[Recorded by Electronic Apparatus]
Tuesday, January 21, 1997
.1702 
[English]
The Chairman: Order, please.
The finance committee of the House of Commons is very pleased to reconvene.
Tonight we're going to encounter the highlight of our entire proceedings. We have with us the parliamentary secretary, Mr. Barry Campbell, and from the Department of Finance, the director of sales tax, Ruth Dantzer. We look forward to your comments.
Mr. Barry Campbell (Parliamentary Secretary to the Minister of Finance):Mr. Chairman, thank you for providing me with this opportunity to speak to the committee about Bill C-70.
[Translation]
More particularly, I'd like to thank my honourable colleagues on both sides of the room for having accepted to come back to Ottawa before the House of Commons resumed sitting to examine this bill.
[English]
The holiday adjournment is a time when we normally devote our time to our constituency work and our families. The government gratefully acknowledges the extra efforts and sacrifices members have made to be here this week.
I'd like to introduce Ruth Dantzer from the Department of Finance, who will assist me in responding to your questions after my opening remarks.
Mr. Chairman, the thrust of Bill C-70 is twofold. The first part contains legislative amendments, mainly to the Excise Tax Act, that are designed to improve the operation of the GST. These technical amendments were announced in April of last year.
When I elaborate on part I of the bill in a few moments, I will also highlight further refinements that have been added more recently as a result of consultations with industries and sectors affected by this legislation.
Part II of this bill will implement the harmonized sales tax or HST in the provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador as of April 1, 1997.
In many ways, Mr. Chairman, the HST legislation marks the culmination of work that was initiated by this very committee three years ago. We travelled the country -
The Chairman: Sure, blame it on me, Barry.
Mr. Campbell: I was a part of it, Jim.
We heard from almost 500 witnesses. We studied more than 700 submissions from individuals and representatives of businesses and organizations of every size and description. We looked at no fewer than 20 options for sales tax reform. The recommendations contained in this committee's 1994 report were a thorough and genuine representation of the views of Canadians on this important issue.
Those of us who were part of that work in 1994 should feel particularly gratified to return in 1997, this time to review wide-ranging and innovative legislation largely driven by recommendations that originated with this committee.
.1705
With respect to harmonization, the implications of this bill are by no means limited to the three provinces I've already mentioned. In addition, the bill sets the stage for the full harmonization of sales taxes in Canada. In addition to implementing the HST in the participating provinces as of April 1997, it provides the legislative framework for the remaining provinces to come on board as their circumstances allow.
Mr. Chairman, I'm confident that this will happen, for the HST will bring tangible benefits to the provinces harmonizing this spring. The remaining provinces will witness the benefits of the harmonized sales tax in operation in those provinces, and these benefits will fuel the momentum towards further harmonization.
What do the three participating provinces stand to gain? Well, Mr. Chairman, for consumers in those provinces, sales tax harmonization will mean lower prices on many goods. There are two reasons for this.
First, the 15% harmonized sales tax is almost four percentage points less than the combined rate that Nova Scotia and New Brunswick consumers currently pay. In Newfoundland the new rate will represent a reduction of almost five percentage points.
The second factor that will contribute to lower prices is that businesses will be able to recover all sales taxes paid on inventory and other business-related expenses. Currently these taxes are passed on to the consumer in the prices we pay.
Consumers in participating provinces will also benefit from tax-inclusive pricing under the harmonization agreement. As hon. members will recall, during our cross-Canada hearings on the GST this committee heard over and over and over again that adding taxes at the cash register is a major irritant for Canadian consumers. That's why, Mr. Chairman, survey after survey has found that Canadians support tax-inclusive pricing.
A Corporate Research Associate survey conducted in Nova Scotia last August found that 75% of consumers prefer to have taxes included in the final price. These results, Mr. Chairman, were echoed as recently as November in a survey of the Atlantic provinces. Support for tax-inclusive pricing there ranged from 74% of respondents in each of Nova Scotia and New Brunswick to a high of 82% in Newfoundland.
Mr. Chairman, this strong support for tax-inclusive pricing is not limited to the Atlantic region of Canada. ESG Research & Communications' 1994 national survey of over 1,100 respondents found results that are remarkably consistent with the findings in Atlantic Canada. In the ESG survey 73% of Canadians expressed their preference that sales taxes be included in prices. Perhaps that is why, Mr. Chairman, the Consumers' Association of Canada has strongly endorsed tax-inclusive pricing for all consumer transactions.
The reasons stated by consumers for preferring tax-inclusive pricing are compelling. I'm going to cite directly from the findings of the CRA's Atlantic omnibus survey:
- The survey is consistent with previous studies which shows consumers would prefer across the
board tax included pricing. Their reasons are overwhelmingly based upon simplicity and the
knowledge of exactly what they would pay. ...there is still confusion among consumers on
where sales taxes apply. One sales tax system will reduce this confusion, consumers believe tax
included pricing will complete the move to tax simplicity.
The current state of affairs is clearly unsatisfactory. Consumers are frustrated at having to guess the final price of the products they buy, and by the sticker shock they receive whenever they go to a cash register. Requiring tax-included prices to be shown for all merchandise would help consumers make better decisions by making it easier for them to comparison shop and to plan around their budget constraints. Posting tax-included pricing need not compromise tax visibility and the useful role it plays in keeping governments accountable.
