EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, January 21, 1997

.0905

[English]

The Chairman: [Technical Difficulty - Editor]...and Ron Knechtel is with the Canadian Council of Christian Charities. Welcome back, Mr. Knechtel.

From One Voice, the Canadian Seniors Network, we have Robert Armstrong and Andrew Aitkens. It's good to see you both again.

From the Canadian Confederation of Ambulance Service Associations we welcome René Berthiaume.

From the Canadian Federation of Students, Brad Lavigne. It's good to see you again.

From the Canadian Medical Association I see another very familiar face, Dr. Judith Kazimirski, accompanied by a friend of ours, Bruce Flexman, and from the Federation of Canadian Municipalities, Daniel McGregor and Richard Mount.

We thank you all for being with us on this frosty morning in Ottawa and look forward to your opening comments. You have about three minutes apiece and then we'll go into discussion and give you lots of room for putting on record then anything else you want. We have lots of time.

David Armour, can we perhaps start with you.

Mr. David Armour (President, United Way of Canada): Certainly, Mr. Chairman.

Good morning, everyone. I'm pleased to be here and pleased to have an opportunity to speak to the committee.

I'd like to speak specifically to the portions of Bill C-70 that relate to the charitable and not-for-profit sector. So my positive comments are all related specifically to the portions that relate to the charitable sector.

United Ways across Canada have over 6.6 million donors, Canadian citizens who give freely of their funds to over 14,000 individual organizations. Millions of people also volunteer for those organizations. The majority of charitable organizations and not-for-profit organizations are small, and what donors and volunteers want to see is low administration, efficiency and effectiveness. The changes in Bill C-70 are very supportive in what they're doing for small charitable organizations and what they're doing for streamlining efficiency and effectiveness.

When we first heard of this bill on April 23 we spoke positively to the impact of Bill C-70 on the charitable and not-for-profit sector to the group and to the national media. The key areas we're pleased with are simplification and streamlining, which means 10,000 small charities do not have to file and claim and collect GST. There are also numerous specific areas that are positive in intent and positive in application.

We had a chance to meet early on with the staff of Finance in the crafting of this. I know there was a lot of input from the charitable sector. We're very pleased with the intent of Bill C-70: simpler rules related to fund raising; expanded range of exempt activities; and streamlined accounting, filing and reclaiming. Overall, we have very positive comments around the changes in Bill C-70 related specifically to the charitable and not-for-profit sector.

The only area of concern and perhaps of further study for the committee that I'd suggest is not a change in the bill itself but really an issue that predates the bill is the differential in rebate of GST for different organizations. For large public institutions there are different rates of rebate than there are for small or not-for-profit charities, and there's a range of those.

We all understand that when the GST was introduced it was important that there not be an increase in taxes to different areas and that they be carefully studied. But I think over the years as we move away from that, as we see the withdrawal of public funding from large institutions, a whole range of organizations are active players in the public in special events to raise funds and recruit volunteers. I think anything that tips the playing field from one group of organizations to another is an area that, out of a sense of fairness and out of a sense of simplicity, ought to be looked at.

.0910

So it isn't a specific new issue in Bill C-70; it's a longstanding issue. We'd simply state that if not in this bill, then in future bills, the finance department and finance committee should look at how, over a course of time, we can untip that playing field in terms of the different levels of rebates.

But overall, on behalf of the United Way of Canada and a number of members of the voluntary sector round table that I've talked to about this, we're pleased with the changes in Bill C-70.

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

Mr. Knechtel.

Mr. Ron Knechtel (Senior Adviser, Canadian Council of Christian Charities): Thank you, Mr. Chairman. It's a pleasure to be able to make this presentation to the committee on GST issues.

First of all, the Canadian Council of Christian Charities is a national association of Christian charities with approximately 1,150 members registered with Revenue Canada and supported by approximately 3.5 million donors. The council sets and promotes standards for good governance, fund-raising and financial accountability. It provides services and technical support to its members relating to compliance with the laws that govern charities.

Before I put forward specific proposals, I'd like to provide some background of the principles that would be impacted by the proposals. The GST and HST legislation imposes a tax on consumption in Canada only, and the tax is imposed on the supply of goods and services on a transaction-by-transaction basis. Charities are an exception to this general rule.

Under GST and HST legislation, supplies by charities are generally exempt and subject to certain exceptions set out in the legislation on particular transactions. The former federal sales tax legislation imposed a tax on the manufacturer or importer of goods and on supplies of certain services. Such tax was incorporated into the price of such goods at the earliest stage in the distribution chain and accordingly, charities, like all other consumers, bore this tax.

To ensure that the primary purpose for introducing the GST could be achieved - that is, to impose the tax on most consumption in Canada only - the system provides for a rebate of any tax the system imposes throughout the distribution chain until the supply is finally made to the consumer. Supplies exported and supplies of such items as basic food are not taxed, ensuring that no tax is payable by such consumers, either directly or in the price that is charged for such goods and services.

The government did not see fit to zero-rate or allow a 100% rebate for supplies made to charities.

The Chairman: That's because you don't collect GST on very many of your inputs.

Mr. Knechtel: We pay it, though. That's all we're saying.

The Chairman: Yes, but we give some of it back.

Mr. Knechtel: Yes.

Instead, it was determined that the tax burden on charity, other than hospitals, universities or other institutions, would be doubled under GST compared with the former FST. The government then allowed a rebate to charities to bring the tax burden down to the FST level. For most charities this involves a rebate of 50% of all GST paid on their purchases.

A further point under the GST and HST legislation is that a supply for a single consideration that has various components to it - for example, food, lodging, transportation and training - is treated as a single supply.

As we've indicated, while supplies by charities are generally exempt, specifically listed supplies are taxable. Therefore, it's necessary to determine which input costs relate to taxable supplies, or are eligible for the 100% input credit, and which relate to exempt supplies, eligible for a 50% rebate. Bill C-70 provides yet another simplified method to make this determination. Under this method 60% of the GST and HST collected will be remitted to Revenue Canada, and the 100% input tax credit will then be restricted to supplies of real and capital property purchased by the charity and used primarily in making its taxable supplies. All supplies -

.0915

The Chairman: Excuse me, Mr. Knechtel. I was hoping opening comments could be limited to three minutes. Do you have much more to go?

Mr. Knechtel: Not too far, no.

The Chairman: How much more?

Mr. Knechtel: Maybe two minutes.

The Chairman: Perhaps you could tell us what it is you do or don't like about this bill and what we can do to help you. Thank you.

Mr. Knechtel: Basically, we have this problem of having to divide...and we now have another simplified formula. We have problems with export relief supplies. We're effectively exporting our tax, because relief is not provided on a 100% basis except for the actual physical movement of goods overseas. All the support supplies for these exports are subject to the 50% rebate only. So effectively, we're not rebating all of the tax, and therefore the burden is passed on in reduced benefits to the beneficiaries.

We think if the government were to move to a 100% rebate, that then would eliminate the need for a simplified rule and it would solve the problem.

The Chairman: Is that just on exports?

Mr. Knechtel: It's on all inputs, to move from 50% to 100%.

That deals with the purchase side. On the supply side, the GST legislation treats supply for a single consideration as a single supply. Charities make single supplies but they also make single supplies and have taxable components and exempt components. Financial institutions also make supplies that have taxable components and exempt components. The legislation provides specific rules to determine that a combined supply is either fully taxable or fully exempt.

We do not have that in place for charities legislation. We believe such a rule is necessary for charities to overcome certain difficulties in classification.

Thank you, Mr. Chairman.

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

Mr. Armstrong.

Mr. Robert Armstrong (Member, Issues Committee, One Voice, the Canadian Seniors Network): Good morning, Mr. Chairman. We have been here before and we're pleased to be with the committee. We think we indeed are listened to. We respect the process. It is a direct channel to the Department of Finance, with whom we've had very cordial relations and wonderful cooperation.

The Chairman: They've told me they like you a lot, too.

Mr. Armstrong: They've provided an ample supply of documentation, which has kept us pretty busy.

We will be very brief. Perhaps in the second round Mr. Aitkens can add his usual wisdom to the hearings.

One Voice represents seniors in many different guises, whether it be income, basic security, or the drug question that is of concern. There is a very wide range of issues.

This harmonization is significant. Our aim is for a blended tax credit, federal-provincial. The reason for this is that a number of items will attract the new tax - home heating, fuel, propane, firewood, clothing, special services, personal services such as haircuts, and travel services inside Canada. Now, it's true that the tax will go down on a number of items, such as furniture, tools, automobiles, computers, audio and video equipment, televisions, VCRs, RVs and SUVs - for the uninitiated, that's sport utility vehicles - but seniors are not buying those goods. I did not see people staggering out of malls this Christmas with VCRs or TVs, and I certainly didn't see any seniors purchasing them. So we're saying we will not have the advantage of the offset. There are reductions but we will not benefit from them.

We think the tax system is a work in progress. It's like installation or contemporary art, which is always being fashioned and changed. We make the suggestion that you consider a blended credit if in fact it turns out that seniors at certain income levels are burdened by this change.

We make that suggestion to you. Thank you.

.0920

The Chairman: Thank you very much, Mr. Armstrong. I take it your main point is that seniors consume more services than goods.

