STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
CONTENTS
Tuesday 18 January 1994
Underground economy
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
*Chair / Président: Johnson, Paul R. (Prince Edward-Lennox-South Hastings/
Prince Edward-Lennox-Hastings-Sud ND)
Vice-Chair / Vice-Président: Wiseman, Jim (Durham West/-Ouest ND)
*Caplan, Elinor (Oriole L)
*Carr, Gary (Oakville South/-Sud PC)
*Cousens, W. Donald (Markham PC)
Haslam, Karen (Perth ND)
*Jamison, Norm (Norfolk ND)
*Kwinter, Monte (Wilson Heights L)
*Lessard, Wayne (Windsor-Walkerville ND)
*Mathyssen, Irene (Middlesex ND)
*Phillips, Gerry (Scarborough-Agincourt L)
*Sutherland, Kimble (Oxford ND)
*In attendance / présents
Substitutions present/ Membres remplaçants présents:
Morrow, Mark (Wentworth East/-Est ND) for Mr Wiseman
Clerk pro tem / Greffière par intérim: Bryce, Donna
Staff / Personnel: Campbell, Elaine, research officer, Legislative Research Service
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
TUESDAY 18 JANUARY 1994
The committee met at 1409 in the St Clair/Thames/Erie Rooms, Macdonald Block, Toronto.
UNDERGROUND ECONOMY
The Chair (Mr Paul R. Johnson): The standing committee on finance and economic affairs will come to order. We are continuing today with the subject of the underground economy and reviewing the second draft report that's been presented, which at least the members of the committee had an opportunity to review, I believe, before this meeting today.
Mr Gary Carr (Oakville South): I want to thank Elaine for the work. I know we don't take enough time to say thanks and I know that to put that together in such a short period of time -- so before we went on I wanted to thank her for the amount of work that was done. She probably worked very late and probably early in the morning to get it done. I want to thank her for that and let her know that I think I speak for all the members of the committee when we say we really appreciate the fine work she did in such a short period of time.
Mrs Elinor Caplan (Oriole): Excellent, even though I might add that we're probably going to recommend all kinds of suggestions on it.
Mr Carr: You did such a good job we're going to make you do it again.
The Chair: Thank you very much, Mr Carr, for those remarks. I'm sure everyone on the committee agrees with what you had to say with regard to Ms Campbell.
We have "Draft Report on the Underground Economy" with the proposed changes and a list of corrective actions as they were directed to the research officer yesterday by the committee members. As I was saying, I believe the committee members have had a chance to review this second draft report. At this point in time, the Chair would like to hear any comments, and I'm sure the research officer would like to hear any comments. Maybe the research officer would rather hear no comments. Ms Campbell would like to make some comments.
Ms Elaine Campbell: The document that was distributed this morning is not an actual repetition of the draft report that was distributed late last week. It contains the changes to the first five sections of the draft that the committee came forward with yesterday as well as an expanded sixth section on corrective actions.
Mr Kimble Sutherland (Oxford): I notice there are still some questions that I believe the researcher would like the committee to respond to in the first few sections. I notice there are a few here in italics, so maybe we should deal with them first before we proceed to the recommendation stage.
The Chair: Indeed, that sounds like a good direction. I believe that would then take us to page 2 of this.
Mr Sutherland: There's one question on page 1.
The Chair: Yes, you're absolutely right. I just happened to realize that my particular copy has been stapled incorrectly, but that's okay. My page 2 would be your page 1, so yes, you're right.
Ms Campbell: On page 1 of the document distributed today, under the heading "Definitions," there is a question in italics. Before getting to that though, the committee had asked that the introduction to this particular section be reworded in such a way that it recognized that the committee was going to focus its attention on the issue of tax evasion as opposed to tax avoidance. The committee felt that the definition provided by the Ministry of Finance most closely reflected its feelings about the issue.
My question concerns the other definitions that are discussed in the draft report. Does the committee wish that they continue to be included in this section or would it be better to have them taken out? Actually, it's not entirely definitions. There is a bit of discussion about tax evasion versus tax avoidance and the issue of bartering.