Mr. Chairman, when consumers see a price, they don't want to try to figure out which tax or taxes apply and then figure out how much they need to pay for the item. Nobody wants the embarrassment of waiting in line to buy something only to discover after the sale has been rung in that they're short of cash.
.1710
Who among us can forget the retailer in Toronto who came before this committee during our GST hearings with a bag of cancelled receipts? He put that bag on the table - cancelled receipts, lost sales, due to sticker shock. Canadians do not want to be surprised each and every time they buy something. All they want to know is how much will this item cost, period?
While some assert that tax-inclusive pricing will cause confusion, I assert that the confusion is in the present system. No one knows what things really cost. In the provinces with provincial sales tax regimes, businesses pay tax on their inputs and consumers pay higher prices as a result.
The participating governments have to be reasonable too. We have to do everything we can to ensure that tax-inclusive pricing requirements do not create an undue compliance burden for businesses and ultimately for consumers. Accordingly we have consulted with retailers and other businesses affected by these requirements to develop rules that strike a workable balance between these various interests.
We heard yesterday from the Canadian Federation of Independent Business, who commended the government for the tax-inclusive pricing guidelines issued this past Friday - a result of extensive consultations. These guidelines go a long way toward addressing the concerns of retailers.
For example, national catalogues distributed in participating provinces will not be required to display tax-included prices. Nonetheless a catalogue will have to contain a disclaimer clearly indicating that taxes are not included in the prices shown. This approach responds to concerns about the potential cost of distributing two editions of every catalogue, one for the harmonizing provinces and the other for non-harmonizing provinces.
Concerns were also expressed about the treatment of goods that are pre-priced by a manufacturer and distributed nationally, to be sold at the same price in all provinces. The main concern was the potential cost to retailers of re-stickering items to be sold in harmonizing provinces.
I'm happy to report that, as the guidelines indicate, as a result of consultations on this issue, the participating governments have adopted a very flexible approach. For example, retailers will be allowed to use shelf pricing or bin pricing as an alternative to re-stickering individual items.
Magazines and greeting cards are two examples of pre-priced goods that have given rise to special considerations. In the case of magazines, these considerations are due to the time-sensitive nature of publications as well as the fact that they're distributed in large quantities and turn over very rapidly.
Concerns about re-stickering greeting cards revolve mainly around the fact that manufacturers accept the return of unsold cards for redistribution to other markets. Removing a sticker from a card that is redistributed to a non-participating province could render the card unsellable if it's damaged or marred in the process.
Accordingly, as the guidelines indicate, vendors of magazines and greeting cards will have a number of options for complying with the tax-inclusive pricing requirements. These options will include shelf pricing and the use of conversion charts. Such charts would be posted in immediate proximity to the magazines or cards and display each applicable before-tax price point and the corresponding tax-included price.
I'd also like to mention dual pricing, for this is an option that will be open to all retailers. By dual pricing I mean vendors will have the option of displaying the before-tax price along with the tax-included price.
Dual pricing responds to retailers' concerns about the perception of price gouging. The consumers will perceive their prices to be unacceptably high. This consideration is particularly relevant to vendors in participating provinces located near non-participating provinces. Dual pricing will help them to demonstrate to consumers that their prices are not out of line with those of neighbouring competitors who are situated in non-participating provinces.
Finally, there is a more fundamental consideration about tax-included pricing that I've not yet addressed: the issue of accountability.
.1715
This harks back again to work of this committee and testimony we heard in 1994. Notwithstanding the compelling arguments in favour of tax-included pricing, this committee's report acknowledged the need to keep Canadians informed of the amount of tax they are paying to help ensure that governments remain accountable.
With this in mind, the pricing requirements stipulate that the amount or rate of sales tax shall be disclosed to consumers on receipts, as is done in many countries. It has been argued that tax-included pricing will hide sales tax from Canadians. This disclosure requirement shows that such allegations are totally unfounded.
Tax-included pricing will come into effect on April 7, 1997. Full monitoring of compliance will not start until August 1, 1997. Our immediate efforts will be focused on educating businesses and consumers about the pricing requirements. The participating governments believe that devoting resources to preparation in the short term will facilitate compliance in the long term.
In addition, governments and retailers are continuing to discuss the issue of price advertising within the participating provinces, a matter we've heard much about in the last couple of days. I'm confident these consultations will lead to workable guidelines.
I can say with confidence that the proposed tax-inclusive pricing rules respond to the desire of consumers to know the full price of purchases before they get to the cash register. The tax-included pricing requirements have been tailored to the realities of the marketplace.
Consumers are not the only winners under harmonization, for businesses will benefit in many ways. The complete removal of sales tax from their purchases will make them more competitive by eliminating the tax cascading that is inherent in existing provincial sales tax regimes. In turn, this will help to limit the potential for distortions in investment decisions.
