Taxpayer Dividend Act,
2000, Bill 72,Mr Eves / Loi de
2000 sur le versement d'un dividende aux contribuables,
projet de loi 72, M. Eves
Ministry of
Finance
Dr Bryne Purchase, deputy minister
Mr Tom Sweeting, assistant deputy minister, office of the budget
and taxation
Mr Graham Stoodley, director, office of legal services
Mr Philip Howell, assistant deputy minister and chief economist,
office of economic policy
STANDING COMMITTEE ON
FINANCE AND ECONOMIC AFFAIRS
Chair /
Président
Mr Marcel Beaubien (Lambton-Kent-Middlesex PC)
Staff / Personnel
Mr David Rampersad, researcher,
Research and Information Services
The committee met at 1000 in room 151.
TAXPAYER DIVIDEND ACT, 2000 / LOI DE 2000 SUR LE
VERSEMENT D'UN DIVIDENDE AUX CONTRIBUABLES
Consideration of Bill 72, An
Act to pay a dividend to Ontario taxpayers, cut taxes, create
jobs and implement the Budget / Projet de loi 72, Loi visant
à verser un dividende aux contribuables de l'Ontario, à
réduire les impôts, à créer des emplois et
à mettre en oeuvre le budget.
The Vice-Chair (Mr
Doug Galt): I will call the committee to order. It's 10
o'clock. I'm filling in for the Chair, Marcel Beaubien. We look
forward to the presentation from the various representatives of
the Ministry of Finance.
MINISTRY OF FINANCE
The
Vice-Chair: We'll call the delegation, Dr Bryne
Purchase. Possibly, Bryne, you could introduce the various staff
who are here. They're not all here right now, but they will
be.
Dr Bryne
Purchase: Yes, they will be here shortly.
The
Vice-Chair: As you name them, they can put their hand up
so the committee members recognize them.
Mr Gerry Phillips
(Scarborough-Agincourt): Chair, what is the process
you're planning here today?
The
Vice-Chair: My understanding is, from 10 to 12, to have
a presentation from the ministry staff and then questions and
answers from the three parties until 12 o'clock.
Mr Phillips:
Will there be any opening statement by the minister's
representative?
The
Vice-Chair: My understanding is the opening statement is
from the deputy minister, Dr Bryne Purchase, and his staff.
Mr Phillips:
As you know, I requested that the minister be here, and in the
absence of the minister, I gather the parliamentary assistant is
responsible for carriage of the bill. I expected he might want to
make an opening statement and then perhaps we could make an
opening statement so that the ministry staff's comments might be
geared to helping us answer the questions we've got as well.
The
Vice-Chair: I don't think there's any question, Mr
Phillips, that the parliamentary assistant will help with
answering the questions. As you recall, the subcommittee report
came in asking for the minister, but that was overturned by the
full committee.
Mr Phillips:
I received a letter yesterday from Mr Young himself saying that
he was going to be essentially representing the minister, and I
wonder if he has an opening statement for us.
The
Vice-Chair: We can ask. Mr Young?
Mr David Young
(Willowdale): I certainly appreciate Mr Phillips giving
me the opportunity to make an opening statement. My concern,
though, is that the opposition parties-or I guess party; there's
only one here right now-have as much time as possible to question
the ministry staff who are here. We have a morning session here
that has been devoted to essentially a technical briefing. Rather
than engaging in lengthy statements from both sides, or all
sides, which would undoubtedly involve a good deal of repetition
of things we have said in the past, it's my respectful submission
that we simply get right into the questioning and in due course,
over the remainder of the days set for these hearings, there'll
be ample time to set out whatever would be said in an opening
statement.
Mr Phillips:
Do you mind if I take five minutes, just to give the staff an
opportunity to perhaps in their comments respond to our
concerns?
The
Vice-Chair: If there is agreement in the committee,
because that wasn't what was planned.
Mr Young: I
have no objection to that.
The
Vice-Chair: Any objections? Is everybody agreeable? OK.
You have five minutes, then, Mr Phillips.
Mr Phillips:
Starting now.
The
Vice-Chair: Starting now. I'm going to be Chair today,
so I'm going to keep you right on the mark.
Mr Phillips:
OK. The major concern that we in the Liberal caucus have is
Ontario's ability to fund our fundamental services in the future:
health care, education, and we've been through in the last few
days other areas in the environment. I think before anyone can
agree to this bill, we need to have from the minister and,
lacking the minister, from the minister's staff, some indication
that we can do these things and still fund our essential
services.
I gather from this bill that
the plan is to reduce corporate taxes from 15.5% to 8% or from
13.5% to 8%. I gather the
government is urging the federal government to essentially match
it, to reduce corporate tax levels to dramatically below
neighbouring US states. If we proceed down that road, I want to
know where we are going to find the revenue.
I would just add that when
the government sends its documents out to say, "Come and locate
in Ontario," it says in this document that health care costs in
Ontario are $2,500 lower per employee than in neighbouring
jurisdictions. It says, "The amount of money you will have to
spend as an employer in Ontario is $2,500 less." That, I might
add, if you just take the auto sector, 143,000 employees in the
auto sector in Ontario, is a $350-million cost advantage, the way
we fund health care, the way that health care is provided in
Ontario versus Michigan or New York or Illinois. General Motors
alone I think gets an annual advantage on that aspect of about
$65 million. If, as the government says, we need now to have
corporate tax rates substantially lower than neighbouring
jurisdictions, and we want to retain our health care system, and
we want that $2,500 advantage, we have to find the money
elsewhere.
I also gather from the
documents that Ontario is proceeding with a 15% cut in personal
income tax. The one piece of advice that the government gave to
the federal government before its budget was, "Cut your personal
income tax levels by 20%." We have in this budget-although not in
this bill, but in the budget it's part of this-a plan to reduce
capital gains from 75% to 50%, which has an impact on our income
tax revenue. The second, and by the way, 75% of the federal
government's revenue comes from corporate taxes and income taxes,
and 55% of our tax revenue comes from personal income tax and
corporate taxes. So on the one hand, we want corporate taxes
lower than neighbouring jurisdictions, and I gather we're aiming
for personal income tax levels equal to neighbouring
jurisdictions.
For us in the Liberal caucus,
it is quite fundamental to have from the minister, and lacking
the minister, from the minister's staff or the parliamentary
assistant, an assurance that we can proceed with these tax
measures and still fund our health care and our education system.
It was ironic, I was looking in this document Doing Business in
Ontario, and one thing it says is, "Ontario means beautiful,
sparkling, shining water." We need money to ensure we have
that.
As we proceed with this, and
I view this as a package, I realize we're dealing with mainly
corporate and income tax, land transfer, some sales tax issues,
but it's part of the broader picture. Can we get an estimate, a
look at the future expenditures and revenues? In the federal
economic background, they provide a five-year revenue and
expenditure forecast. They're able to do it. The government
itself, Mr Eves in a letter to the federal government, said,
"We've looked at your federal numbers and we see you're going to
have a surplus," so I presume that provincial government has
looked at forecasts for the federal revenue and reached some
conclusions. I've had difficulty in the past couple years getting
any estimates out of the minister or the staff, although we've
been told that detailed revenue forecasts are prepared by tax
line. Somewhere in the ministry the numbers exist.
That is my opening comment.
We have before us a package of about $9 billion of tax cuts, $4
billion in the corporate sector, $1.2 billion in capital gains,
about $3 billion in personal income tax, and we're being
asked to approve that without a look at whether, in fact, we can
continue to provide what I regard and what our caucus regards
and, I think what most Ontarians regard, as the essential
services.
The
Vice-Chair: I think we're going to have to move on. You
asked for five; we're well over six now.
Mr Phillips:
Thank you. I look forward to the response.
The
Vice-Chair: We'll move to the delegation. Dr Purchase,
would you introduce your staff, at least those who are present,
and we'll continue with your presentation.
1010
Dr Purchase:
My name is Bryne Purchase. I'm Deputy Minister of Finance. With
me are Tom Sweeting, assistant deputy minister, office of the
budget and taxation; Graham Stoodley, director, office of legal
services; and Philip Howell, assistant deputy minister and chief
economist, office of economic policy. We would like to have a
brief technical presentation by Mr Sweeting first to the
committee.
Mr Tom
Sweeting: Thank you, Bryne. Good morning. I would like
to take a few minutes just to run through for the committee the
main items that are in Bill 72, the Taxpayer Dividend Act, 2000.
There is a presentation, I believe, that every member of the
committee should have.
Part I of the act deals with
cutting corporate income tax rates. The 2000 Ontario budget
announced a comprehensive strategy to cut both the corporate
income tax rate and the manufacturing and processing rate to 8%
by 2005. This would be the lowest general corporate income tax
rate in Canada, compared to current rates in other provinces. The
result would be that Ontario and federal corporate income taxes
would be more than 10 points below the average current rate in US
Great Lakes states.
This bill implements the
first two steps of this plan. The general corporate income tax
rate is reduced from 15.5% to 14.5% effective May 2, and to 14%
effective January 1, 2001. The M and P rate is reduced from 13.5%
to 12.5% effective May 2, and to 12% effective January 1,
2001.
There are also changes in
this bill related to the small business tax rate. These
amendments implement the budget proposal to accelerate and
enhance the 1998 budget scheduled cut to the small business rate.
At that time there was going to be a cut over several years to a
small business rate of 4.75%. With the budget, the rate cut is
proposed to go from 8% to 7%, effective on May 2, 2000, and to 4%
by January 1, 2005, a year earlier than the original plan.
The reduced rate of 10%
available to credit unions on income in excess of the small
business deduction is also harmonized with the proposed small
business tax rate.
As well, the small business income tax rate will be
available to more small businesses. The bill proposes that the
income limit for access to the full small business deduction will
be from $200,000 to $400,000 and it will be phased in until
January 1, 2005. Also, the limit at which some relief is still
available would be raised from $500,000 to $1 million, phased in
over the same period of time. This will be of benefit to 7,500
growing Ontario small businesses.
The Income Tax Act implements
a made-for-Ontario tax system. The budget proposed in the act is
proposing that, beginning in 2000, Ontario's tax brackets and
rates will be set independently of the federal tax brackets and
rates and Ontario tax credits and adjustments would be set to
maintain the benefits provided under the current system.
Also proposed is a reduction
in the Ontario personal income tax rates applied to the first-
and middle-income brackets, effective July 1, 2000. Those
proposed rates are documented in this presentation for taxable
incomes of less than $30,004. The rate for 2000 is proposed to be
6.37%, down from the 6.545% that was in place prior to 2000, and
the rate next year will be 6.2%. For taxable incomes between
$30,004 and $60,009, the rate will be 9.62% for 2000, which is
down from 10.01% after the 1999 budget, and next year, 2001, the
rate is proposed to be 9.24%; and above $60,009 the rate is
proposed to be 11.16% in both 2000 and 2001.