Mr Sutherland: I have no problem with the references made by the other experts. I think it's good to show their commentaries if not everyone has the same definition. For whomever may read this report in the future, the more knowledge or information they have, the better.
Mrs Caplan: Are italics to distinguish someone else's definition or is that just the changes?
Ms Campbell: On what page? On page 1?
Mrs Caplan: In the new report you have some --
Ms Campbell: Oh yes, those are questions that I wanted the committee to deal with. I felt I needed further instruction.
The Chair: Any further comments with regard to the definitions? Are members in agreement with the direction that the research officer is taking us?
Mr Gerry Phillips (Scarborough-Agincourt): I think it's fine. I agree with Kimble that having the other ones in is useful just because, as I said yesterday, I found that it helped me to kind of focus on the underground economy and then the informal economy. They tend to blur at the edges to an extent, but I think it's useful to have it in there.
The Chair: Then it's agreed that the other paragraphs in the section of the draft will remain in the report, right? Okay. The questions posed by the research officer on page 2 with regard to tobacco: Ms Campbell.
Ms Campbell: I must apologize to the committee. I failed to include in the original draft any reference to the issue of copycat cigarettes. I think it was the Ontario Flue-Cured Tobacco Growers' Marketing Board that discussed that issue with us at great length. I just want to confirm that the committee would like some reference to that particular aspect of their presentation as well as the issue of offshore production included in this section of the report.
The Chair: It appears there's no disagreement.
Ms Campbell: I had a second question regarding the tobacco heading under "Key Economic Sectors." Brief mention was made of the Akwesasne First Nation territory in the presentation by the OPP. I hadn't gone into a lot of detail about the alleged involvement of that particular group in the production and sale of contraband goods. Would the committee like more said about that from the testimony of witnesses or should we keep it the way it is?
Mr Sutherland: I would think some general reference to the issue of the difference in taxation due to treaty rights of natives in a general way should be made reference to in that there is some evidence that because of that and because of the unique geography of the Akwesasne reserve, there are some -- I don't know what the best way describe it is -- routes that are going through there. Some general reference should be made to that.
The Chair: Any discussion? All members in agreement? On page 3 there are some questions posed.
Ms Campbell: Yes. Under the subheading "The Economy" under "Contributing Factors" on page 3 there had been a request made to take out the reference to tax evasion in the third paragraph. It was requested that the word "evasion" be replaced with the word "avoidance."
My question concerns the paragraph immediately before that. Now that the committee has clarified the definition that it would like to use for its examination of the underground economy, and because it has chosen to focus on illegal activities, I'm wondering about these two paragraphs, which discuss activities which may be considered by many to be legal activities and involved in the issue of tax avoidance as opposed to tax evasion, whether it's necessary to include them in the final report or whether they should be left there for the purposes of setting a context or putting the issue in context.
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Mr Sutherland: I'm just giving it some more thought. I guess this change comes about due to the concerns Mr Kwinter had raised yesterday, and maybe other members can correct me if I'm wrong.
Mrs Caplan: We will.
Mr Sutherland: No need to state that. That's obvious.
I was left with the impression from the presenters that there are two issues occurring as a result of the technological changes, and one is the tax avoidance, the ability in a legal means to transfer. But I also thought that at least one if not two of the presenters talked about how they thought technology was also leading to tax evasion. I can't remember specifically who the presenters were but I thought there was some reference to that by a couple of the presenters. If there were those references it would seem to me we would want to leave some discussion in about technological change being tax evasion and maybe clarify again in this section the difference between tax evasion through technological means and tax avoidance.
Ms Campbell: So you're suggesting keeping it the way it is but perhaps changing the wording of the introduction, reflecting the fact that the committee recognizes that some of these are quite legal activities as opposed to illegal.
Mr Sutherland: Yes, that some are tax avoidance, but again I can't remember the exact references. If we're able to find that and put in that technological change is also being used for tax evasion, then I think that would be important to note.
