[Recorded by Electronic Apparatus]
Monday, January 20, 1997
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[English]
The Chairman: ``À l'ordre, s'il vous plaît''. The finance committee of the House of Commons is very pleased to be here this morning and appreciates the fact that so many witnesses have come in.
Before I introduce our witnesses,
[Translation]
I give the floor to Mr. Loubier, as he has requested, for a maximum of three minutes.
Mr. Loubier (Saint-Hyacinthe-Bagot): First of all, Mr. Chairman, I would like to wish you as well as all our colleagues and guests a very happy 1997, and I hope that all your wishes will come true.
As I said before we adjourned for the holidays, it is difficult for the Official Opposition to be very enthusiastic about this bill since the government has beat around the bush since the very beginning on the GST. Their position runs counter to the stand that they took when they were the Official Opposition, when they talked about abolishing the GST outright.
There are other difficulties with this bill and they involve what you claim to wholeheartedly defend, that is the Canadian federation.
This bill provides for an agreement with the Maritimes concerning the harmonization of the GST as well as a compensation payment of almost $1 billion. It is totally unfair to take money from federal coffers and to pay it to the three maritime provinces.
Moreover, the situation is doubly unfair for Quebec which, in 1991, harmonized its sales tax, its GST, with the federal GST, and asked for nothing, whereas we are considering paying these three maritime provinces almost $1 billion. It's doubly unfair because part of this money will be used to reduce the tax rates for businesses in the Maritimes.
Yesterday I listened to the New Brunswick Premier trying to attract businesses from Ontario and Quebec. He was inviting them to come to New Brunswick, where there is a tax advantage. A number of people found that rather perplexing.
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Under this agreement on harmonizing the GST, New Brunswick will benefit from subsidies to the tune of $400 million. Frank McKenna said last night that in New Brunswick, they were dynamic. It's easy for trade and industry to be dynamic when they are using someone else's money.
New Brunswick is using money from the federal government to try to attract businesses by advertising in Quebec and Ontario. This is unfair competition. I wanted to raise this point and more particularly to highlight the fact that if we intend to pay a billion dollars in compensation to the maritime provinces, with $400 million going to New Brunswick, which is using this money to undermine Quebec in terms of tax competitiveness, then Quebec, according to our calculations, should also be paid $2 billion.
The Official Opposition does not take up the study of this bill with great enthusiasm. We will have an opportunity to discuss with the people from the Maritimes, and to ask them if they are not a little bit ashamed to undertake such unfair competition against other Canadian provinces.
The Chairman: Thank you, Mr. Loubier. Would anyone like to respond to what Mr. Loubier has said?
Mr. Loubier: We can go around the table, Mr. Chairman. In any case, this matter will be discussed again.
The Chairman: Mr. Campbell.
Mr. Barry Campbell (Parliamentary Secretary to the Minister of Finance): Thank you. On behalf of the government, I would like to make a few clarifications.
[English]
On the question of harmonization generally, I'm glad Mr. Loubier pointed out that Quebec is, of course, harmonized with the federal GST for the most part. That's why it's almost a bit disingenuous, as I see it, to have the extreme criticism of the proposed harmonization in the Atlantic provinces that has been coming forth from the Bloc. I begin to wonder, as I said in the House just before the break, if Quebec is worried to some extent about the loss of a potential comparative advantage that exists today as a result of harmonization. It is clearly to the great advantage of Quebec businesses. I think that's an advantage that should be extended to businesses elsewhere in this country, but perhaps some in Quebec don't see it that way.
More importantly, on the question of adjustment assistance, the claim is again asserted,Mr. Chairman, that Quebec is somehow disadvantaged. As Mr. Loubier understands well - and it has been discussed at great length - on the formula adopted for adjustment assistance, Quebec would not have qualified at the time it harmonized because Quebec did not lose revenue but in fact gained revenue by the process it used for harmonization.
The Chairman: Mr. Solberg, do you wish to add anything?
Mr. Solberg (Medicine Hat): Mr. Chairman, I don't have much to say at this point. I'll save my remarks for later.
The Chairman: How refreshing. Thank you very much.
With us at our round table this morning are, from the Atlantic Provinces Economic Council, Elizabeth Beale; from the Tax Executive Institute, Pierre Bocti and Jeffrey Rasmussen; from the Canadian Tax Foundation, Robin MacKnight and Irene David; from the Atlantic Institute for Market Studies, Brian Lee Crowley; from the Canadian Chamber of Commerce, Dalton Albrecht and Robert Westlake; and from the Metropolitan Halifax Chamber of Commerce, Frank Mader. We thank them all for being with us.
Elizabeth Beale, would you like to start off?
I was going to suggest that maybe you could limit your opening remarks to two or three minutes. We will make sure you have enough time after that to make your full case if you haven't had enough. If that's acceptable to witnesses... Otherwise, we're in your hands.
Ms Elizabeth Beale (President and Chief Executive Officer, Atlantic Provinces Economic Council): Thank you very much, Mr. Chairman. I'm going to confine my remarks to what we see as the benefits of this new tax for the Atlantic provinces and Canada as a whole. I have a note here that I'll leave with the committee. We also have a study under way of the impact of this tax on the Atlantic provinces, and that will be released at some time in February, but the full report is not available at this time.
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The new tax has great potential for the Atlantic region, for a number of reasons. The compensation package that has already been referred to is of course intended to provide some compensation for the three provinces that have entered into it, initially to compensate for the loss of their own revenues under the change from the provincial sales tax in the first few years. Of course that is an essential component of any national program that comes in: that there be some compensation reflecting the distribution of benefits.
The effects and benefits of the harmonization tax can easily be laid out. It is broadening the base of taxation, therefore making the system more equitable. It reduces the incentive for tax-based consumption or investment decisions. The extension of the input tax credit provides the major benefits for this tax in the Atlantic provinces and indeed across the country, if and when it's extended in that manner. It should also simplify the tax collection procedures, reducing the red tape for administering the tax among the three provinces.
A common system among the three provinces here initially is very important as the removal of another barrier to interprovincial trade. I think that is one of the things we have to applaud this initiative for, as taking an important step in this direction.
The impact of the tax is very complex. We have done this through a two-stage estimating procedure that looks at both the direct price effects and the income effects of the new tax in order to assess which sectors will benefit from the new tax and how consumers will adjust to the price effect. We have done this with our economic staff and based it on the experience of the region when the GST was imposed. There are all sorts of different ways economists can use to measure this tax. This is the step we have taken.
What it shows is that there are a number of positively impacted sectors within the region, including sectors for household items, new and used motor vehicle sales, recreation and entertainment goods, and hotel and restaurant sales. Many of those sectors were very hard hit by the introduction of the GST, so those sectors have tended to be very positive about the impact of the new tax. However, there are also some sectors that will be negatively impacted, including energy and fuels, transportation, recreational services, financial and legal services, and clothing sales.
All in all, however, our analysis shows that the tax is beneficial and not particularly inflationary for the Atlantic provinces. In constant 1986 dollars we estimate a net benefit to the three Atlantic provinces of $41.3 million, although those are very cautionary estimates at the current time and we anticipate those estimates will be higher once the full study is carried out.
There are a few issues that need to be resolved, in particular the impact on the municipalities and the issue of tax-in pricing, which is still not fully resolved despite the new proposals. I'm sure we'll have a chance to discuss those later.
Thank you very much, Mr. Chairman.
The Chairman: Thank you very much, Ms Beale.
Now we'll hear from the Tax Executive Institute.
Mr. Pierre Bocti (Chairman, Commodity Tax Committee, Tax Executive Institute): Bonjour. I'm director of tax for Hewlett-Packard. I'm here today before the committee in my capacity as chair of the Canadian commodity tax committee for the Tax Executive Institute. The committee is responsible for monitoring development- and consumption-based taxes such as the GST and sales tax. You have introduced Jeff Rasmussen, the assistant tax counsel for TEI in Washington.
For your information, TEI is the principal association in North America for corporate tax executives who are responsible for the tax affairs of the businesses that employ them. Our nearly 5,000 members represent more than 2,700 of the leading corporations in Canada and the U.S.
Mr. Chairman, in general we commend the government for taking the initiative to harmonize the provincial retail sales tax with the GST. When fully implemented, the benefits of a single national sales tax regime, with a unified administration, coordinated among the provincial and federal governments, will, we believe, prove substantial for taxpayers and the government alike. We are pleased to say Bill C-70, introduced on November 29, addresses many of the concerns identified in TEI's previous submissions and discussions with the Department of Finance and Revenue Canada on the GST technical bill. However, there are some issues that remain. I will touch briefly on several concerns and then conclude.
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We recognize that complex political, constitutional, legal, and budgetary constraints impel the decision to limit the introduction of a harmonized sales tax regime to the maritime provinces. That decision, however, would create enormous administrative burdens and complexities for taxpayers to comply with the so-called ``place of supply'' rules. The place of supply rules are particularly difficult to apply to services. To limit the compliance burden involved in determining the place of supply, a single national sales tax with a uniform tax base, uniformly administered, is necessary. To that end TEI has submitted letters to provincial ministers of the non-participating provinces, urging them to participate in harmonization. Before moving forward with Bill C-70, however, we urge the government to consider the place of supply rules very carefully.
Businesses selling products and services at the retail level must, under the bill, implement tax-included pricing. Quite apart from hiding the cost of government services, the seemingly simple rule imposes tremendous compliance burdens and administrative costs on retail businesses, especially in the transition from the current system to a harmonized system. We urge the government to weigh those costs and concerns carefully. At a minimum the government should consider deferring the implementation of tax-included pricing to December 31, 1997, in order to afford taxpayers and the government time for consultation.
Since the inception of the GST, the rules affecting financial institutions have been complex. TEI members are still studying the rules set forth in the November 29, 1996 bill, so we do not have extensive comments this morning. We must point out, however, that financial institutions have been singled out among taxpayers for a discriminatory two-year limitation period for claiming input tax credits, whereas the government may assess or deny input tax credits for up to four years. We urge members of Parliament to reconsider this provision as unsound income tax policy.
To conclude, other issues were addressed in the TEI written submission on April 23, 1996, ``GST Technical Bill''. Time constraints prevent me from raising those issues, except to say our discussions with the Department of Finance and Revenue Canada have been productive and we hope they will continue to be so.
In conclusion, on behalf of TEI, I wish to express my appreciation for the opportunity to participate in the round table on Bill C-70.
The Chairman: Merci beaucoup, Mr. Bocti.
Robin MacKnight, from the Canadian Tax Foundation. This is your first appearance before the committee, I believe, Mr. MacKnight, in your new capacity as the director of the Canadian Tax Foundation.
Mr. Robin MacKnight (Director, Canadian Tax Foundation): Yes, wearing this hat, that's correct, Mr. Chairman.
The Chairman: We welcome you.
Mr. MacKnight: Thank you.
For those who aren't aware, the Canadian Tax Foundation is an independent tax research organization whose purpose is to provide both the tax-paying public and governments with the benefit of expert and impartial research into current problems of taxation and government finance. Our goal is to promote debate leading to the best possible tax system for Canada, one that is as equitable as possible and one that fosters growth in the productivity of the country. We do not take sides in the debate. Instead, once a policy has been announced we review that policy and comment on how it complies with the goals of tax policy, such as efficiency, ease of administration, taxpayer compliance, and revenue generation.
This morning I will address only two policy issues arising out of the HST bill. The first point concerns the inappropriate severity of the penalty provisions in division 11, on tax-inclusive pricing, which could apply as a result of inadvertent non-compliance with the harmonized tax system. The second concerns the inappropriate transfer of potentially retroactive taxing power away from Parliament, with its public debate and accountability, to cabinet and unelected government officials.
On the first issue, inadvertent non-compliance, we find it manifestly unjust that a shopkeeper in Shediac, New Brunswick who inadvertently sells a candy bar without tax-inclusive pricing, or a supplier from Red Deer, Alberta who ships widgets to a purchaser in Halifax without tax-inclusive pricing, must be tarred forever with a criminal record, while another citizen who is convicted of violent assault may be granted an absolute discharge and have no criminal record. I refer you to section 242 of the notice of ways and means motion, which creates the offence of failure to comply with the tax-inclusive pricing requirements.
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Proposed section 368 of the Excise Tax Act bars a court from granting an absolute or conditional discharge for failure to satisfy the tax-inclusive pricing rules. This results from two related provisions. First, proposed subsection 368(1) of the Excise Tax Act imposes a minimum fine of $100 for failure to comply with the rules contained in division 11. Then proposed subsection 368(3) provides that the sections of the Criminal Code that allow a court to grant a conditional or absolute discharge after a conviction or a guilty plea do not apply in respect of offences under division 11. This proposed subsection 368(3) appears to be unnecessary because the fact that a minimum penalty is imposed under proposed subsection 368(1) precludes the operation of those relieving provisions of the Criminal Code.
The result of these provisions is that someone who is guilty of a criminal offence that does not have a minimum fine attached, such as assault or spouse beating, can receive an absolute discharge and have the conviction or guilty plea expunged, while the person who sells a product without the harmonized sales tax in the sales price must pay a minimum fine and forever have a criminal record. How can this result be justified in the tax system of a modern industrialized state?
There will inevitably be inadvertent non-compliance by well-meaning taxpayers, because key design and administrative rules that are critical to the imminent implementation of this complex legislation have not been released. If the penalty is the same for intentional and inadvertent non-compliance, what incentive is there for taxpayers to attempt to comply with this legislation?
We have two recommendations on this point. First, remove the minimum fine for proposed subsection 368(1). Second, delete proposed subsection 368(3).
Mr. Chairman, if I can beg your indulgence for another minute, I would just like to deal with the second point, about retroactive non-parliamentary amendments to this legislation.
Another fundamentally offensive aspect of this proposed legislation is section 235 of the notice of ways and means motion, which proposes a new section 277.1 for the Excise Tax Act. In particular, I refer you to proposed subsection 277.1.(2), which bears the apparently innocuous heading of Temporary regulations. This proposed subsection delegates from duly elected representatives of the people to cabinet and unelected officials the power to change the law unilaterally and retroactively. It gives the Governor in Council the power at any time before May 1999 to make regulations to adapt or modify any provision of the harmonized sales tax regime, to define words and phrases and their application to the tax system, or to provide that any provision of the legislation or the regulations does not apply. Further, such regulations may have retroactive effect.