Perhaps a more obvious benefit for businesses, especially smaller ones, is they will be spared the expense and trouble of keeping track of two separate sales taxes. In most provinces businesses have to contend with at least two of everything - two sales tax returns, two different return forms and two sets of rules and regulations, which means two tax bases and two rates of tax. This duplication is compounded further for businesses operating in more than one province.
Under the harmonized sales tax there will only be one set of rules. There will be one sales tax return, one rate, one base and one sales tax administration. Getting rid of overlap and duplication will reduce costs for everyone; it will reduce compliance costs for businesses and administrative costs for governments.
[Translation]
The operating rules for the harmonized sales tax will be the same as for the GST. The tax will be collected at the present rate of 100 p. 100 outside the participating provinces and at the rate of15 p. 100 in the participating provinces. The tax will be collected on the same goods and services as the present GST.
[English]
There will be no requirement for GST registrants to obtain new registration numbers, nor will there be any changes to the rules for claiming input tax credits. This conformity with the existing GST structure will help make the transition to the HST as smooth as possible.
In addition to confirming this basic framework for the operation of the HST, part II of the bill sets out the tax-included pricing requirements that will apply to certain federally regulated industries, such as banking, telecommunications and transportation.
[Translation]
I would now like to come back to Part I of Bill C-70. As I've already said, this part of the bill contains technical changes that will not apply only to the harmonized sales tax in the harmonized provinces, but also to the GST and the rest of Canada.
These provisions are to make the sales tax system simpler and more equitable. There are over 100 proposed amendments so instead of addressing them individually, I will speak broadly to the goal of the different provisions sector by sector.
[English]
First, Bill C-70 contains measures designed to strengthen the competitive position of Canadian firms involved in international transactions. To this end, services performed by Canadian sales and purchasing representatives will be tax free when provided to non-resident clients. In addition, broader sales tax relief will be provided in respect of goods delivered to foreign countries, and a wider range of goods relating to international transportation will be tax free.
.1720
In the charitable sector, Mr. Chairman, certain GST rules were originally designed with larger charities in mind, and these have yielded inappropriate results for some smaller charities. Accordingly, Bill C-70 contains amendments that will make the sales tax rules simpler and fairer for charities, particularly those on whom the compliance burden falls the hardest.
The proposed amendments will increase the small-supplier threshold for charities. Effectively, Mr. Chairman, this measure will relieve a number of charities of the requirement to register for and collect the GST or harmonized sales tax as the case may be.
Of relevance to those charities that do remain registered for sales tax purposes, this legislation will expand the range of activities that may be carried out by charities on a GST-exempt basis. A streamlined accounting method for charities will be introduced, and the procedures for filing sales tax returns will be simplified for them.
Mr. Chairman, since the original announcement of these simplification measures last April, the federal government has added a measure to address long-standing concerns about the impact of the GST on literacy. Bill C-70 will provide a 100% rebate of the GST on books purchased by a broad range of educational institutions and public sector bodies. In the harmonizing provinces this same rebate provision will cover the federal component of the HST.
[Translation]
The bill will also broaden the tax relief provisions that apply to those services customizing those vehicles used by the handicapped. Long term care institutions will be glad to see the broadening of the sales tax relief applied to the purchase of hospital beds.
Other proposed changes in the bill will allow to apply sales tax relief to specially made shoes and some orthopedic material.
[English]
Bill C-70 will make the rules simpler for thousands of municipalities across Canada as well. While most basic municipal services are already exempt from sales tax, measures contained in this bill will broaden the range of exemptions available to municipalities. In many cases this will eliminate the need for them to distinguish between taxable and exempt services.
The current GST treatment of supplies by public utilities represents a loophole and creates inequities between municipalities that own or control public utilities and those that do not. Under the proposed treatment, municipalities that control utilities will no longer be able to purchase supplies such as gas and electricity on a tax-free basis.
[Translation]
Agriculture is another important sector. The bill will exempt from tax a greater number of grains and seed at the points of sale. Other changes to the regulations that were announced last April have had the effect of adding several types of equipment to the list of untaxed goods for agricultural use. These provisions together with those in bill C-70 will allow to improve the financial situation of farmers.
[English]
Mr. Chairman, this legislation proposes a number of measures to protect the revenue base and limit the government's exposure to losses. This will make the sales tax system fairer for all taxpayers. For example, for the financial services sector this legislation includes proposed amendments relating to the apportionment of input tax credits as well as to the application of tax to management and administration services provided to certain entities.
Proposed changes to the limitation periods for claiming input tax credits will affect listed financial institutions and large registrants engaged in exempt activities. Specifically, for these registrants the time period for claiming input tax credits will be reduced from four years to two years.
As originally proposed in April 1996, the two-year limitation period would have applied to a broader range of businesses than is currently envisaged in this bill. The government's consultations with affected parties led to further refinements. I can therefore assure members that small businesses and the vast majority of other registrants will continue to have four years if needed to claim input tax credits.
Mr. Chairman, this legislation proposes measures to make the sales tax system simpler and fairer for consumers. One such measure is the introduction of a trade-in approach to simplify the rules that apply when used cars and other goods are traded in to dealers. Under this proposed trade-in rule, tax will apply only on the difference between the value of the trade-in and the price of the new good, not on the full price of the new good as the law currently requires. This approach will replace the notional input tax credit mechanism.