The Chair: Obviously everyone agreed with you.
Ms Campbell: I had a second question concerning this subsection. I divided the subsection on the economy into two other sections, "The Recession" and "Unemployment." I'm wondering if it might be wise to combine the two. They appear on page 16 of the original draft. I also wondered if the committee felt it necessary to fill the section on the recession out a bit with more in the way of numerical or statistical information or whether that question could be answered by merging the sections together.
Mrs Caplan: I think it's important to have the section on unemployment highlighted itself, and if there are some data that could be put in the form of a graph, that's often more understandable than just having numbers in text. If we could determine what the data would show as far as impact on the recession is concerned, you could even do an overlay of the recession and job loss.
Ms Campbell: I could see if there was something contained in any of the testimony of the witnesses.
Mrs Caplan: Yes, I think that might be a way of bringing the two together, but I'd leave the written text separate. That's my opinion.
I know the ministry, when it did its presentation, had quite a lot of data and some graph stuff as well and it might be possible for them to assist in putting something together. They probably have a lot of that available.
The Chair: Is that sufficient direction?
Mrs Caplan: Does anybody disagree with it?
Mr Phillips: I agree with Elinor. The other thing I found interesting in the presentations that I thought was part of the solution is that our systems we've built up are quite inflexible in terms of encouraging people to get back into the workforce. I don't know whether as part of the background we want to mention it here, but I thought that was interesting testimony from several witnesses, the fact that we've set a system up that in some respects forces people to go underground, or strongly encourages them, both the unemployment insurance system and the social assistance system.
That's another reason why I don't mind the unemployment one being separate. It's kind of the human face of the recession in some respects. I don't know how the rest of the members feel about a subissue on that, which is that the structure of assistance that's historically been provided seems to be driving more people underground.
Ms Campbell: Certainly, I do recall there being a certain number of people who made specific reference to that aspect.
Mr Phillips: In your indicated action I think there are several. I don't know whether anybody feels uncomfortable putting that in.
The Chair: Okay. That brings us to the tax system.
Ms Campbell: In the original draft there were three subheadings under the heading "Tax System": "Levels of Taxation," "The GST," and "Fairness and Compliance." After yesterday's discussions, I was left with the impression that there was an interest in perhaps breaking down the section on levels of taxation, keeping the section on the GST as it was but adding in comments on the provincial sales tax, since many witnesses had referred to the two taxes combined as being a contributing factor, and keeping the fairness and compliance subsection as it was.
My question concerns "Levels of Taxation," how the members want that changed or broken down, or is the opinion today to keep it as it is?
Mr Phillips: In the discussion we had yesterday on "Tax System," I think there was agreement by all of us that the introductory paragraph would be useful. That seemed to be an overwhelming perception of certainly the presenters, that the cumulative effect of all taxation is seen as a major source of it. I think you had three sections yesterday -- "Levels of Taxation," "The GST," and "Fairness and Compliance" -- and I was suggesting maybe there was a way to have four of them, but I don't feel strongly about that.
Ms Campbell: I was just unclear how you wanted the first one broken into two. At least I assume it was a case of breaking that into two.
Mr Phillips: Yes. I don't feel strongly about it. I'm not sure I want to push it. My feeling was that levels of taxation is a big issue. Then I found the tobacco and beverage alcohol one, and I may be splitting hairs here, but it was this enormous difference between the price that you could buy it for on the street versus the price --
Ms Campbell: I understand now. So we could break out the references to tobacco taxes and beverage alcohol taxes, as well as the federal excise tax on cigarettes, and have that as a separate grouping of points.
Mr Phillips: Again, I don't feel that strongly about it, but I found tobacco and alcohol somewhat unique in that obviously there is an enormous difference between what you can buy it for illegally and the street stuff, which is as a result of it coming to you illegally. It happens that the underlying reason for the big difference in price is taxes, but it was a slightly different issue than just taxation to me.