This delegation of rule-making power away from duly elected representatives is unprecedented. This provision gives cabinet and unelected officials the power to change the law retroactively without Parliament's approval or even its knowledge. The inclusion of such a power is tantamount to admission by the legislative drafters that their legislation is flawed. It is an admission that key elements of the system have not been thought out. It is an admission that the government wants to reserve unto itself the right to reshuffle the deck in its favour. Are these the messages the government wants to convey to the taxpayers of Canada?
This delegation of rule-making power is contrary to a basic tenet of tax policy, that a system must be and must seem to be certain and fair to all taxpayers. We recommend that this proposed section 277.1 be deleted. Officials of Revenue Canada have always had administrative powers to make the system work. There should be no power outside Parliament to change the fundamental rules.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. MacKnight.
From the Atlantic Institute for Market Studies, we have Brian Crowley.
Mr. Brian Lee Crowley (President, Atlantic Institute for Market Studies): Mr. Chairman, I thank the committee for the invitation to appear before you today. We've all been asked to try to keep our comments down to about three minutes, and I think such admonition should be taken seriously, so I hope you'll forgive me if I dive right into it.
I have three chief points I wish to make, first on the desirability of harmonization, second to express opposition to tax-in pricing, and third on how to minimize the awkwardness of the regional nature of the tax, which regional nature I think we all hope will be temporary. Before I speak to each of these points in turn, however, I wish to make a general point, lest the rest of what I say be misunderstood.
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We pay far too much tax in this country. In fact, in the last twenty years we've moved from being a low-tax jurisdiction to being a high-tax one, even compared with many of our chief competitors within the OECD and the G-7. Within that latter group, the G-7, our taxes are, according to the Institute for Research on Public Policy, the third highest as a percentage of gross domestic product. Relative to our chief competitor and largest export market, the United States, the gap is a full ten percentage points of GDP. That is an unsustainable situation.
Therefore, my comments are directed solely to the question of how harmonization improves the tax regime and are not to be taken as in any way endorsing or approving any extra tax revenues that will flow to government as a result of the harmonization. I'll have more to say about this in a moment.
Now my three points. First, the desirability of harmonization flows from a number of economic principles and objectives with which I think you're all familiar. We've been through all of this before.
First is the principle of tax neutrality. Here I'm referring to the fact that the best sort of tax is one that does not distort the decisions people would have otherwise made. The current provincial sales tax regime is an egregious example of a tax that violates this principle in a number of ways. It is a very bad tax, one we should celebrate the disappearance of, just as we rightly celebrated the disappearance of the manufacturers sales tax, perhaps the worst tax human ingenuity has ever devised. Of course the GST tax base is not without its distorting aspects, but these are clearly less important than those with which the provincial regimes are riddled.
Second is the object of removing disincentives to save. We all know that before the GST our tax system had a very strong bias against saving and in favour of consumption, to the extent that income that went to consumption was taxed only once whereas savings suffered a kind of double taxation. The GST helped to put these two on a more equal footing, but our very low savings rate indicates there is probably much more to be done in this regard. By modernizing the provincial sales tax regime and harmonizing it with the GST tax base, we will make a large step in the right direction.
Let me refer now to the objective of lowering regulatory and enforcement costs. There could hardly be anything more ludicrous than the application within the same country of two different sales tax systems, applied to two different tax bases, remitted to two different governments, and subject to two sets of enforcement authorities and audits. Similarly, the flow-through nature of the harmonized tax makes it simple to police and more efficient, removing the highly damaging taxation of business inputs.
The objective of achieving a national uniform sales tax system is my next point. For the above reasons and others, it is highly desirable to arrive at a single national sales tax system, although I hasten to add that need not imply a uniform blended rate right across the country. Far more important are the efficiencies to be achieved by a uniform tax base, enforcement, and administration, and the elimination of the damaging taxation of business inputs under the provincial sales taxes.
On this score I might add that it is not the ideal - I think we all know this - to begin this tax on a regional basis. On the other hand, I am very much aware that under our federal system large initiatives can be accomplished only by negotiation. People can sometimes be got to the table for serious discussions only when they see in practice how powerful new policies can be. I'm not the first to point out in the context of this tax that medicare, for instance, one of this country's most popular policies, was originally brought in with the participation of only two provinces, and it took six further years to bring all the rest of the provinces on side.
Let me speak now on my point in opposition to tax-in pricing and how we can minimize the awkwardness of the regional tax. I'm opposed on principle to tax-in pricing if it means the amount of tax the consumer pays is in any way obscured. The principle here is as important as any of the others I've already alluded to, and it is the principle of the transparency of the tax system.
A different way of stating this is to ask the question of why we are discussing tax-in pricing in the first place. Many elected officials will tell you it is because people have indicted in polls and so on that they dislike having to pay the tax on top of the retail price at the cash register, but I would argue that the public reaction is because, as I've already indicated, we pay too much tax in this country. Taxes have risen three and a half times faster than real incomes over the past fifteen years or so.
The real reason behind the notion of tax-in pricing is that politicians would find it to their advantage not to have to remind people every time they buy something just how deeply the government has its hand in their pockets. This is an issue of honesty. Hidden taxes are a boon to politicians because they can put them up with less fuss from taxpayers. It is impossible for taxpayers to work out what price increases are due to tax rises and what to actual increases in the cost of goods and services.
.0930
The far better solution, and one that solves part of the problem of the awkward regional nature of the tax, is the following. All prices, shelf stickers, cash registers, and other receipts should include three elements, the retail price, the tax, and the final total, and they should all have equal prominence. During the transition to a national sales tax an exception should be made for national catalogues and other national sales devices, but it should be clearly indicated that all applicable taxes are to be added to the advertised prices. A table can be included in catalogues and so forth to allow the consumer to determine what the final price payable would be anywhere in the country.
That policy would go some way towards mitigating the admittedly awkward problem of applying two different sales tax regimes in different parts of the country. I recognize the solution is not elegant, but it has the virtues of clarity, honesty, and transparency, which in my view are much more important.
The Chairman: Thank you very much, Mr. Crowley.
From the Canadian Chamber of Commerce, Dalton Albrecht.
Mr. Dalton Albrecht (Canadian Chamber of Commerce): Mr. Chairman, we would like to thank you for the opportunity to present the Canadian Chamber of Commerce view.
I am with the law firm McMillan Binch and on the chamber taxation committee. With me today is Bob Westlake, who is from General Electric Capital Canada Inc. and also on the chamber committee.
Our brief has been provided in both official languages and is available. I will ask Mr. Westlake to set out the chamber position. Then I will want to make a few comments highlighting some of the concerns of the chamber.
Mr. Robert Westlake (Canadian Chamber of Commerce): Mr. Chairman, the Canadian Chamber of Commerce is on record as supporting harmonization of the GST with the provincial sales taxes under the principles of visibility, a single national sales tax at one rate, harmonized at base and with a single administration, as expressed in the resolution on GST replacement passed at the annual meeting in St. John's, Newfoundland in September 1996. Based on the preceding, the Canadian Chamber has also supported the goal of tax-in pricing. For a variety of reasons, including the fact that it's very late in the day and we still do not have any clear regulations in place for retailers, the taxation committee of the Chamber of Commerce has come to the view that the tax-in pricing aspect of the harmonization cannot be implemented in the short term. Further, the costs and benefits of tax-in pricing in a partially harmonized system in the long run should be studied, because a number of important questions and alarming cost figures have been raised by our stakeholders.
Mr. Albrecht: We represent local chambers of commerce as well as various national retailers. All of our members are expressing serious concerns about the cost implications. You'll hear from the national retailers, I'm certain. Our position is that the local chambers of commerce have also expressed concerns for small businesses. We've alluded to that in our brief. I know a local chamber is present here. Given the genuine economic advantages of sales tax harmonization and the fact that these can be attained without tax-included pricing, we strongly urge this committee to hold the tax-inclusive pricing parts in abeyance until the GST is fully replaced with a single national sales tax. At the very minimum, we suggest the committee recommend delaying implementation of tax-included pricing until a complete study of the costs has been done.
We note there has not been any provincial call for tax-included pricing, as reported in the national newspapers on Friday. The provinces were on record as suggesting it wasn't something that was their requirement. We point out that Quebec considered this very fully and spent a lot of time and money studying the issue of tax-included pricing when they harmonized the retail sales tax with the GST and rejected tax-included pricing because of its huge cost implications.
The chamber suggests that as a country we are past the pure political dimension of replacing the GST. We must look at the cold reality. We ask the committee to take this into account. There are incredible continuing costs - and I emphasize the word ``continuing'', as opposed to one-time costs - to the retail sector. Figures of $100 million on an annual basis have been set out in various studies. That's for the large national retailers. We point out that the implications to the struggling smaller retailers in the Atlantic provinces, changing inventories or asking their suppliers to provide them with different inventories, are extensive.
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We note that there will be significant chaos on April 7, and even by August 1. The most recent pronouncement suggests the enforcement be delayed until August 7. There would be chaos if this were implemented in the short term.
We would also like to point out that such a partial harmonization has not been attempted anywhere else. There has been reference to this being in the European Union. That's not the situation. The individual unitary states tax things on a national basis. It's also implemented by custom or administrative practice. There's no legal requirement in those states either.
So we simply urge the committee to delay this part. We note the guidelines that were officially announced on Friday - they're not regulations but guidelines - do not ameliorate the situation.
The Chairman: That surprises me.
Last, from the Metropolitan Halifax Chamber of Commerce, Frank Mader. Welcome.
Mr. Frank Mader (Chair, Taxation Sub-Committee, Metropolitan Halifax Chamber of Commerce): Thank you, Mr. Chairman.
Ladies and gentlemen, it's a pleasure to be here this morning to present the views of our chamber on the harmonized sales tax.
In my business life I'm a partner in a local chartered accounting firm in Halifax. For the chamber I chair its subcommittee on taxation, and since last April I've co-chaired a task force on the GST harmonization process.
Tax harmonization is a very serious and very real issue for our membership, for if there is any miscalculation in the formulation or the implementation of this tax measure there will be direct and real implications for our membership. In response to that the chamber, through our task force, has put an unprecedented amount of effort and resources into trying to assess and analyse this measure and its impact before coming to any policy position on it.
We have a history of supporting the conversion of the previous manufacturers sales tax and the provincial sales tax regimes into one value-added tax on a national basis in this country. After reviewing what is proposed, we can support the harmonized sales tax with one exception, and that is an issue that is not a tax issue but in fact a Consumer and Corporate Affairs issue that has been tagged onto this proposed legislation: tax-in pricing.
About supporting the HST, it is because of the conversion to a value-added tax structure plus the efficiencies that are brought about by combining two existing regimes into one. Through the value-added tax structure we see that the impairment in the productive capacity of the economy the provincial sales tax now imposes will be removed. It will be less expensive to invest in new or existing businesses, thereby facilitating economic growth. To keep those businesses in operation will cost less, making survivability and prosperity more sustainable and attainable targets. We would find that our export capability would be much more competitive, which for a province such as Nova Scotia is very important. We have a population of less than a million people. To be prosperous we need to have exports.
On the tax-in pricing issue, our view is not that we object to it in principle, provided it is done with a visible tax and is done only on commercial transactions. However, we do not want to see it imposed at this time, for two basic reasons. One is that our merchandising operations, our retailers, would have to go against the national structure of how goods are distributed and merchandised within the country, which would create extra costs in advertising and ticketing of items, which would have to be borne by somebody and which would likely fall upon the Nova Scotia retailer or the consumer, points we would like to avoid, given the tough economic climate in Nova Scotia.
The second serious impact we see from tax-in pricing is the impact on consumer confidence within the economy. As a result of the conversion to a value-added tax structure there will be the flow-through, which through market pressures will pass along to consumers. I'm not going to make any comment about what percentage will pass through, because I am not an economist and we could have different views depending on which economist we talk to. However, it will be there, I have no doubt about that. The chamber has no doubt about that. However, the tax-in pricing will mask any impact of the flow-through. It will fuel an existing view within the population that this tax will be inflationary. It will in fact create more taxes.
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The only other aspect I would want to draw attention to in relation to the impact on the consumer would be the fact that throughout the country there would be an impression that the Atlantic region is more expensive than, say, Ontario, even though the tax would be the same, at 15%. This would also have negative impacts for our tourism industry, which would be of concern because it is a growing and significant part of our economy and a major employer.
The Chairman: Thank you very much, Mr. Mader.
Just before we start, I'm slightly incredulous at the statement by Mr. Albrecht that the guidelines do nothing at all to improve the previous situation relating to tax-included pricing.
Secondly, Mr. MacKnight, the two issues you drew to our attention are very important, particularly the issue about the criminal penalties involved, without possibility of remission. I've asked the department to look into that. I'm sure it is inadvertent, but thank you very much for drawing it to our attention. I hope we can have a report back from the department before we leave the session today.
[Translation]
We will begin with questions from Mr. Loubier.
Mr. Loubier: My first question is to Ms Beale, who represents the Atlantic Provinces Economic Council.
You said earlier that the compensation will only make up for revenue losses experienced by the provincial governments in the three maritime provinces because of harmonization of the GST and their provincial sales tax, which will be cumulatively lower over the next few years than they would have been had we maintained the present schemes.
Why should taxpayers from Quebec, from Ontario, from Manitoba, from British Columbia, from Medicine Hat or from all of Alberta have to make up for tax losses incurred by the three maritime provinces? Why not establish an adjustment or some type of balance in the three maritime provinces by increasing sales or income taxes in these provinces? Do you not find it unseemly to ask other Canadian provinces to finance a tax adjustment in the Maritimes, especially since it will cost them $1 billion and will give an extra competitive advantage to businesses in the maritime provinces, especially those in New Brunswick?
[English]
Ms Beale: Thank you very much for the question, Mr. Loubier. I'll answer it as best I can.
My initial comment is that the tax system is never entirely fair. There are inequities across all aspects of the tax system. One of the advantages to having a national system of taxation, as indeed we are heading into with this tax - it is a very important step in that direction, even though it includes initially only three small provinces - is that we can indeed allow the distributive benefits of a national system to flow across the country and to redress some of the imbalances that happen.