Mr. Armstrong: That's right, sir.

The Chairman: Even though the overall burden for society as a whole will go down, for seniors, in many cases, it might be higher.

Mr. Armstrong: They're not into buying that attractive stuff, really. They're interested in it, of course, and fascinated by it, but they're not into the VCR and the video rental, particularly. It's a different lifestyle.

The Chairman: You don't have an ATV yourself?

Mr. Armstrong: No, I have a modest vehicle, but I don't have the new one, the SUV. That's $37,000 U.S., by the way, if you're interested.

The Chairman: Thank you, Mr. Armstrong.

Mr. Berthiaume.

[Translation]

Mr. René Berthiaume (President, Canadian Confederation of Ambulance Service Associations): May I address you in French during a portion of the presentation?

The Chairman: Yes, of course.

Mr. Berthiaume: Thank you. I represent the Canadian Confederation of Ambulance Service Associations. This is our first experience with this committee.

We are here to talk about what we believe is an injustice in the implementation of the GST. We have already brought this injustice to the intention of the Department of Finance. It was suggested to us that we turn to the Department of National Revenue and we did so. At that meeting, we were referred to the Department of Finance with the assurance that our problem should be raised before this committee.

On January 1, 1991, the Canadian government introduced a new tax on goods and services, known as the GST. From the government's point of view, the aim of the tax was to bolster the Canadian economy, reduce the deficit and improve the competitiveness of Canadian enterprises. This tax was intended to give private firms the possibility to recover the federal sales tax on the goods and services it purchased, and since the FST would be disguised, the new tax would be incorporated into the cost of operating a firm.

However, the new tax exempted certain goods and services such as health services. The exemption meant that firms operating in this sector could not recover the GST they paid on input costs because they do not charge it on the services they render.

Nevertheless, since most of these services are dispensed by provincial and municipal government agencies or by non-profit organizations, the government provided for a reimbursement on the GST paid on input costs to such organizations. But private firms were left out.

Ambulance services are among the health services dispensed to the general public. Close to30 percent of the 1,042 ambulance services that exist across Canada are dispensed by private enterprises that are subject to different taxation and income tax legislation.

Most services in the sector are operated by municipal government agencies or non-profit organizations for which the government has provided a reimbursement of GST.

However, private firms offering the same service to the population and that have a similar budget for those services do not receive reimbursement for the GST and therefore cannot recover it.

How can it be said that this tax is designed to boost the competitiveness of Canadian firms when we allow municipal government agencies or non-profit organizations to compete with private enterprise through tax exemptions that are denied private firms? Are there two tax systems - one for governments and municipalities and the other for private enterprise?

[English]

The federal government strongly encourages the provincial governments to harmonize the provincial sales tax with the GST, going as far as to provide them with several billion dollars to harmonize the process. Yet for the private firms operating in the ambulance service field in these provinces, particularly in the case of Quebec, which in July 1992 was the first province to harmonize QST sales tax with the GST, the injustice then doubles.

Indeed, instead of assuming 7% of the increase of their operating costs, the amount is now approximately 14% plus 7%.

.0925

So these issues are a problem to our group. We feel there is an injustice being done. We don't know which of the clauses in Bill C-70 would be addressed exactly. We conferred with your office on that. This is the only area in which we can address our issue at this point.

The Chairman: Merci beaucoup, Mr. Berthiaume.

Brad Lavigne.

Mr. Brad Lavigne (National Chairperson, Canadian Federation of Students): I'd like to thank the committee for having us here again. Today I'd like to talk about the goods and services tax on books, specifically the goods and services tax on textbooks bought by college and university students.

First, I'd like to commend the government for something that is not in Bill C-70, namely, the removal of the GST exemption for memberships in non-profit organizations. When the measure was first announced in April it created a lot of confusion among our membership. We later learned that our student associations and federation were exempt in any case. We think that given the increasing role of the third sector in our society, the government was wise to reconsider that.

On the issue of goods and services tax on books, particularly textbooks, we recognize that last October the federal government announced an extension of the exemption for certain institutions, such as libraries, universities, colleges, municipalities, qualifying charities and non-profit organizations. This rebate also is going to apply to classroom books distributed freely to students by educational authorities.

We applaud that as a very good first step. I think the federal government would do well to go even further in making books, particularly textbooks, more accessible to Canadians.

It is a fact that the funding cuts have taken their toll on university and college libraries. These institutions will buy fewer books and academic publications, which often leave us students with two choices. We can either buy the books ourselves or we can photocopy the relevant pages and articles we need.

The measures introduced by the Minister of Finance should provide a bit more breathing space to those libraries. However, they only address the institutional side of the issue. College and university students still must pay the goods and services tax on the textbooks that are mandatorily required for the courses they're taking.

As a member of the Don't Tax Reading Coalition, the federation endorses the notion that reading materials should be exempt from the tax. Of course, we recognize that such a broad exemption would be costly for the government and we understand why the government is reluctant to implement such a plan at a time when it has made fiscal austerity an essential plank of its mandate.

Not all students are affected equally by the additional cost of having the goods and services tax on textbooks, but for many of our members it adds up. For example, in the applied sciences, textbooks themselves can run anywhere from $70 to $100, and in the social sciences, although the individual costs of the textbooks themselves are lower, more are required for many courses.

We know the federal government has looked at this issue. The possibility of exempting books sold at campus bookstores was examined and rejected, and rightly so, we believe. Many campus bookstores cater to a much wider audience than students. Those who would be targeted in such an exemption would also be taking advantage of having GST off the textbooks.

What about the discussion that needs to take place regarding the textbooks themselves? We think we can come up with a way whereby a specifically targeted exemption - that is, for textbooks for students - can be found, with identification at campus bookstores about books that are required reading. We have no difficulty talking about exempting such textbooks as ``introduction to Physics 101'', clearly the type of textbook that would be used for the classroom.

It clouds the issue when we talk about books of literature such as The English Patient, the type of book that is also used for popular reading. We recognize that there are real problems involved there, but we wonder also if there isn't a bit of confusion.

For students, textbooks are books that are deemed to be mandatory reading for a specific course. The debate regarding whether or not we can make a choice to enter the marketplace as consumers and choose to buy certain products does not apply here, for these books are required reading that we have no choice in not buying. They are required reading. As library budgets are tightened and tightened, students are being forced to buy textbooks more and more.

.0930

So we believe the main problem is in the logistics of finding a mechanism to ensure that the publications used as textbooks are not sold at discounted prices to non-students. We feel that the finance committee, which has shown its commitment to offering relief for students in its recommendations to the finance minister, could take a leadership role, showing the political will that certain sectors of society should be exempted and students and textbooks should be one of them.

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

Dr. Kazimirski.

[Translation]

Dr. Judith Kazimirski (President, Canadian Medical Association): Thank you,Mr. Chairman. On behalf of the physicians of Canada, the Canadian Medical Association thanks the committee for allowing it to present its views on Bill C-70.

[English]

The Canadian Medical Association remains strongly committed to a federal sales tax system that is fair, simplified and equitable for all. However, the Canadian Medical Association is also of the strong view that there is a need to review the relationship between sales tax policy and health care policy in Canada.

I would like first of all to deal with the issue of fairness. Since the GST's inception in 1991, Canada's physicians have been treated in a manner that can only be described as fundamentally unfair. As a consequence of a tax anomaly, physicians are denied on the one hand the ability to claim GST input tax credits on the medical supplies necessary to deliver quality health care and on the other hand to pass the tax on to those who purchase such services, such as the provincial and territorial governments.

It is very difficult to convey the intensity of physicians' feelings about the inequitable treatment they receive under the GST and under the soon-to-be-implemented HST. As consumers in this country, physicians pay their fair share of taxes to support the wide range of government services. But because of the discriminatory effects of the GST, physicians in private practice have already been forced to absorb some $360 million of additional tax since the introduction of the GST. This is over and above what they have paid out as individual consumers. The harmonization provision of Bill C-70 will make a bad situation significantly worse.

A formal study done by the firm KPMG shows that in New Brunswick, Nova Scotia and Newfoundland, the provinces affected by harmonization, physicians will have to absorb an additional tax burden of $4.7 million per year. This is unacceptable. The primary issue is one of fundamental fairness.

The current GST policy also introduces a series of distortions that have tax policy and health policy working against one another. We believe it is time to address this situation based on the fundamental principle of fairness in the tax system while ensuring that good tax policy reinforces and supports good health care policy.

Mr. Chairman, members of the committee, the medical profession is not looking for special treatment. What we are asking is to be treated no differently from any other self-employed Canadian or any other small business that has the opportunity to claim input tax credits and to be placed on the same footing with other health care providers who have the ability to recoup GST costs.

Given the fact that the GST continues to discriminate against physicians, and given the fact that the government has yet to address this inequity in its first major attempt to amend the GST, I would urge your committee to adopt the recommendation we propose in our brief - that is, that health care services funded by the provinces be zero-rated. This recommendation serves to place physicians on a level playing field with other self-employed Canadians and other small businesses.

We have drafted a specific amendment in our brief that would address this matter. By adopting this recommendation the federal government would fulfil at least two overriding policy objectives: first, strengthening the relationship between good tax, good economic policy and good health policy; and second, applying the fundamental principles that underly our tax system - fairness and efficiency in all cases.

