the travel.
All I'm saying is if we're going to be advertising a price and if we're going to be regulating the advertising of the price, then let's have everyone say the same price.
The Chairman: So I guess what you're saying, then, is you're not against tax-included pricing.
Mr. Goldberg: That's correct, as long as everyone is advertising the same price or has the same imposition.
Thank you.
The Chairman: Okay. Thanks very much.
Mr. Solberg.
Mr. Solberg: Thank you very much, Mr. Chairman.
This whole discussion and also the remarks earlier from Mr. Creber underline how ridiculous this whole situation is. In the press release that comes from the Department of Finance, there's a page of restrictions on how you can advertise in a catalogue.
I thought the whole purpose of this was to make things easier. It's making things more and more complex. Witness what Mr. Goldberg has just said. This is making it more and more difficult and it's imposing more costs on business. There's no demand from the public for this. To me it's just bizarre. I don't understand why we're even discussing this.
People here have said they don't have a problem with the harmonization agreement, except tax-in pricing. There are exceptions to that, but by and large that's the case. Given that and given that there's so little benefit, if any, from tax-in pricing without the whole country going to it, my question is why are we even discussing this? It seems like a huge waste of people's time.
The Chairman: Would you like to answer that, Ms Brushett?
Mrs. Brushett: Mr. Chairman, I would like to answer Mr. Solberg as to why.
In Atlantic Canada, we want to know that if you go to the local hardware store to buy a lawnmower, where the tax is included in the price, when you look at the national catalogue and compare that price, you will know, from the regulations governing the catalogue processing, that it is not tax-in pricing.
We want to know we're not gouging, that prices are not higher at the local hardware store than what they are in the national catalogue coming in from Ontario or western Canada. That's the reason. That's the advantage to Atlantic Canada.
The Chairman: Mr. Campbell.
Mr. Campbell (St. Paul's): I'm sorry, Mr. Chairman, and I appreciate Mr. Goldberg's intervention after I spoke, because I misspoke. What I wanted to say on advertising was that those discussions as to how the advertising requirements might be changed, as we've done on the in-store tax-included pricing, also continue, as do the other consultations I spoke about, because there are issues to be addressed. We look forward to those continuing consultations.
You've seen in the guidelines we issued last Friday with respect to tax-inclusive pricing a whole range of things, such as the opportunity for dual pricing, which might well work in responding to some of your concerns. As I understand it, those discussions with your industry and the provinces and the federal government are ongoing and I think will in time address those concerns in a way that should be satisfactory all around.
.1425
We heard this morning from the Canadian Federation of Independent Business that those guidelines go a long way towards addressing many of the concerns that businesses had initially about tax-inclusive pricing. I have confidence that we'll be able to do the same in the area of advertising for federally regulated industries.
Mr. Goldberg: We will be starting to collect this tax as of February 1 for travel on and after April 1, as required by the technical paper. So there is a need for us to move with some dispatch.
Through you, Mr. Chairman, and through this committee, your assistance in getting the attention of our friends in Finance to have some discussions would be most helpful. Thank you very much.
The Chairman: Have you had difficulty having discussions with Finance officials?
Mr. Goldberg: No, sir, not at all.
The Chairman: I never have. I encourage this.
Are there any other comments before we close?
We've heard some difficulties expressed about the GST today that have been ongoing, such as applying it to international travel. We've heard about some new problems that are brought about by the harmonized deal, including but really limited to, I guess, the tax-included pricing, mainly because it is on a partial deal; it does not cover all of the country. We've also heard from the parliamentary secretary and others that there will be ongoing discussions to work these problems out.
I believe it was expressed this morning by the Canadian Federation of Independent Business that this is not the end of the voyage; this is the beginning of a voyage together, where we will have to work out a lot of the details as we go along. A lot of those difficulties and inequities will become apparent only as we work with them and find them on the spot.
I believe that to get the maximum benefit out of this new system we will have to follow the route that was outlined to us by Ms Ward, which was to continue to work with our partners in the private sector to make sure we are sensitive to your needs and that we are flexible enough on an ongoing basis to respond quickly and with alacrity to the problems that you bring forward to us.
I believe that many of the problems we heard before were alleviated by the guidelines brought in on Friday, and I don't think it's fair to say that those go all the way to solving the problems, but they do go a certain way. There are probably many other things we can do, working with you, to find ways to deal with existing problems, although maybe not to your 100% satisfaction.
I think it's also fair to say that we as members of Parliament, going back to our initial hearings on the value-added tax, the GST, when we recommended a harmonized GST, were very cognizant of the fact that we were not only the only country in the world that had more than one retail sales tax - we had ten - but we were also one of the few jurisdictions that did it the wrong way. The value-added taxes in Europe that were so much higher all involved tax-included pricing, because consumers wanted it and governments wanted it.
We are in the unfortunate position of being a federation where this is not entirely within the jurisdiction of any one government, so we're going to have to work this out together. We intend to work in close concert with our colleagues in provincial governments until we wrestle this thing finally to the ground, even if it does take a number of years. We realize it's not perfect and it could be a lot better. We also realize that what we have achieved today is a lot better than what we had a year ago or a few days ago.
.1430
So we shall continue on that course, always striving for perfection but realizing our limitations. With your help, with an open attitude and spirit in this joint endeavour, I believe we'll get there much more quickly.
On behalf of all members, may I thank you for the very valuable contributions you have made to us today.
We stand adjourned until 3 p.m.