One of those imbalances is that in an economy like that of the maritime provinces the provinces have been very dependent on consumption taxes to make up revenue shortfalls in other areas. That has been a great source of difficulty for the Atlantic provinces, that they have not been able to draw on the resource rents, for example, which some of the western provinces have had, or the larger income tax base some of the wealthier provinces have had. Consumption taxes have really been an important source of revenue in the Atlantic provinces, but also crippling in terms of the provincial government's ability to generate and push any more revenues out of that system. This has obviously been the incentive to draw the Atlantic provinces into this improved tax scheme in the first round.
The only comment I can really make here is if you're truly committed to a national system of taxation, as we believe is terribly important across this country to remove some of these interprovincial barriers of trade and to strengthen the economy overall, you indeed need to be willing, as a national economy, to compensate different regions for some of the problems they may face. That is indeed how we see this tax.
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[Translation]
Mr. Loubier: Madam, I am not questioning the benefits of harmonization and of the reduction of trade irritants that can exist between provinces in the area of trade. I am in favour of reducing these irritants, and one better harmonization of interprovincial tax measures. That is not the problem.
The problem is that we are faced with a local agreement, which was signed between the federal government and three maritime provinces, and which provides for a payment of almost $1 billion in compensation to these provinces, an amount which is paid by residents of Canadian provinces other than the three provinces who signed the agreement.
It is not normal to make local tax adjustments using federal money. For example, it is not normal - and they are bragging about it in New Brunswick - that through this agreement, the tax burden of New Brunswick businesses will be lowered by $400 million, helping them to compete more strongly with Quebec or Ontario businesses. On his trip to Asia, Premier McKenna went as far as to approach Ontario and Quebec businesses that were there. That is what I am wondering about.
The problem is not with harmonization or reducing trade irritants. How can we justify giving the Maritimes $1 billion from other Canadian taxpayers?
Earlier you compared the advantages that the maritime provinces have with the revenue drawn by prairie provinces from their natural resources. There are other programs, including equalization, that can help the Maritimes.
With this agreement with the Maritimes we are trying to create a type of equalization: this should not be the case. Everyone is in favour of harmonization. Quebec harmonized everything with the federal government in 1991. This cost the federal government nothing. We are better federal "citizens" than the maritime provinces. This is not normal.
What is the justification for having provinces other than the three provinces involved pay$1 billion?
[English]
Ms Beale: I'm not sure how else I can respond to you, Mr. Loubier, beyond what I have already said, because I think there's a matter of perspective here. We don't see this as a local tax at all. This is truly a national tax. Any national program involves different forms of transfers, of revenue compensation, among the provinces. This is a standard for a country that is committed to national programs, that we must allow this to happen.
I do want to point out one important factor about -
[Translation]
Mr. Loubier: I am sorry, but the new scheme only involves the three maritime provinces; it isn't a national program, but a local harmonization agreement. If it's a local agreement, it's up to those involved locally to adjust.
We, in Quebec, in Ontario, in Manitoba, in Saskatchewan and Alberta, should not have to support tax adjustments for other provinces; there would be no end to it. If the general tax rate is to high in the Maritimes, it's a problem for the Maritimes; it's a tax competitiveness problem for the Maritimes. It isn't up to the taxpayers to pay for it.
Why should Quebec pay $250 million for this compensation, because that would be its share? Why should we pay to give an advantage to our competitors in New Brunswick? It makes no sense. How can we justify that in a federation? A federation - it's strange for a sovereignist like myself to be lecturing you about the nature of a federation - does not exist so that those involved will use federal funds to tear each other apart and to compete unfairly. That makes no sense. That is what I wanted to point out, Madam.
[English]
Ms Beale: I guess that is exactly the reason why we need to push and extend this across the country, so we don't have this type of provincial competition. I agree with you entirely that is an irritant.
However, I do want to make the point -
[Translation]
Mr. Loubier: I want to take part in harmonization. In Quebec, we harmonized in 1991. But when we asked for compensation, we were told that we weren't entitled to it.
The Chairman: I'm sorry, Mr. Loubier, but we are not the Prime Minister.
[English]
Ms Beale: I think this has to be looked at also as a tax that can provide good benefits and good stimulation to growth in the Atlantic provinces. I think the provinces have approached this in the right manner in the potential for this tax to act as an attraction to business development. I make no apologies for that. The Atlantic provinces feel they have been stymied by being on the negative side of numerous federal policies for a number of years, and this tax is something...and Mr. McKenna has used it very effectively. Whether you like it or not, he has marketed it very effectively in terms of trying to make this an attraction for businesses coming into the region. We are all very optimistic about this as being a very positive stimulus to the regional economy in years to come.
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The Chairman: Mr. Solberg, please.
Mr. Solberg: Welcome to everyone.
As far as I can see, there are three major issues surrounding the HST. One is the political issue of the billion-dollar pay-off. The second issue is one that is not talked about very much but is absolutely critical and one I'm surprised some witnesses haven't raised today, although I think I did hear Mr. Crowley allude to it a bit. That is the whole issue of competition among jurisdictions, keeping taxes low. The final one is the plethora of administrative problems that surround the tax, including tax-in pricing.
Having said that, I want to get right down to some specifics. I'm going to set the billion-dollar thing aside for a moment. I will only say that a number of people in the country get tired of seeing every federal program become some kind of transfer program to certain provinces. I do believe it breeds division and I believe people are tired of seeing that happen. In my judgment, there was no need for it to happen this time around. In fact, the only reason the provinces did sign on was because of the billion dollars, and it simply was convenient to help the federal government out with the political problem they were having.
The Chairman: That sounds extremely cynical, Mr. Solberg.
Mr. Solberg: Forgive me for being so cynical.
On the issue of tax competition, I think it was Mr. Westlake who made the suggestion that there should be one national rate for a harmonized sales tax. One of the concerns I have, given the remarks by Mr. Crowley and others, is that because we already have such high taxes in this country, when you have a system where you have one rate, one of the great disadvantages is that you remove competition between jurisdictions.
You people are with the Chamber of Commerce. We all know the benefit of competition. It helps lower prices. In this case it would help lower taxes.
I come from Alberta, and one of our great advantages is that we don't have a sales tax. It forces the provinces around us, I think, to keep their taxes as low as possible. I can tell you I live in the city of Medicine Hat, and we have lots of people come across the border from Saskatchewan to shop in Medicine Hat. If you have one rate, you're going to lose that advantage. As a result, there's not going to be that downward pressure on taxes any more.
I wonder if you can respond to that and let us know how you would deal with that, how you would keep pressure on a downward track if you had one national rate.
Mr. Westlake: I'll answer your question as best I can.
The policy of the chamber has always been that one national rate right across the country will ease administration for both business and government and make it relatively easy for the consumers to determine exactly how much tax they're paying. Competitive factors or pressures on interprovincial tax rates cause more problems than they have benefits, because you have businesses that are setting up across borders and raiding each other's coffers, if you will, rather than trying to move the economy of the nation forward as a whole.
Mr. Solberg: But, Mr. Westlake, isn't that rather a provincial view? On the other hand, you have provinces with low tax regimes that attract business from south of the border, for instance.
I'll give you an example. In Alberta we're attracting people from around the world because we have low taxes overall.
What I'm concerned about is that in this particular agreement you have the provinces agreeing...and I think this is what the federal government is pushing. Once they had everybody on board, it would take only a majority of the provinces to raise the rate but absolute unanimity to lower the rate.
Doesn't that concern you? I'm concerned about that. I think taxes are far too high in this country. Now we're talking about cementing in place unanimity in order to come to an agreement to lower taxes. I think we should be concerned about that.
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Mr. Albrecht: I would just like to point out that when you're talking about attracting businesses, the whole point of the GST and the HST is that it is useful for businesses, because businesses get a full input tax credit. The tax-in pricing concern is only at the consumer level, so the HST will benefit all Canadian businesses, all provincial businesses, by removing that tax component. Then you're talking property taxes, you're talking corporate income tax rates, and those are a different issue.
In fact, there's a benefit to one industry here, and that's the industry I'm a member of. For a lawyer practising in the tax area, there's significant business, and as a result a cost to business, in trying to comply with multiple rates and the problems that go along with them. There are numerous cases - I'm involved in one now - about sending sales into a province. What is sending sales into a province?
There is a lot of complexity, there is a lot of cost, and what do you really gain out of it all? Maybe competition for a few consumers. But I don't think we really want to be encouraging it on the basis of cross-border shopping. If that's the issue, they can go down to the States and avoid the whole thing. It's also not beneficial to someone unless they're right on the border.
I think the key thing in terms of competition for business is that then they'll be competing on other economic factors and not just on the tax system. That's the whole point of the HST.
Mr. Solberg: What about the argument, though - and this was the initial one I made and I don't think I heard a response to it - that if you have jurisdictions competing, you do drive overall taxes down, but if you have a single rate, then you don't have that competition?
Mr. Albrecht: The incentive to drive the tax down in terms of locating businesses is attracting business, because business gets full recovery through the input tax credit mechanism. What you're talking about is competition for consumers. I'm not an economist, but I'm not sure it's all that significant, frankly. It's really in border towns.
I just don't see the impact you're getting. There's still an incentive. I think the pointMr. Crowley made is you want that transparent so people know what the taxes are and people can demand lower taxes, if that's the case.
Mr. Solberg: I just want to follow up on a point Mr. MacKnight made about the new powers this legislation will grant to cabinet, the ways and means legislation section 235, I think he said.
Mr. MacKnight, I wonder if you could go into a bit of detail about just what kind of powers this would grant to cabinet, so far as you understand them, and because you seem to have some knowledge here, maybe a bit of comment about the fact that this is unprecedented and what kind of dangers you see from this.
Mr. MacKnight: Mr. Solberg, you're opening an interesting can of worms here.
Proposed section 277.1, on temporary regulation, starts out:
- For the purpose of facilitating administration and enforcement of the HST regime or the
transition, the Governor in Council may...make regulations
- Then there are four provisions giving the standard authorities.
So, for instance, if a taxpayer were to rely on a particular definition and file a tax return on the basis of that definition and were to be reassessed because the department had a contrary view, and if the taxpayer were to take that to court and were to succeed in court, it would appear this proposed section would give cabinet the power to change the interpretation retroactively, basically cutting out the judicial decision on the interpretation of that word.
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Mr. Solberg: Taxation without representation.
Mr. MacKnight: Absolutely. Absolutely.
Mr. Solberg: Mr. Chairman, I frankly wasn't aware of this. It's unbelievable that it's in there. I can't believe it was a mistake. Obviously the people in the Department of Finance deal with these things on an ongoing basis. All I can say is I'm shocked it's in there and I can certainly tell you we're going to be pursuing this issue. I just can't believe the government is trying to ram that through. It's unbelievable to me.
The Chairman: On that point, Mr. Solberg, if we were all perfect we wouldn't have to have hearings to hear from people who are affected so they can help us improve on legislation.
Mr. Solberg: Mr. Chairman, I accept that, but this legislation has been sitting around for coming up to nine months now and I'm just amazed the government, the people in the finance department, haven't taken the time to go through this with a fine-tooth comb and deal with things such as this, particularly things that have tremendous implications for the entire country. I think it bespeaks an attitude that lately we've seen from the government too often, frankly.
The Chairman: With all due respect, Mr. Solberg, even your brilliant research team was not able to come up with this. We're quite prepared to address these issues as a committee, and this is why we're having these hearings.
Mr. Solberg: Mr. Chairman, if we had some sense that the government was willing to bend on issues such as tax-in pricing over the nine months, when common sense tells it that it should, perhaps I would have a little more confidence that the government would be listening to what Mr. MacKnight is saying here.
At any rate, I want to ask Mr. MacKnight one more question.
Given what you've discovered, Mr. MacKnight, I suppose it would be possible for cabinet, along with a majority of the provinces, to go ahead and raise the rate on a harmonized sales tax without ever involving Parliament. Is that correct?
Mr. MacKnight: Frankly, I hadn't considered that issue. I don't know the answer to that question.
Ms David has some comments about the interpretation of this section.
Ms Irene J. David (Canadian Tax Foundation): I just wanted to add that retroactive changes to legislation are not new to this government. In 1996 retroactive amendments were made to the Excise Tax Act, back to 1991. This is just a continuous pattern. There have been many occasions. So while you're looking at this, it might be worth while to examine some of the situations where retroactive changes have been made under the GST in the past. There have been quite a few.
Mr. Solberg: How much time do we have here, Mr. Chairman? Are you keeping us on a strict schedule?
The Chairman: I'm in the hands of members. Why don't you have one more question? We'll go around and do every member and then we'll go back and every member will have as much opportunity as they need, and the witnesses time to sum up in any way they wish.
Mr. Solberg: You know what, I'm just reluctant to do that. I wanted to get into tax-in pricing, but maybe I'll wait until the final round.
The Chairman: Thank you very much, Mr. Solberg.
Before we waste a lot of time on this particular issue, I've just been assured the department has in fact learned something from Mr. MacKnight it didn't know about the criminal aspect of this, and there's no intention of the government to impose criminal penalties for an inadvertent slip on tax-included pricing. So we're very grateful to him for having brought that forward. The department is going to suggest amendments.
Mr. MacKnight: I can then make one other comment. I was shocked when I found this provision. I thought it was a provision unique to this proposed legislation, so I went back and looked at the Income Tax Act and was shocked to discover it is also in the Income Tax Act.
The Chairman: I'm informed that is the reason it was in there; therefore, I suspect changes to the Income Tax Act will probably be considered too.
Mr. MacKnight: I appreciate that. I would just like to bring that to your attention at the same time.
The Chairman: Thank you very much.
I could also suggest the question of retroactivity is one the department wants to address before we pass this bill through committee.
Mr. Albrecht.
Mr. Albrecht: Mr. Peterson, I just wanted to point out that you'll be interested to know that in the guidelines released Friday there's a reference to how you could spend thirty days in jail. So it's something that was considered by the -
The Chairman: That I could spend thirty days in jail? I would understand that completely.
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Mr. Albrecht: The guidelines are addressed to retailers - you, being a small retailer in Shediac or whatever, fail to re-sticker one item.