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That's why I thought of the four. Then I think there was this, we call it "The GST," but it's of a combined, very heavy, added-on tax that has seemed to have been the catalyst for a lot of this stuff, and then leaving in "Fairness and Compliance," which I believe is more than perception of government.
I think what I remember people saying is, "I, as an individual, think somebody else is ripping the system off and therefore I owe it to myself to get into the game." That's what I heard from people. I don't know whether it is people who are on expense accounts or people who are able to incorporate or whatever it is, there's just this perception.
Mr Sutherland: Should that come under "Levels of Taxation" or should that come under "Fairness and Compliance"?
Mr Phillips: If I can remember some of those witnesses -- it was unfairness. Is the system being fair to me? Most people I think feel it isn't, quite naturally.
The Chair: If I remember correctly, as well, when Mr Brandt was here making his presentation before the committee, he talked about beverage alcohol that was for sale on the street versus beverage alcohol that was sold through Liquor Control Board outlets. He said that not only were taxes an issue but the quality of the commodity. He said that the health and safety of the people of Ontario was certainly something we should be concerned about as well, because there was a poorer quality. I guess when you get into producing alcohol all kinds of things can happen that would make it maybe substandard by our government standards. That's another issue that is ancillary to the issue of the additional taxes.
Mr Phillips: My recollection, though, was that we had that in a different section, "Reasons for Concern." I think that was specifically raised in the earlier report and I just don't think you've repeated it here because it's assumed it's in the other report, so I think your point will be handled.
Mrs Caplan: The recollection I had was that this also related to the behaviour of people and that there was a difference in the relationship of the individual to smuggling, which was more in the tobacco and alcohol as opposed to the issue of avoidance of provincial sales tax and GST as it related to small business and merchants, particularly tradespeople, that sort of thing, where people were working for cash and buying for cash. So it was both the relationship of the fairness and compliance and the social acceptance of that behaviour today.
It was related not only to the fairness issue but also, "Everybody else is doing it, so why shouldn't I?" which was one step from where Mr Phillips said it was, not only somebody is getting a better deal out there or, "I don't think I'm getting value for money on my taxes," which were both attitudes that people were having that were affecting behaviour, but there was also the attitude which said, "If this is socially acceptable behaviour, and it seems to be because everybody is so open about it, why should I be doing it differently?"
It didn't have anything to do with the level of taxation. It was the attitude, the social values that we have seen a big change in in the last few years, perhaps as smuggling has increased and people have been doing that. I think there were also presentations which acknowledged that this cash economy has been around for a long time, but there was a sense that it had grown in the last few years because of the way people were feeling, and it was more than just unfairness. People are really angry. They don't think they're getting value for money from government, and when they see opportunities to not pay the tax, they feel good about that. I don't that's just fairness and compliance, I think it's a real concern about the willingness of the individual to participate.
Ms Campbell: On page 4 of the document that was distributed today, there is a heading, "Perceptions of Government." I wonder if your comments might be more relevant under that particular heading, and perhaps there could be a slight change in the title there. Mr Kwinter had suggested some changes to that yesterday as well which would perhaps broaden the issue beyond just government. Just leaving the title as "Perceptions" seems a bit odd, but perhaps there's something you could come up that would more accurately reflect people's feelings about government and about social acceptability in terms of these types of behaviour.
Mrs Caplan: Yes, I think that's it and that's probably a good place for it as well. It has to do with how people are feeling about themselves, about their relationship with government and whether they're feeling secure.
What I hear from people who quite openly say they pay cash whenever they can and have no compunction about buying black market cigarettes or alcohol is that they're worried they're not going to have a job tomorrow and they want to buy for the least cost possible. It's the concern about, "Am I going to have a job and am I going to survive over the next little while?" which is changing their behaviours and allowing them to feel okay about doing something they clearly know is not in their own best interest in the long run.
Part of that also is that those same people will talk about the waste in government and the fact that they're not getting value for money and services, that they don't feel they have to give the government any additional tax dollars because it's not spending it wisely anyway.