.0935

We believe the timing is absolutely critical. Physicians in Atlantic Canada are running out of time. The harmonization will go into effect on April 1.

The Chairman: Thank you very much, Dr. Kazimirski.

From the Federation of Canadian Municipalities, Daniel McGregor and Richard Mount.

Mr. Daniel McGregor (Senior Policy Analyst, Policy Programs Department, Federation of Canadian Municipalities): Mr. Chairman and members of the committee, thank you for providing FCM the opportunity to appear before you today on the matter of Bill C-70.

I'm the FCM senior policy analyst responsible for municipality finance. I'm joined by Richard Mount, who is the manager of commodity taxes with the City of Calgary. Mr. Mount is chairman of our technical committee on the GST, which comprises senior municipal finance officials from across Canada.

We have provided the clerk with bilingual copies of our brief. If you would like to follow along, I will be referring to the summary and recommendations.

FCM appreciates the federal government's decision last spring to retain the rebate for municipal governments and its assurance that this principle of no greater burden for municipal governments will be applied to any future agreements with provinces and territories. Our members are concerned, however, about the impact of harmonization at the provincial level. Negative impacts on municipal governments and property taxes erode public support for harmonization. We recommend that the federal government urge the provinces to support the principle of no greater tax burden for municipal governments under sales tax harmonization.

We're opposed to subclauses 114(2) and 114(4) of Bill C-70, which would remove the ability of municipal governments to claim input tax credits on municipal recycling operations and commercial garbage collection while providing private sector competitors an unfair advantage by allowing them to continue to claim ITCs. Municipal governments are involved in recycling business for legitimate reasons. We recommend that these subclauses be removed.

Our members are also opposed to clause 117, which would make the provision of the electricity, gas, steam, or telecommunications services from a para-municipal body to its municipal government taxable. We view this as a federal intrusion into the internal operations of municipal governments and hence provincial jurisdiction. We believe the application of GST to 911 services and to telecommunications services is critical to the provision of municipal police, fire, and disaster response services and would be unacceptable to Canadians once the facts become known. We recommend that clause 117 of the bill be removed.

We're also concerned about a series of Revenue Canada rulings and measures contained in the bill, measures that are eroding the level playing field between municipal governments and the private sector in areas of similar activity. We recommend that the federal government refrain from placing municipal governments at a competitive disadvantage with the private sector in activities of a commercial nature.

We object to the federal government's increasing use of retroactivity in the tax field. In our opinion this undermines basic norms and values Canadians expect to be upheld by governments. It is unacceptable for the federal government to penalize municipal governments and taxpayers for contravening laws that do not exist at the time of the alleged infraction. We recommend that the retroactive nature of measures in Bill C-70 be removed and that the federal government cease making legislation and regulations retroactive.

[Translation]

FCM also wishes to register its displeasure with the lack of consultation by the Department of Finance and Revenue Canada on a wide range of measures announced in 1996 and contained in Bill C-70, as well as major new interpretations of tax law affecting thousands of municipalities.

Every day, municipal leaders are reminded by taxpayers that poor consultation leads to poor public policy.

FCM recommends that the Department of Finance and Revenue Canada fully consult FCM before legislative and interpretive tax changes affecting municipal governments are proposed.

Lastly, the principle of cost neutrality for municipal governments was explicitly agreed upon between FCM and the federal government when the GST was introduced. Indeed, the GST rebate for municipal government is the result of this fiscal accord.

FCM recommends that the federal government honour its fiscal accord with FCM that no additional federal sales tax costs be passed on to municipal governments in the implementation of legislation and rulings on the GST.

The Chairman: Thank you very much. Lastly,

[English]

from the Canadian School Boards Association, the executive director, Marie Pierce.

.0940

Ms Marie Pierce (Executive Director, Canadian School Boards Association): Good morning. I apologize for our president, whose flight has obviously been delayed from Toronto.

On behalf of the Canadian School Boards Association, I want to thank the committee for the opportunity to appear and express our views on Bill C-70.

The Canadian School Boards Association is the national voice of provincial associations of school boards and school trustees. It comprises 9 provincial school board associations, representing over 400 school boards across the country.

Although the major focus of my comments will be on the clauses of the legislation concerning harmonization, I would like to provide brief comments on two other components. First, CSBA supports any initiatives that make it easier administratively to deal with the GST.

Secondly, we strongly support the government's initiative to implement a 100% GST rebate on all books purchased by schools and non-profit organizations across Canada. In this time of fiscal restraint and reduced revenues, any changes that result in savings for school boards are most welcome.

About the harmonized tax, CSBA has long been an advocate for the maintenance of the existing GST rebate levels for the school board sector. We have also maintained that no greater federal or provincial burden should be offloaded onto school boards as a result of reform or replacement of the GST. Any harmonization agreements reached between the federal government and the provinces must be tax neutral for school boards.

We wish to thank the federal government for maintaining its promise that there would be no reduction in federal rebates to municipalities, universities, schools, and hospitals as a result of harmonization. Unfortunately the federal government commitment has not been enough to ensure there will be no additional tax burden on the school board sector in the harmonized provinces.

The provincial component of the harmonized tax has not been adjusted to offset the increases because of the broadening of the number of goods and services covered under the harmonized sales tax. In Nova Scotia, for example, the impact of the harmonized tax will result in an increased school board tax expenditure in the order of $1.5 million to $2 million. This figure was determined in a study undertaken by KPMG chartered accountants in which a detailed analysis of the financial impact of the proposed HST on current expenditure levels of school boards was undertaken. I would be pleased to provide the committee with a copy of that report.

I would urge the committee to make recommendations to ensure provincial governments recognize the unfair burden placed on school boards because of harmonization and encourage them in any future agreement to provide a provincial rebate level that ensures tax neutrality. Alternatively, the federal government should reconsider its rebate level to ensure the level of taxation of school boards is tax neutral under any harmonization agreements.

An additional area of concern about the HST relates to CSBA as an association and the impact harmonization will have on such issues as membership fees, publication sales, annual conferences, and administrative costs. I recognize there is not enough time to go into any detail concerning these issues -

The Chairman: We'll give you all the time you want, but maybe we could do it in the second round, if you don't mind.

Ms Pierce: That's what I was going to say. We hope it could be provided in the question-and-answer session of the round table.

One final point. There is a need for the government to develop an education information package, which could help associations and school boards that are members to understand the implications of the HST and ensure there are no additional administrative costs related to its implementation.

Thank you very much for your time.

The Chairman: Thank you very much, Ms Pierce.

[Translation]

We are going to begin with Mr. Pomerleau's questions. I would like to welcome you.

Mr. Pomerleau (Anjou - Rivière-des-Prairies): First, I would like to wish the committee members a Happy New Year. I have come here this morning, somewhat inappropriately, to study the issues. So I will refrain from asking any questions.

I would simply like to point out that my first impression in listening to the people who have come here to testify is that we are going to encounter extreme difficulties with the GST. The various requests that have been made to us by different organizations representing school boards, students, senior citizens and others prove to us that everyone is dissatisfied with this tax. So we have an enormous amount of work to do in this area.

I'm going to pass, but I may come back a little later for supplementary questions.

The Chairman: Thank you very much, Mr. Pomerleau. Welcome and Happy New Year to you too.

.0945

[English]

Mr. Solberg.

Mr. Solberg (Medicine Hat): Thank you very much, Mr. Chairman.

We've heard from a number of witnesses already this morning on how the new harmonized sales tax is going to make things much more difficult for them. I think we need to explore that a little bit more.

We've heard from doctors how effectively the doubling of the GST in Atlantic Canada, save Prince Edward Island, will mean simply doubling a real injustice they've suffered ever since the GST was brought into effect. The same could be said for ambulance services. The problems associated with the HST are now going to be visited upon municipalities in Atlantic Canada and also school boards.

I want to start by asking Dr. Kazimirski how Finance officials justify allowing this situation to continue whereby you have to face the full brunt of the GST and also the harmonized sales tax in Atlantic Canada without the ability to pass it on. How do they justify this?

Dr. Kazimirski: My sense is that your question should be directed to government, but I would suggest that since the inception of this tax the physicians of Canada, through their professional associations, have brought awareness of this basic injustice to all members of Parliament, to ministers through various avenues, so that the message is clear and people have understood the message. What we have not seen to date is any action.

Our challenge now is to say that, given the unique opportunity presented right now, and particularly given the increased unfair burden to physicians given harmonization of the tax, now there is a chance to correct that basic injustice.

If I can turn the harmonization issue into one that makes it clearly understandable, for an individual physician in practice the cost of GST is approximately $1,500 to $1,700 as a direct expense they cannot recoup in any way. Under the harmonized tax, that's going to mean approximately $3,000 to physicians practising in Atlantic Canada.

What does that mean to me as a practising doctor? That means, in a very real sense, I no longer can afford the salary for my nurse. That pays my nurse for a month in my office. That's not consistent with the direction of health reform, with the kind of care we want to have. So it comes back to balancing what this government and provincial governments are trying to do in reform in this country, and then undermining it by a tax policy that is contrary and sets up an environment that is very hostile for people to continue to try to practice in.