There's also an amendment
made related to environmental trusts to parallel the change in
tax rates that are made for corporate income tax purposes, as
these trusts are taxed as corporations since they are established
as corporations, not as individuals.
The act also proposes the
payment of a taxpayer dividend, which would be a rebate of up to
$200 of Ontario personal income tax paid in 1999. Taxpayers who
paid some Ontario income tax but less than $25 would receive a
rebate of $25; those who paid between $25 and $200 would receive
the tax that they paid; those above $200 would receive $200.
There are changes to the
Ontario child care supplement for working families to provide a
new single parent's benefit to this program that was introduced
in the 1998 budget as a reinvestment under the national child
benefit initiative. This change would increase the maximum annual
benefit by $210 for single parents, from $1,100 to $1,310 per
child under age seven, effective July 2000.
On the land transfer tax
front, the bill proposes to make permanent the land transfer tax
refund program for first-time buyers of newly built homes.
Qualifying purchasers will now apply for a refund no later than
18 months after the registration of the home purchase where a
refund is not claimed at the time of registration. The effective
date for this is April 1, 2000.
Mining tax: Bill 72
implements the budget proposal to reduce the mining tax rate from
20% to 10% by January 1, 2004. There is a schedule, with rate
changes occurring on May 2-the rate will be 18%; January 1,
2001-16%; January 1, 2002-14%; January 1, 2003-12%; and January
1, 2004-10%.
With respect to retail sales
tax, the bill implements a budget proposal to phase out the
retail sales tax on repairs and replacements made under warranty.
The proposed phase-out schedule is 6% of the cost of the property
acquired after May 2, 2000, and before April 1, 2001; 4% of the
cost of the property after March 31, 2001, and before April 1,
2002; 2% of the cost of the property after March 31, 2002, and
before April 1, 2003; 1% of the cost of the property after March
31, 2003, and before April 1, 2004; and the tax rate would be
phased out by April 1, 2004.
With respect to motor vehicle
insurance premiums, it implements a budget proposal to phase out
the RST on motor vehicle insurance premiums. It's phased from 5%
to 0.0% over four years, starting May 3, 2000, and ending April
1, 2004. This provision applies to insurance contracts on
vehicles licensed under the Highway Traffic Act and insured under
the Compulsory Automobile Insurance Act.
When the budget was tabled,
provisions were based on insurance coverage after budget day,
regardless of when premiums were due. For example, in the first
stage of the reduction, the rate would be 4% of the portion of
the premium payable for insurance coverage after May 2, 2000, and
before April 1, 2001, under a contract of automobile
insurance.
In response to administrative
complications raised by the industry, clarification was provided
through an information notice on May 5, 2000, that amendments
would be introduced to implement the rate reductions on a
"premiums due" basis. The new lower rates would apply to premiums
due after May 2 as follows: 4% for premiums due after May 2,
2000, and before April 1, 2001; 3% for premiums due after March
31, 2001, and before April 1, 2002; 2% for premiums due after
March 31, 2002, and before April 1, 2003; and 1% for premiums due
after March 31, 2003, and before April 1, 2004. The tax is
eliminated for premiums due on or after April 1, 2004.
As well, the act implements
the budget commitment to exempt from RST premiums assessments or
contributions made by credits unions and caisses populaires for
deposit insurance. That is effective May 3, 2000.
The bill implements the
budget proposal to convert the rebate program for farm building
materials to a point-of-sale exemption. The implementation date
will be set after consultation with the Ministry of Agriculture,
Food and Rural Affairs. As well, there is a consolidation for
legislative clarity: RST exemptions for farm machinery, equipment
and supplies are consolidated.
1020
The bill implements the
budget proposal to ensure that all gifts to schools, colleges and
universities are exempt from retail sales tax.
Finally, the bill implements
the budget commitment to exempt from retail sales tax seedlings
purchased by forest resource licence holders, issued by the
Ministry of Natural
Resources, to support reforestation of crown lands. Thank
you.
Dr Purchase:
That concludes our little presentation, Mr Chairman, so we would
be pleased to take questions from the members as they think
appropriate.
The
Vice-Chair: OK. I'm just looking at our time here. We
have a little over 30 minutes per caucus. I notice that the NDP,
or third party-maybe we'll just go one third, one third, and one
third. Then we'll split that up if one of the thirds is not used.
Do you want the whole 30 minutes at once, or would you like to do
a little rotation, five minutes at a time?
Mr Phillips:
Fifteen.
The
Vice-Chair: So 15 minutes and then come around again?
OK. We'll start with the official opposition, so your 15 minutes
is starting.
Mr Phillips:
Great. We're being asked to approve what I regard as the most
comprehensive kind of tax plan in the province's history,
perhaps. I gather the policy decision now is that we must move
fairly aggressively on the corporate tax front. Is that the
policy decision here?
Dr Purchase:
I think the policy decision is to move both our general corporate
rate and our manufacturing processing rate eventually to 8%, by
2004. I would argue that that is effectively the policy
decision.
Mr Phillips:
Why 8%? Why was that chosen?
Dr Purchase:
The target of 8% will bring us to the lowest general rate in
Canada, based on current rates across the country. It will also
bring us to a more competitive level internationally, based on
their current rates and based on the federal reductions.
Mr Phillips:
You said in your opening remarks that it would take us 10
percentage points below the neighbouring states. Is the 10
percentage points an important-
Dr Purchase:
That's a fact. That's not a target.
Mr Phillips:
What is the policy decision here?
Dr Purchase:
I could repeat that the policy decision is the commitment made,
it seems to me, by the government in this budget that they have
set a target of 8% by the year 2004.
Mr Phillips:
Presumably there's a reason for that. Do we want to be lower than
the neighbouring US states?
Dr Purchase:
There are several reasons why one would want to reduce corporate
rates. First of all, it's clear that we are not, by international
standards-I guess, Mr Phillips, you've probably had an
opportunity to read budget paper E.
Mr Phillips:
I'm looking at it right now.
Dr Purchase:
I regard budget paper E as really the essential document here in
talking about tax rates and the justification for reducing those
rates. Budget paper E demonstrates that Canada's tax rates,
Ontario's in particular, are above those internationally. So
we're not, if you like, tax-competitive internationally. The
target would move us to a more competitive range. That's assuming
that everyone stands still, and we know for a fact that that's
not likely to be the case.
Mr Phillips:
I gather you're urging the federal government to match it so that
we would be combined-Ontario believes that it would be
appropriate for the federal government to match Ontario's move
and put us at a combined rate of 23%. Is that correct?
Dr Purchase:
That's right. That's correct. We do think that.
Mr Phillips:
And that's the policy position of the minister, I gather.
Dr Purchase:
Yes, this document represents the policy position of the
ministry.
Mr Phillips:
If our corporate rates are lower than in our neighbouring
jurisdictions, where do we make up for that, for the income to
fund our health care system, which provides, according to other
government documents, a cost advantage of about $2,500 per
employee?
Dr Purchase:
When we look at reducing these corporate rates, it's with an
expectation that our long-term income will be much higher than it
would otherwise have been. But we prudently assume that we have a
revenue loss equal to our current take. That's just a prudent
assumption.
Mr Phillips:
So you do some future projections?
Dr Purchase:
We don't do forecasting out five years at all.
Mr Phillips:
The ministry does not-how far do you forecast?
Dr Purchase:
The two years that you have in the document are the forecasts of
the government. And in both those years there's no issue with
respect to the ability to fully fund all of the programs,
including health care, which is clearly a priority of the
government, and balance the budget and to have a billion-dollar
debt reduction. That's our plan.
Mr Phillips:
We're voting on a bill today that implements tax cuts for five
years, but you're telling me-
Dr Purchase:
It does not implement tax cuts for five years, Mr Phillips.
Mr Young:
That's not accurate.
Mr Phillips:
Well, I think the small business tax cut is in the bill for five
years.
Dr Purchase:
Yes.
Mr Phillips:
It is accurate, then.
Dr Purchase:
Well, it's not accurate in its entirety.
Mr Phillips:
But it is accurate.
Mr Monte Kwinter
(York Centre): You just said it goes to 2005.
Mr Phillips:
It is accurate.
Mr Young:
Mr Chair, I'm concerned about the tone of this. There's about
three instances I've experienced in the short time I've been here
during Mr Phillips's questioning where he has cut off Dr
Purchase. Dr Purchase is here to respond to questions.
Presumably, if the question is posed, he would like to hear an
answer. If he doesn't like the answer, he's certainly entitled to
ask a further question or to comment-
Mr
Phillips: Mr Purchase said that what I said was
inaccurate, and that was not the case.
Mr Young:
Well, here's another example of Mr Phillips cutting of the
speaker who has the floor.
The Vice-Chair: There is a point
here, and it may be just a little more respect for each other in
the discussion. Proceed, Mr Phillips.
Mr
Phillips: It is accurate that this bill implements tax
cuts for five years. I just want to know-if the minister were
here I would ask him the question. I find it very unfortunate
that he's not here. I have to ask you the policy questions. I
think that's unfair to you, but I have no choice. I had the same
problem when you came before us pre-budget. I think it's
unacceptable that we do not have some forecast of our revenue
over more than-I'm not even sure that we've got two years here.
In previous meetings we've had with your staff, they've said they
do prepare these detailed numbers. It is inexcusable to me that
we are being asked to approve financial plans, running out five
years, with no numbers. If this were a business, I dare say the
shareholders, to use the jargon that the Harris government uses,
would be irate. I simply want to know from you-I would prefer it
from the minister-I want some assurance that we can fund our
health care system, our education system, our environmental
concerns and still implement this tax bill.
Dr
Purchase: No disrespect meant if there was any implied
in my remarks; it was unintentional.
With respect to the
question you raise about assurance in the future, what technical
assurance can I give you? I can tell you that as I understand the
government's policy-this is me interpreting what I see-they have
committed, clearly and unequivocally, to a balanced budget going
forward. That's forward as far as you wish to forecast. That, to
me, is not a forecast. That's not a "Maybe," "Well, it could be,"
or, "Who knows what might happen?" That's a clear policy
commitment that the budget will be balanced.
There is also a clear
policy commitment of the government, as I understand it, that
taxes will not go up. They will not raise a major tax rate or
introduce a new tax. That is clear and unequivocal. If they were
to decide to do so, they would have to get permission through a
province-wide referendum. That's what I interpret: Those are
commitments, they're clear, they're unequivocal, and they go out
as far into the future as you care to think about. That, I think,
sir, is the policy answer that I can give you. Technically, I
used to be the chief economist of the province of Ontario when Mr
Nixon was the Treasurer, and I wouldn't do five-year
forecasts.