The Chairman: Thank you very much for bringing these to our attention. This is why we rely on Canadians to help us improve on legislation.
Ms Whelan.
Ms Whelan (Essex - Windsor): Thank you, Mr. Chairman. I wasn't aware this morning was going to be so enlightening about the differences in taxation bases across Canada and what's acceptable and what's not acceptable. I find it a bit ironic that our member from the west thinks special taxes for the oil and gas industry and additional EDC subsidies for the province on the Pacific coast and a billion dollars to the west for Crow subsidies are acceptable, but a billion dollars to resolve and put harmonization of this tax in the right direction are wrong.
I'm also a bit concerned that our member from Quebec seems to believe his province is a net contributor in taxation and he comes up with $250 million. I'm having a bit of difficulty with that, as well as with the fact that 50% of the dairy subsidy ends up in the province of Quebec.
I think we all have to realize that as a country we work together. That is what this is all about in the Atlantic provinces.
I want to talk about the transparency issue. I'm having a bit of difficulty with some comments Mr. Albrecht made, and I believe Mr. Crowley made similar comments.
Yesterday I purchased gasoline in the town of Kingsville. I have the receipt right in front of me. I'm just not sure why I wouldn't see exactly how much tax I paid. It says I paid $31, GST included, for fuel; $2.03, total $31. I know exactly how much tax I paid. It's very transparent. If anyone wants to look at it, it's here. You can see it.
Maybe there's something I'm missing. Maybe you could explain where the hiding is going to be.
Mr. Albrecht: I'm not sure I understand. There are various things under the GST where you can price tax included, but it's not mandatory. There are a couple of industries, I believe, that actually do price tax included, and I guess gasoline would be one of them. At the pump you have a total price, and you're pointing out that the price includes tax.
I don't think anybody has a problem with tax-included pricing. It's the piecemeal integration of that at the consumer level that causes the problem. The chamber fully supports tax-included pricing, if that's what the government wants. We don't see it as being necessary, but we can support it if it's done on a national basis. The difficulty is when you have effectively, you would almost say, separated out one part of the country economically - maybe not politically, but economically - by forcing it to have a completely different retail system.
In the Atlantic provinces, as I understand the situation from talking to our members who are retailers - and I'm sure they'll be up here this week - they have to have a separate distribution and logistics system for the Atlantic provinces. That represents less than 10% of their sales and they have to implement an entirely new system.
That's a national retailer. Now, if you're a local retailer, you're dealing with a manufacturer out of the country or perhaps in the rest of Canada - I think ``the rest of Canada'' makes sense here when you talk about this, because it's economically separated now - that is not going to give you a garment, a good, some sort of product, that has a tax-included price on it. They don't do that in the rest of Canada, so they are not going to do that for you. Therefore you have to re-sticker that entire thing.
That's a local retailer. A national retailer really has to have two separate systems - two distribution systems, two logistic systems. Again, I'm not a retailer, but I'm told they actually have to have a separate SKU - stock-keeping unit - for those of their products that will be sold in the Atlantic provinces. The only way they can track those goods is to treat them as really a different good. So every good is effectively duplicated in terms of logistics, transportation, stock-keeping units. Consequently somebody who had 100,000 stock-keeping units, SKUs, is now going to have 200,000 if they are going to continue to sell in the maritime provinces.
I've been told by some retailers that where their operations are marginal they simply may not sell in the maritime provinces. The costs simply aren't worth it. It will reduce the choice for consumers there. We're talking about a consumer issue.
That's the problem: the piecemeal implementation across the country. Whether or not it's tax-in is not the problem. If you give people the choice, as an industry you can price tax-in or not price tax-in. That's fine. That's the way everybody does it everywhere else.
Ms Whelan: But, Mr. Albrecht, with all due respect, you must be aware, because I'm assuming many members of your chamber of commerce come from small communities...and I live in a small community. There are a number of small retailers that sell clothing, for example, and they have already chosen tax-included pricing. The prices they show on their shelves already include GST. When you go to the cash register you don't pay any more, but it's broken down and you see exactly what you pay.
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This is in the province of Ontario, not in the Atlantic provinces. Many small retailers have already chosen to do that on their own, and they haven't had any difficulty buying from large manufacturers; they haven't had any difficulty converting the amount. I do think, with the technologies and capabilities that we have available in calculators, that it's not going to be such a great deal to include the tax in the price.
Mr. Albrecht: There have been studies. We're talking about $100 million annually.
There are two issues here. Large national retailers can't deal with the logistics of two separate systems and two costs. So there is a real problem that's not addressed by your point.
I guess smaller retailers have the choice, and they should have the choice, but our members are telling us it's a problem.
Ms Whelan: With all due respect, there is a choice. If you've had the chance to read the tax-inclusive pricing press release that was issued on January 17 -
Mr. Albrecht: I read the guidelines.
Ms Whelan: - you will note that the guidelines offer different choices.
But with all due respect to large retailers, maybe you should talk to The Bay, for example, which has ``no PST, no GST'' sales. They do pay the tax. Somehow on those days they're able to figure it out. Maybe you'd like to tell me how they include it on those days.
Mr. Albrecht: I'm sure you'll have an opportunity because I think the tax person from The Bay will be up here. I've spoken to him. As a national retailer The Bay is very concerned about this.
I don't think that's quite the same issue. You're talking about advertising on a tax-included basis and showing it on a tax-included basis. I've reviewed the guidelines. There's nothing giving you the choice of going tax-included or not tax-included. Essentially you have four choices: you can price the goods individually, tax-inclusive; you can dual price, which means you have to dual price goods, almost an impossibility on some of the stickers; you can shelf or bin price; or, for certain very restricted goods - pre-priced magazines, greeting cards - you can have a sign, but that's only for very limited goods.
These guidelines were circulated unofficially months ago - I think in December, but don't quote me - and the retailers have looked at those. There have been very few changes.
There have been essentially three changes. There's a delay until August 1 in terms of full monitoring of compliance, although very interestingly, in the meantime, all efforts will be undertaken to ensure that businesses are complying. I'm not sure what August 1 in terms of the delay of the full monitoring of compliance means. I think it will just cause more chaos.
The other change... There was an exclusion. If you sold more than 90% of your goods to businesses, you were excluded from tax-inclusive pricing. Now you have to sell 100% of your goods to businesses.
The other change is that national catalogues that are printed before February 28 don't have to have the disclaimer on about every second page that it's not tax-inclusive.
The only other change in this January 17 document, from the document previously circulated, points out that you can go to jail if you make a slip on tax-included pricing.
These things have been studied, and they really don't address the concerns of all retailers in terms of the very significant costs. They have to change their systems. They have to set up a separate logistic and distribution system if they're operating in both the Atlantic provinces and the rest of Canada. You have duplicated advertising costs, or you simply won't advertise there. The broadcasters have come out and said they can't advertise in the Atlantic provinces. You have to re-price all of your pre-priced goods, either by putting a sticker over them or changing the way you do business and putting in bins.
A lot of retailers don't use bins or shelves. Think of clothing. That's the best example. I'm not aware of a clothing store that has tax-inclusive pricing. There may well be. Woolco tried that in 1991 and stopped it because there was a problem. Most garments are priced at place of manufacture, which may be the Far East. Those all have to be re-stickered, unless you're going to change the way you do business and throw all the garments in a bin. But that's not the way most garments are sold.
That's forcing people to change the way they do business. If you say, instead of re-pricing the individual good, you can put them in a bin or on a segregated area of a shelf, with little walls so they can't get mixed up or interchanged, and we can put a little sticker on the bin, about half an inch by an inch, or we can change a shelf, that's forcing people to change the way they do their retail business. Why should they be forced to do that? There are costs to that as well. There are costs however you look at this - significant costs for no reason.
Ms Whelan: With all due respect, Mr. Albrecht, you just said you don't know of any business in the clothing market that would do that. There are many. You can come on a tour with me to southwestern Ontario and I can point out a number of stores in small towns like Amherstburg or Kingsville, or we can visit the city of Windsor and I can take you to a number of stores there, which I'm sure are members of the chamber in the city of Windsor and are part of your group.
My point is that the issue was raised that it wasn't going to be transparent. I'm telling you that the way it is already sold for gasoline it is transparent. I'm telling you there are a number of retailers who already are doing it. As a member of Parliament for three years and three months, I can tell you that I have not received one letter or one phone call from one constituent complaining about the fact that the GST is disclosed on their gasoline the way it is, or complaining about the fact that the small retailers in my riding are including GST in their pricing, or complaining about The Bay's ``no GST, no PST'' sales.
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Mr. Albrecht: I'd like to make one comment. The chamber did not make any issue about the transparency. We think it should be transparent, and it is transparent in terms of the retail invoice or the receipt, whatever you want to call it. We didn't make any comment about that. We made a comment about the cost of forcing, not giving people the option. These small retailers you're mentioning had the option over a period of years to decide that's how they wanted to sell things. That was their choice. That's fine. We're talking about forcing people to do it in a very short time period and the cost of that, forcing national retailers to effectively either double their logistic and distribution costs and advertising costs or get out of the maritime market. That's what we're talking about, number one.
Two, it's a question of choice and getting time. There's no time here. A delay until August 1 is going to mean mass confusion and chaos. You're going to have some catalogues or stores out there that have tax included, some not.
We did hear specifically from one of our local members, a very small store, that had 30,000 stock-keeping units, or SKUs. They don't price tax-inclusive now. Whatever you think the merits of that are, they don't do it. I'm not aware of any, other than in very segregated sectors. I come from Ontario too, from a different part of southwestern Ontario, so maybe there are different regionalized things, but that's the point. They've had a choice to do that and they've had time to do it, were not forced to do this in three or four months, or less time than that. These guidelines were released on January 20, and we're less than three months away. So I think that's the problem people are talking about.
As a chamber, we've urged two things. One is that this be delayed to give people sufficient time to change systems. You don't turn these ships around, whether they're small or large, overnight. These people you're talking about had five or six years to consider how they wanted to price. They've made a business decision. Fine, let them do that; just don't force everybody to do that. This is what we're saying. Give people some time.
Second, for national retailers we ask or we urge that the government consider a cost-benefit analysis. Is this really worth the cost? Is it really worth $100 million, which has to be passed on to consumers in some fashion, to do this? There doesn't seem to have been that type of study.
At the risk of being somewhat cynical, which I guess isn't a proper thing necessarily, this is really political expediency. Let's look at it realistically and look at the costs and at the short-term chaos and disruption to both businesses and consumers of going into stores and having to deal with this.
Ms Whelan: Thank you, Mr. Albrecht.
Thank you, Mr. Chairman.
The Chairman: In terms of a cost-benefit analysis, Mr. Albrecht, which you've called for, you've given us the other side of the equation. You've said that the cost will be $100 million to have tax-included pricing. We understand that the savings to business would be at least $700 million per year. So that's a plus to business of $600 million in terms of your cost-benefit analysis, even if your costing of the tax-included pricing provisions is correct.
I understand you want as much as you can possibly get, but -
Mr. Albrecht: The chamber fully supports the harmonization, because there are significant savings to businesses as a group. We're pointing out to the retail sector that's where the additional costs are.
The Chairman: So the bottom line is that you save $700 million in business inputs, and if your costs for that were an extra $100 million you would be opposed to the whole package?
Mr. Albrecht: There are two points. The $700 million - and I'm not sure of the exact number - is not just the retail sector but also businesses as a whole.
The Chairman: I understand, but you're the chamber. You're business as a whole. You want the $700 million but you don't want to pay the $100 million. Is that right? That's your position. I understand that.
Mr. Albrecht: No, our position is that the savings are important, but why have the cost of $100 million if it's not necessary?
The Chairman: I understand that. That's what I said.
Mr. Albrecht: We're talking savings to the country as a whole.
The Chairman: You want the $700 million and you also don't want to pay the $100 million. I understand that. That's the cost-benefit you were talking about.
Thank you very much. Mrs. Brushett, please.
Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman.
I have several questions. I'll put the first one to Elizabeth Beale in terms of her comments on the impact on the municipalities.
Can you elaborate on what you see those impacts are?
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Ms Beale: I can't go into very much detail now. That's the section we're currently working on in the report. We will have more to say on that later.
But what is suggested is that the municipalities in some of the provinces have had a system of rebates under the GST, and the PST to some extent. That will be extended with the new tax. However, it still leaves a complicated set of different rebate rates for different types of municipal infrastructure, whether it's the municipality itself, hospitals, universities or whatever, that vary across the provinces. For example, it could affect the competitive position of a university in one province versus in another province in terms of their own revenues and expenditures. It is an issue we are looking at in some depth.
The other issue here is that this has been complicated by the passing down of the tax burden further and further onto the municipality at the same time. This is a problem many municipalities are having to look at in terms of increasing their own property tax rates. It's a very complicated issue, one that I think needs to be looked at a lot further. Whether it's in the scope of the legislation or whether it's just something the provinces have to look at under their own mandate, I can't really comment on at the current time.
Mrs. Brushett: Thank you.
We've been talking about the cost to business and the savings versus the cost, the $700 million savings and the $100 million cost. Over the last two weeks since Christmas, I've been asking my businesses exactly the impact, the up side and the down side, of this legislation on their specific business. A local Canadian Tire store indicated to me that their cost would be one week of labour of their staff to re-label their entire inventory. It would take a week of work, day and night, to re-price or re-label shelving to accommodate the harmonized sales tax.
My question is, this must be done whenever this tax comes into place, so what savings are there in postponing it, in putting it off? It's a one-time labour cost, basically, that would amount, in this particular store, to about $50,000 in payroll. That's where their cost was going to come in.
I'd like some comment on that.
Mr. Albrecht: The postponement is postponing it until it's a national system. That's the chamber's first position. If it is a national system of tax-included pricing, you don't have to do it, so you would never have to do that. Because nationally, the goods would come out. People would be given sufficient time -
Mrs. Brushett: But, sir, that's your point. You're going to take the savings as a business but you're never going to pass it on to the consumer. So if it never comes in, then you would take the harmonized portion -
Mr. Albrecht: That's not what we're saying. I want to clarify that the cost-benefit analysis the chamber is calling for is a cost-benefit of tax-included pricing, not the cost-benefit overall of harmonization. The chamber fully supports harmonization. It's the piecemeal tax-included pricing and the cost-benefit analysis of it that we want studied. We want it delayed until that study is at least completed.