.1725
Notional input tax credits were designed to remove the tax embedded in the price of a good so that a consumer buying a used good from a dealer would not bear tax on an amount that already included an element of tax. We've been discussing this at greater length this afternoon. That was the theory. In practice, however, there was no way of knowing for sure that the benefit of these credits was being passed on to consumers.
The proposed trade-in approach will ensure that this benefit will end up where it belongs, in the hands of consumers. This measure will eliminate opportunities for abuse and fraud that are inherent in the design of the notional input tax credit mechanism.
Other amendments related to the used goods industry, which revise the rules that apply in cases involving sales made through agents and auctioneers, were announced in April 1996. But again, further refinements have been added to respond to concerns raised by agents and auctioneers following the April announcement. Indeed, Mr. Chairman, we heard again today of some other areas we might have to have a closer look at.
One of the refinements provides a period of transitional relief to address concerns that some used good dealers, agents and auctioneers were not immediately aware of the proposed changes, and may have operated under the old rules for some time after the announcement.
This legislation will also resolve several issues relating to the sales tax treatment of real property. For example, the exemption for inherited real property will be broadened. The bill also proposes new rules for the self-assessment of tax on the construction of subsidized housing. Competitive equity in the real property sector will be enhanced by limiting the scope of the GST exemption for subdivided land.
Some of the changes in the real property sector will benefit individual homebuyers directly. For example, entitlement to the new housing rebate will be extended to more types of condominiums, including condominium units built on leased land. In addition, expanding the legislative definition of mobile home will bring cashflow relief as more purchasers will be able to assign their housing rebates to vendors.
Mr. Chairman, this comprehensive package of technical changes will not only improve the operation of the GST in provinces that have not yet agreed to harmonize. These measures will enhance the overall effectiveness of the harmonized sales tax.
As I mentioned earlier, consumers in the harmonizing provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador will be winners. They will pay less sales tax under the new system than they do now, and they will know exactly how much their purchases will cost before they get to the cash register. Businesses also stand to gain under the system, as I explained earlier.
The significance of this bill, Mr. Chairman, extends beyond the implementation of harmonization in these three provinces. It establishes the legislative framework on which future agreements on harmonization may be based. In this regard it's a model of what different levels of government can accomplish together when they get serious about eliminating waste and duplication and get serious about responding to the wishes of Canadians. I therefore urge hon. members to give their full support to Bill C-70.
Now, Mr. Chairman, with thanks for allowing me to speak at some length about Bill C-70, I'd like to say that I'm available for questions. As indicated earlier, Ruth Dantzer from the department is with me. I should have said that she's available to answer all the questions. We'd be happy to respond to members' questions.
The Chairman: I detect that the mood is such that no one would want to waste their time by doing anything but to say congratulations on a splendid effort by you and by the government. We look forward to continuing efforts at harmonization.
Have I spoken well for you, Mr. Solberg?
Mr. Solberg (Medicine Hat): I have no questions, absolutely.
The Chairman: Thank you all very much.
[Translation]
Mr. Pomerleau, do you have any questions?
Mr. Pomerleau (Anjou - Rivière-des-Prairies): First, I'd like to say that generally speaking I really have liked what we've been doing today. I liked having this quick overview of technical questions concerning GST and different sectors. The people came here to tell us what, in their opinion, should be changed to get this thing more in tune with the wishes of our fellow citizens.
Generally speaking, I think we'll be working on that and that we'll be improving this bill. If we can't abolish the GST, we will harmonize it. Nevertheless, I'd like to take this opportunity to put a question on behalf of the Quebec government.
We know that the Quebec government was the first to harmonize its sales tax. It's usually said that Quebec is never a participant unless it's in its own interests. Curiously, in this case, Quebec was the first to jump on board and went ahead of all the other provinces.
.1730
However, Quebec got no financial compensation although the Maritimes are getting close to 1 billion dollars. At the beginning of December, I think Quebec made one last claim for compensation to the tune of about 2 billion dollars. Could you tell me if they got an answer to that request?
[English]
Mr. Campbell: First of all, I want thank you, Mr. Pomerleau, for your comments indicating, as is certainly the case, that Quebec was indeed a trailblazer with respect to harmonization. That is why it has been sometimes surprising to hear some of your colleagues - not you, Mr. Pomerleau, but some of your colleagues - so critical of this harmonization in the Maritimes as to lead one to wonder if you don't believe in harmonization any longer.
So I'm happy to hear you endorse harmonization, because I think Quebec consumers and Quebec businesses have discovered the benefits that accrue to the Province of Quebec as a result of harmonization.
With respect to the matter of adjustment assistance for Quebec, discussions have been held and I believe an indication has been provided to Quebec that harmonization with Quebec did not result in a revenue loss to Quebec. So the formula as it applies to the Maritimes would not have resulted in compensation to Quebec, just as it would not result today in compensation or adjustment assistance to the Province of Ontario or the Province of British Columbia. I think there's one other that wouldn't qualify.
The formula is based on loss of revenue resulting from movement to a harmonized system, and in fact Quebec did not lose revenue, because it operated both systems side by side for some period of time.