1030
Mr
Phillips: Well, maybe you wouldn't, but I'm telling you
that you are asking-the government's asking, not you-the
government's asking us to sign on to a tax cut that cannot be
changed without a referendum. You're not giving us any assurance
on the health front. What we've got today is, all right,
corporate taxes are going to be cut. The government wants the
federal government to cut corporate taxes so that they're
dramatically lower than the neighbouring US states. OK, we want
to maintain our health care system, which gives our employers an
enormous advantage. The government wants income taxes cut, they
want capital gains cut. I just say, on behalf of the people of
Ontario, who want their health care system maintained, where is
that going to come from? That's not a tough question, and you say
you don't provide five-year forecasts, but you, "you" being Mr
Harris and Mr Eves, commented on the federal government's
five-year forecast. You had enough confidence in that to say,
"Cut taxes, because we believe there's going to be a
surplus."
I'm not going to agree to a
tax cut unless I know we can fund our health care system. We now
have cut corporate taxes, we're cutting income taxes, capital
gains taxes, and where will it come from? It comes from, I gather
you're saying, consumption taxes. I gather that's where it's
going to come from. On the one hand, you're asking us to buy on
to-this bill benefits, really, the best off in our province,
without question. The people who benefit from the capital gains
tax cut will be the best off in our province; no question about
that. And it's going to going to put health care costs, unless
you've got another answer that I don't see, on to all the other
taxes.
I say again, if the
government's not providing some future plan for us and laying it
before us and saying, "Listen, here's what we believe on the tax
front, and we believe that will still provide enough money that
we can fund our health care system, our education system and the
other things," why would anybody sign off on it? If this were a
business, believe me, we'd be laughed out of any board
meeting.
Dr
Purchase: I think I've responded, Mr Chairman. I don't
know what else to say.
Mr
Phillips: In the ministry, when you look at costing
future costs for various tax measures-you've outlined for us the
implementation costs of the small business tax measures, which
are for the next five years. You didn't use a five-year
projection to reach that?
Dr
Purchase: In that case, for certain, we would have
looked at the cost over five years.
Mr
Phillips: So you can do it for one tax. Why would you
not provide the minister or the public with some information on
what your expectations are; when we implement these tax measures,
what your best cut is at how much revenue we will end up with in
the province?
Dr
Purchase: Because we don't do that.
Mr
Phillips: Why not?
Dr
Purchase: Largely because I don't think it's useful to
do it. We don't make forecasts of what revenues we will generate
from the corporate income tax, small business or large business,
out for five years. I've just said that we don't do that. Again,
this is a technical issue, but if the government were to ask us
to do it, then of course we would do it. You mentioned the
federal government. They've chosen to do it once again. Everybody
did it back in the 1980s, and they were as useless then as they
will probably prove to be now.
Mr
Phillips: With all due respect, the Harris government
commented on them, said: "We've looked at your numbers. You're
going to have a surplus. Cut taxes."
Dr
Purchase: We did. That's true.
Mr Phillips: So the government
commented on numbers that they thought were useless?
Dr
Purchase: No. You asked me for a technical perspective
on five-year forecasts. I don't think they are particularly
relevant. If you've ever looked at the probability of anyone
getting it right, out five years, it's extremely low. These
things are not useful exercises, in my point of view.
Nonetheless, the federal government has chosen to do it.
Incidentally, as I understand it, Mr Martin was very reluctant to
do this. He had seen it done in the 1980s. It did not
particularly help the federal government in its budgeting
activities in the 1980s-
Mr
Phillips: I'm sorry. Why then would we have-
The
Vice-Chair: Please just let him complete.
Dr
Purchase: In the 1990s, they are now going back to it,
largely I suppose because it helped to frame a debate about
potential surpluses. We simply took their information, their
forecasts and what they say, given their best estimates of what
the future is going to be-since they were involved in that
exercise, demonstrating what they could do and what they couldn't
do, we simply showed what they could do, given their forecasts,
not ours: that they could in fact cut taxes, as we suggested, in
terms of the employment insurance premiums and restore health
care funding, as all the provinces had suggested, not just
Ontario, and still wind up with a surplus. That's using their
forecasts, not using our forecasts or engaging in any way in that
exercise in a technical sense by producing new numbers or
different numbers than what their technicians had done.
The
Vice-Chair: Thank you very much. Fifteen minutes have
been consumed. Would you like to skip or would you like to take
your 15 minutes, Mr Christopherson?
Mr David
Christopherson (Hamilton West): At least part of it. A
number of things. First of all, Chair, I want to go on the record
as saying what a sham I think this process is, and it's not the
first bill like that. As I understand it, there's still a
requirement that amendments be in before we hold our next
meeting, which is just an absolute joke, and the fact that we're
not having anyone come in, including the minister. I'm sure Mr
Phillips made this point. If there's no one here to answer
political questions, this is fine for a technical briefing, but
quite frankly we could have done this with our staff talking to
his staff. Involving the politicians with the staff only as the
whole process of committee work is just such a joke and is
obviously meant to lead to nothing.
Having said that, I'll take
some of the 15 minutes to raise a couple of issues, but again I
want to recognize that I don't and my caucus does not consider
this to be any kind of legitimate give and take at a political
level, which is what should be happening, on the whole issue of
the budget.
Just a couple of things if
I can, through you, Chair. Number one, I'd say hello to former
friends from the ministry, and I won't limit anybody's career by
naming names. You know who you are. We'll leave it at that.
First of all is the
breaking news that the auto pact may indeed be on the scrap heap
according to the federal minister in terms of the clip I saw last
evening. We know that during this whole process in the ramp-up to
the budget, during our pre-budget consultations, virtually every
economist who came forward, whether they were considered to be on
the right, the left or the middle of the political spectrum,
acknowledged that much of our current economic boom is due to the
American economic boom, specifically the auto sector, and a
recognition that if there's a downturn or any kind of damage to
the auto sector, we're going to be in serious trouble. Now we've
got this ruling and a federal minister saying that basically the
auto pact is dead.
I'm wondering if you'd be
good enough to comment on how you see that affecting our future,
given the absolutely critical importance of the auto industry to
our current economic benefit.
1040
Mr Graham
Stoodley: Mr Chair, I have a question for the committee.
I understand fully that we will answer and need to answer what is
appropriate to bring before the committee in the discussion of
this bill. My question simply, because it relates to the degree
of preparedness of my colleagues and I in coming to the
committee, is if the questions relate to matters totally outside
the bill as, for example, the effect of the auto pact-a perfectly
valid economic question, and no doubt one on which we would like,
in due course, to make a statement-my concern is that we wouldn't
have prepared for it and it doesn't relate to any provision of
this bill. I fully understand that it's your ruling and your
decision as to how wide-ranging this discussion should be and as
to how hypothetically we, as staff members, may respond to the
committee. I raise the issue with you only because I fear we
won't be very well prepared to answer such questions.
The
Vice-Chair: Your point is well taken, and you don't have
to respond if you don't want to. The committee hearing is based
on this particular bill. You may have some feelings on the
question. If you don't, I know, as Mr Christopherson just made
reference to, it was just on the news last night, so I can
certainly appreciate your difficulty in responding to it.
Dr
Purchase: Mr Chair, if I may, I will respond in part to
it. But my colleague's intervention was appropriate in the sense
that I haven't yet been fully briefed on the implications of the
auto pact. I was aware, obviously, of the difficulty that the
auto pact was in with respect to the World Trade Organization's
rules. I did have a briefing some months ago about the options
that may be before the federal government now to respond to this.
As I recollect, it's not as dire an implication now as it perhaps
would have been in the 1970s with respect to that particular
agreement. But I don't want to minimize it, and I should be
careful about how much I would say about it.
I did want, however, to
comment on the issue that you raised with respect to our
dependence on US exports. As you know, exports to the United
States are roughly 90% of our total exports. Autos, I believe,
are about 50% of that or
in that neighbourhood. My staff would correct me with the precise
numbers, but I'm probably close.
No one would say for a
second that autos are not a very important part of the Ontario
economy. I think something like 18% of manufacturing employment
is in autos. Now, employment in autos is a lot less of the
provincial economy; the share of the provincial economy is a
little over 3%.
Those are some numbers to
give you a little bit of flavour for the size of the sector we're
talking about. As I say, I don't know how important per se the
auto pact is now, relative to other issues, given that we have
Toyota and Honda and so forth all located here in Ontario,
something we didn't have when we started with the auto pact.
Having said all that, it is repeated many times, and I think it's
incorrect. Technically we should try to get this right.
In terms of the growth of
this province, the sources of growth in the province over the
last five years, since 1995, the export sector, net exports-I'm
taking into account exports going to the same ports-have
contributed only about 16% of the growth. This is a fact. The
domestic economy has generated 84% of the growth in the Ontario
economy.
Attribute that to what you
may. The fact is that it is not true that we are entirely or
wholly dependent on growth in the United States or in any one
sector for the growth of the Ontario economy. I see this repeated
over and over. And you mentioned, Mr Christopherson, many
economists-many economists who should know better, it seems to
me-have repeated this in public. It is simply not factually
correct. I just put that on the record in response to that.
Mr
Christopherson: If I can, then, I would first of all
argue that it's very much germane to Bill 72, given that they're
talking about tax reductions and what that's going to do in terms
of the economy and therefore talking about revenue. When we talk
about revenue, we've got to be talking about exports and imports.
I don't know how anybody could sever this off and say that this
is not a part of the discussion of Bill 72. I can understand that
you may not be prepared today to give detailed comment on
something that's late-breaking news but to suggest that an issue
that big and has such a play in our economy is not relevant to a
major budget bill, I have to confess with great respect, is a bit
of a stretch.
Mr Young:
Mr Chair, I think if he's going to quote Dr Purchase, he should
do it accurately. He didn't say it was not relevant.
The
Vice-Chair: No, Mr Christopherson has the floor.
Mr
Christopherson: Thank you.
Mr Young:
We have to be fair to the individuals who are coming today to
present information.
Mr
Christopherson: Are we on their time or my time?
The
Vice-Chair: You're on your time.
Mr
Christopherson: Thank you, Chair.
Mr Young:
You said you didn't need all your time anyway.
Mr
Christopherson: Chair, try to control your colleagues
there, Chair.
The
Vice-Chair: I'm doing my best.
Mr
Christopherson: I know it's difficult.
Anyway, I still would make
the point that I think it's very relevant to the bill that's in
front of us. With regard to your comments, Dr Purchase, again,
this is where it's difficult. This is staff. This is debate that
we ought to be having with a politician-there are a lot of things
I want to say right now, and I don't feel that it's appropriately
said to staff-but of course the government's made sure it's not
going to happen.
What really ought to happen
is, following this kind of presentation we ought to give these
very economists who disagree with Dr Purchase's criticism a
chance to make a comment on their own. That's not going to
happen, because the only people who are coming in here are the
minister's staff and the bureaucrats from the staff. It's just so
unfair to everyone involved here.