Mr. Solberg: Health care is a big issue in Atlantic Canada. I know there is a lot of restructuring going on and people are quite concerned about it. I imagine this type of legislation would make it more difficult to attract doctors to Atlantic Canada.

Dr. Kazimirski: This is a critical issue. It's critical not only in Atlantic Canada but it also is becoming critical across Canada. We do have figures of physician migration in this country. In 1995, 674 physicians left this country. In Nova Scotia, that amounted to 58 physicians.

How does this relate to the GST? I would suggest to you that the environment of health reform in this country is an environment where not only physicians but also nurses and other people who are health care providers have been very deliberately in the first round left out of defining and shaping health reform. They have been told clearly that they are the problem and are not going to be part of the solution. Alberta has turned that around and said they've made a mistake; it's now time to involve practitioners.

That's the backdrop and framework within which physicians are asking, ``Am I going to practice in this country? Am I going to practice in Nova Scotia?'' What is the little straw that breaks their back? I can tell you that the $3,000 GST is a very significant expense that, given capped budgets for physicians' services, given provincial clawbacks, given increasing expenses on the practice side...

I paid 35% practice expense when I went into practice, and I'm now paying 50%. The GST is a significant component of that. Doctors very clearly are saying this is not an environment that supports professional practice, and they're not looking first to Canada.

So this issue of GST is an economic issue, it's an employment issue, it's a quality of care issue. Those are very real.

.0950

My little community lost two physicians this year. Both of them, because of the reality of the situation, have transferred their charts to my office, because we have a big basement. People who want their charts transferred to us come to us. One doctor, 4,400 charts. The other doctor, 2,100 charts.

Another doctor is leaving July 1. Another physician who is in a very, very active practice with mainly a seniors population is leaving in September. Why? Because there is not an environment that says you are valued, you are treated fairly in this country. Under the GST physicians are not treated fairly, and that issue is a very clear economic issue that is driving migration, that is driving where they're going to practice.

Mr. Solberg: I can assure you, Doctor, I'm personally very sympathetic to what you're saying. I know my party is. I'm also sympathetic to the $4 billion in cuts to health care you and your colleagues in the medical profession have faced as a result of cutbacks to health care by this government. Unfortunately, there's only so much time and I'm going to have to move on to Mr. Lavigne.

Mr. Lavigne, you mentioned you're a member of the Don't Tax Reading Coalition. If I remember rightly, the Prime Minister wrote the Don't Tax Reading Coalition before the last election, promising that if he became Prime Minister there would no longer be a tax on reading materials. Obviously there still is a tax. You and your colleagues must be fairly disappointed the Prime Minister didn't keep his word on that issue.

Mr. Lavigne: I would assume most Canadians are disappointed the promises that were made before the last election are not being fulfilled, yes.

Mr. Solberg: I will be interested to see if my colleagues across the way can comment on this later, but I think the Liberal Party did pass resolutions at two successive policy conventions to repeal the tax on reading materials. Perhaps you can engage them and ask them what happened to their resolution.

I want to pass on to Mr. McGregor for a moment. I understand, Mr. McGregor, that under the current legislation municipalities will probably be forced to raise property taxes because they are not able to get a rebate on things such as recycling and garbage collection. Is that correct? Is that one of the concerns the municipalities association has?

If that's the case, what will you be able to recommend to your colleagues across the country when they are considering harmonization in the rest of the country, outside Atlantic Canada? Obviously the harmonization experience won't be a very happy one for municipalities in Atlantic Canada.

Mr. Richard Mount (Chairman, FCM Technical Committee on the GST, Federation of Canadian Municipalities): I wouldn't say we would be passing on property tax increases just as a result of that, but we would be denied input tax credits comparable to those of the private sector. In light of this it does place an increased burden on municipalities.

Mr. Solberg: Obviously the cut has to come in cuts to services or it has to come in the form of higher taxes. There are only two places it can come from. Rather obviously, municipalities across the rest of the country are going to be aware of this, particularly if harmonization moves across the country. That isn't going to be something they are going to jump up and embrace, I wouldn't think.

Mr. Mount: In light of harmonization and in light of some of these changes, municipalities would be under increasing pressure to try to deal with some of these cuts and these additional costs. We will do everything we can to avoid property tax increases, however.

Mr. McGregor: I might add that the changes in Bill C-70 on municipal recycling are not by definition related to harmonization. I think they are more part of the simplification package, which is in fact damaging to municipal governments in the sense that it places us at a disadvantage relative to private sector recyclers. It's not by definition a component of harmonization. There's no reason why those elements in the bill could not be removed and the playing field reset to be level.

Mr. Solberg: Just a final comment, Mr. Chairman, before we move on. The issue of retroactivity was raised by the municipalities association. It has been raised before the committee several times over the last couple of days. I certainly have asked that retroactivity not become something that is done on an ongoing basis by the finance department. It makes it difficult for everyone to plan, obviously, and it is pretty contrary to most people's sense of what's proper and democratic.

.0955

So I've requested that those types of issues be addressed at this committee before the people at Finance go ahead and arbitrarily do them. I don't know whether or not that will become a fact.

The Chairman: If what we've accomplished in the past is any indication, this committee will become the dominant voice for all finance issues, not only in Canada but also in the world.

Thank you, Mr. Solberg, very much. Ms Whelan.

Ms Whelan (Essex - Windsor): Thank you, Mr. Chairman.

A number of colleagues on this side of the table as well, including Ron Duhamel, who is unable to be here today, are concerned about the issue Dr. Kazimirski raised. We'd like to try to get to the bottom of it.

Perhaps you could tell us what you estimate to be the cost of your proposal to the government. For example, what are the before and after tax estimates should the medical services be zero-rated?

Dr. Kazimirski: My sense is that this is a very complex question. I would like to deal with it in three ways.

First, we have reviewed this issue extensively. We have had two major studies done through KPMG, in 1992 and now. Mr. Flexman has the details of those facts and figures. It's also important to know that in the process we have shared that information with government, and neither the methodology nor the figures we have come up with to date have been questioned. We have made available to the research staff copies of both of those studies for them to review.

With the permission of the chairman I would ask Mr. Flexman to give the dollars. Then for a moment I would like to challenge you to consider that this goes beyond simply the dollar amount to government to the impact this will have on health care services across the country.

The Chairman: Maybe we could start with the dollar amount anyway.

Mr. Bruce Flexman (Consultant, Canadian Medical Association): The study that my firm of KPMG prepared in 1992 calculated the amount as being $83 million. That is with respect to physicians' services. That's a pre-tax number. If you made it an after-tax number it would be approximately $60 million.

The Chairman: Ms Whelan, would you permit me a question?

Are we talking about the three Atlantic provinces or all of Canada?

Mr. Flexman: This is a GST number for all of Canada. For Atlantic Canada, the number was approximately $4.7 million in increased costs. So the $83 million is GST. The after-tax figure was $60 million GST. The additional HST impact for the Atlantic provinces was $4.7 million.

Ms Whelan: What is the GST figure just for the Atlantic?

Mr. Flexman: We have not broken it down province by province. That is the number right across the country. The detailed report breaks it down by provinces across the country. That analysis can give you the breakdown by each province.

Ms Whelan: You're saying the finance department has no problem with these numbers and have recognized them.

Mr. Flexman: They've had the report for four years and have not come back with any concerns about it.

Ms Whelan: Okay.

The Chairman: Thank you, Ms Whelan. Mrs. Brushett.

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman. I have several questions, so please bear with me until I pursue some of them in further depth.

I would like to again turn Dr. Kazimirski to this report that KPMG has done. The report does break things down. You indicate that the GST per physician is approximately $1,100 per year. That's the burden the GST has imposed on a physician in Canada. Am I correct in that?

Mr. Flexman: I think the number for Canada is around $1,500. For the Maritimes, depending on the province, it was between $1,000 and $1,400.

Mrs. Brushett: You indicate in this study that it's $1,100. The study is signed with your name. So I presume it's $1,100 somewhere, or $60 million per year for all physicians in Canada.

.1000

Mr. Flexman: That is the net effect of the GST minus the FST impact, you're correct.

Mrs. Brushett: Okay. Let's take $1,100 per physician in Canada today, as the GST stands. If I go through your report in depth, I see many of the things you have listed as either a positive impact or a negative impact on the cost of doing business as a physician, as a professional, in this country. It seems to me you've included such things as conventions, travel, bank interest charges, promotion and advertising, and repairs and maintenance on automobiles. These are things every Canadian in this country has to pay. I'm wondering why the medical association of Canada would feel they are hard done by more than any other Canadian.

Mr. Flexman: Every Canadian business involved in delivering services is able to claim back the GST. The concept of the tax is that consumers would pay the tax but business people who are effectively providing services to others would recoup the tax.

Mrs. Brushett: Is it not true that Dr. Kazimirski or any physician in this country would be deducting these as expenses of doing business?

Mr. Flexman: For income tax purposes that's correct, yes.

Mrs. Brushett: So they're at no disadvantage to any other Canadian.

Mr. Flexman: Yes, they are at a disadvantage, in that they're not able to recover the GST they are paying out for their business expenses. They do not look to claim back the GST on their personal expenses, like any other Canadian.