The consumer will pay the cost in one form or the other. I mean, that's the way it works. They have to pass on their costs of doing business.
You mentioned a Canadian Tire store. That could well be right. Canadian Tire actually does bin pricing, so their costs may be somewhat different from someone who doesn't do bin pricing. I would say someone who doesn't do bin pricing, frankly, must have a lot more costs for that.
If that was delayed until there was a national system in place, we would say those costs wouldn't have to be incurred, provided there was sufficient time such that when one orders goods, one would order them pre-priced and on a national basis.
The ongoing costs we're talking about as having two separate inventories, one for the maritime provinces... Let's look at Canadian Tire as a company who sells to those individual Canadian Tire stores, the franchise owners. They have to be able to sell those goods to their maritime franchise owners, the three Atlantic provinces that have harmonized, at one price. They have to put stickers on their goods at one price and a different price when the goods are going to another Canadian Tire store. That's what we're talking about, the ongoing costs. They have to keep separate inventories. People can't put inventories back and forth.
The Bay, for example, was alluded to earlier. If they have a shortage of goods in Halifax and they have too many goods in Quebec or Ontario or wherever, they can ship those goods down there right now. There's no cost to doing that. They can't do that under this system. Effectively, the Atlantic provinces are going to be considered a separate country for economic purposes.
Mrs. Brushett: But in reality, to the consumer this is a benefit. We're concerned not only with the benefits to the manufacturer and the business sector but also to the consumer.
Mr. Albrecht: I agree fully.
Mrs. Brushett: This comes on...and again, it's a labour cost, as they presented it to me. This labour cost of going through the physical changing would occur if we did it on April 1 or if we did it ten years down the road. It's a physical cost.
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Mr. Albrecht: We would argue you would not have to do it if you did it ten years down the road. It wouldn't be incurred.
Mr. Westlake: There are actually two costs we have to look at. There's the initial cost of setting up your systems on conversion day, April 1, to bring in the 15% HST. That is going to have a significant cost for businesses, but businesses are willing to bear it. What the chamber is arguing is that after implementation, on an ongoing basis there is an annual cost of about $100 million to bring in tax-inclusive pricing in the maritime provinces.
Mrs. Brushett: You are referring probably to the national advertising structure in some of those costs. But that's an entirely different and separate -
Mr. Westlake: There are advertising, distribution, computer systems you have to maintain. If you have national inventories and you are distributing across the country you have to keep two sets of inventories, and the ongoing costs of doing that are about $100 million on an annual basis to accommodate tax-included pricing in the maritime provinces. The chamber position is that if we had tax-included pricing across the country at one time we would not have these ongoing costs.
Mrs. Brushett: What about this 15% rebate now, instead of the 7%? There is a real advantage to business - a big advantage.
Mr. Westlake: There is an advantage, and business does want that advantage. They also would like to save the $100,000 ongoing cost of tax-included pricing in the Maritimes.
Mrs. Brushett: I would like to ask one more question and I would direct this to Frank Mader, from Halifax.
You have indicated you would send an impression from the Atlantic region that with a 15% tax everything is more expensive and tourism will deteriorate. It has been my understanding from tourism that in fact we could send a very positive message out to the world, that it's 15% built-in, tax-in pricing and it will be rebated as you leave the province, immediately on exit. This is a positive message to cause people to come to the region, is it not?
Mr. Mader: You and I have been talking to different tourism operators. What several of them said to me, but one most succinctly, is that when you're doing the initial advertising and when you're trying to compete with so many different destinations throughout the world and North America, if you're building the tax into the price you're showing in your advertising but other jurisdictions have it at, for instance, $999 plus tax, in very small print, or not even there but it's assumed to be there or the consumer ignores it, you have a disadvantage. You come across as being $1,400 versus $999.
Mrs. Brushett: Mr. Mader, with all due respect again, I think it's time the Atlantic region blew its own horn a bit and maybe brought those tourists in. We have a lot to sell, and this is an advantage we can market throughout the world. I'm part of the chamber. I've been part of most institutions as a businesswoman in the Atlantic. I think they're very eager to proceed in that direction, with the positive benefits.
Mr. Mader: I certainly agree with you that for tourism there's a need to blow our own horn. That's going on, as we heard earlier. Mr. McKenna does a great job of that.
One of the concerns is that as we get into a situation such as we have with the CBC and its television schedule, ``9:00; 9:30 in Newfoundland'', if we get to something that's ``$9.99; $15 in Atlantic Canada'', it just creates a perception that Atlantic Canada is more expensive than the rest of the country, when in fact it could be exactly the same as in Ontario because the tax rate is the same.
Mrs. Brushett: The positive benefits probably will outweigh the negative ones if we do what we should do as Atlantic Canadians and market our part of the country.
The Chairman: Briefly, Mr. Campbell.
Mr. Campbell: I have two quick points. I would like to reserve a bit of time for what I understand is the second round.
First, Mr. Mader, I'm somewhat astonished at the commentary about advertising; and you're not the only one who has made it. I would have thought for an efficient functioning of the market any of us would have wanted to see truth in advertising and not to obscure the fact that a price that is listed exclusive of tax is not the full price. Efficient functioning of the market, be it in tourism or anywhere else, depends on fullness of information. I know even members of the Reform Party would agree that the market functions more efficiently when you have full information.
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So I'm somewhat astonished at the suggestion that consumers would be better off not knowing what is the full cost of their vacation or a product. Mr. Mader can respond to that if he wants.
My second comment is for Mr. Crowley from the Atlantic Institute for Market Studies.
I'm afraid, Mr. Albrecht, you might earlier have been approached unfairly on this issue of obscuring of the tax. As I checked my notes - and I conferred with Ms Whelan a few moments ago - it may indeed not have been you who made the comment that ``We are opposed to this system if tax is obscured''. That might not have been your comment but in fact Mr. Crowley's comment, who sat by quietly and let you take the heat for that.
Mr. Crowley: I several times intervened.
Mr. Campbell: I want to give Mr. Crowley a chance to respond to what Ms Whelan put forth. What is the problem if the receipt shows the tax? In Europe, where certainly commodity taxes are much higher and people are no less concerned about the rate of taxation, disclosure on the receipt, as it is now on your bill from the gas station, seems sufficient. What is wrong with telling people on the receipt what the tax is?
I'll give you a chance to respond, Mr. Mader.
Mr. Chairman, I'll come back in the final round.
Mr. Mader: In response to your question, Mr. Campbell, I want to reiterate that the Metropolitan Halifax Chamber of Commerce does not object to tax in pricing. We don't see it as a problem provided it's done consistently across the board.
If the rest of the country, the merchandisers, the retailers - that system - is geared towards tax-out pricing, then we have to have a different system. They are our costs, because we cannot subscribe to the system that is put together for the country in terms of advertising, price points and those kinds of merchandising aspects.
So we're not saying don't do it. We're saying let's postpone it until it's a national program so that the whole system is changed at one time instead of on a piecemeal basis. It's a bit analogous to the metric system introduced in the 1970s. We did it as a national program rather than province by province because of the confusion it would create by having different systems of measurement.
The Chairman: Mr. Crowley.
Mr. Crowley: First of all, on the question of tax-in pricing, as the hon. member has indicated, I was very careful about exactly how I phrased my comment. I said I was opposed to tax in pricing if it means the amount of tax the consumer pays is in any way obscured. I phrase that conditionally.
I think the ideal is a system in place in New Zealand, which is the country that inspired the GST, which is the basis on which we're building this harmonized tax. The ideal is a system in which at the point where the consumer makes the decision to buy, not at the cash register but at the point where they pick up the good to buy it, they know what the cost of it is in terms of a retail product and what the tax is that they're paying on top of that. Those are two separate things.
After the transaction, to have it printed on the receipt is not adequate, in my view. It does, however, give some comfort if you're concerned about making sure that in the long run consumers are made aware of the tax they are paying. But I think the ideal system is one in which every item indicates both the retail price and the tax, and the final total, at the point where the consumer makes the decision.
The Chairman: I agree with you, Mr. Crowley.
Thank you, Mr. Campbell.
[Translation]
Mr. Loubier.
Mr. Loubier: I would like to ask Mr. Bocti, Mr. Rasmussen, Mr. MacKnight and Ms David, as tax experts, to tell me whether in their study of this agreement, they evaluated or analyzed what will happen after the three-year period during which the $961 million in compensation will be paid. Should the equalization formula not take over, in order to compensate the three maritime provinces for their tax losses?
Ms Beale stated earlier that in some provinces, they combined provincial sales d GST rate was about 19%. For some provinces, there will be a loss of about 4%. Once the three years of compensation have ended, they will have to find some other type of compensation. Would the equalization formula not replace the cash payment of $961 million?
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Mr. Bocti: Do you mean the compensation that the maritime provinces will receive through harmonization?
Mr. Loubier: Yes. During the first three years, they will be paid $961 million, but during the fourth and subsequent years, something else will have to apply, because in this agreement, the federal government is also reducing the tax base of the three maritime provinces, that is their capacity to levy income and other taxes on their markets, which allows them to offer about the same services that we find elsewhere in Canada. That is the principle of equalization.
Equalization applies automatically as soon as the tax base drops. In analyzing the problem, you will note that during the coming years, aside from the $961 million that will be paid to the Maritimes, and which will come from taxes paid by all Canadians, these Canadians will continue to pay through equalization. Is my reasoning correct?
Mr. Bocti: That is a good question. We did not analyze it in that way.
Mr. Loubier: Is it correct to say that since we have reduced the tax base for the Maritimes, equalization will apply after three years?
Mr. Bocti: I am not sure.
Mr. Loubier: The equalization formula ensures that in each province there is a capacity which is more or less similar to levy income and other taxes so as to offer services that are more or less equivalent from one province to the next.
Since it is not the maritime provinces themselves that are reducing their tax base, but rather the federal government through an agreement, should the equalization formula not apply directly after the third year that the compensation is paid?
Mr. Bocti: I'm not sure.
[English]
Ms Beale: Two impacts come into play here. First of all, the tax itself will have a net benefit overall to the economic climate in the Atlantic provinces. That in itself will allow revenues to flow back into provincial government coffers. Overall there is that impact.
The other thing going on at the same time is that in each of the provinces the revenue base is different. For example, if you look at what is happening in Newfoundland and Labrador at the current time, within three or four years the resource revenues that will be flowing in the royalty payments for many of the large oil and gas projects and other projects under way in that province will be a much more significant portion of provincial revenues. In New Brunswick the manufacturing base has improved dramatically over recent years, and certainly that province anticipates that the new tax will help that to expand. That will indeed flow back as revenues to the provincial government. In Nova Scotia it's a slightly more mixed picture, both in resource royalties and in extension of the economic base.
The equalization program is always there for any province that may need it. In other words, if there is a shortfall of revenues, that is what the equalization program is designed to do. It's designed to protect any province that does not have the capacity to meet that level of service. But in the Atlantic provinces the anticipation is that this will be a key ingredient in changing and continuing the pattern of change that is already under way in the Atlantic provinces.
[Translation]
Mr. Loubier: Ms Beale, if the benefits of this agreement are so great, if harmonization is so rewarding for the maritime provinces, and if we can expect fabulous economic impacts in the short-term, why provide for a compensation of almost $1 billion?
If we take your reasoning a little further, by maintaining that it isn't necessary for equalization to apply after the third year, why provide for this compensation of $961 million?
In 1991, in Quebec, we applied the same reasoning as yours. We thought that in terms of competition, it was so profitable and so advantageous to harmonize, that we decided to harmonize without asking the federal government for one cent. Today, you are saying exactly the same thing, except that you do not feel uncomfortable with a compensation or a disguised subsidy of $961 million.
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Mr. Bocti: Do you not think that it all depends on the provinces, and that harmonization can have an impact on their financial situation, especially at the outset?
Mr. Loubier: Yes, but there are other ways to intervene to help poor provinces, including equalization which automatically applies. So why, in a process to harmonize a sales tax, should we provide for a social program to help Newfoundland? I am 100% convinced that New Brunswick doesn't need it. If we must help Newfoundland, this should be done through existing programs, and not through compensation paid under the guise of harmonizing the GST, which is of national interest.
Mr. Bocti: But that way you could stimulate the economy in the long term.
Mr. Loubier: Just like with the equalization we already have.
[English]
The Chairman: Mr. Crowley.
[Translation]
Mr. Crowley: I'm aware that I'm not on the list of those directly allowed to speak, but I would like to say a word about a very important point raised by the honourable member. There are several elements to the question he put.
We are witnessing a change in philosophy both by the Atlantic provinces and the federal government concerning the means that can be used to develop our country's underdeveloped economies.
You were quite right in mentioning the effects of equalization on the Atlantic provinces. However, it should be pointed out that equalization is a kind of subsidy that encourages dependence of the Atlantic provinces on the federal government, whereas harmonization of sales taxes actually encourages those provinces to stimulate further economic development and thus to increase their revenues. That is surely what we want to promote in the underdeveloped areas of our country: self-reliance and reduced dependency on federal transfers.
On the other hand, if the effect of sales tax harmonization - and I believe this to be the case - is to decrease the tax burden imposed by the provinces and also the sales tax rate imposed by the provinces, the equalization they're entitled to is greatly reduced because it is based, amongst other things, on what is called the taxing effort, in English, or the tax burden that is imposed by the provinces. If the provinces lower their tax rate, then they're actually reducing the equalization they're entitled to.
I would like to say a word about the matter of compensation. We are witnessing the very beginnings of the creation of a national sales tax system which is the federal government's long term goal.
I think it's going to be advantageous for the federal government to send $1 billion over the short term if this will unjam a system that has been jammed for a long time, especially as I think we'll be able to decrease the dependency of Atlantic provinces on transfer payments from the federal government.
Lastly, Mr. Chairman, I am a bit surprised to see a member from the Parti Québécois becoming indignant...
Mr. Loubier: From the Bloc Québécois.
Mr. Crowley: Sorry, the Bloc Québécois.