But I do want to state that
I suspect, given the amount of lobbying that went on a few years
ago, as I recall, from both the Canadian Auto Workers Union and
the auto makers themselves, around any kind of reduction or
elimination of some of these federal tariffs, they consider it to
be pretty important and not just something that was relevant in
the 1970s. It seems to me there's at least a legitimate debate,
rather than dismissing it saying, "They're wrong." It seems to me
there's at least a credible democratic debate that one can have
around this. I'll ask another question if you want to comment in
response; I see you're anxious. Please feel free.
The second thing I wanted
to ask about specifically was the development of the policy-as
much as you can, again, not being the political masters in this
case-around the $200 rebate that leaves out everyone who did not
pay enough income tax to generate an amount of $200 or a portion
thereof, thereby leaving out the people in society who, arguably,
could use the $200 the most and for whom $200 might make a
difference. Can you comment on the thinking behind eliminating
about a million people from receiving the $200, given that they
need it most?
Dr
Purchase: First, Mr Christopherson, I didn't mean to
imply for a second that the issue around the auto pact and the
WTO was not potentially important. I thought I was careful to
couch my remarks in saying I really don't know. I remember being
briefed on it at one point. The issue isn't as big now as it
would have been several years ago, largely because we have other
trade agreements in place which we did not have at the time we
had the auto pact. I would be happy to talk to the economists and
the auto workers and so forth, whom incidentally we quoted in
budget paper E on the beneficial effects of corporate income tax
cuts for that sector and for all sectors-and for workers, not
just for corporate capital, if you like. So we relied very
heavily certainly on that study and other studies in taking our
own look at these issues.
1050
I was only really
responding in terms of the public debate between those economists
who claim that we have been totally dependent for our growth on what's
going on in the US. That's simply not true.
Mr
Christopherson: I don't think anybody was arguing about
"totally"; I think they were arguing-
The
Vice-Chair: Let Dr Purchase answer.
Dr
Purchase: What I'm saying is, the truth is statistically
the other way: 84% of the growth was domestically generated, not
generated in the export sector.
Coming back to the second
question: The $200 rebate is for those people who paid any
Ontario tax. You had to pay in order to be able to get a refund.
Even if you paid $5, you'll get $25 back, which is our cut-off
point for a refund. This is a refund of tax, so if you didn't pay
tax, you don't get a refund.
Mr
Christopherson: Thank you; I appreciate that.
Just on the other
thing-
The
Vice-Chair: Very quickly-about 30 seconds.
Mr
Christopherson: OK. Then let me just say that anybody
who knows me could probably imagine what my responses would be
and what I'd like them to be, but they would be totally unfair,
given that this is staff. Again I want to emphasize the minister
ought to be here to answer these questions, because this is just
not the kind of debate that is serving anybody in this
province.
The
Vice-Chair: Thank you, Mr Christopherson. To the
government benches. Who would like to lead off?
Mr Young:
I wonder if I may, Mr Chair. I do appreciate this
opportunity.
By way of preamble to my
question, let me note that some of the previous questioners have
commented upon the fact that this government made some
submissions, formally and otherwise, to the federal government,
in anticipation of their most recent budget. While it is accurate
to suggest that this government asked that taxes be lowered as
part of the federal government's announcements relating to the
budget, unfortunately there was no reference to date at this
committee of the fact that we also asked that health care funding
be increased substantially. That balance is important to recall
in many of the discussions that have taken place here today, not
only with reference to our submissions to the federal government
but also in our announcements relating to our own budget and
other policies; that balance has always been there and continues
to be there.
There has also been a great
deal of discussion this morning, particularly coming from Mr
Phillips as one of the representatives of the Liberal Party
today, about predictions and forecasts, prognostications. I
understand why it is of some import for him to want to attach a
particular figure to this initiative or to that initiative. I'm
certain he has done that in the past. I have a recollection, back
in November of 1998, of Mr Phillips, or certainly some of his
party members, predicting lower economic growth. I think a 2.5%
figure was utilized. Fortunately, 5.4%, I believe, was the figure
that actually came forward. Certainly when members of the
opposition throw around figures, it's important that they ensure
that they are figures that are based on precedents and
performance.
What I want to know from Dr
Purchase and his colleagues who are here today is, where do we
look in order to determine a likely outcome of these initiatives?
Ireland is quite often used as an example of a country that has
taken some innovative measures towards tax cuts-lowering
corporate tax rates, continuing to have a social structure. I
want to know if that was considered in the deliberations that Dr
Purchase and others were involved in leading up to the budget
announcements.
Dr
Purchase: Yes. Mr Young, as you know, in budget paper E
we have documented a number of studies, and there are many more
studies in increasing number, that are moving on to this matter
of the profound productivity improvements that can take place
with fairly large and dramatic reductions of the corporate income
tax. Certainly that was the case in Ireland, which is maybe the
most spectacular one. Ireland started off well behind other
countries in Europe, well back of England, and has now simply
caught up, has closed the gap. Meanwhile, I think this issue of
productivity in Canada vis-à-vis productivity, performance,
real income, if you like, in Canada vis-à-vis the United
States is a major problem for us. The United States has had an
enormous productivity improvement relative to us, so we've been
losing ground overall in the 1990s and only in recent years have
begun to close the gap a little bit again.
Most of the work on
corporate income taxes, and I might ask Mr Howell to say a few
words about this as well, is really going to point to several
areas of benefit. It's clear that if you improve the after-tax
rate of return on capital, you're going to increase the amount of
capital investment. Increasing the amount of capital investment
provides labour with a great deal more equipment to work with and
enhances their productivity and enhances their pay in the long
run as a result. So there's that immediate effect.
Also, because we're living
now in a world, for better or worse, where our capital is
extremely mobile internationally, we simply have to care about
our competitiveness-tax competitiveness, if you
like-vis-à-vis other jurisdictions. If we are wildly out,
then it will adversely affect in the long run the amount of
capital that will choose to locate in Canada, and in Ontario in
particular.
That, I think, is well
documented by any number of studies. There is an increasing
number of studies by the C.D. Howe Institute. I mentioned the
study by Jim Stanford, who I think is the chief economist for the
Canadian Auto Workers, who is also on record as saying that
corporate tax reductions are of great benefit to the real incomes
of workers.
We think there is
sufficient analytic evidence, done by different sources, whose
integrity in this regard is not to be impugned, I think, to
warrant the kinds of responses that are in this budget.
Mr Young:
Did one of your colleagues wish to comment?
Mr Philip
Howell: I'll add a couple of comments to that.
One thing that's worth noting in the context of the
Irish experience is that the corporate tax cuts were only one
part of a fairly comprehensive program to promote economic
development that also included substantial personal income tax
cuts and also had a focus on boosting infrastructure spending. So
it was not just the corporate tax cuts that were responsible for
the substantial gain in growth in Ireland.
I might also note that the
government's revenue gains over the last decade in Ireland have
been substantial and far outweighed the revenues associated with
the cost of the tax cuts.
Another thing that was
interesting in the work we did was to find that in jurisdictions
like the Scandinavian countries, which have a reputation for very
high levels of publicly funded social programs, it was noteworthy
that in all cases their corporate tax rates, their combined
corporate tax rates, were in the 20% to 25% range, the kind of
number we'd like to move towards in Ontario. I think that
underscores their recognition of the important role, especially
in small economies and especially in periods when capital is
moved very easily, to put in place conditions that ensure
businesses will be able to generate the types of after-tax
returns that will encourage them to keep investing in that
jurisdiction and creating more jobs.
1100
Mr Young:
If I may-I know my colleagues have some questions as well-in
citing the success of Ontario's economy over the last year, I
mentioned 5.4%. Was that the net growth rate or are we just
looking at the last quarter when we talk in terms of 5.4%?
Mr Howell:
It's 5.7% for the year.
Mr Young:
Annualized?
Mr Howell:
Yes, that's the annual.
Mr Young:
The other question I want to pose before I yield to my colleagues
is the role of small businesses in what is a very large economy
of this province. I wonder if I can get the presenters to comment
upon that. They have been asked some questions about the
five-year set of initiatives that have been set out in the budget
announcements. I wonder if we can hear what role it is
anticipated small businesses will play as part of this province's
economy.
Dr
Purchase: I will ask Mr Howell to respond to that.
Mr Howell:
Small business has always been an important source of job
creation in any economy, and equally importantly they're the
source of future large companies, obviously. Not all small
businesses grow into large businesses, but nevertheless ensuring
an environment in which businesses are able to start up and
prosper and expand is an important economic development
objective.
In that context, with small
businesses, one of the reasons they've always had lower tax rates
is that you want to not only encourage entrepreneurship but
ensure there are funds available for reinvestment by these
businesses as they expand. Currently in Ontario over 40% of
employment is accounted for in the small business sector, so it's
clear that it's an extremely important part of the economy. While
it is true that in the last few years, with the strength and
growth of the economy, many large businesses have been expanding,
it's also true that small businesses historically continue to be
a primary source of job creation in the province.
Mr Ted Arnott
(Waterloo-Wellington): This Bill 74 proposes fairly
substantial cuts in corporate income tax rates, as has been
discussed-
Interjection: Bill 72.
Mr Arnott:
Bill 74 is on my mind; people are phoning me about it and sending
me e-mails.
It proposes fairly
substantial reductions in corporate income tax rates, which has
been discussed. Of course, it continues to appear that the
opposition parties reject fundamentally the stimulative effect
that has been created in the past five years as a result of
income tax reductions in Ontario.
It's interesting, as you
pointed out, in budget paper E, the effect of tax cuts in Ireland
in recent years. You talked about the corporate income tax rates
in three of the Scandinavian countries-Norway, the Netherlands
and Denmark-that we traditionally think of as being perhaps more
socialistic in terms of their economies, yet they have
considerably lower corporate income tax rates in those countries:
28%, 35% and 32%. You indicated in the budget paper that the rate
is about 45% cumulatively in Canada.
You've also talked about
how the new orientation in Ireland to cut income tax rates,
whether it be corporate income tax or personal income tax, has
led to a dramatic turnaround in that country. The leader of the
national Conservative Party, Joe Clark, has talked about Ireland
in some of his recent speeches. He is someone I continue to
support; I'm proud to say that. I think you've highlighted
something that's very significant.
When we talked about this
in the last round, you mentioned there were other factors at play
in Ireland that you thought could be identified as reasons for
that growth, not just tax cuts. One of you talked about
infrastructure spending. Would you care to elaborate on that a
little bit, because I think it's important to see the whole
picture? It appears from what we've seen here that income tax
rate reductions have contributed significantly. You said there
might be other factors. We don't want to just look at this in
isolation.
The
Vice-Chair: You have about one minute for the
response.
Dr
Purchase: Mr Howell may have something to say, but as
indicated in that budget paper and in the government's overall
economic and fiscal strategy, it's not just about efficient
government or keeping the costs of government programs to the
most efficient or effective level; it's also about reinvesting in
the core strategic infrastructure of the province: in roads,
hospitals, post-secondary education and research and development.