Ruth Dantzer, do you want to add anything?
Ms Ruth Dantzer (Director of Sales Tax, Tax Policy Branch, Department of Finance): The meetings have been ongoing. In December Quebec came with new information that they gave us, and that was basically eight months after we provided them information. We are still looking at it, but we don't think it makes any change to the point that they did not lose 5% of their own source revenues with the harmonization. At the official level that has clearly been pointed out.
If you're asking whether the minister has written again to the minister in Quebec, I'd have to say that letter probably hasn't gone out, because discussions at this point are still at an official level. But nothing has changed. They brought forward new information, but it didn't change the bottom line, which is that they didn't lose sufficiently in the transition to qualify, using the same parameters.
There's a point where you'd want to use different parameters, because it is heartfelt that they were first, but using the same parameters applied consistently across the country, Quebec did not qualify, either in 1991 or even today.
[Translation]
The Chairman: Quebec was too rich.
Mr. Pomerleau: Too rich?
[English]
Some hon. members: Oh, oh!
The Chairman: Thank you, Mr. Pomerleau.
Mr. Solberg.
Mr. Solberg: Thank you very much, Mr. Chairman.
Over the last couple of days quite a number of issues with respect to this legislation have been discussed, but by far the one that's most contentious is the issue of tax-in pricing.
You have suggested that in different polls people have indicated they prefer tax-in pricing, but when that poll was conducted, were people asked also if they prefer tax-in pricing even if it ultimately costs consumers $100 million a year?
The point I'm making here is that, rather obviously, if you're going to have a nationally harmonized scheme, tax-in pricing makes a lot more sense than having tax-in pricing in one region of the country, where it causes all kinds of, not tax simplification, but tax complication.
Given the fact that when people answered this survey they didn't have all the information, how can you use that as a justification for pushing ahead with this?
Mr. Campbell: In fact, Mr. Solberg, that very question was asked in Nova Scotia's August poll. In fact, 66% of supporters of tax-inclusive pricing continued to support it, even if it meant some additional costs to retailers and the possibility of slightly higher prices for consumers, which I might add is not going to be the case in any event. But that very question was asked and support continued.
.1735
I want also to add one other point. You were here yesterday, so I'm surprised you're asking the question. Yesterday we heard from the Canadian Federation of Independent Business. They provided us with the benefits of a survey they had conducted very recently, and they presented two interesting charts before us. One chart indicated that a substantial proportion of their membership, which is heavily weighted towards retailers, saw one of the benefits of harmonization being one price.
The second chart they showed us, which you well know, showed that among their membership there was neither a majority in favour of nor a majority opposed to tax-inclusive pricing when they were asked that question specifically, but in questioning here yesterday, the Canadian Federation of Independent Business were asked if the survey was conducted before or after the guidelines that came out on Friday, and they said the poll was done before. They were asked specifically what impact they thought the guidelines would have on the opinions of their membership towards tax-inclusive pricing, and they stated on the record here that they thought support for tax-inclusive pricing among their membership would move to 60% as a result of the guidelines.
Mr. Solberg: The point I'm making, though, is it's very easy to have a preference for something when it's not as big a hassle to you as it is to the other stakeholder, the person who has to go about bringing this into place. I don't think you'd deny that almost everyone who's come here, even people who are rabidly in support of harmonization, have questioned over and over again the need to push forward with tax-in pricing at this point.
If you look at the overall package - and I don't want to make the government's case for them -
The Chairman: Go ahead. You're doing not bad so far.
Mr. Solberg: Well, thank you.
People who support harmonization have a number of different reasons for supporting it, including the duplication of paperwork that would be eliminated and all that kind of thing. I can see people saying those are major benefits, but to throw tax-in pricing on top of that seems to me to be asking for something that's really quite unreasonable at a point when, if the government gets its way, you will have coast-to-coast harmonization anyway. It would make perfect sense to introduce it at that point, but to push forward with it now invites myriad problems.
We've heard from all kinds of people and we'll hear from more people tomorrow, I'm certain, about all the problems. I just don't see what the government's rush is. I really don't believe people are going to live or die on tax-in pricing.
Mr. Campbell: Well, Mr. Solberg, while our evidence was anecdotal, based on our travels and who took the time and trouble to come to see us across this country, clearly Canadian consumers have indicated overwhelmingly to this committee that tax-inclusive pricing is the way to go. The polls and the analysis I've referred to, which is available and public, support that and continue to support it.
This is the way to move ahead with a harmonized system. Instead of addressing one set of issues now and then coming back and addressing another set of issues later, we are putting in place the framework for a harmonized system, and in those participating provinces a harmonized system is proceeding with all of the benefits to consumers, businesses and those economies that are coming on board.
Mr. Solberg: Well, at $100 million a year, I don't see it being a great benefit. I think it's a great loss.
Mr. Campbell: Which $100 million are you referring to?
Mr. Solberg: I'm talking about the tax-in pricing aspect. I know what you're going to say. If I might anticipate, the overall package is supposed to provide a $700-billion-a-year benefit to people in Atlantic Canada, according to what you and people in your department are saying.
Mr. Campbell: The value of business input credits that will be available to businesses in the harmonized provinces is approximately $700 billion, that's right.