The Chairman: We're not talking about the same thing at all.
Mr. Crowley: Absolutely. I'm sorry for any confusion I may have caused.
Mr. Loubier: If I was a member from the Parti Québécois, you'd be sitting in Quebec City rather than in Ottawa this morning.
Mr. Crowley: The Bloc Québécois's stock and trade is to find instances of discrimination against Quebec in the federal system. This process which will serve to develop the Atlantic area's economy is just another irritant that will allow you to demand federal compensation for years to come. I see nothing wrong with that, either for you or for us.
Mr. Loubier: Mr. Chairman, please allow me to comment on this. The role of Official Opposition that we've been playing for the last three and a half years is something we do with the utmost seriousness.
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When we're faced with a monumental joke like this agreement with the Maritimes that provides for a political compensation to the tune of $1 billion that not just Quebeckers, but also Ontarians, Manitobans, Albertans and the residents of the other provinces will have to pay, we have the right to wonder. It's not just a matter of party or politics. I'd say that you're playing politics a bit more than I can this morning; that's clear.
We have a right to ask questions because harmonization has happened elsewhere without$1 billion having to be paid, as is being proposed for the three maritime provinces. If, as you put so well, the maritime provinces want to change their outlook, which has been to dip into the federal social program funds, I think they're starting off on the wrong foot. The handing out of $1 billion through equalization or through a direct payment as provided for in the agreement with the Maritimes, is just one and the same. I myself, just like Mr. Solberg and all other Canadians other than those living in the three maritime provinces, will be paying for this agreement that settles absolutely nothing on the national level.
We can very well start talking about harmonization and a national tax. You're dreaming because if I go by the reactions of the premiers of the other provinces, especially the prairie ones, where there is no sales tax yet, it's going to stop right there. You should know that they don't agree on harmonization, far from it. You're completely wrong on that one.
The Chairman: I'll let Mr. MacKnight have the last word.
[English]
Mr. MacKnight: Mr. Chairman, I would like to make just one point to clarify the debate. It seems to have been lost on many people here that the tax we're discussing, the harmonized sales tax, is not a provincial tax. The provinces have abdicated the field. We are now talking about a new federal sales tax with two rates; which is quite different from the Quebec sales tax regime, which is a Quebec tax on a tax base that is very similar to the federal rate. Quebec is actually closer to a harmonized sales tax than the HST bill we're talking about here.
This bill, make no mistake, is a federal two-tiered tax. If you look back to the legislation in the provinces, you'll find the provinces are repealing their retail sales taxes over a period of time. The provinces are vacating the field and letting the feds move in in exchange for a compensation payment. If you look at it in that way, it may make the debate a little easier.
The Chairman: Mr. Solberg.
Mr. Solberg: Mr. Chairman, first I need a clarification from you on what the Finance officials are saying about the penalty for non-compliance. Are you saying people would have the chance -
The Chairman: I will ask the parliamentary secretary.
Mr. Campbell: We have been looking at this issue which Mr. MacKnight raised. In my comments I'll come back to the second issue Mr. MacKnight raised, this whole issue of potential criminality for offending against the act inadvertently. That will be addressed so it is clear that if through inadvertence you fail to abide by the provisions of the proposed act on tax-inclusive pricing you will not end up with a criminal record.
The Chairman: It's a very lax approach to enforcement because of those who really support law and order in our society, Mr. Campbell.
Mr. Campbell: I may leave that to the Reform Party, Mr. Chairman.
Mr. MacKnight: We are happy to hear that. We'll look forward to the final legislation. We'll continue to monitor it.
The Chairman: We're very grateful for the suggestion, Mr. MacKnight.
Mr. Solberg: Mr. Chairman, I think whoever drafted this press release, which makes a point of pointing out that people could be jailed for up to thirty days, should face some kind of stiff penalty themselves. I really do think it sends a horrible message. I don't know what people were thinking. I see different Finance officials have actually put their name on this document.
The Chairman: To err is human.
Mr. Solberg: To err is human, I guess; but they did make a point of putting this in, and somebody wasn't thinking.
At any rate, Mr. Chairman, I just want to follow up on tax-inclusive pricing. I'm just wondering if any of the witnesses can give us any idea why exactly tax-inclusive pricing is such an important part of this legislation or why the government is pushing so hard to bring it in at this point. Is there any advantage to bringing it in now as opposed to waiting until this agreement becomes nationwide, if it ever does?
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Mr. Crowley: Mr. Chairman, I had wanted to intervene on this point earlier in the exchange with Mrs. Brushett, amongst others.
It's very important for us to remember that there are two different costs here. There's the cost, for instance, to businesses in Atlantic Canada... I hate to be pedantic about this, but I really wish members of the committee would stop saying ``the maritime provinces''. Newfoundland is not one of the maritime provinces. We're talking about the Atlantic provinces here. The Atlantic provinces will undergo certain costs in putting in place a new system. There are accounting costs and personnel costs and all the rest. There is a separate cost issue, which is the administration within the country as a whole of advertising, warehousing, stocking, and so on. It's quite separate from the administration costs to make the transition within Atlantic Canada.
We're talking about that second set of costs, the national costs, running $100 million a year; let's just work with that figure. Let's use a hypothetical example. Let's say it takes us ten years to get to a national uniform sales tax system. That means for ten years we're going to spend $100 million a year to maintain that double system. What will we have got? That's the question. What will we have got for the $1 billion we will spend over those ten years? We won't have got a harmonized system, because we can have a harmonized system without that $1 billion cost. The question is what are we going to get for that extra money? I haven't heard anybody this morning give an answer that sounds to me as if it's worth $1 billion.
Mr. Solberg: One of the things that concern me is that for nine months we've heard people in Atlantic Canada - except Prince Edward Island; we should point that out - complain about tax-in pricing. I just can't understand what the great advantage is, why Finance officials are being so obstinate about this. What is pretty clear is that all the people who are going to be affected will end up having to cough up more money.
This can only be reflected in higher prices across the country, in some cases. It does affect large businesses - catalogue companies, people who issue catalogues - so it will be reflected in higher costs across the country. Certainly in Atlantic Canada, where people have to jump through hoops to price these materials, people are going to have to pay higher prices because of the tax-in pricing provision. Isn't that correct?
Mr. Albrecht: I would modify that by saying it's either higher costs or lower choice, because the choice for some retailers who sell across the country is simply not to sell into Atlantic Canada, excluding P.E.I. That's one choice that's there.
But just on the cost issue, it's the annual costs. I think if it were implemented at the same time as a national system - to answer the earlier question - there wouldn't be significant implementation costs even on a one-time basis, because all it would involve, essentially, is pushing a button and changing ``7'' to ``15''. It's a very simple change. We're not talking about changing 132 systems, as was pointed out by the retailers.
It's as complicated as those retailers who have little kiosks where you can go and run your bar code across and you can see what the price of that good is, in case you are confused. They're going to have to have a separate SKU for the Atlantic provinces with a different bar code on it, even though it's an identical good. That's why I'm saying they will have to maintain dual inventory. Otherwise that simply won't work.
Those are the types of ongoing costs and the one-time cost of implementing that. Those costs will not exist if it's done at the same time as a national system, because all you're doing is making one change, changing ``7'' to ``15''. It's very easy to do, with very little cost as long as you have sufficient time, which they don't have right now, to make sure when they ordered their inventory six months ago for the upcoming season they can have them priced at the appropriate price for Canada. That's what we're talking about.
Mr. Solberg: I'm wondering what the effect would be on employment too. If you have2.5 people in your business and all of a sudden you're faced with higher costs as a result of this, chances are you're going to have to cut back on the people you employ.
The concern I have is that here we are, talking about imposing higher costs and jeopardizing jobs in an economy that is the weakest in the country and the most vulnerable... That's probably more of a statement than a question, but I do think it reflects a certain insensitivity, particularly after nine months of hearing constant complaints about this, and petitions, and having provincial legislatures in an uproar over this. I just wish Finance officials would get their act together and realize that it's being stubborn for no apparent benefit.
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The Chairman: Thanks, Mr. Solberg.
The last word on this, Ms Beale.
Ms Beale: On a point of reference here, I think you have to separate out the issues of tax-in pricing from the overall economic benefits. Our analysis, and indeed the analysis of many of the provincial governments, clearly shows that there are net benefits to the economy, that overall, though the price of some goods will go up, many goods will fall in price as a result of what we anticipate both the price and income effect of this tax will be. So you have to be careful not to confuse the two in the issue of tax-in pricing.
Mr. Solberg: I accept that, but let's have an argument first about tax-in pricing. As others have pointed out, if you want to have harmonization in Atlantic Canada, you don't need the tax-in pricing aspect. Second, there are things that go up in price, including real estate in some cases. There have been concerns about property taxes. It was raised briefly - we didn't get a chance to go into it - in terms of what the potential harm could be in driving up property taxes as well. We also haven't even talked about the opportunity under this agreement for the provinces to introduce new taxes, such as capital taxes, which I think neither the chamber of commerce nor your organization would probably agree with.
So there are a number of aspects to this that we haven't got into and that should cause people concern.
The Chairman: Thanks, Mr. Solberg. Mr. Campbell.
Mr. Campbell: I want to come back to the discussion of proposed section 277.1, which was raised by Mr. MacKnight. I want to clarify on behalf of the government that the provision, as shown on page 276 of the bill, is for the purpose of facilitating the administration and enforcement of this part and the transition to the harmonized system.
The proposed section, Mr. MacKnight, provides authority to go in and make changes consistent with the harmonization regime being implemented. I want to point out that the authority in the proposed section ends in May 1999 - it sunsets - and second, that any regulations passed under it sunset in May 2000. You will see this on page 277.
It's the opinion of the government that it could not be used to change the rate. For that you would need legislation, because all the authority provided for in proposed section 277.1 does is to give power to facilitate the harmonized system, which is, as witnesses and members know, a system at a 15% rate where the GST component is fixed at 7%.
So I wanted to add those clarifications, Mr. Chairman, for everyone's information. I thankMr. MacKnight for raising the issue.
The Chairman: Perhaps Mr. MacKnight might be good enough to meet with officials afterwards to go over that to see if, on further reflection, they do come to the same opinion.
Mr. MacKnight: I agree with Mr. Campbell's comment. Yes, there is a sunset provision, and yes, there is a date by which the regulations fall off the table. However, that does not mean they won't have been in place for four years without ever having come back to the House of Commons for debate and accountability. I had never thought about the question of whether it could affect the rate. I'm relieved to hear the response from your officials, but I'm still not convinced that there is still not room for mischief in the changing of definitions that fundamentally go to what the tax base is.
The Chairman: Thank you.
Before we close off, is there anything anybody would like to add to our discussions?
Then on behalf of all members, let me conclude this session. I've heard incredible support around the table for the harmonized tax system, not just as it applies nationally - hopefully in the future - but also as it applies to the three provinces that were brought in. Apart from two particular problems raised by Mr. MacKnight, which I think we will address - and I would ask if he would be good enough to meet with officials afterwards to see if we can clarify the regulation-making issue - and certainly the criminal law issue that will be dealt with, the disagreement we have heard relates to the cost to business of tax-in pricing at this time. But I take it there's total consensus that if we had a totally harmonized system, business would be pleased to pay the one-time cost of going to a tax-included pricing system.
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You have been very forceful on behalf of the groups you represent. We appreciate very much the fact that you've come to be with us today. Thank you very much.
Could we take perhaps a two-minute break before we go to our next witnesses.
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The Chairman: Order. Our next witnesses this morning on Bill C-70 are from the Canadian Federation of Independent Business. We've asked them to come and be with us because they have done a lot of very particular work in this area that is relevant to our discussions.
We have with us Catherine Swift, president; Garth Whyte, vice-president, national affairs and research; Peter O'Brien, executive director for Atlantic Canada;
[Translation]
and Stephen Robichaud, the Director in New Brunswick.
[English]
Thank you for being with us.
Ms Swift.
Ms Catherine Swift (President, Canadian Federation of Independent Business): Thank you very much, Mr. Chairman. We appreciate the opportunity to appear before you today. As you know, as an organization we have done an enormous amount of work and research on the whole issue and history of the evolution of sales tax issues in Canada, whether it's the GST, VAT, HST or whatever particular acronym we want to use at the moment.
By way of background, and probably to reinforce what other business groups have said, our members certainly do believe in a properly harmonized sales tax system, especially since the introduction of the GST. Of course, its evolution was quite dramatic and drastic for the small business community. As a result, the advantages of harmonization have become perhaps even more clear.
It's very important to define what one means by harmonization. Our members have always believed that a properly harmonized system is having one sales tax system across Canada - not just adding up PST and GST rates, either - and having a lower rate than would occur by simply combining the two sales tax rates. There should be one set of rules, one set of audit procedures, a single remittance requirement and one tax collector.
It also needs to be said, however, that even if we were to achieve this so-called perfect harmonization, a significant portion of small businesses would still fundamentally oppose taxes like the GST or HST.
When the notion of introducing a harmonized sales tax in the three Atlantic provinces first came up, we followed our usual procedure, which was to survey all members once we saw some details as to how this tax was going to work. Because of the time crunch, we turned the survey around in actually two weeks, which was shorter than we normally would. We did manage to get well over 1,200 responses in those three provinces, which we felt was pretty reasonable for a very short timeframe.
We wanted to do this. There was an awful lot of rhetoric. A lot of extreme statements were being made. We wanted to try to answer questions about this proposed tax from a basis of information from our members.
I'd now like to ask Peter O'Brien, our executive director for Atlantic Canada, to continue with some of the details of the survey results.
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Mr. Peter O'Brien (Executive Director, Atlantic Canada, Canadian Federation of Independent Business): Mr. Chairman, committee members, our results really show that there are five significant areas of concern for our members. The first is tax-in pricing, the second unfair competition, the third cash register issues, the fourth transitional issues - moving from where we are now to where we're going - and the fifth is the underground economy, which is a major concern in those areas where there had not been provincial sales tax previously.
You'll notice in the back of our presentation we have a number of charts we developed from our survey. The views of small business are very divided. We have almost no harmony in our membership on this issue. It's split almost 50-50. Figure 1 shows almost 47% anticipate somewhat or very negative impacts from the tax, while 44% expect positive or neutral impacts and 9% were unsure of the impact.