The budget did do all those things. The government has indicated
its commitment through SuperBuild Corp over a period of five
years.
It is absolutely key that
we continue to invest in those things to support the expansion of
the economy that has happened and we anticipate will continue to
happen in response to
the corporate tax cuts and the personal income tax cuts.
The
Vice-Chair: We move on to the official opposition.
Mr
Kwinter: Again I have to qualify my remarks. It's
unfortunate that I have ask you questions that may have a bit of
a political slant to them-I have no choice-but I want to try to
keep it as even-handed as I can. You talked about your
projections and you can't go five years out because two years are
possibly manageable. Why were you not able to predict the
surpluses we had so that the budget could've been balanced last
year before it happened, as opposed to after it happened where
they went back and said, "We had these revenues that we had no
idea were coming in; we're going to go back and balance last
year's budget," which I think is unprecedented? I've never heard
of that before, where you go back and balance the budget.
Dr
Purchase: That's a legitimate question to ask of us. Why
did we not know? The answer is that the way we do our forecasts,
to reassure the public and all the members of the Legislature
that they're getting the straight goods, we take the consensus of
private sector forecasters and we shave off a bit and adopt that
as our forecast, so we're never very far from what everyone else
in the community is saying, even if inside we think, "They're
probably wrong." What we want is to be prudent and also be
credible in what we're telling the Legislature is our best guess
about the future.
The fact that we were wrong
and so dramatically wrong-one nice thing is that when you're
wrong, you're wrong because everybody else is wrong at the same
time. Why were they wrong? Why were economists so wrong about
last year? Our original forecast was 3.6%, in that area, of real
growth. We came in at 5.7%. Actually the nominal GDP was even
more dramatically up.
1110
There are two explanations
for why everyone got it so wrong. The first is that in the fall
of 1998, if you'll recall, there was the Asian crisis when all
the Asian Tigers' economies suddenly went flat. Output was
falling dramatically in those countries. Then there was the
international capital market crisis with Long-Term Capital, the
major US financial house that got itself in very big trouble. All
the heavy hitters on the US financial scene came to the rescue
because they feared that if they did not-this was all under the
general direction of the Federal Reserve in the United
States-they could have a worldwide financial calamity on their
hands.
That really chilled out
everybody. Everyone thought, "Oh God, here it comes, the economy
is about to go into a stall." The Federal Reserve, if you recall,
at that time had a 75-basis-point reduction of interest rates, 25
basis points at a time, to help support the economy and so forth.
Then suddenly, four months later, everything is not only fine but
growth is steaming ahead.
It turned out that the
problems in the Asian economy, perversely, helped the American
economy and the developed world's economy because it kept a lid
on prices. It didn't impact at all on aggregate demand in the
industrial world. That kept booming ahead to the point that you
had very strong consumption spending growth and investment
spending growth with very little pressure on prices. With an
accommodative monetary policy, suddenly our economy grows at
5.7%
Mr
Kwinter: I'd like to ask you another question; I know my
colleague wants to ask you another question. In your presentation
to us, you talked about cutting corporate income tax rates. It
seems to me the raison d'être that has been given to you is
to enhance Ontario's competitiveness. When I was the Minister of
Industry, Trade and Technology, I used to get on a regular basis
from the Ministry of Finance a spreadsheet showing our
competitive tax situation vis-à-vis our competitors,
basically the Great Lakes American states, Quebec: Is that still
provided?
Dr
Purchase: We certainly have that. I assume we provide
the ministry with that information. I think they publish it in a
document that-
Mr
Kwinter: The point I'm making is that when I used to get
that, it used to show that we were very competitive, all things
in. I used to use it all the time when I was discussing with
people why they should be investing in Ontario. What has happened
since then that has made us non-competitive, that means we have
to reduce our taxes?
Dr
Purchase: Quite a few things have happened since then.
The US economy has had a very dramatic improvement in
productivity performance in the 1990s. This is a movable feast.
You have to keep moving along with the competitors. On the tax
front they have also moved in the United States to reduce taxes.
There's talk about further tax reductions federally in the United
States, depending on who wins the presidential election. Michigan
has a proposal on a single business tax to eliminate corporate
tax altogether.
These things are happening
in the United States now. There are, as I say, a number of
reasons, all of which compound to make us concerned about our tax
competitiveness. It isn't saying, "Let's just stay equal." The
Irish example shows that there is some benefit to getting ahead
if you can get ahead.
Mr
Phillips: This is a frustrating exercise, because the
issues that we're keenly interested in are policy issues, and it
is grossly unfair to the staff to ask them to deal with the
policy issues, because they won't and they can't.
I understand the corporate
tax rate decrease, and it is a moving target. Michigan will
reduce it-here is no question about it-and New York State will.
We're chasing a moving target and it's a race to the bottom on
the corporate side. They have the same Irish statistics that we
do. We'll be back next year with them dropping and us dropping.
That's not the issue. I would point out that the Denmark, Norway
and Netherlands situation is part of the policy discussion. As
you point out in the document, they've cut corporate taxes, but
their overall tax burden is higher than ours. So they make it up
elsewhere with some other taxes. The discussion we should be
having here is, OK,
we'll cut the corporate taxes. We should expect that next year
we'll be back again looking at them, because, as I say, they're
all running surpluses. They're all going to change.
I would love a discussion
on the importance of exports. I think I fundamentally disagree
with you on the importance of exports. You've said that 84% of
Ontario's growth is domestic spending. I have a different view of
it. You subtract imports from exports. I'd love to get some other
economists in here, because if you really believe that exports
are only 16% of the economy, I think we've got a problem. I think
it's fundamentally driving our policy now, but if the senior
staff at the ministry don't think that and others do, we'd better
have a debate and try and join that issue. If our policy is being
driven by the belief that exports aren't really that important,
"They're only 16%," we have a huge problem.
The debate here should have
been around-all right, we're making the decision to cut corporate
taxes. Once you start down that road, I think you're on the road
where it will just snowball down. In my opinion, we're going to
have to make it up elsewhere to fund our health care system.
That's the policy debate. Does it mean sales taxes are going to
have to go up? If corporate taxes are going to go down and you
say the Irish experience is that revenue will go up, I'd love to
see us model that one for ourselves and say, "All right, we're
not worried about the corporate taxes, because, overall, this
thing is going to be like a money-making machine."
There is huge pressure on
us to reduce income taxes because of the "brain drain," and the
business community is putting enormous pressure on. If corporate
taxes and income taxes are going to be lower than the US or equal
to the US, where do we make it up? It's not the federal
government, because Harris has said, "Cut income tax, cut
corporate tax." There's only one taxpayer, and that's going to be
cut.
The bill is quite
technical. I have maybe one or two questions on the bill. It's
the whole policy side. All I do is get angry with the deputy when
I think that the government owes the public a discussion of:
"Here's where we're heading. We have decided that we have to get
our corporate taxes down and we're going to have to keep them
below the neighbouring states." Believe me, that will be
challenging. "For the best-off in our province, we're going to
have to give them more tax breaks." That's capital gains. In the
R and D area, I gather it's $100,000 tax-free, costing $70
million. OK. Now, let's debate how we make that up.
This is an exercise in
frustration for me, because that's the debate I think we should
be having, not the formula in Bill 72 that determines the
corporate tax rate for fiscal year 2000. We are going to
frustrate ourselves. I don't know where the forum is going to be
for us to have that debate because it's clearly not here,
unfortunately.
Having said that, I do have
a technical question on the tax rebate. On page 28 of their blue
books it says, "The provincial minister will send the individual
a notice of entitlement, a notice of the right to appeal, and pay
a rebate." I gather that's one mailing that will go out with the
$200 or whatever refund in it. Is it the expectation that the
minister will send a notice out?
1120
Mr
Sweeting: Yes. We're currently in discussion with the
Canada Customs and Revenue Agency about the actual mechanics of
the rebate. But certainly the act requires that the person be
informed of the size of rebate and why it was that size, so that
they have an opportunity to, if necessary, challenge the
determination process, the administration process for how much
rebate they're entitled to.
Mr
Phillips: Just to go back on my overall comment: As I
say, we had a technical briefing from the staff and we asked our
technical questions then. This was to be around a policy
discussion of where we're heading from a policy point of
view.
I happen to think this
export issue and the implications on our tax policy is the most
important economic issue, and we need a debate. We're heading
down the road-without the debate taking place-of, "All right,
where do we find the funds for our health care system?" I don't
know whether you, Deputy, can be helpful to us in terms of where
does the future money come from for health care.
Dr
Purchase: I would like to first of all say that although
I said that 16% of our growth in the last five years has come
from net exports, I don't say that to minimize in any way the
importance of exports to the Ontario economy, particularly, in
that regard, the importance of exports to the United States. As I
said, they are 90% of our international exports. So we are very
conscious of our competitive position vis-à-vis the United
States, just as I'm sure Ireland's target wasn't North America,
their target was continental Europe.
We know the larger economy
we live in. In our case it's the North American economy and in
particular we are, like it or not, in competition with largely
the Great Lakes states. They're part of what I would call the
Great Lakes economy. So, Mr Phillips, I would agree with you and
your sentiment that the matter of exports to the United States is
of fundamental importance to the Ontario economy. Nothing in my
remarks should be taken to intimate for a second that I don't
think that is the case.
With respect to where does
the future money come from to pay for important social programs,
not just health care but education and so forth, I think that is
also a legitimate and important issue. At the end of the day, we
tax not just because we like to tax. We tax to raise money,
principally; otherwise, I would presume that no tax would be the
most appropriate thing.
The
Vice-Chair: I think we're going to have to move on to
the third party.
Mr
Christopherson: Again, my comments and my discussions
need to be of a political nature. It would be totally unfair to
the staff who are present. With that, my hands are tied. There's
nothing further I can do to advocate for or discuss the issues
that matter to me and my caucus.
The Vice-Chair: We'll move on to
the government caucus. Who would like to respond? Was Mr Arnott
finished?
Mr Young:
I'll jump back in, and I think some of my colleagues will join us
later. By way of a historical perspective and in an effort to try
to learn from what has gone on in this province, particularly
over the last five years since Mr Harris was elected as Premier,
I wanted to get Dr Purchase and his colleagues to comment on what
has happened to revenue within this province, whether we have
seen a decline overall or whether we have seen growth since this
government started to cut taxes in a very significant way. Have
we made up the money that would otherwise have been gained
through the numerous taxes that were cut?
Mr Howell:
Over the past five years, total revenues have increased I believe
by $11.7 billion.
Mr Young:
Sorry. What was that number?
Mr Howell:
It was $11.7 billion. Again, going back to the Irish experience
and other jurisdictions where similar experiences have occurred,
with bold tax reduction strategies there is a very positive
impact on economic growth. The stronger economic growth and the
accompanying increases in employment obviously broaden the base
against which tax revenues are assessed and partially explain the
increased revenue.