Mr. Solberg: I don't understand why we're pushing ahead, then, and ruining a big chunk of it by adding this $100 million extra expense, which absolutely doesn't need to be there.
Mr. Campbell: Well, I may be confused or you may be confused, but I would have thought that consumers in those provinces would like to have the benefit of that, and part and parcel of the system is tax-inclusive pricing so we have complete and full information as to prices.
As I indicated in a discussion with you before this committee, I thought you would be broadly supportive of full and complete pricing information for the efficient functioning of a market. What we have now is certainly a lot less than that.
Mr. Solberg: I would think if it's such a wonderful thing - and obviously some people do provide full and complete pricing information right now - consumers would be flocking to those stores and it would spread like wildfire across Atlantic Canada.
.1740
The point I'm making is -
Mr. Campbell: It will in April.
Mr. Solberg: At any rate, we're not going to agree on this. Let me move on.
The notional input tax credit is something that hasn't got tons of attention. Earlier we talked about this. I said it was a big revenue grab, a tax grab. You said it wasn't.
According to what I've been able to find out, the used goods sector makes up 4% to 6% of GDP according to Statistics Canada. Some people say it's as high as $100 billion, but let's use their conservative numbers. Let's say it's about 4% of GDP, about $32 billion. Assuming that even half of that is businesses that have GST numbers, if you remove the NITC on those businesses you're still looking at $1 billion in revenue coming into the government - $1 billion. We're being very conservative in suggesting that.
You're saying it's more than offset by exemptions. I don't see it. I don't see where all these exemptions are that you're talking about. I see other areas where there will not only be not exemptions but actually...for instance, municipalities are going to bear higher costs in some areas. I don't buy this argument that this is tax neutral.
Mr. Campbell: I didn't expect you to, Mr. Solberg. We disagreed about it earlier today when I pointed out that overall Bill C-70 is tax neutral. We can disagree about what the loss of NITCs means to used goods dealers, but I think you're forgetting that the benefit of those NITCs was to go through to consumers. I'm somewhat surprised at your continued assault on this change in light of the fact that what is motivating it is a concern about abuse, churning, inflating of invoices, and uncertainty about whether these credits were going through.
I also want to add that earlier today we heard testimony from the Canadian Automobile Dealers Association that basically the answer to their concerns about NITCs lies in harmonizing, the harmonizing provinces.
Mr. Solberg: Of course they're happy to see taxes imposed on other people. The point I'm making is that you're saying $1 billion going to the government is good for consumers. Is that what you're saying? I think that's ridiculous. People are sick to death of higher taxes, and you're proposing that $1 billion that goes to the government is somehow good for consumers. That's ridiculous.
Mr. Campbell: Mr. Solberg, you can't pick and choose. You can't pull out one area of this bill and not look at other areas. Bill C-70 is revenue neutral.
Mr. Solberg: You can simply assert that, but without evidence it's only your opinion.
I have just one more question. With respect to the MUSH sector, we had people come in who were very upset with the lack of consultation they received from the Department of Finance. We had people from the Federation of Canadian Municipalities. They pointed to a number of areas where they felt they were completely shut out of consultation. We're loading more and more things down to the municipal level and they were given no audience, no attention at all, when it came to things that fundamentally affected their jurisdiction.
Maybe Ms Dantzer could answer this. Why were they shut out? Why weren't they involved? Why weren't they notified? To me it seems we're sending a very poor message.
Ms Dantzer: If that was the case I would agree with you. In fact, we meet at least on an annual basis with the Federation of Canadian Municipalities and we always run through changes. At the meeting this year, because we had started with this... We've been in contact with the federation and its chair. I've been to three meetings with them myself personally. My officers have been to many more and are, I would say, in fairly regular consultation by telephone.
The issue they raised in terms of 911 was one of the issues they raised before, and they were told at the meeting that those services are exempt, as are police services. I would question why, before coming to this committee, they didn't check with the department to verify what they were proposing. In fact, that is not how the law in Bill C-70 reads. Those services are exempt.
In terms of consultation, we have met with them. They were apprised of the changes. As with any other budget legislation, if you're asking if we went out and told them we were going to close down inequity that was in the tax system in terms of sales of electricity between municipalities, the answer is no. How could we?
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In the department we have to be concerned about fairness between taxpayers. We can try to find out why it is and to what level, and we try to provide appropriate time to make the change, but as in any budget legislation, we don't go out and tell taxpayers we're closing down a loophole.
Mr. Solberg: They had specific examples in their presentation of where they felt they were denied any kind of audience or consultation on issues. I'll leave that to you to explore.
Ms Dantzer: That is something we'd be very, very concerned about. Our working relationship with the Canadian Federation of Municipalities is one we work very hard at. They are, both through the minister's office and through officials, kept very much up to speed. I don't know - I wasn't here unfortunately - if they listed the number of changes that happened to Bill C-70 as a direct result of their intervention. One can always point to things one is unhappy with in the results, but I wouldn't say it was because of lack of consultation.
Mr. Solberg: Fair enough. I'd better conclude here, I guess.
The Chairman: No, that's fine.