Expectations vary by sector. Construction and services are the most negative. That's to a large extent, in our view and from our meetings with members, caused by the fact that these are areas where labour was not taxed in the past, and the service sector, where services were not taxed in the past, at the provincial level. The food and beverage sector was the least negative.
The major positive results expected from the harmonized tax are shown in figure 3. Those are that the tax will be simpler to understand; that it will improve businesses' bottom line; and that the combined tax will be at a lower rate. That's for many of our members. Those that have had provincial tax and GST in the past will now see a lower rate in each of the three provinces.
The cost of converting cash registers, which was a problem, does not appear to be as significant a problem for many small firms as it was at the outset. I don't want to suggest there isn't a cost. There is. For some firms that have complex cash registers that tie into inventory control and things of that nature, there is a cost. It varies very much by size of firm.
The next thing is the costs resulting from the need to re-price pre-priced items. This was a major concern at the time we did our survey. Through discussions with government officials and ministers, at both the federal and provincial level, we have now seen in the latest release of technical papers that is no longer a concern. I think for many of our members it will be a sign that this tax, like the GST, is perhaps going to continue to be a work in progress for a long time. It has to be. You cannot make, in our view, changes this significant without having an evolution.
The next thing I would like to suggest is that we show something on compliance costs. Because the tax was so new, because the information was so new when we surveyed it, it is not quite as strong as some of our other data, but it does indicate there are some costs and some benefits for different types of firms.
The rationale for tax-in pricing is a major issue for many people. Quite frankly, in the presentations in the three provincial legislatures where the legislation has now been passed there were not strong representations from consumers for tax-in pricing. We want to make that very clear. Yet it remains a very strong position, I think, from the point of view of government.
Right from the outset we have worked extensively with governments to find ways to reduce some of the problems that were raised, specifically the five problems our survey indicated. We think we have in fact been able to encourage governments to move in directions that are positive. We will continue those efforts. That's why we're here this morning.
The other thing I would like to suggest is that the whole transitional area is a very difficult one for many businesses, because they're not fully aware of what is required of them. We are working right now with officials at both federal and provincial levels to prepare information that we will supply to the small business community in Atlantic Canada and that we will also provide to anyone else who wants it, to ensure that transition is as workable as possible. We intend to continue to provide information to our members as the tax moves forward and as other issues appear. We would like to assure you we have done that with other things and will continue to do that. We think that's a very important part of our responsibility.
There are two other issues I would like to mention. The first is cashflow. For many people who purchase major items, having to pay a 15% sales tax and then wait for an input tax credit will have a significant impact on their cashflow. Firms that used to have to pay $40,000 in GST, for example, and that have to wait for a significant period of time for return will now be in excess of $85,000 to $90,000.
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That will have an impact on those businesses. We would urge government to encourage the Department of National Revenue to work to speed that process up as quickly as possible. We think that's very important.
The last one is the underground economy. We think all governments, everybody, have to work to try to undermine, if you will, the underground economy. One of the things we think is very important to that area is the fact that there will be 15% input tax credits for all businesses. That should encourage some people who are currently in the underground to move forward.
Ms Swift: Although a number of fairly serious problems still remain with the structure of the HST, the tax-in pricing issue obviously has become the hot button, for a very good reason. We believe the rationale behind tax-in pricing might be understandable if we were dealing with a nationwide harmonization effort. However, that's of course not what we're dealing with. We're only dealing with three provinces right now.
We understand there's been polling or other research done to suggest that consumers support tax-in pricing. If this is the case, I think it might be very helpful to see that research. We don't see it from our members' standpoint. As Peter mentioned, we don't see consumer groups taking strong positions on this. So we're really curious as to how much of a make or break issue it is for consumers, because it certainly is a huge issue for retailers.
We think, as a result, the simplest way to remove a lot of the problems with the tax would be to remove the requirement for tax-in pricing. We recognize that the reforms that were announced late last week were well intentioned, we believe, to try to eliminate a lot of the problems, but we think - and I'm sure other groups have pointed this out too - they're going to add yet another level of confusion for consumers into the mix, which really isn't that desirable.
Just to conclude, our survey highlighted the most serious problems with these tax reform proposals, areas that need to be further examined and refined so that this tax change can take place with a minimum of disruption and cost to businesses and to consumers.
We have always treated the GST and its various incarnations as a work in progress, not by choice but by necessity, because the tax has always been a very seriously flawed one and will remain so even after the introduction or whatever of the HST. It also has to be kept in mind that any change that takes place imposes costs on business, no matter what that change may be. So any changes have to represent a significant enough improvement in the tax regime overall that they more than justify any transition costs that are imposed.
From the perspective of small firms, certainly the vast majority of changes that we've seen in the Canadian national sales tax system have come about as a result of political motivations, not economic or business considerations.
The continuing inability we see among our provincial and federal governments to really get together and do the right thing in the sales tax field and give a positive boost to economic efficiency in the process is an ongoing national disgrace that detracts from our economic potential and our job creation potential.
The ultimate objective for sales tax reform for small and medium-size firms has to be one sales tax system. With this reform, should it proceed as it seems to be proceeding right now, we will have moved from 10 systems to 8. This is still a long way from the proper ideal of having a single sales tax system that doesn't act as a drag on the Canadian economy and on job creators and consumers.
Thank you. We'd be happy to hear your questions now.
The Chairman: Thank you very much for your presentation.
Mr. Loubier.
[Translation]
Mr. Loubier: Welcome, lady and gentlemen. Madam Swift, you seem to be fighting a bad cold.
I'd like to ask you if the Canadian Federation of Independent Business feels comfortable with the agreement between the federal government and the three maritime provinces providing for the payment of compensation of approximately $1 billion to these three provincial governments and with certain provisions conferring undue competitive advantages to business in the Atlantic provinces - these being different, apparently, from the maritimes provinces - as compared to business in the other Canadian provinces that you actually represent rather well, broadly speaking.
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[English]
Ms Swift: We have never believed any province should have a subsidy for the reasons that apparently these subsidies were given to the Atlantic provinces. Our view is that if we had a proper sales tax system in this country, the efficiencies that would come about by it and the benefits it would bring not only to businesses but to governments should more than compensate for any so-called losses that are seen in the system. We were quite disappointed if not outraged by this transfer of moneys, particularly when we were lobbying the finance minister and others within the government that we felt a reduction in, say, employment insurance premiums was a way to create jobs. Money couldn't be found for that, but money could be found for this particular manoeuvre.
So we don't believe any subsidies were appropriate, and we continue to believe that. Our members are opposed to subsidies in general under any circumstances, and this is no exception.
Mr. O'Brien: Mr. Chairman, that would also include our members in Atlantic Canada, who have always been opposed to subsidy. Historically they've been very strong opponents of subsidies from government.
[Translation]
Mr. Loubier: So how do we explain that we have to pay to harmonize those taxes when it could have been done without compensation?
In Quebec, that's what we did in 1991. I'm always bringing up Quebec, because we were the first province to harmonize those taxes without requesting any compensation whatsoever. If we managed to do it and absorb the costs accruing from adjustments, why did the government want to provide compensation for the Atlantic provinces while the businesses in those provinces were refusing any compensation? That's what we don't understand.
We're at a point with the budget where we still don't have the best tax system in Canada, although there is a lot more control over our public finances. How can we explain this wasteful expenditure of money taken from the pockets of taxpayers in other provinces to pay this compensation? It doesn't make sense.
[English]
Ms Swift: Having not disbursed the moneys...I guess it's tough to explain. I can just restate that the views of our membership are that these kinds of moneys should not have been necessary. We believe those moneys could have been put into the economy in much more effective ways to help job creation right across the board. However, I've never known any provincial government in this country to refuse money when it's offered by the federal government. There are no exceptions to that rule.
That's how I would explain it, but I wasn't part of that decision. That's about as far as I can go.
[Translation]
Mr. Loubier: Thank you.
[English]
Mr. O'Brien: As one worker suggested, we bargain well in the region.
The Chairman: Against the strong objections of the CFIB.
Mr. O'Brien: On occasion, yes, unfortunately.
The Chairman: The next time equalization payments are being considered I know where you will be on that issue.
Mr. Solberg.
Mr. Solberg: Mr. Chairman, I just want to follow up on Ms Swift's comments about the ultimate objective being one sales tax system. Is the position of the CFIB that it would mean one rate?
Ms Swift: We feel ideally it would be one rate, yes. But I think you have to be realistic. That couldn't be achieved instantaneously, to put it mildly. We know our different provincial governments are dependent to varying degrees on their PST regimes. But we feel that should be an ultimate objective, to move toward one rate, and if there were some kind of transition period that would permit an evolution toward that one rate, then yes, that would be the ultimate.
There are still problems. Even if you have all the other criteria met but you have different rates, you still have problems. It's better than what we have now, but you still do have problems with different rates. We have enough interprovincial trade barriers in this country as it is, we figure.
Mr. Solberg: I just want to follow up on that for a moment. I understand the efficiency argument, and there's merit in the argument, but one of the things that I really do believe has been overlooked is the benefit of competition between different jurisdictions, which puts a downward pressure on taxes. We're talking about how you make the taxation system more efficient today, but one of the biggest problems we have in the country - you've already touched on it briefly - is taxes are just way too high.
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One of the concerns I have about having a single-rate tax, particularly where you have a situation where it would take unanimity amongst the provinces and the federal government to lower it but only a majority of the provinces to raise it, is that you don't any more have that downward pressure on taxes that you currently have because of competition between jurisdictions. I'm wondering if you've considered that and how you respond to that.
Ms Swift: We have considered that, certainly. In any kind of tax harmonization thrust we have certainly always argued it should be as low as absolutely possible.
When I talk about a transition period, I would think the biggest transition... Look at the Alberta situation right now, for example. There is no PST. Naturally, whatever rate would prevail there, it would be a lot easier to have it much, much lower than elsewhere in the country, given some of the finance situations. I would think it would tend to be a drifting down in the other regions, as opposed to a movement up.
So I don't know that our position is inconsistent with what you're saying, because of course we would agree the lower the rate the better. The problem is, I think, that we have a lot of destructive competition between different jurisdictions. I guess we feel if we could get the kind of proper harmonization that didn't have the beggar-thy-neighbour approach some of our current interprovincial policies have, that would be a lot better for the country as a whole.
Mr. Garth Whyte (Vice-President, National Affairs and Research, Canadian Federation of Independent Business): We're trying to put limits on in dealing with the sales tax regime, but let's not forget some provinces put more emphasis on payroll taxes, others put it on corporate taxes. So we could make the GST an example, but it still doesn't deal with the overall mix, and I think that's what we're looking at. We are trying to cap it and make sure it doesn't go up, and we would rather see downward pressure on the sales tax side, as we would like to see it on all taxes.
Mr. Solberg: I just want to get into the tax-in pricing issue. Obviously, as you've pointed out, it's one of the hot buttons right now. I'm curious to know whether or not your members have been able to identify what the benefits are - I trust it's in your survey, but I haven't gone through it in detail - of tax-in pricing when Atlantic Canada minus P.E.I. is going it alone on tax-in pricing. Has anything come forward from your members?
Secondly, I wonder if you could give us a bit of detail on what kind of changes this will mean for some of your members.
Mr. Whyte: I'll start off and then defer to our colleagues from the region.
First off, we're not here to defend tax-in pricing. As we said, the optimum solution would be not to have it. But we're also doing everything possible, and surveying, to mitigate any complications or compliance burden within the principles set forward by the government. So we are working with the government to try to alleviate some of those problems, and there have been some announcements that may do so.
Anecdotally, I have heard, and we have heard, of cases where... When you're selling and the GST is out front all the time it's like a reminder and you forget it is the government that introduced this. It becomes the retailers' problem and it becomes the problem of the person who is selling. We have heard anecdotally it would be nice not to have that around, so you're not putting a stick in someone's eye every time you make a transaction. But in some people's minds there are a lot of other problems out there that outweigh that positive impact.
Mr. O'Brien: I would suggest that for those businesses that are in favour of tax-in pricing the real reason is simplicity: one item, one price, and that's it. Those tend not to be people who are selling right across the country or in various aspects of the country, and I think that's part of the problem.
If we had a national sales tax, I think the majority of our members would be in favour of it, because it would be so much simpler. It's the complexity when you're on a border in New Brunswick, dealing with Quebec - even though it has harmonization, it's harmonized in a different way - or you're on the U.S. border or things of that nature, where you're also seeing people who travel across this country and things of that nature, so things don't look competitive at the moment. I think that's the major concern. From a business point of view, as long as there are still eight sales tax regimes in Canada, tax-in pricing is a complexity rather than a benefit for the majority. I don't think that will change, unfortunately.
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Mr. Whyte: I think it's worth pointing out that a major beneficial addition or change the government has made is in terms of business-to-business transactions. A lot of our membership is neutral now because they're not going to be hit by it. In the food and beverage sector, for instance, if they're getting transactions from other businesses to buy their goods, if they don't have to have that tax-in pricing... That was a major change. It virtually eliminated tax-in pricing for a lot of businesses.
Mr. Solberg: One of the previous witnesses from the Halifax chamber made the argument that because tax-in pricing will only affect Atlantic Canada in the interim, people in the rest of the country will come to regard the HST as a kind of Atlantic Canadian anomaly. His metaphor was that as it is 9 p.m. in Atlantic Canada and 9:30 p.m. in Newfoundland, it will always be $10...and $11.50 in Atlantic Canada.
I wonder if you're hearing any concern from people that when they market outside the region this will be a major negative.
Mr. O'Brien: Marketing outside the region our members see as positive. We don't have to market at 15% but at 7%, according to the technical paper.
Mr. Solberg: No, but you're selling services inside Atlantic Canada.
Mr. O'Brien: When you sell inside, everybody has to sell at 15%, if they're Canadian.
Mr. Solberg: Right. But let's use tourism. I think he was using tourism as an example.
Mr. O'Brien: The tourism sector is perhaps one area where there is a competitive advantage and a competitive disadvantage. Non-Canadians coming into the region can write off the sales tax, but Canadians coming in can't. I think what we have to understand is that the broad-based benefit is that the tax rate in Atlantic Canada is now 15%, which is the same as Ontario, where before it was approximately 18% or 19%.