Mr Young:
Do I have it right then, that even with all of the tax cuts, the
Ontario coffers have been increased by $11.7 billion?
Mr Howell:
Yes.
Mr Young:
Are you in a position to also comment upon whether health care
funding over that same period has increased or decreased within
this province?
Mr Howell:
Health care funding has increased over that period.
Mr Young:
Do you have a figure that you can share with us today?
Dr
Purchase: It's currently $22 billion and I believe it
was $17 billion.
Mr Young:
So with all these tax cuts, we've seen increased revenue and
we've seen increased spending on health care.
Dr
Purchase: That's correct.
Mr Young:
I thought that was the case but I appreciate the particulars that
you provided to us today.
If I can change gears to
some degree and talk about another initiative that is outlined in
the budget papers, and that is the rebate or taxpayer dividend
that will see taxpayers receive back up to the first $200 in
taxes that they paid last year: Can you help us with any similar
initiative that has been conducted by another government? Is
there any precedent for this sort of rebate?
Mr
Sweeting: Yes, there is a precedent back in the 1970s
when the federal government delivered cheques to residents of
Quebec directly, of up to $85 each. There had been an agreement
worked out between the federal government and the provinces to
deliver a federal reduction via the income tax systems. In the
case of Quebec, the federal government used a direct sales tax
rebate mechanism in order to compensate the people of Quebec and
provide them with a rebate of their sales tax.
Mr Young:
I believe it was a Liberal government that was in power at the
time, but what you're saying is that they used a similar sort of
rebate program to return money to the residents of Quebec.
Mr
Sweeting: Yes.
Mr Young:
Sorry. Do I have that right?
Mr
Sweeting: Yes, the individual cheques were mailed to
every Quebecer.
Mr Young:
I'm embarrassed to say this as a student of politics but my
memory is faulty. Can you help me as to who was the finance
minister at that time?
Mr
Sweeting: I think it might have been Mr
Chrétien.
Mr Young:
I thought it might have been but I wasn't sure. The current Prime
Minister embarked upon a similar endeavour?
Mr
Sweeting: Mr Chrétien, I think it was.
The
Vice-Chair: Mr Kells, go ahead.
1130
Mr Morley Kells
(Etobicoke-Lakeshore): Actually, this is more of a
personal inquiry. In one of my previous incarnations I was
president of the Urban Development Institute and we were down
here pretty regularly trying to get that land transfer tax
lifted. Of course, I'm aware of what we've done as a government
and I also realize that it's a great help to first-time
homebuyers, naturally, and also a great help to the industry. I'm
just wondering what scale or what amount of money annually had we
been taking in prior to this reduction or our lifting it, our
finally taking it off. What kind of revenues are we talking
about?
Mr
Sweeting: I don't have the figure. I'm sure we can get
it for the annual take from the land transfer tax. I can tell you
that since the refund program has started it has reduced land
transfer tax or provided benefits to first-time purchasers of
homes of $82 million in refunded land transfer tax. That has been
effected by 62,000 people. The land transfer tax itself is $486
million. That's how much was collected overall from land transfer
tax.
Mr Kells:
You weren't up against it, but yesterday we had the real estate
association running around the building. Naturally, they feel
that they'd like this largesse to maybe be expanded to take in
resales. It seems to me that's probably out of order, obviously,
because it could go on forever, or as you know, it would go on
forever. What kind of money would we be talking about if we were
in the kind of good year that this appears to have been, if you
were ever to do it in the area of resales? I'm not expecting you
to be precise for obvious reasons, you can't be, but on a scale
what would we be talking about?
Mr
Sweeting: I don't have a good sense of that, Mr Kells.
It's clearly larger. Used home sales are in excess of new home
sales. We do feel that the stimulation to construct new homes has
a lot higher economic spin-off than does the support for resale
purchases. Part of it is economic-based in terms of the policy
for permanentizing land transfer tax rebates.
Mr Kells: I couldn't agree more,
and actually, I think I used similar words to tell the real
estate people what I thought of their chances.
Just before I finish, I
would like to do a little sidestep into something else that's
bothering me, and I know that down the road, the ministry will
probably be faced with this. It's interesting that the members
opposite mentioned the fact that we don't do five-year forecasts
in revenue, only two. I have a concern that when it comes to
Olympic guarantees and waterfront development down the road we're
going to be asked to put monies up over a much longer period of
time. I wonder, if we don't forecast revenue, how are we going to
forecast our ability to do things like $2-billion guarantees and
even greater amounts of money in the area of the waterfront? How
are we going to look at that, even under something called
SuperBuild?
I think it's going to come
up and it's an interesting question. I wonder, from our own
government's point of view, how the Ministry of Finance is going
to come to grips with that. I hope it never has to, by the way,
but if it should.
Dr
Purchase: When and if that happens, then we'll take a
look at the implications. We know, for example, that our health
care spending isn't going down, education spending isn't going
down. These things are all out there in our future. While it may
not sound wholly satisfactory to you at the present time, believe
me, we will deal with that issue when it comes up, and look at
the implication that it has for us. We'll have a complete and
full debate internally with the government on the potential
implications for our finances at that time.
Mr Kells:
I appreciate your answer. Again, from my own point of view, I'm
wondering if we should drift into these things or make a
conscious decision to get into these things where the province
could ultimately be, if you will, the mortgage holder of some
down-the-road, fairly large expenses. Do we have anything in the
past remotely that would compare to that kind of a scenario,
where you make an open-ended five- or 10-year commitment to costs
for the Ontario taxpayer?
Dr
Purchase: I really didn't come prepared to respond. I
don't know. I can't think of anything right off hand, but that
doesn't mean that there aren't-
Mr Kells:
I appreciate your answer. Actually, from the political point of
view, where I'm coming from, I can't think of an answer. I know
that the Ministry of Finance must be looking at these potential
demands that could be placed on you in this area. If you aren't
prepared to give an answer, and I can understand why-I'm sure
that down the road you're going to be asked-I was wondering, are
there any deliberations taking place, for example, on the Fung
task force report? The implications there are huge.
Dr
Purchase: Yes, certainly all of that is being
reviewed.
Mrs Tina R.
Molinari (Thornhill): I just want to focus on the
made-in-Ontario tax system. Can you talk a little bit about the
impact on a separate income tax system and the transparency the
tax burden will place on Ontarians?
Dr
Purchase: I'm sorry, I didn't quite-
Mrs
Molinari: The made-for-Ontario tax system, the
separating, the impact this move will have and the transparency
of the tax burden that we place on Ontarians.
Mr
Sweeting: The new system will involve the application of
Ontario income tax rates to taxable income directly. Previously
the Ontario income tax system was set as a percentage of federal
income tax, so the taxpayers calculated their taxable income,
then they calculated federal tax based on federal brackets and
federal rates, and then the Ontario tax was simply a portion of
that result. There are certain programs the province has brought
in to try and modify that with respect to objectives that the
government has for low-income relief and higher income taxes, but
essentially, ours was masked in behind the federal system. With
the new system, they will clearly see Ontario's rates of tax in
the progression, how it compares to federal rates that are
applied to the same income, and of course with every other
province apparently going to move to a tax-on-income bracket,
there will be a clearer transparency across. So it will be
clearer how governments are determining their revenues and what
is the relationship between levels of income at the provincial
level.
Mrs
Molinari: So this will make it more clear to those who
are claiming that they haven't seen any tax reduction. Ontario
has been reducing taxes for the last five years and there are
some who are claiming they haven't seen it. If the feds increase
the taxes and Ontario decreases the taxes, then at the end of the
day they don't know where it is, but this will clarify what
Ontario is doing compared to what the federal government is
doing?
Mr
Sweeting: That's true. The end result of what tax you
pay in Ontario, to Ontario for personal income tax purposes, will
reflect a determination by the government of Ontario of how big
credits should be, whether they should be higher than they were
in previous years, reductions in tax, whether rates should be
lowered, whether they should be lowered in all brackets or in
particular brackets and whether or not brackets should be widened
so that, say, more income is taxed at a lower rate than was the
case previously. All of that will be clear and comparable to the
year before. Currently it is very difficult for people to see
those differences through the tax-on-tax system.
The
Vice-Chair: You have another minute here.
1140
Mr Arnott:
Mr Phillips asked an interesting question about health funding.
It's his thesis that as we reduce corporate income taxes and
personal income taxes, our ability to fund the health care system
is diminished, if I'm not mistaken. He can correct me if I'm
wrong but I think that's the point he's making. I think it's
important to point out that when we took office in 1995 the
expenditure on health care was $17.4 billion a year. This year
it's budgeted to be $22 billion, which is an increase-I don't
know what the percentage is-in excess of 20% of the health expenditure since we took
office. At the same time, the federal government has reduced
transfers to the provinces, through the program that supports
health care called the Canada health and social transfer, at an
annual reduction of $1.7 billion.
This week, our health
minister was at a health ministers' conference and the provinces
unanimously, all 10 provinces including the Liberal government in
Newfoundland, the government of Brian Tobin, supported our
minister's call for complete restoration of the reduced health
transfers through the Canada health and social transfer.
It is certainly the
contention of the government that, assuming the economy continues
to grow, the expenditure for health that's budgeted at $22
billion this year is absolutely secure in spite of the fact that
the federal government has persisted in its policy of cutting our
health transfers. Am I correct in that?
Dr
Purchase: Yes, that's correct. In fact, the government's
target that was laid out in the Blueprint of-someone help me
here-
Mr
Sweeting: It's $22.7 billion
Dr
Purchase: -$22.7 billion will obviously, in all
probability, be reached next year.
The
Vice-Chair: That sort of runs out the time allocated.
Now, we have one party that skipped, did not consume their
rotation. I'm in your hands. Would you like to take five minutes
for each party? I know we're into discussion for this afternoon.
I have no structure for that, if you want to discuss that kind of
structure.
Mr
Phillips: I'd like another five minutes, please.
The
Vice-Chair: You'd like another five minutes?
Mr Young:
Why don't we each take another five minutes?
The
Vice-Chair: I'm happy with that, sure. I'll be generous
with the five minutes and that'll probably take us up to voting
time.
Mr
Phillips: Thank you. Just to again say what I said a
couple of times, and that is, I really believe that the province
needs a policy discussion on tax policy. We, the federal
government, governments around the world, are looking at reducing
corporate taxes. As I say, we're going to be chasing a moving
target. I think it has profound implications for us. With the
brain drain we're looking at pressure on income tax and we have
to figure out how we therefore fund our essential services.
That's not a partisan comment, it's just reality, and I regret
that we haven't found the format for that.
We were told by the
government caucus to use question period. I really resent that. I
just don't think question period is designed for a discussion of
important, fundamental policy issues. We had better have it
soon.