Mr. Solberg: Could I ask one more question?
The Chairman: Sure.
Mr. Solberg: Thank you.
The housing sector is one area that's going to be hurt as a result of the harmonization bill. I don't think there's any way we can deny that. What's the government's attitude toward that in Nova Scotia, New Brunswick and Newfoundland? They've pointed to roughly $4,000 per home in extra costs. It's a big sector in the economy. It's going to cost jobs according to them, according to the ubiquitous KPMG study. What is the government's position? Is it ``too bad, so sad''?
Mr. Campbell: No, not at all.
Before I come to that, on the question about the municipalities I think the thing that's been evident to all of us around this table yesterday and today is that almost all the witnesses have said they have a very high regard for the quality of consultation with the Department of Finance. In some cases it is ongoing and will continue. When changes are made, wrinkles appear and new problems develop, and consultation on an ongoing basis is the way things happen and the way things are responded to.
To the extent that witnesses appeared before us with an idea or a thought or a problem that they had not yet communicated to the department, officials were here and met with them afterwards and established contact. I am surprised as well to hear that the municipalities feel they weren't contacted sufficiently.
With respect to the housing sector, we had a discussion at length today with representatives from the Nova Scotia Home Builders Association, I think they were called. Their principal concern is a rebate offered by the Province of Nova Scotia which they feel is inadequate. That is primarily an item for them to discuss with the Government of Nova Scotia, and I undertook to alert the Government of Nova Scotia to that concern and to encourage them to continue their discussions or begin them if they had not already done so. They did focus on some ongoing concerns with the existing GST system, which we are still looking at.
I did point out, Mr. Solberg, that it is perhaps unavoidable sometimes, but one should avoid focusing on just one provision and saying this is the impact it's going to have. When you look at the housing sector and you see the impact of lower interest rates, you see a definite uptick in housing starts and housing resales, that means jobs and it means jobs in Nova Scotia. Now, if there's some impact from the GST changes in that sector that the province should look at, I would urge them to look at it.
They also acknowledge that we are doing a great deal of work through Revenue Canada and the Canadian Home Builders' Association with respect to the underground economy - very much a problem in that sector - which will also have a salutary impact.
So you can't look in isolation. To the extent that it's a provincial rebate issue, it's something I'm sure the province is looking at.
Mr. Solberg: It's fine to say that lower interest rates are going to help them, and that's quite wonderful, but what if interest rates go up again? You can't argue that it's okay to allow this to happen because there are other things happening that have nothing to do with this legislation that make it better. I think that's a false argument.
Essentially I hear you saying that at this point it is ``too bad, so sad''. There's no help coming forward from the government. This is going to have a profound impact on the Atlantic Canadian economy. You're talking about 8% to 10% of the GDP, if I remember correctly, in those provinces. We're talking about $4,000 a home, about 2,000 lay-offs. I don't think we should be quite so cavalier about this problem and suggest that it's up to the provinces.
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Ms Dantzer: This issue was dealt with very seriously by each of the provincial governments. Nova Scotia spent months trying to detail exactly what the impact was. They arrived at their rebate rate after research and after time to determine, using the rate drop they were getting in addition to the rebate they would be providing, as well as the fact that those people building homes used to pay PST at the rate of 12% and 11% in building those homes and had no access to ITCs... It was after doing that kind of research that the province decided where it would peg the rebate.
I think that from a federal perspective we have done nothing to change the rebate rate or to make it less attractive to buy homes in any one of the three participating provinces. In fact, with the changes introduced in Bill C-70 where we have broadened the definition of mobile home, we have tried to react to changing circumstances in the marketplace.
Provinces took this issue as seriously as they took any issue. It is one that each province - because it's their 8% of the HST that is causing any change - looked at from various aspects, and it was not a decision they took lightly.
If the question is whether the federal government should supersede a provincial government in terms of what they're doing with their own tax, that's a different question. We don't have the information that is available to the province. They all went through significant research to target those rates. It wasn't a decision taken lightly.
Mr. Solberg: I think I'd better pass on, Mr. Chairman.
The Chairman: It was a pretty good answer, wasn't it?
Ms Whelan, please.
Ms Whelan (Essex - Windsor): Thank you, Mr. Chairman. I have a question and I want to thank Mr. Campbell -
Mr. Campbell: It isn't about customs brokers, is it?
Ms Whelan: No, it's not. I want to thank you for that wonderful presentation. It was very thorough.
I have only one question. It came up yesterday and I believe it was the direct sellers who brought it forward. It was an example of the size of the disclaimer necessary in advertising 1/32 of a page. These aren't bans on tobacco or health warnings. I think maybe we should take a second look at the size of the disclaimer. As it was shown yesterday, it would be six times the normal size of print in a catalogue.
Ms Dantzer: It's always very difficult whenever you get to specifics like size. If I could walk you through some of the rationale, if I could use the term loosely in terms of how -
Mr. Campbell: It doesn't look like she's going to be convinced, but you can try.
Ms Dantzer: If you look at a cigarette pack, it is far bigger than 1/32 of the total space devoted to the health warning.