So I think for many businesses there is an advantage, because the rate will be lower and more competitive with other parts of the country than was the case in the past. I think we have to recognize that.
Mr. Solberg: I was dealing more with the tax-in part. I understand what you're saying, but I'm just raising the issue this gentleman from the Halifax chamber had raised. He felt that especially for tourism it may give people the wrong impression. People may not have time to take into account that they'll get their 15% back, or when it's advertised. Other jurisdictions won't have to advertise their tax on top of it.
Mr. O'Brien: I think the advertising aspect of it is still a very serious consideration and one on which I think there will be ongoing discussions for some time. It's the promotion outside of those kinds of things that creates some problems. Yes, you're right.
The Chairman: Thank you very much, Mr. Solberg.
Mrs. Brushett.
Mrs. Brushett: Thank you, Mr. Chairman.
I'd like to go back to Mr. Loubier's question to Ms Swift a few minutes earlier regarding the advantages of the so-called transitional funds from the federal government. One thing that has been forgotten to be said is that the provinces have repealed their ability to generate that 11% PST - in Nova Scotia, as an example - and given that right to the federal government. In so doing they are losing revenue. This is simply a transitional fund that enhances the ability of the economy to regenerate and for business to take advantage of the benefits of the harmonized sales tax and to get it into motion.
Following as well what Mr. Solberg has just questioned regarding the tourism sector, as it will happen, anyone visiting Nova Scotia will get back 15% as opposed to 7.5%, and they will not have to mail in for a rebate. We're setting up points of exit at the airports and customs, so they pick it up as they leave the province. That is an incentive, a marketing tool, that will be an advantage to the Atlantic region that Ontario, for example, will not be giving. So if we use the marketing aspect of this, there are real advantages for the Atlantic region.
My question is to Mr. O'Brien. He talks about cashflow. Again, this is something that does give me concern, because now 15% is tied up as opposed to 7.5%. I wonder if you've done any models with your survey as to how this can be better...not regulated but managed so that the cashflow is not a burden on business in terms of their borrowings, and maintaining the turnaround. People have presented those models to me. I'm wondering what they've told you.
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Mr. O'Brien: We haven't gotten from our surveys any specific indication of how to improve it, but from talking with members there's not been a day go by since the announcement of the harmonized sales tax last year that we have not had calls. Most of them are very concerned that the technical requirements of the GST have remained so complex that many times they make payments and wait for very extended periods of time before the total portion comes back. I have examples in my office of $30,000 to $40,000 for several years, not for months but actually for years, because of technical complications.
We would suggest that the Department of National Revenue has to look very carefully at the intent, if you will, rather than the letter of the day during the transition period particularly, until people really get up to speed on both sides. This will be a new tax for many people who are collecting it as well, and there will be regulations they will have to learn. I think it's important that the money paid in be remitted back as quickly as possible. We really need to see government work very hard on that issue. It's crucial that government provide very early on in this process - in fact, they should be doing it right now - the kind of information and training needed so that business can in fact comply properly with the law, starting on April 7. Because I think that's going to be very important.
The other thing I would suggest - and this has been a suggestion that's come from some of our members but not something we've done in detail and gone out and explored - is that they may want to look at the relationship, because usually taxes are involved, with business-to-business transactions rather than retail.
Mr. Whyte: The last three graphs in our presentation talk about compliance cost savings and also compliance cost increases, one-time compliance cost increases and expected ongoing increases. But I think the most important observation is that two-thirds of our members say it's not applicable or they don't know. That's been the case as we go through each round, when it was first introduced in 1989 or 1990, or whenever it was, and also when it went to Quebec.
We have to see. We have to monitor it. These are best estimates at this time. For example, with the expected one-time HST compliance cost increases it might have been based on, well, we had to change our computers last round and might have to do it again. So once they hear they might not have to, or it might be a minor change, this estimation might go down.
We don't mean to skirt the question, but this will be an ongoing study on our behalf. I think any group can give you modelling now, but we're working now to alleviate some of the burdens. Those compliance costs may change. We think they will. They already have since it was introduced.
Mrs. Brushett: On that, Mr. Chairman, I've had farmers come into my office, for example, and other business people who had capital costs. One particular farmer, I recall, was mad as the dickens because he will get back now his PST as well as his GST. So he'll get back 15% on any capital expenditures. He was angry because he made a lot of capital expenditures last year. He had lost multi thousands of dollars in PST that didn't come back. Had he known we were going to bring this inApril 1, he would have postponed his capital expenditures to get back the 15% rather than the 7.5%.
So I think there is a motivation there as well for him to get the payments in and get them back so that they maintain that cashflow, because it will be a larger number.
Mr. Whyte: I believe we're saying the same thing. It's an awareness issue. As we know more of the rules and how it works, it can be positive or negative. For the time being we've given you our best estimates here, but I think over time that's a moving target.
Mr. O'Brien: There are, in fairness, an awful lot of businesses out there who do not understand still that there will be a 15% input tax credit.
Mrs. Brushett: Yes.
Mr. O'Brien: The public debate has been very negative, and has been focused on one or two issues. It's not focused perhaps as fully as it should have on the broader thing. That's why we're right now putting together an information piece with questions and answers for our members in the three provinces. We're doing that in consultation with the federal officials and with provincial officials to ensure that it's accurate. We're hoping to get that out very quickly.
Mrs. Brushett: I think, Mr. O'Brien, that would be very much appreciated on behalf of all citizens, all constituents in this country, to let them know the advantages, because it is significant. Our point is to ensure these advantages to businesses pass on to the consumer.
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The Chairman: Ms Whelan.
Ms Whelan: I just want to clarify something. Maybe Ms Swift can clarify it for me.
You said all your members are opposed to the approximately $1 billion transfer of funds to...I like to call it an ``investment'' in harmonization, but you can call it a ``subsidy''. You did a survey in the Atlantic region among your members, and that was the result.
Ms Swift: What I said was that our members generally oppose subsidies, and this was viewed very much as a subsidy. Of course our members also believe governments don't have the right to every dollar everybody makes and in general tax rates should be kept low. The notion of taxes being reduced here, with advantages, ideally, as we've been discussing, more efficiency and so on...and of course firms are affected differentially, too. A lot of service-sector firms will actually not be as well off because they don't get a lot of input tax credits and so on.
You have to keep that in mind. A lot of our splits on views were based on sectoral...as you can see in our survey results.
Ms Whelan: There is nothing in your survey...there is no evidence that...
Ms Swift: Not in this survey, no.
Ms Whelan: The statement was clear at the beginning that the Atlantic...and the businesses that are members of your association are opposed to it. I don't see any evidence of that -
Ms Swift: No, it's not in this survey.
Ms Whelan: - and no survey has been done.
Ms Swift: No, it's not in this survey, but our members did convey to us that they didn't think it was an appropriate way to be using money and the general view was that the advantages that should accrue if the harmonization is properly done should permit governments to reduce their overall tax bite in the economy, and as a result there shouldn't need to be subsidies.
There is also a big concern, because this is supposedly a transitional arrangement, that the governments will not view it as something to be adapted to in the future but three years down the road a big tax hit is going to be coming from somewhere else. We all hope that's not the case and we'll be keeping a close eye on it, but I don't think the small firms, or probably any businesses in the Atlantic region, think this is some kind of bonanza they may not end up having to pay for down the road. I think we have to put this in proper context.
Mr. O'Brien: There's a major concern by business in the region about the need for the governments of the region really to get their own houses in order, and in fairness, I think in recent years there has been a real effort by the provinces to do that.
A number of businesses I've spoken to are concerned that this transitional payment, or subsidy - whichever you choose - will allow them not to continue with the same sense of commitment they've had. They're then concerned that three years from now, when we could have three years of real benefit, we will not have had that same opportunity. I think it's going to be incumbent on all of us, including the three provincial governments, to ensure the restraint initiatives that have been initiated in recent years continue, because if they don't, we will face a very serious problem in three or four years. We're quite concerned about that.
The Chairman: Mr. Campbell.
Mr. Campbell: Mr. Chairman, I want to add my welcome to our witnesses this morning, because they've been with us all along on this long road we have taken, which culminates in the legislation this committee is now reviewing.
I want to say how much we appreciate the fact that you go out and survey your members and provide us with that information. I know it was an extraordinary effort to turn this survey around as quickly as you did. It's useful, because so often people come here in all good faith and express their views based on their instinct and their experience but sometimes not all that much on scientific or close-to-scientific questioning of members or people at large.
Figure 3, on positive impacts of the HST, shows that 30.6% of your membership identify no surprise at the cash register, which I suppose implicitly means tax-inclusive pricing, therefore no surprise. In fact, in figure 5, on opinions on tax-inclusive pricing, among your members there's no majority either way, for or against. It's split.
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Those of us who've been at this since we started down this road know, though, that Canadian consumers are overwhelmingly in favour of tax-inclusive pricing. The anecdotal evidence we heard across this country from one end to the other some two years ago made that very clear. It's not surprising that some of your membership might be opposed, because moving to this system has some impact on them, clearly.
I just wanted to clarify, Mr. Chairman, that Canadians, when they wear their hats as consumers, are clearly overwhelmingly supportive of this.
I want to come back to your figure 5 again and clarify that this survey, which shows no clear majority either for or against, was done before the guidelines, which you've spoken about earlier and are quite recent. I wonder if you could respond to how far you think the guidelines go in responding to what you imagine some of the opposition to have been. People would be reacting, I guess, to a general question, but they would now have additional information, if they read it, about how it would operate. What's your view? Have we gone well down the road in responding to what your members might have anecdotally indicated to you were their concerns with tax-inclusive pricing?
Mr. Whyte: I'll lead off and Peter will probably follow up.
We should have distributed to the committee - and I have it - copies of the survey and the backgrounder that we put out. We made sure Finance worked on this to make sure it was accurate and reflected the rules of the day. A lot of it dealt with tax-in pricing. So the survey results, I should offer up, came as a result of the description of the tax-in pricing to the best of our knowledge at that particular time.
Ms Swift: And Finance's.
Mr. Whyte: And Finance's.
From there, there have been some significant changes, and I think, Peter, you should probably follow up with that.
Mr. O'Brien: As a result of the survey, we came back and met with officials here in Ottawa and in the three provinces. I think the changes that took place bore fruit, and the discussions bore fruit on Friday with the release of the latest technical document, which has made some change, there's no question. To ask me how this would change, to give you a factual answer, I can't. This happened on Friday.
There's no question that there has been improvement. There's no question that a number of the issues - for example, business to business was a major concern for many people that now is dealt with totally... There was a major concern to some people in the retail sale of magazines, where they're not going to have to do it; they can use signs and things. These things alleviate a lot of problems, there's no question.
If you ask me to guess, we've probably gone from 50-50 to 60-40, and I don't think you should expect more. I think you have to have the tax in place. You have to evolve.
As I said very early on in our presentation, we consider this a work in progress. Last year you made changes in the GST. We anticipate that five to seven years from now there will still be changes being made in the harmonized sales tax. Unfortunately, that will always be the process. This is a very serious, very complex issue for many businesses, and for governments, and it's not going to be simple.
I have to be honest and say we were encouraged with the reception by the four governments, because it's obvious that they're attempting to make this work. We think if you really wanted to make it work without any difficulty, you could go to excluding the tax-in pricing at this stage. That is where all the other things seem to fall from. We recognize that's not your desire, but we also, in all honesty, have not seen in the three provinces - and I've watched this very carefully - strong support from consumers. In fact there has been almost none. The only concern that I have heard in legislatures that have been concerned about changes is a concern about the public perception of what has gone on, and they've not always been accurate.
Ms Swift: We keep hearing about this strong support from consumers, but, as Peter said, anecdotally and with consumers groups you don't seem to see it, or maybe we're missing it. None of us has seen any polling data or anything. That would be really interesting to see, because to my way of thinking we know that particular facet of this reform is going to impose not insignificant costs on businesses and other challenges, given that it is only three provinces.
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We don't really see why this is such a sticking point, because we haven't seen the evidence that it is so highly desirable to consumers or anybody else. It does cause a lot of problems. If one can solve the problem relatively easily, which all the evidence seems to suggest we can, why not do it? Or down the road, when we have a more nationally - ideally - harmonized kind of system, then change the pricing rules when everybody is in, or at least more players are in. Right now, on a cost-benefit analysis, from the evidence we've seen, we see the cost side as being a lot bigger than the benefit side.
Mr. Campbell: I'm happy to see the system is working as it should, in that the input from groups such as yours, with the witnesses before us, has an impact on our thinking and results in something such as the guidelines. Like much of what government does, it's work in progress, and undoubtedly we will all learn more as we move forward. The important thing is that we are moving forward.
Mr. Chairman, witnesses should never suggest to a politician that they're moving from 50-50 to 60-40 -
The Chairman: In my life I've never even been at 50.
Mr. Solberg: I have to speak up here. I think if the system were working the way it should be we wouldn't be discussing tax-in pricing nine months after it was first brought out by the government. There have been a number of protests against it. People from all over Atlantic Canada have made representations to the government against it. The government has yet to put forward one shred of evidence that there is any benefit at all to tax-in pricing in Atlantic Canada; not one shred of evidence. I can't believe we're still discussing it today. To me it's proof the government is not listening.
The Chairman: Mr. Solberg, you, Mr. O'Brien, and Ms Swift are totally wrong. I have conducted my own survey on consumer attitudes and 99.44% of my family members have said ``you have to have tax-included pricing''.
On behalf of all members, I want to thank you for being with us today, and particularly for the ongoing work you have done in anticipation of these initiatives. You have made it very clear we need training programs to help business adjust and adapt, and you have been part of those. Your surveys are very useful to us. You have undertaken to work with us on an ongoing basis to make the one outstanding objection to harmonization, namely tax-included pricing, less onerous on those who are concerned about it. As I've said to you before, if we did not have a Canadian Federation of Independent Business working on behalf of these entrepreneurs in every part of the country, it's probably the type of organization we would have to invent. On behalf of all members, may I thank you not only for what you've provided to us today but for the great contribution you've made to Canada's economic progress.
We adjourn until 1 p.m.