But back to things that I
can ask you and you can answer, I hope. The government announced
a 20% cut in personal income tax a year ago and the budget, on
page 65, restates that. Last year's budget implemented the first
five percentage points of it. How far are we now with this budget
to the full implementation of the 20% cut and how much is still
to go?
Dr
Purchase: I'm trying to remember-do you remember the
numbers on-
Mr
Sweeting: I don't remember the numbers off hand. I do
remember that the minister's expectation in the budget was that
by next year the 20% will be met with the 2001 budget. I don't
remember offhand the measurement of the progress so far. I mean,
there have been-
Mr
Phillips: Is that something you could give the
committee? I'm just anxious to know-
Dr
Purchase: Could I get back to you? I can't recall just
what the total number was on that but I think I can supply you
with that information.
Mr
Phillips: Is there any indication how the remaining is
to be implemented?
Dr
Purchase: No.
Mr
Phillips: Does the table on page 115 give us indication
of how far that is, the four-year cost or benefit of the tax
cuts? Does that give us any indication of how much more there is
to go on the 20%?
Mr
Sweeting: Yes. That's part of the answer. The table on
page 115 indicates the benefits to taxpayers from the moves in
the budget. There's a full-year benefit identified of close to $3
billion-well, don't count the rebate-close to $2 billion on top
of the 5% rebate last year.
Mr
Phillips: It would be helpful for us, Chair, if the
staff could let us know-there was a 20% cut; 5% last year and 15%
to go-how much is implemented with this.
Second, can I ask a
question on capital gains, just for information? What is the rate
in the US for capital gains currently?
Mr
Sweeting: The rate for capital gains varies. I think if
I go skipping through enough papers and conscious of the time, I
would have that answer.
Dr
Purchase: We can get that for you, if we don't have
it.
Mr
Sweeting: It differs depending on short-term, long-term
gains, and there were some recent proposals in the US. But we do
have that, so I'm happy to provide that to you.
Mr
Phillips: I realize that's not part of the bill, Mr
Chair, but it would be helpful. I view this as half of the
package or thereabouts. What legislation do we need to implement
the remainder of the budget? What still has to be legislated?
Mr
Sweeting: There would still be legislation for capital
gains. There will still be legislation for the stock option
deduction. I'm not sure what else we've still got to
legislate.
Mr
Phillips: What is the expectation of when that
legislation may come forward? I gather the implementation dates
have already been announced. Is this simply enabling
legislation?
Mr
Sweeting: Yes. As has been the case in the last several
years, there will be plans for two budget bills: the current bill
that you are examining and then a bill in the fall that will
cover the matters that I had mentioned; and, as well, matters such as the educational
technology tax incentive, simplifying the film tax initiatives,
expanding the sound recording, book publishing, interactive
digital media credits. So there are still a certain number of
measures to be included in a proposed possible fall bill.
Mr Young:
I noted with interest that the government was intending to
commence and perhaps has already commenced a consultation process
with respect to the point-of-sale exemption for farm building
materials. My question to those here to present and respond today
is, what is the government consulting about, why is this
consultation necessary, and do we have a time frame over which we
are anticipating that it will be concluded?
Mr
Sweeting: The consultation process is to recognize that
to move from a system of rebates filing after the fact of
purchase exemption certificates needs to be done in a manner that
can be accommodated by the retail sales tax collectors, the
businesses that provide the service to the government, and it
works for farmers and is communicated effectively. We anticipate
the consultation period will be quite short on this and that
there will be an opportunity to provide the prescribed date
shortly.
Mr Young:
There's another RST exemption-actually there are a few
others-referenced in the budget. Deposit insurance for premiums
in credit unions is yet another area that the government has
targeted for a further tax cut. In a word, why? Why is the
government exempting credit union deposit insurance premiums from
RST?
1150
Mr
Sweeting: I think credit unions play an important role
in the Ontario economy. There's certainly an interest and a
desire to see those expand and play a role in ensuring that we
are effective and flexible and meeting different interests for
credit unions. The deposit insurance is a barrier for a small
business. A relatively small end of the financial services market
is the credit union end of things. So it was felt that it would
provide a support stimulus to that sector.
Phil, I don't know if you
want to add to that.
Mr Howell:
The credit unions already play an important role in smaller and
local communities and have the potential to play an even greater
role in the those areas in ensuring that access to capital is
available to both individuals and businesses in those
communities. Most of the credit unions are relatively small
institutions. This supports the development and expansion of the
credit union movement.
Mr Young:
A couple of things arising out of that, and I want to be as clear
as I can in the question-I hope you can be crystal clear in the
answer as well-is this initiative going to in any way affect the
level of deposit insurance available for investors, for customers
of these credit unions? Is it in any way going to jeopardize the
amount of money that is available should things go awry?
Dr
Purchase: The answer is definitively no.
Mr Young:
The second question I have arising out of your response is, do
banks pay RST? Do they pay retail sales tax on their deposit
insurance premiums? I guess I have the same question about trust
companies.
Dr
Purchase: The answer is yes, they do pay that. This is a
differential move which benefits these particular financial
institutions. For the purposes that both Mr Sweeting and Mr
Howell have indicated, this budget follows on a number of
beneficial moves to the sector in last year's budget where we
removed the capital tax, for example, in the sector. Again, it is
in response to the concerns of the small business community in
particular, and increasing numbers of consumers who feel the
banks are leaving these smaller communities, to have viable
alternative financial institutions.
Mr Young:
If I may, Mr Chair, I don't know how we're doing for time.
The
Vice-Chair: Another minute.
Mr Young:
One last area of retail sales tax I wanted to question you about
deals with the rate reduction for repairs and replacements under
warranties. We're obviously talking about automobile warranties,
but I would ask you in your answer to also address whether or not
this would be equally applicable to snowmobiles or other motor
vehicles. My question to you is-let's start with that. Is it
going to apply to motor vehicles other than just automobiles or
is it limited to automobiles and trucks?
Mr
Sweeting: The repair and warranty proposal is for any
warranty. It could be a warranty on a toaster. The insurance
provision is limited to motor vehicles, which would include
trucks and that sort of thing that are, as is indicated, licensed
under certain conditions. But the warranty proposal is available
for wherever products are offered with a warranty for repairs and
replacement.
Mr Young:
You mentioned toasters, computers, televisions and so on and so
forth. Can I ask one very quick follow-up, Mr Chair, or is my
time gone?
The
Vice-Chair: Your time is really up, just in fairness to
the other parties. What has been suggested to me, and if there is
no objection, I understand Dr Purchase would like to make a few
summary comments, if that's in order, that probably would relate
to some of the questions that have been asked that he feels
haven't been covered. No objections? OK.
Dr
Purchase: On behalf of the staff, I hope that we've been
able to provide you with some of the information that you find
useful. Certainly we take our responsibility very seriously to
answer the questions as honestly and fairly as we can for all
members of the committee.
In conclusion, I might just
say in response to a number of issues that were raised about how
do we get the revenues to finance future programs, that's
something we're clearly concerned about, notwithstanding my
remarks about the reliability of five-year forecasting. That
comes from someone who has had many years' experience of
forecasting.
Certainly I think it is the
government's view that its tax initiatives will generate the kind
of economic performance that will sustain and enhance revenues to
support vital social programs. That's all I wished to say.
The Vice-Chair: Thank you very
much for your comments and thank you for coming this morning
along with your staff. It's certainly very much appreciated.
Just a reminder to
committee members that amendments are to be tabled by tomorrow
morning at 9 o'clock. The other area is that I see for this
afternoon, 3:30 till I gather 6, it says "Discussion." I'm open
to the kind of structure that discussion might take. You don't
need to respond now but you might think through how you would
like that handled when we reconvene at 3:30. The meeting is
adjourned.
The committee recessed
from 1156 to 1544.
The
Vice-Chair: We will call the finance committee back to
order. As we get started, what format would you like this to
take? The agenda says "Discussion." Do you have some thoughts on
how you would like to see it go?
Mr
Phillips: Yes, Mr Chair. As you probably know from the
discussion this morning and from the letter I sent-I assume all
committee members got a copy of the letter-we had hoped our focus
at this committee would be on the policy side of the issues. I'm
very disappointed we can't have that discussion.
I gather we're not going to
be able to do it on the bill. The committee is going to have to
find some other forum to discuss the policy issues around: Where
are we going on tax policy in the province? Have we now, as a
matter of policy, embarked on a policy direction that corporate
taxes are going to have to be very much contingent on our
neighbouring states?
I can understand that, if
that's going to be the policy direction. On the taxation of
persons, on personal income tax-I put the capital gains tax and
the $100,000 tax exemption on stock options in there-I think
we're going to have to talk about how we raise our money in the
province. We heard this morning of jurisdictions in the
Scandinavian countries and the Netherlands where they've reduced
corporate taxes, but they've chosen, I gather, to put their taxes
elsewhere because their tax burden is still higher than in
Canada. As I said, our hope had been that we might have the
minister here and we could discuss the issues I outlined in that
four-page letter. That's not possible.
The Liberal caucus has had
two briefings on the details of the bill. We understand the bill.
We understand it implements what the government said in the
budget. There's little to be gained, from our caucus's point of
view, in a prolonged discussion at this committee if we're not
going to have a discussion on the policy side. I'm inclined to
say that from our caucus's point of view, we should move swiftly
through the bill. I gather there are one or two amendments that
have to be made when we reach that section. They will have to be
read into the record. There are maybe one or two amendments.
Rather than getting angry with each other over the fact that we
can't have a policy discussion, we should perhaps just move
on.
The
Vice-Chair: I think your point is well taken. Maybe Mr
Young would like to make a response. I follow your argument and
your concerns.
Mr Young:
I'm quite pleased to respond, but perhaps we should hear from Mr
Christopherson before I respond.
Mr
Christopherson: It will save Mr Young having to respond
twice, because I'm sure his answers are similar, given that my
concerns are similar.
I agree with my colleague
Mr Phillips, and it's in the Hansard. I've expressed this from
the moment the parliamentary assistant led the Tory majority on
this committee to overturn the subcommittee's reasoned approach
on how to address the hearings here, and ultimately amendments.
It puts us in the shameful position, in my opinion, of being
expected to submit amendments by tomorrow, and we haven't even
finished the second half of the hearings, as phony as they may
be. Even the procedure is phony. There's not even an attempt to
pretend it isn't. Usually they try to flower things up. In this
case they haven't even done that. It's just so blatantly unfair
and undemocratic and shows absolutely no interest on the part of
the government to listen to anyone.
I agree with Mr Phillips.
In fact, I really didn't think there was much use and point in
having what we did today and scheduling the second day, given
that we weren't going to have anyone here except the staff. It
makes no sense. I mentioned earlier that I had comments and
debate I wanted to engage in with the presenters, but they're
staff people. It's not fair to do that. Their job is to come in
and represent their minister. I want to talk to the minister. I
want to talk about the issues. I want to talk about the politics
of the decisions that are being made, the philosophical choices
that were made and the philosophical choices that were
rejected.