Mrs. Brushett: But you are selling a direct service to the Canadian public, the end-user, so you're in business to provide a service. You are not a manufacturer, who has two or three other buyers or sellers before the consumer absorbs the product. There is a distinct difference in your service to the consumer in this country...as opposed to the manufacturer, who gets his rebate.

Mr. Flexman: This amount would not be passed on to the consumer. In this case the consumer is the provincial governments. They are the ones who are acquiring the medical services on behalf of Canadians. Since they do not pay any GST, one would not expect GST to become part of the health care system. That is the basic problem we're trying to identify.

Mrs. Brushett: Would one not expect a medical office to pay GST on its rent? It's a commercial occupancy and every other business in the country pays GST on its rent on a commercial occupancy, so why would we not expect the medical profession to do likewise?

Mr. Flexman: We're not arguing that they don't pay the GST. We're asking that they get it refunded as does every other business in the country providing services to Canadians or provincial governments. They get back the GST they pay on their office rent and other expenses.

Mrs. Brushett: The point I make is that doctors get it as an expense on your process of doing business in this country, and therefore it is as fair as fair could be to all Canadians. Canadians around this table today would be paying GST on automobile repairs, on all services they would be buying. So I see that we're asking for something that builds maybe a greater inequity rather than what you claim to be an inequity at present.

I will leave that for a moment and turn to a couple of other questions, because I think it is important to go through the fine details and see what we can do to serve Canadians as fairly and equitably as possible - and that's our purpose around this table. I did want to turn to Daniel McGregor about the Federation of Canadian Municipalities and their requirement to compare with the private sector in recycling and managing this whole process of maintaining green communities.

Have you talked to the Finance officials to determine if we could just take this out, or if there's some reason why we couldn't, so our municipalities could be competitive?

Mr. McGregor: If my understanding is correct, I don't believe we were consulted on this amendment. Indeed -

Mrs. Brushett: But have you consulted back with Finance in the interim?

.1005

Mr. McGregor: Yes, we've had meetings with Finance officials and have expressed our concerns about this. We feel it's another step in the steady erosion of the level playing field between municipal governments and the private sector in areas of commercial activity.

It was explicitly agreed upon among all parties when the GST was introduced that where municipal governments engaged in such activities they'd be treated in the same manner as the private sector. Municipal governments are involved in recycling for very legitimate environmental and political reasons. In some cases, they're mandated by provinces to do so. Now, all of sudden, in Bill C-70, without consultation, we're being denied the right to claim input tax credits on our GST costs while the private sector, our competitors, will be allowed to continue to do so. We think that's unfair.

Mr. Mount: One of the basic problems is that the finance department is having difficulty distinguishing between the commercial nature of recycling as opposed to basic garbage collection. Its position seems to be that the two are one and the same. In fact, the markets dictate that we sell our recyclables. It is a growing market, and it's going to take time to develop. But we are in that market for legitimate reasons, competing with private individuals.

Mrs. Brushett: May I suggest to the chairman that as I think everyone here knows, the process and the progress of GST to HST is an ongoing process. There will be input, as there is still input regarding GST legislation going on, and it will happen with HST that we continue to look at this. It's a very critical issue, I think, for our municipalities.

I have one more question, if I may, to Robert Armstrong. Some of the provinces have told us that in terms of the apparent and maybe inequitable costs that will come on to people of fixed income in services and needs, such as basic home heating fuel or gasoline, there be direct rebates from the provincial governments, or tax cuts at the provincial level, to assist those families who would be below a certain income.

Would that address your needs in the senior population if these do proceed? I understand they are in the works, at least for the province of Nova Scotia.

Mr. Armstrong: I'll turn to my senior counsellor here, the voice of wisdom. That's the direction, but we wouldn't want to see fragmentation.

Mr. Andrew Aitkens (Director of Research, One Voice, the Canadian Seniors Network): I think several mechanisms are being considered right now, but I also think we need to look at some of the principles that informed the design of the existing GST credit. Certainly there was an attempt to recognize that low-income people, who typically consume all of their income, are paying high levels of tax proportionately, and that is the inherent regressivity of consumption taxes. In order to help reduce that regressivity the GST credit was introduced. It recognized that there is a real burden for certain particularly low- and fixed-income people.

In designing a perhaps blended tax credit based on the same principles, I think the provincial governments could recognize that there are certain people, particularly seniors, who do use more services that now will become taxable under the HST that weren't before, and it's not a matter of choice for them. This is not discretionary spending; this is what you have to do in order to maintain your independence.

This ranges from simple home maintenance costs, such as having a new roof put on, having the house painted or having the driveway ploughed in the winter - and that's certainly obvious in Ontario - to the area where these services may define an individual's ability to remain independent. I'm talking about the kinds of services that approach medical services, such as support services in the home and so on, which will become taxable. Perhaps provinces and the federal government may look at the kinds of services that are taxable that are on that borderline, such as visiting homemakers and personal care attendants and so on. These can be critical for maintaining independence. If we used the principles that designed the original GST credit with a new HST blended credit with the provinces, I think we'd move in the right direction.

.1010

Mrs. Brushett: Thank you very much. I appreciate your input, because it is critical that we make the appropriate use for people who are certainly going to be hit by any additional costs in these areas.

The Chairman: Mr. St. Denis, please.

Mr. St. Denis (Algoma): Thank you, Mr. Chairman.

Thank you all for being here. Few would disagree with the theory, I think, when you step back ten miles from the question of harmonizing taxes and reducing paper burden and so on, but as we get down to the details, of course, there are a lot of questions and concerns, and we appreciate those being raised here today.

I have two questions. The first is to the Federation of Canadian Municipalities. You raised in your fifth point the government's increasing use of retroactivity. Now, it may be in the body of your text, which I didn't look at - you elaborate there - but for the record, would you give us some examples of the issues raised on retroactivity in Bill C-70. What do you mean there?

Mr. Mount: The area we're referring to there is recycling. There are other areas of retroactivity in Bill C-70, I believe, which do not affect us. We're raising it as a matter of principle, really.

Mr. St. Denis: What do you mean by retroactivity vis-à-vis recycling?

Mr. Mount: What they have done with recycling is they have made the recycling activity part of basic garbage collection and they have gone back to the inception of GST in 1991, which will require us to repay input tax credits that were claimed on specialized equipment and capital equipment utilized in these services.

Mr. St. Denis: Do you have a notional idea of the cost of that to Canadian municipalities? It's a fair point. I'm just wondering if we're talking nickels and dimes or whether it's a significant cost.

Mr. Mount: It's significant, but we haven't done any specific studies estimating the costs. We would have had to have done surveys of our members to do that.

Mr. St. Denis: That might be a helpful thing to know if there were any way to find it out without any great trouble to you.

Mr. Mount: I think we would be able to do that.

Mr. St. Denis: The second point, Mr. Chairman, is to understand better the issue that was raised by Dr. Kazimirski.

I will use an Alberta doctor as an example to help me understand the bottom line and to make sure the bottom line you talk about is what I understand. If I have $100 of hydro costs in a year and I'm a non-medical business, a non-doctor business, on that $100, or $7 of GST, I'll get the GST back as input tax credit and show $100 on my income statement as an expense. Right?

If I am a doctor in Alberta, I don't get the $7 GST back as an input tax credit. Do I show $107 on my income statement as an expense -

Mr. Flexman: That's correct.

Mr. St. Denis: - or do I show $100?

Mr. Flexman: You show $107.

Mr. St. Denis: An extra cost is an extra cost. Whether it's $1,000 or $2,000, I accept that there's an extra cost there. But when you talk about the $1,500 average cost to a doctor now, is that before personal taxes or after personal taxes? Is it $750? At a 50% marginal rate, are we talking $750 or are we talking $1,500?

Mr. Flexman: We're talking $1,500 per physician pre-tax.

Mr. St. Denis: Pre-tax. Okay.

Mr. Flexman: After tax, if you take into account both the federal and the provincial taxes, it would be $750, if you use an average 50% marginal tax rate.

Mr. St. Denis: Yes, I'm not disputing that there is an extra cost there, as you see it.

Dr. Kazimirski: On business expenses only. That is not the appropriate GST physicians pay on their own personal income tax. That is strictly in light of their practice. As self-employed individuals they are considered small businesses for tax purposes yet are not treated as a small business when it comes to how they can deal with GST in their business expenses.

Mr. St. Denis: Let's go to the bottom line, the post-tax situation of $750. Does that $750...have you factored in there what the old FST, the federal manufacturers sales tax...what was already there before?

Mr. Flexman: That was the number Mrs. Brushett was dealing with. That's $1,100 per physician. So that's why the $1,500 is the full input tax credit. The difference between FST and GST would be the $1,100 impact.

Mr. St. Denis: So is it $400? If the net difference is $400, post-tax we're talking $200.

.1015

Mr. Flexman: No, the $400 would have been the FST physicians would have been paying prior to 1991. So the net impact is the $1,100. If you want to after-tax that amount, it would be $550.

But it's important to remember, when you get into before- and after-tax numbers, that when you're talking about the expenses of a practise you don't go around and say, well, the employee is going to cost me half of that amount because I get a tax deduction. You effectively talk about pre-tax numbers. But we've been giving post-tax numbers because that has an impact on government revenues. So that was the number we gave.