I quickly drew this out because I heard they had showed you a page to show how big it was. By and large, most of the catalogues are much smaller than what they showed you, the 8.5 by 11 and much bigger. They are mostly this size. We have a fairly huge selection. If you're taking away the Sears catalogue and the few catalogues that are involved, they're not big. If you look at the video catalogues or CD catalogues, they come in booklets in the mail. That disclaimer at 1/32 is about that big.
How we ended up getting there - and I have to say it was to some extent random - we had to be concerned with the size of the actual publication. If we get much smaller than that, it becomes a laugh line. You've seen the TV ads; you can't read them even if you have a magnifying glass: ``Does not include'' or ``Ontario residents don't have to pay'', so tiny you can't see it.
The concern we heard from retailers was that we can't make them do tax-inclusive pricing if we're going to give a huge advantage to national retailers. So it had to be prominent.
Now, is 1/32 the magic number? That will be for your committee to consider. But the issue is that the size of the publication does make a difference. Ensuring that you can read it was why.
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It is tough to deal with in light of the fact that we don't have the regulations on all other advertising, because it was an attempt early on to ensure there was a level playing field with advertisers. People felt that unless we dealt with that catalogue issue in a way that was very prominent, we would be setting up catalogue distributors.
All retailers said is, ``Nobody reads the rest. They see that one price and they flock to that store. It doesn't matter what it shows in the store. We have to make sure people realize.'' We argued from a government perspective that people aren't that stupid; they know they have to add tax.
Retailers were pretty clear. Look at how strongly they're holding on to this. They use those catalogues to get in the door. When we asked them what percentage was to get in the door or what percentage was to actually do the sale, they said between 40% and 60% was just to get them in the door. So of course they reacted when we were saying it doesn't include sales tax. There's a higher cost.
The actual size I'll leave to you, but the issue was one... It gets smaller; it gets quite tiny.
Ms Whelan: They showed the smaller piece of paper, and on the smaller piece of paper you can understand the rationale, but on the 8.5 by 11 you can't understand the rationale. It just looks silly. I don't think Canadians need to see that on every second page of the Sears catalogue. At that size, it just doesn't make a lot of sense to me.
Thank you.
The Chairman: Thank you, Ms Whelan.
Would you like to add your praises, Ms Brushett?
Mrs. Brushett (Cumberland - Colchester): Yes, I would.
I appreciate Mr. Campbell's very thorough explanation covering what we've covered to date and the review of this very contentious and well-discussed tax. I truly appreciate the education it's been for all of us to delve deeply into this issue with Canadians who have come before us at this table and to share their apprehensions and concerns but also the benefits this tax will bring. It certainly does have its merits, and after being involved this length of time, I look forward to working more to see the benefits for all Canadians in a harmonized tax.
I appreciate it very much. Thank you.
The Chairman: Thanks, Ms Brushett.
Ms Dantzer or Mr. Campbell, do you have any last words for us?
Mr. Campbell: I'd just like to say thank you, Mr. Chairman, for this opportunity. I too have found the hearings so far very useful.
Thank you.
The Chairman: Thank you very much.
We look forward to our hearings, which begin tomorrow. I think we'll be back in the Centre Block at 9 o'clock. We'll be going through until who knows when.
We have received consent to table before you, as soon as we have them in place, a myriad of amendments to the bill. We'll try to get those to you even before we go to clause-by-clause, so you have a chance.
Also, if you wish, it might be more helpful than just receiving a bald amendment to arrange a little discussion with Finance officials before we go to clause-by-clause, either informally or formally through committee. We could arrange it for opposition parties and members before we talk about it clause by clause in committee, if you wish, so you'd have some idea as to where we are. We'll leave that up to you.
As soon as we've heard our last witnesses tomorrow evening, which should end sometime before 8 o'clock, we will go into clause-by-clause immediately, with your permission. That's the most exciting part of bills, reading every minute.
In conclusion, Mr. Parliamentary Secretary, I would like very much to have you pass on to the minister and to officials that we have appreciated the openness and the spirit of cooperation in which these issues have been approached. Rarely in the past have I seen any bill coming out of Finance or any department in which the department and the minister have not dug in their heels and taken it as a personal offence if one has suggested it could be improved upon.
We have benefited greatly, as you know, from listening to witnesses over the past few days, and this spirit has stood us in very good stead and will continue to in the future as we proceed to deal with a very complex but very important bill for the future of our country.
I think members from all parties will take out of these hearings over the last two days a clear message that our country should work in harmony.
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Mrs. Brushett: Mr. Chairman, could I ask one question before we close?
The Chairman: Yes.
Mrs. Brushett: This does affect my province of Nova Scotia. I've received numerous letters, and the Federation of Agriculture brought before us a few days ago the issue of new pieces of equipment or items that have not been added to the lists where they would have been zero-rated or exempt under different sectors. Should this come through Finance or go directly to Revenue to see if they can be dealt with in that area?
The Chairman: Finance.
Ms Dantzer: They should come through Finance, and actually they should also go to their provincial Finance officials, because for any changes like that we now sit around a table and go through them. So they'd have access to both levels of government.
Mrs. Brushett: Thank you.
The Chairman: We adjourn until tomorrow at 9 o'clock.
Thank you very much.