I can engage in none of
those things, in fairness, with the staff, so I agree with Mr
Phillips that we ought to just bring this charade to an end and
move on to the amendments, which is a further charade. There's no
point. We don't even have time to put in intelligent amendments.
It's self-explanatory why we can't do that. So I agree. Let's
just get on with this farce and get it over with because nothing
we say or do is going to make one whit of difference at the end
of the day, not one.
1550
Mr Young:
I'm torn between spending a significant amount of time responding
to the basis on which my friends across the way have arrived at
their conclusion, or simply accepting that there is no desire to
spend a good deal of time at this committee by the opposition
parties. What I'll do by way of compromise is very briefly repeat
what I said when this committee met about two weeks ago to
formulate the procedure we were going to follow.
I should add, with the
greatest respect to Mr Phillips and Mr Christopherson, that's
essentially what they have just done now and what they did to one
degree or another this morning.
I want to point out that
prior to getting to the point we're at now, this committee spent
a very significant amount of time listening to submissions from
economists, individuals and organizations not only in the capital
city of Toronto but across the province, in areas of the
province, I might add, that are represented by members from all of the parties that
have the privilege of serving in this Legislature.
There was a rather
significant opportunity for members to question Minister Eves
when he attended at this committee at a very formative time when
the policies were being formulated, in my respectful submission
at a most important time. In addition, the ministry and the
minister, as well as the parliamentary assistant, spent a good
deal of time meeting with representatives from various
organizations, various individuals and accepted submissions from
hundreds of individuals and organizations. That's in addition to
the 10 days of hearings that I understand took place.
It is true that the members
opposite did not succeed in crafting or putting together this
committee at this juncture in the way they wanted to, but for the
record to be clear it has to be remembered that this has been a
rather lengthy, very open and very important process that has
been comprehensive in its scope. It is true that we are at the
end of the process in many respects.
There is an opportunity for
amendments to be submitted if it is the will of everyone here-or
at least the majority-that what we do at this juncture is put
whatever amendments we have on the table today and we're content
that that will be the end of it and we go through and we vote on
it. I'm quite content to do that. If what is being suggested is
that we adjourn this afternoon and follow the procedure
thereafter in terms of the submission of amendments and the
ultimate voting next week, I'm content to do that.
I'm a little unclear as to
what is being suggested. I appreciate what is being suggested
will expedite the process and I support them in that regard,
although I come at it from a different perspective as I've tried
to explain in the last few moments.
The
Vice-Chair: Trying for a bit of a compromise here, as
the Chair, I hear what's being said and this general philosophy
of, where does the tax come from to cover whatever? At this point
in time, it's not realistic that we're going to get that kind of
discussion going this month. I'm wondering if in the fall, prior
to listening to delegations, that might be a time to look in a
kind of thorough sense, over I'm not sure how many days of
discussion, to look philosophically before we listen to
delegations going into the next budget exercise. Is that
something that might be realistic, might be practical?
Mr Young:
I apologize, Mr Chair, my attention was averted during some of
your comments.
The
Vice-Chair: I was referring to the philosophical
direction of: Where do you cut tax? Where do you maintain tax to
obtain-is that something that could be done in the early
fall?
Mr Young:
Sure. We're open to having those sort of discussions, and if
there is a desire to do that, we're prepared to consider any
request in that regard. I say this with the greatest respect: My
view is that that has taken place. Frankly, that took place last
June. There was an election that dealt with different
philosophies and the discussion continues in the Legislature each
and every day during question period. It continued in this
committee during the 10 days of hearings. But I'm open to
suggestions. If there is a desire from others for that sort of
process, sure, we can consider that.
Mr
Phillips: I think that may be worthwhile in the fall. We
are now the most export-oriented jurisdiction in the industrial
world. I think that has profound implications. I say to Mr Young
I'm happy to spend whatever time is necessary at this committee
if there is a way to debate the questions I raised. I have been
through the Blueprint many times. You never promised a 40% cut in
corporate taxes, or a one-third cut in capital gains tax then.
You never even mentioned that. That was never, ever breathed.
Frankly, during our committee hearings, the subject of a 40% cut
in corporate taxes and a one-third cut in capital gains-I don't
even remember any of the presenters ever having that.
The pre-budget hearings are
important, but what's more important now is, here's what the
government has decided to do with it and now we can't really have
reasonable debate about it. I laid our caucus's in four pages,
things we think are worth discussing. It's clear we're not going
to get a chance to do it here. But this obviously won't be the
end of it, and I think it's worth the committee's revisiting it.
This is what the government says in this document: "We now are
the most export-oriented jurisdiction in the industrial world.
Exports are now equivalent to 55% of our gross domestic product.
Ten years ago, it was 29%." That's just what the government said.
You can see now it's beginning to, in my opinion, have a real,
profound impact on tax policy. For the first time I can recall,
by the way, there was no comparison of other provinces in the
budget; it was versus neighbouring states. That's just the
reality today.
The Liberal caucus is
prepared to spend whatever time is necessary if we can debate
what we think are the fundamental issues here-if we can.
Mr
Kwinter: I just want to respond to Mr Young and tell you
the concern I have. He gives the impression that this document,
this act, is a direct result of our pre-budget hearings, as if
this were the report of the committee of economic affairs, and
for finance, to the Legislature as a result of those hearings. We
made our report. There were two minority reports that went
through. This is the government's act. For us to sit and try to
change the policies-we can go through clause-by-clause, as we're
going to do, and if we think there's some wording that isn't
right or if we're going to present our amendments-the point is
that when you look at the first page of our briefing binder,
virtually every item on there, with the exception of a couple,
was never even discussed at the pre-budget hearings in any kind
of detail.
We're saying it's kind of
futile for us to be sitting here and to accept this as a fait
accompli and expect that we should be talking to it as if we're
going to have any impact on it. We're not. We didn't have, this
morning, a political presence so that we could discuss policy. I
think we put Bryne Purchase in a terrible position. The poor guy
was sitting here and was taking a lot of political flack when that's not his role. All
he was doing was saying was: "Here, this is the bill as it's been
drafted. If you want to ask us specific things about the
structure of the bill or about some of the assumptions that were
made, ask me."
But if you want to question
policy, as my colleague has said, if you want to question this
whole business which I feel very strongly about, where he equates
imports as comparable to exports other than by number, saying
that the difference is that there's only about a 16% dependence,
for anybody, particularly someone who's the Deputy Minister of
Finance, to suggest that X dollars of products that are developed
in Ontario, with all of the spinoffs and all of the jobs and all
of the economic benefits, equates to imports that come in with no
value added and say it's a wash, other than whatever the numbers
differ, makes no economic sense.
1600
Without being able to
debate it to find out what the assumptions are for what is going
to happen, it was kind of refreshing to hear-and I apologize; I
don't remember what his new riding is-Mr Kells talking about what
was happening with the Fung report and hear something that's 20
years off into the future with development. The Deputy Treasurer
is saying, "We don't even project five years," so how can you
endorse something that's got a 20-year extension without having a
clue as to whether or not you're ever going to be able to make
your commitments?
That's our frustration.
We're not saying we want to be obstructionist; this particular
bill is being presented to us and we're saying: "Fine, we will do
what we have to do politically to talk about it, do what we want.
We will fulfill our responsibilities when it comes to
clause-by-clause, and if we can make some suggestions-and we're
certainly putting forward some amendments." But to do anything
other than that is just an exercise in talking to each other.
Many of us have more important things we could be doing. It's a
simple as that.
The
Vice-Chair: Any other comments?
Mr Young:
Only a procedural point. It is my understanding that if we are
going to vote now, which I have no objection to doing, I
understand the clerk has to arrange for counsel to be here-is
that correct?-and that there will be a delay of 20 or 30 minutes
attached to that. It would be my suggestion, and it's only a
suggestion, that perhaps a better answer would be to come back on
June 8 for a brief period. But if it's the will of the committee
to adjourn for 30 minutes or so and have counsel come in and then
table the amendments, I'm content to do that as well.
The
Vice-Chair: I would suggest we adjourn and do it at 10
o'clock next Thursday morning.
Mr Young:
As I say, my inclination is to do just that.
The
Vice-Chair: It is listed for 9, but with your indulgence
I would appreciate if it was 10, because I don't think it'll take
that long.
Mr
Christopherson: I'm in House leaders until at least 10,
maybe later, so-
Mr Young:
We can do it later-
Mr
Christopherson: -I would prefer 10.
Mr Young:
We could do it at 10:30. It's not going to take long.
Mr
Christopherson: Yes, 10:30 gives me a much better chance
of being here.
The
Vice-Chair: If there's no further debate and discussion,
then-sorry. Mr Arnott.
Mr Arnott:
I'm fine with that. I just wanted to respond to an important
point that Mr Christopherson made this morning about the World
Trade Organization ruling on the auto pact. If I could just
briefly do that, Mr Chairman, I think it would be
appropriate.
The
Vice-Chair: Certainly.
Mr Arnott:
It's my understanding that yesterday at 9 o'clock the appellate
body of the WTO released their ruling on Canada's appeal of the
WTO dispute panel report on Canada's auto pact. The details of
the appellate body ruling were not available until late last
night, and unfortunately I have not seen the final result of that
report. But I do want to put on the record the government's
preliminary response to this issue.
The government is well
aware that almost 90% of Canada's auto industry resides in
Ontario. Over 140,000 people are directly employed in automotive
manufacturing, and almost that many again in the automotive
after-market industry. The government obviously takes this issue
very, very seriously.
As well, we know that this
matter is a federal jurisdiction. We urge the federal government
to implement the ruling in a fair manner which ensures the
long-term health of the automotive industry.
This week, the Minister of
Economic Development and Trade, the Honourable Al Palladini, is
in Japan attracting further investment. It's my understanding
that he will be attempting to speak with his federal counterpart
when he returns to the country.
Mr
Christopherson: If I might, briefly.
The
Vice-Chair: Mr Christopherson.
Mr
Christopherson: Thank you. I appreciate Mr Arnott's
attempt to bring us up to speed. But I would also say for the
record that you say the government takes it very seriously, and
yet we had a deputy minister in here this morning who could not
speak word one officially about anything your government had to
say. It would seem to me you haven't taken it very seriously at
all. You should have been quite ready for one of a number of
eventualities in terms of a ruling. I think the lack of action
speaks much louder than the short statement you've read here
today.
The
Vice-Chair: I think that pretty well wound up any
discussion this afternoon. So, hearing no objections, the
committee will reconvene at 10:30 on June 8 to address
clause-by-clause. Amendments are to be in tomorrow morning, June
2, by 9 o'clock to the clerk's office.
Any further discussion or
any comments for the committee? If not, I declare the committee
adjourned.