Ms Whelan's was the after-tax number. If the government refunds more input tax credits, then it also gets back more income tax.

Mr. St. Denis: Okay.

Do I have time for another short one?

The Chairman: Members have as much time as they want, and so do witnesses.

Mr. St. Denis: This one is to Mr. Lavigne. Along a similar line, to try to get to the bottom line, there has been for a long time an educational tax credit. I think it was improved in the last budget or two, but I can't remember which budget.

Do you consider that the educational...and I think Mr. Martin has even said as such, that the improved educational tax credit was to help offset, among other things, the cost of GST on books? Are you factoring that in to your comments or calculations?

Mr. Lavigne: Not all students who are forced to buy textbooks and pay the GST get that exemption or are in the position to get that exemption. So it's not a universally covered thing. You can't say that GST on textbooks is fine because it's covered by this other component of the tax system over here, because it doesn't apply universally. I'm sure we could put some numbers together for you.

Mr. St. Denis: But if the student can't claim it, can't the parents?

Mr. Lavigne: Yes, that's right. That might be nice for students who live at home and are studying in their principal residence area, and these types of things. I'm a student from outside of the province. We haven't taken advantage of any of those, yet annually I'm forced to dole out, in some cases, hundreds of dollars in textbooks. So it doesn't apply to every single student.

We could forward you the numbers on how many students and parents actually take advantage of that, but I think it would make the system easier and more fair just to do it at the source as opposed to creating all of these post-catch-all mechanisms.

Mr. St. Denis: Thank you. I appreciate that.

The Chairman: Thank you, Mr. St. Denis.

[Translation]

Mr. Pomerleau.

Mr. Pomerleau: I would like to ask Mr. Berthiaume a question. You represent the Canadian Federation of Ambulance Service Associations, do you not?

Mr. Berthiaume: That is correct.

Mr. Pomerleau: Does your Federation only represent the private sector?

Mr. Berthiaume: No. The Federation represents all kinds of administrations. For example, in British Columbia, the province administers these services, whereas they are entirely handled by private enterprise in Quebec and Ontario.

Mr. Pomerleau: Since you presented your brief on behalf of the Canadian Federation, would you be prepared to say that all those who are not in the private sector acknowledge that private enterprise is not well treated in this area?

Mr. Berthiaume: Our members are aware of the brief that we submitted to you this morning and of the presentation that we are making here. The Federation has made a number of presentations on the subject in the past.

Those that received reimbursements of the GST through reimbursements made to municipalities or hospitals have not expressed any objection to our presentation.

As I indicated at the outset, we are talking about 30 percent of the 1,042 services in Canada. That's a small number, but there is a basic injustice which, in future, will perpetuate certain situations in which non-profit organizations may have to purchase these private services. At that point, the provincial and federal governments will lose tax revenue in addition to being required to reimburse 100 percent of the GST or the percentages that apply depending on the case.

Mr. Pomerleau: Is this the first time you have presented a brief on the subject directly to political players? To date, have you dealt only with government officials? If you have filed briefs or contacted politicians in the past, what was the answer?

.1020

Mr. Berthiaume: In fact, the issue was raised by the Province of Saskatchewan, which made demands to the Department of Finance respecting the method for classifying services. It had obtained a classification under the aegis of the municipalities.

Because of the regional councils, which let contracts for these services, the services had been improperly classified and recognized as municipal agencies. That was not the case, however, and the Department of Finance subsequently took corrective action after examining the records more closely.

So our Federation has for some time represented all those working in private enterprise across Canada and we were asked to make the necessary representations.

As I explained at the outset, we first made representations to the Department of Finance concerning this injustice. We were then referred to the Department of National Revenue on the pretext that this was an implementation problem. The Department of National Revenue examined the situation, we were received and it was explained to us that this was an injustice that existed prior to the GST's introduction and that it had been transferred to the new tax.

The injustice being done to us is probably worse than that affecting the Canadian Medical Association. We can't expand our business or increase our revenues because we are completely controlled by municipal or provincial organizations.

[English]

The Chairman: Mr. Solberg.

Mr. Solberg: Mr. Chairman, I just want to follow up on what Mr. St. Denis was saying. I understand what he was doing, trying to discover the true cost of this, but I really think that misses the point. The point here is that the finance department at one point was extremely arbitrary in choosing out health services specifically for this very unjust treatment. To me that's the issue. The taxation system should treat everybody equally. That's one of the principles of the taxation system. So I do think it's a bit of a red herring to try to come up with all these different ways in effect to justify what's happening here. It could just as easily happen to any other profession, and that's what concerns me.

The second point I want to make is about the FCM, the municipalities. The fact that so much of this was rushed through without any consultation and that in doing so they have placed all kinds of new obligations on the municipalities really concerns me. I'm not certain if this is part of the new mode of operation of the department or if it's a result of the political emergency that occurred when this legislation was pushed through to help the government out with a huge political problem it was having -

The Chairman: This committee is always above politics, Mr. Solberg.

Mr. Solberg: I know this committee is, but I'm quite concerned about the government.

I want to raise the red flag, or to re-emphasize the point that was made by the municipalities, which is that it's ridiculous that when you're running around proposing new things that are going to be obligations on different levels of government they aren't invited to the table, and secondly, you go around proposing retroactive legislation that is going to cost them a whole bunch of money. I know we've talked about this before, but every time we turn around somebody is raising a new issue that has to do with retroactivity. It's absolutely unacceptable, and I just had to raise it again for the record, Mr. Chairman, because I want to make sure the message gets through that this can't be allowed to continue to happen.

The Chairman: In a non-political manner, thank you very much, Mr. Solberg.

Yes, Dr. Kazimirski.

Dr. Kazimirski: Mr. Chairman, is it appropriate to respond to Mr. Solberg?

The Chairman: I would be delighted if you just ground him into the earth.

.1025

Dr. Kazimirski: I think Mr. Solberg has made the point the Canadian Medical Association brought as our initial opening stance, that this is a fundamental issue of principle and that the fundamental principle we're discussing is one of fairness. The medical profession is not looking to be treated differently or specially in its business environment. We are self-employed individuals, considered as small businesses for business purposes, yet under the GST we are treated significantly different from other people who are in business. The unique situation is that the beneficiary of our service, who is the patient, is not the payer of the service. The payer of the service is the government. Therefore, there is no way for physicians, in fairness, to either recoup the cost or to claim tax credits.

If we take that a little bit further to the broader principle of fairness that I tried to bring into the initial discussion, which is the alignment, or the complementarity, of fair tax policy and health care policy, then one would have to raise the very fundamental issue of whether service provided in a facility is taxed differently. It is. Under the MUSH formula, municipalities, universities, schools, and hospitals are afforded an 83% rebate on GST. For the same service, the same goods, purchased for use in a physician's office, that courtesy is not given. This is fundamentally unfair.

What is happening in health reform across the country is that provinces are struggling to deal with the decreased funding coming to them from federal resources and are accommodating by closing facilities, reducing the size of facilities and trying to shift service to the community. So all of a sudden you find people who have private offices in communities or who are in group clinics whose costs are going up tremendously. The costs to absorb the practise that used to be carried out in the facility, where indeed an 83% GST rebate is given, is now being picked up by the individual offices, and yet they're not given that unique fairness.

There are many other examples. Drugs is an example. When this tax was put in place, very clearly the government tried to be fair to the pharmaceutical industry. It zero-rated prescription drugs. I would suggest to you that in order to get prescription drugs it's essential to make a medical diagnosis. So the medical component of the care, the cost associated with that care, means they are equally important as the courtesy that has been provided to the pharmaceutical industry. Again, this is a fundamental issue of unfairness to practitioners in this country on the issue of GST.

The Chairman: I don't think there's any doubt that all of us feel that you're the meat in the sandwich and that you don't have the political clout to get the provinces to increase the fee schedule. It's fixed by government at the provincial level. We are taking more taxes from you at the joint federal and provincial levels under this harmonized proposal. I can understand your sense of frustration and your concern.

Welcome, Donna Cansfield. We delayed starting this meeting for 1 hour and 22 minutes, but we started it anyway.

Ms Donna Cansfield (President, Canadian School Boards Association): I always knew the Liberal government was most acquiescent in its ways. I sat on the tarmac at Pearson International because the radar went out last night for 15 minutes, and all went to whatever in a handbasket this morning. So I apologize for being late.

The Chairman: It must be that provincial government.

Ms Cansfield: Has to be. If nothing else raises the ire of the folks of Ontario other than the GST, it usually is the provincial government.

I would like to clarify for the record that the GST rebate for schools is 68%. Thank you very much.

The Chairman: Thanks very much. Mr. McGregor.

Mr. McGregor: I'd also like to clarify that the GST rebate for municipal governments is 57.14%.

I want to comment on Mr. Solberg's statements, which I really appreciate. I think municipal governments across Canada appreciate hearing that.

I'd like to draw your attention to one example of what we're talking about in respect of consultation. When you turn to the bill and find clause 115, you'll see that the federal government is attempting to define what are and are not basic municipal services. This was done without consulting a single municipal government in Canada.