I think that fits very well there. It's something we have to hear. As much as we don't like hearing that message, we have to hear how people are feeling. If we can reflect that in the document in that place, maybe "Perceptions of Government-Society" or "Relationship between Government and Society" is as good a title as anything else.
Ms Campbell: Just to jump back a bit, I had a question under the subheading "The GST." In the original draft document, there are a couple of bullet points under the heading "The GST." Would the committee wish that those points continue to be points of discussion in the revamped section on the GST and the PST, that is, a little bit more in the way of descriptive information and some of the rationale behind the introduction of the GST and its timing?
Mr W. Donald Cousens (Markham): I think just a little bit more description behind it would be helpful. We understand it but others don't. I don't think you have to be too elaborate for the little bit we'll be doing.
The Chair: It would appear the committee members are in agreement with Mr Cousens. Ms Campbell, do you have anything further you wish to ask on that?
Ms Campbell: No, that section's fine.
The Chair: Okay, the "Corrective Actions" section.
Ms Campbell: The committee had been presented with some bullet point notes in the original draft distributed earlier. At yesterday's meeting, the committee requested more in the way of detail under this heading. The committee also requested that there be some detail provided on the initiatives the Ministry of Finance, the OPP and the LCBO have in place to counteract the effects of the underground economy. There's reference made to that under this heading in the document distributed today.
Because of time limitations I was not able to do a thorough review of all the suggestions that had been made by witnesses, to slot them into headings as appeared in yesterday's document. What I did instead was use the information that was contained in the summary of general recommendations that was distributed to the members just before Christmas. The points contained in that document have been entered under the subheadings that appeared in the draft report that was distributed late last week. This has been done to the greatest extent possible.
There were some new subheadings that will appear, "Overall Problem" and "Government Policies." These are two subheadings that appeared in the document that was distributed last December, and there have been some new recommendations included that were not available for inclusion in the December document.
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The Chair: This additional information included in this draft report certainly is a result of the direction the committee members gave you yesterday, and you've said that it's not as comprehensive as you might have made it. However, the committee members have had a chance to review that. Are there any comments with regard to this expanded section of the draft report, "Corrective Actions," I believe it is. As Ms Campbell said, there are now some new headings. Some of the specific comments from some of the presenters have been included in it.
Mr Sutherland: Mr Chairman, it seems to me that there are a couple of ways we could proceed. We could go through each recommendation and see whether there's a consensus to support that recommendation. If there isn't a consensus on that one, then it wouldn't go in as part of the formal committee recommendations. Then, at the end of that, each of the parties would be free to submit additional comments and reports, or we could just go from the view that we've got the recommendations and that each of us can submit our own reports on which ones we think should be adopted, what rationale and establish a date as to when we need to have that in for the report.
The Chair: Mr Sutherland, correct me if I'm wrong, but the corrective actions as they are stated here are the opinions of those people who made presentations before the committee. Whether we accept them or not, I think it's understood that they are just --
Mr Sutherland: Okay. I'm sorry, I'm a little confused then. You're saying just add these in at the end?
Ms Campbell: As the Chair has just stated, these are the recommendations that were made by the witnesses. The committee would probably like a separate section dealing with specific recommendations.
Mr Sutherland: Sure. Okay.
Ms Campbell: I have a question for the committee. Are they happy with this as it's presented now and would they like this section on corrective actions to be merely a summarization of the points that appear under each of these headings, or are there a few that you would like to focus in on and make specific reference to?
The Chair: I would think that each caucus would have an opinion that would be different from the other caucuses. Therefore, it may be necessary for the members of the respective caucuses to sit down and put an opinion on paper with regard to what they consider would be important steps for the government to take, or the Finance minister, if that's the direction they want to go. Otherwise, I see this as being quite a long, convoluted process other than just listing the corrective actions that have been suggested by those people who have made presentations.