The Chairman: Are there any other comments? Do any witnesses feel we've shortchanged them in their opportunity to put matters before us? I know, Mr. Knechtel, I may have cut you a little short. Perhaps you would like to reiterate what you said to us.

.1030

Mr. Knechtel: You had indicated the rebate was 50% because it was a taxable transaction. Of course charities are treated quite uniquely under the statute. Normally it's a transaction tax and in the case of charities there is just a blanket exemption. They tax only those that are seen to compete with other commercial suppliers.

The Chairman: Right.

Mr. Knechtel: The 50% is an attempt to ensure the tax does not increase when we move from FST to GST. So there's a recognition, at least in part, that it's inappropriate for government to look to private donations for charitable purposes to fund other government services. But in effect they've said it's not totally unfair, it's only half unfair, so they give us half back.

The Chairman: Let me ask you what are some of the so-called commercial activities that the churches are involved in and that give rise to paying tax in the first place.

Mr. Knechtel: Very few churches are taxed, because they don't supply services or goods that are taxable, but other charities do that. When they make those supplies that are seen to compete they pay the full GST and they get a full -

The Chairman: So you're not concerned about the commercial activities; you're talking about 100% charitable activities under the Income Tax Act, and you are saying you want us now to reconsider the overall regime under which we tried to keep you tax neutral with the old federal manufacturers sales tax. You're saying it's now appropriate to get rid of all embedded sales taxes in your purchases.

Mr. Knechtel: That's our position, and it was impossible to do under the old FST, because it was buried. You've moved to this system, which I think is much better. It enables you to be more selective. You can make sure we don't export our tax. We say this gives an opportunity to make sure charitable funds do not bear any of the tax.

The Chairman: Mr. Berthiaume.

Mr. Berthiaume: Mr. Chairman, as I was presenting I shorted my presentation. In conclusion, I think it is evident with the national forum and the reviews that are happening in different provincial jurisdictions at this point that governments will rely more and more on small private businesses to deliver the service. They will still retain legislative control and standards, but they are counting more and more on the private sector to be able to deliver the services. The inequity we are living with now is we're seeing the contrary happen, where non-profit organizations are buying off private enterprise and are benefiting by the fact that they can put all these dollars that are saved within the operation. It is a real problem for our members, and there is a basic question of fairness or equity, as the Canadian Medical Association presented on these issues.

The Chairman: Basically because your revenue is capped -

Mr. Berthiaume: Exactly.

The Chairman: - and if you and the doctors were treated in what you consider to be a fair way, while you might be paying certain taxes, your revenue would go up to compensate for that.

Dr. Kazimirski.

Dr. Kazimirski: Thank you very much, Mr. Chairman, and I thank you for your statement of understanding of our position. Unfortunately this is where we have been for many years, time over time, on this issue. I would respectfully suggest the time is necessary now, and the opportunity is here now, with this first major attempt to amend GST, for some action. I say that because I sincerely believe in my heart the impact of GST not only on individual physicians but on the province, on the delivery of care, on the shifting that is occurring in the health care system, has a very significant impact on the Canadian health care system. I say that because in my heart that system is what defines us, that system is what unifies us as Canadians, that system creates a healthy Canadian community, that system provides us with an economic advantage that is not met in any other country in the world. Yet I see a government moving ahead on a deficit reduction program that is absolutely destabilizing and destroying the infrastructure of social programs, particularly of health care, in this country, and GST is a component of that.

.1035

We believe the government is both smart enough and willing enough to step back and do what health reform must do, which is to step back and evaluate the positions it has taken and be prepared to have the courage to change its position if it is undermining the essential basic social fabric of Canada. That is what I would suggest is happening.

The Chairman: Do you suggest that this is a situation in which your fee increases set by the provinces are incapable of recognizing the costs to doctors, including the tax costs?

Dr. Kazimirski: Provinces negotiate with physicians in terms of how physicians are paid. That does not include the expense costs of practice such as GST. GST is clearly a federal issue, and it is not an issue on the negotiating table between any physician community and its provincial government.

The Chairman: When the fee discussions are undertaken with the provinces - and I've never sat at one of those tables, but perhaps you have - what are the considerations that are brought up in terms of...? Certainly physicians are concerned about their revenue and their expenses.

Dr. Kazimirski: Those arrangements that are discussed at provincial tables...the role of the Canadian Medical Association is to deal with the issues that affect the ability of physicians to be treated in a fair and open way at the provincial table. The issues come to the provincial negotiation table very much as they would in any other discussion between employer and employee.

I would suggest that, within provincial negotiations, physicians are not given the same courtesies that are given to those in a unionized environment. Their negotiations vary and differ from province to province.

In this country, the Canada Health Act was supposed to ensure that all physicians had access to appropriate means of dealing with problems when they arose in their negotiations with their provinces. We have seen recent examples where that has been brought into question. Again, the role of the Canadian Medical Association is to make certain that the environment creates a fair and equal opportunity for physicians to negotiate.

The issue of the GST is an issue at the federal level. We have a responsibility to ensure that physicians are treated fairly on that issue, as are other small businesses in this country.

The Chairman: I think we've seen with your group, Doctor, and that of Mr. Berthiaume, that in some cases we may be analogous to the municipalities and the school boards. We have a system with really not a total value-added tax on every good and service. We have sort of a hybrid system.

In your case, physicians do not charge GST or HST, and therefore, because they can't charge it, we have, for some parsimonious reason, perhaps said they can't necessarily get back their costs. Maybe under an ideal system, from a tax point of view, physicians would be charging sales tax on their services and deducting their input credits. But you don't have that system, so I can understand why you're concerned about it.

Are you saying the provinces do not recognize, in setting their fee schedules with physicians, the costs that doctors must incur in delivering those services?

Dr. Kazimirski: Yes, the provinces do recognize the costs that physicians must incur. They do not assume that it is their responsibility to pay GST for physicians. They see that this is something that is set by the federal government in terms of fair and open tax policies. That's where the correction must occur.

.1040

The Chairman: I agree with you on the GST. We now have a new system, which is the one you are complaining about, where you are saying the costs are going up because of the provincial component. You are saying they would not be prepared to look at and recognize the added costs incurred by doctors because of the provincial component and the fact...?

Dr. Kazimirski: I am saying negotiations between physicians and provinces occur at that level and at the negotiating table. Yes, the issues of expenses are on the table and how those are negotiated in individual provinces varies.

As an example, Mrs. Brushett indicated travel and conferencing as an expense. That is a required expense for physicians. In order to be licensed to practise you must attend a certain number of conferences per year, as laid down by your provincial medical authorities, in order to keep up and continue in your education. That's a requirement. So it's not ``I want to travel; I want to go to that conference''. This is necessary for you. So those kinds of necessary expenses are brought into the provincial negotiating arena.

What is happening is that in the provinces there is an increase in the population. There is an increase in the aging population. Seniors of necessity, and should, have access to appropriate health care services. An increase in opportunity is created by medical research, by new technology, and it's those kinds of demand-side equation problems that are increasing utilization in the system. When you get to a negotiating table, the individual physician is trying to balance their contribution to care at the individual level with these overwhelming issues that are raising utilization issues within the provinces.

I have suggested to you that one of the significant contributors to the frustration and to the utilization factor is that the current unfair tax environment, the current professional environment, which devalues not only physician services but other medical services and doesn't involve them in health reform, has created an environment where literally the entire package of not just expenses but professional value is called into question. We're now reaching a point where utilization is being affected because the numbers are way down. The numbers of physicians are down and on the opposite side the need is way up.

So those factors are taken into consideration, yes, but how they're dealt with is very much a provincial issue, and I am not privy to the negotiating table details.

The Chairman: When does the next round of fee schedule negotiations -

Dr. Kazimirski: Those occur at various times in various provinces.

The Chairman: I understand that. I would like to ask you specifically, in the three provinces affected by the HST, when do they come up?

Dr. Kazimirski: I don't know the other provinces. I do know my own province, because I am a licensed practitioner there. In my province fee negotiations are on the table with the Nova Scotia government now. The contract that is currently in place is completed on April 1, 1997.

The Chairman: I assume those discussions do involve the added cost being imposed by the HST.

Dr. Kazimirski: I am not at the negotiating table in Nova Scotia, sir. There are very competent people who are doing that on our behalf.

The Chairman: But I can assume it does at this moment? I would hope so.

Dr. Kazimirski: I would hope so too, because they are negotiating my future.

The Chairman: I understand.

Mr. Flexman: Mr. Chairman, you're making the point that there's a way of trying to recoup those additional costs through the fee negotiation. One of the points we're trying to make is there is a flaw in the system, in that you have these costs being absorbed by physicians in trying to deal with the health care system. To give you an analogy, physicians who provide services to the province now have to bear these costs. They either absorb the costs fully or, as you're suggesting, they try to pass them on, which historically has been very difficult.

Take another person who provides services to the province, for example myself if I were providing accounting services, or another consultant. Our services are taxable, but that makes no difference to the province. The province doesn't pay any tax. As a result, I get back all the tax that went into producing those services.

We have an anomaly here. Physicians, who I think are an integral part of providing medical services within the country, are effectively having GST loaded into their costs, whereas other providers of services to the province basically have the GST taken right out. It doesn't become part of the fee negotiation process.

.1045

I think that's the irony with the provision to exempt medical services, and that's what we're trying to fix.

The Chairman: I think you're quite right in pointing that out, Mr. Flexman, but when you do provide services to some unsuspecting soul such as me you do get those taxes at the rate of 15% - or it will be 15%. It's 7% now.

Mr. Flexman: Our proposal is really to deal with the publicly funded portion so that we basically take it out of the publicly funded system. With respect to the private part of medical services, which is a fairly minor portion, it would remain under the current rules, which I think is fair.

The Chairman: Ms Cansfield.

Ms Cansfield: In conclusion, I'd like to raise three issues for the committee's consideration as it deliberates any amendments.

As a national association and as a school association, we pride ourselves on trying to work towards fair and equitable grounds for all of our members, including our children, obviously. There are three areas: membership fees; publication; and the issue of conferences, but from a different perspective. If you have a conference in one part of the country as opposed to another you're disadvantaged, because some will pay 7% and some will pay 15% on the registration fee. So it actually disadvantages the tourism industry.

On publication sales, for example, we have worked in concert with the federal government on the number of resource books for a pan-Canadian. The latest example is an anaphylaxis handbook that was done with Health Canada. The idea is that we can do a book that serves all the children in Canada, in both French and English, and with such an economy of scale that all we ask is just the cost of that publication. We're not making any profit.

Of course, in the Atlantic provinces they'll pay a higher tax than they will in some of the other provinces. We don't see that as being fair and equitable, and we ask for that consideration.

In terms of membership fees, all national associations will be affected in quite the same manner in that some members, by virtue of where they live, will pay less of a fee, 7%, than others, who will pay 15%.

We also recognize that it is extraordinarily difficult in a consultation process for something as complex as this particular issue. I can assure you, I haven't gone through your 75 pages of technocrat whatever.

The Chairman: You have our sympathy.

Ms Cansfield: I expected I could phone you if I needed any briefing from page to page.

The Chairman: Absolutely. Just dial 911.

Some hon. members: Oh, oh!

Ms Cansfield: I thought it was ``1-800-Queen's Park'', but I'll accept that as well.

So we ask that you consider that. Since literacy is a primary issue for every child in this country, in addition to the issue of lifelong learning for adults, we ask for serious consideration on the rebate for textbooks for school. It just makes sense - may I say common sense - that when you want to increase the literacy of your nation you do not tax the very essence of what it's all about, which is what books fall within.

So we ask for these considerations in your deliberations. Thank you.

The Chairman: Thank you very much, Ms Cansfield.

Anybody else? Mr. Mount.

Mr. Mount: Mr. Chairman, I wonder if I could draw your attention to pages 6 through 11 in our brief. It's one of the prime focuses of our brief, the intermunicipal supply rule.

Municipalities, as you are probably aware, under the intermunicipal supply rule are able to provide services between the regional municipalities and the boards and commissions they control, exempt of GST. Traditionally, even prior to GST, municipalities in the country have chosen to organize their affairs in various ways. In some areas of the country they choose to operate an electrical commission. In some areas the municipalities will purchase power from the provincial power commission, and in a very few areas the municipality will run the electric commission as a department of the city. This legislation has more or less singled out certain supplies of electricity, gas and telecommunications services and applied GST to the provision of those services to the municipality that owns or controls the commission or the board, and in our -

.1050

The Chairman: That presumably is on the basis that there should be a level playing field between that type of provision of services and private sector provision.

Mr. Mount: The reason cited for that is the fact that in some cases the municipalities purchasing power from a provincial utility have to pay GST, whereas those that are supplying it to themselves, and have organized their affairs even prior to the GST for their own specific purposes, supposedly enjoy an advantage. Our position is that this legislation deters the right of municipalities to organize their affairs in the most efficient manner to serve their citizens.

The Chairman: Mr. Solberg.

Mr. Solberg: I'd like to comment on this, on behalf of my own riding and my province. It's interesting how this has developed, because it wasn't very long ago that the PUITTA was removed, the public utilities rebate, which affected primarily Alberta, and I think also Nova Scotia, if I remember correctly. That cost us about $250 million.

The Chairman: It was $249 million.

Mr. Solberg: Roughly, $250 million.

Now we have this coming down, which I know, speaking on behalf of the city I represent, Medicine Hat, will have an effect on our gas utility. If I remember correctly, Edmonton has a large telephone utility, so it will be affected.

I've said this before, but I'll say it again. When it affects all these different people, rather obviously I would think that just as a matter of courtesy the municipalities should be brought to the table and they should have the benefit of having at least a discussion. I would even go further and suggest that at a time when not only the federal government but the provincial governments are downloading more and more to the municipalities, the municipalities should be invited to the table on just about every issue that comes before the government. I know we've spoken of that before and of the need to give municipalities, lower levels of government, more power and more input when it comes to these big decisions. Rather obviously, they're the last provider of services more and more often now as the senior levels of government are finding that finances are constrained.

So instead of going the other way and not even consulting them, I think it's about time that municipalities, as a matter of course, were invited to the table on all of the issues, including the big social issues, which are becoming more and more their concern.

The Chairman: I remember very well, Mr. Solberg, the PUITTA issue was one that this committee hit in its very first mandate. The federal government was rebating to the utilities$249 million in tax that we collected - federal income tax, corporation tax - on the profits that we had taxed. They did appear before us and we did have public discussions on this. I remember asking them if the provinces rebate these taxes to the municipalities. They said ``No way; we just want the federal government to do it''. These private utilities were making profits.

To me, that represents one of the very complex issues that we're forced to deal with. It's a balance. The provinces weren't prepared to rebate the taxes and have the savings passed on to the consumers, but they wanted the federal government to do it.

Mr. Solberg: Two wrongs don't make a right.

The Chairman: I understand that.

Part of the difficulty we've heard today is that people don't have the same playing field. We've seen the doctors. It's different from the accountants. KPMG has done a lot of studies on this GST stuff.

You must be the last book in the New Testament, because more people are citing you here, Bruce, than...

If I were you, Doctor, I wouldn't pay any GST on his bill. I'd let him eat it!

.1055

Mr. Flexman: I won't give him tax advice.

The Chairman: There are complexities, and because not all goods and services are subject to the tax and therefore eligible for the input tax credits, there are different playing fields. We have municipalities that supply themselves versus municipalities that buy particular services from the private sector, and this creates difficulties. This is a complex tax. I guess every one of us, depending on the approach we take and the direction we come from, is going to be able to find inequities in it.

Brad Lavigne, as you know, this committee is very sympathetic to this problem. Your approach is that we could find a way to end the abuses that would have to end if we were to exempt university bookstores. I still shop at a university bookstore. I even know people who buy beer mugs and sweatshirts at university bookstores. You quite rightly recognize that.

One of the other approaches we've looked at for students is to enhance the credits we're giving to you. As you know, the low-income credit for students is $199, the single supplement for being away from home is $105. Those are credits. Taxable supplies to a student are at 7% of about $4,200, which I don't think too many students would pay.

In our report for the forthcoming budget we've also asked that there be changes in fees related to tuition and things such as that. The education amount has been increased from $80 to $100 - the tuition credit.

I suspect the easiest way is not to deal with it by trying to end abuses and have identification processes to see if you're a bona fide student and to have certain books that are mandatory and certain ones that are not; it might be to deal with it through an enhanced credit, or students recognizing it's not only the GST but a lot of other things that are increasing the costs of your getting a first-rate education in Canada. I understand that's not your position, but I say there's one other way to deal with these added costs you face.

Mr. Armstrong, I wanted to say to you too that I think we recognize your problem. Seniors do demand services, and not all of them are going out buying convertibles and cigar boats and all-terrain vehicles. So any broadening of the base might disproportionately affect seniors, and I suspect we have to take that into consideration.

Mr. Armstrong: I just wanted to say, Mr. Chairman, I thought you had listened, and the members of the committee had listened, and we thank you for taking our point, which is very basic.

The Chairman: Thank you very much, Mr. Armstrong. Don't thank us. We're the ones who need your input.

May I extend my thanks to all of you who have come before us.

Let me just say on this issue of the added costs to seniors, I know Nova Scotia is considering a 3% tax cut to try to compensate for some of this and New Brunswick is looking at an enhanced credit and Newfoundland too I understand is considering measures that will take this into consideration. When we're considering this bill, C-70, on the HST, I think we have to be really conscious not only of what it might do but of what it might do in the overall context of our entire tax system, our entire delivery of services, essential public services, social services to people, services such as education. We must never lose sight of where those major priorities we as a nation stand for must lie. I think so many of you have brought those types of balances before us today. On behalf of all members, I'd like to thank you all very much.

.1100

Mr. St. Denis.

Mr. St. Denis: With respect to seniors allegedly not buying four-wheel drives and other upscale equipment such as snow machines, in Elliott Lake they do. We've attracted 3,000 to 4,000 seniors, many of whom buy snow machines and four-wheel drives to take advantage of the tremendous lifestyle available to them up in northern Ontario.

The Chairman: Thanks very much. We stand adjourned.

Return to Committee Home Page