Mr Phillips: This is not easy, and all that stuff. I had been more in Kimble's camp of thinking that this was sort of a rein for us to begin our discussion on possible recommendations and I think this is a useful -- in my opinion anyway, speaking as one -- almost a useful exhibit but not part of the body of the report, only because it's kind of an undisciplined process to just throw everything in. If the readers aren't careful, they'll never know that this was just listing it all.
I don't know whether it's worth taking a run at, seeing that if we can't do what Kimble suggested and sort of start on -- I've got mine all mixed up here too. My brain doesn't work fast enough but I think I started on page 4; yes.
Maybe to just skip through them fairly quickly, what I found as I looked through them was that on some of them I can say, "Yes, that's a good idea; it's not a big idea, but a good idea," on others, "Yes, that's a good idea and a big idea," on others, "There might be some merit in studying that but I don't know enough about whether it would work or it wouldn't work and I couldn't make a decision on it." and on others, I thought no and then I thought it's worth maybe just trying to go through it if we can because it also helps us to compartmentalize them and to see if the headings that we've got here -- the original headings were "Interjurisdictional Cooperation," "Enforcement," "Taxation," "Sector Specific," "Further Research" -- work or not.
I don't know whether the committee wants to try and take a run at working through these things quickly and just saying if there are some we can all agree on, because I think the report in theory is a far more powerful one if we can say, "Listen, we're all agreed on all of these and then we've got these other differences of opinion."
Mr Sutherland: Now that I've suggested that approach, I just want to come back to one problem. Was the researcher indicating that she would summarize these points into more like the rest of the body of it in terms of putting that forward and what we heard as "Corrective Actions" and then "Additional" or are we just suggesting that maybe as they're presented here they would be put forward as an appendix of the report then?
Ms Campbell: That was my understanding, but I'm getting the feeling now that we're going directly into "Recommendations" as opposed to having the section "Corrective Actions" as a buffer between "Recommendations" and the rest of the body of the paper.
Mr Phillips: I'm flexible either way but if the committee feels that keeping it in the body -- that's fine.
The Chair: If I understand correctly then, we should probably go through the list of corrective actions and contributing factors item by item and see if we can make sense of some of this.
Mr Sutherland: I guess at some point, if we're not going to ask research to summarize these into a written report, then all the recommendations should be put forward as an appendix to the report so that people could see all the recommendations that were made to us.
Mr Phillips: I don't mind it either way. I think it's useful having it in the report somewhere, all the proposals we had.
Mr Cousens: Let's go through it now. I think it makes sense if we try to identify those issues that we want to embellish and make as our recommendations.
Mr Sutherland: Okay.
The Chair: I would ask then of the research officer, where would you like to start? I ask you because you will be maybe making additions or contributing factors. I'm asking for your assistance.
Ms Campbell: I suppose at this point we are discussing "Corrective Actions" or perhaps should it be retitled "Recommendations."
The Chair: I see what's happening to me here. I've got my pages a little mixed up. I go from 4 to 3 and I should be going from 4 to 5. I've got it straight in my mind now, so we should be on page 5 and maybe dealing with the overall problem and some of the comments or recommendations made by --
Mr Phillips: We're actually on page 4, I believe, two thirds of the way down, I think.
The Chair: "Corrective Actions." Except that I think we've concluded with that, have we not?
Mr Sutherland: Yes. The top of page 5.
The Chair: Would the committee members like me to take the committee through these recommendations bullet point by bullet point and see whether we agree with what the presenters have suggested might be done to correct the problem?
Mr Phillips: Yes.
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Mr Cousens: I don't know of an easier way. To me, it shouldn't be hard. If there's a consensus, you'll get a show of hands, and just go with it.
The Chair: Shall I read these into the record then?
Mr Phillips: I don't know whether you need to or not. My own view on that first one was I didn't quite understand it, and for me it wasn't a big deal.
Mr Monte Kwinter (Wilson Heights): I would like an explanation of what is a crime on oneself.
The Chair: Do you want that from me, Mr Kwinter?
Mr Kwinter: Whoever wrote it.
Mr Cousens: It's rhetorical. Don't let him distract us.
Mr Kwinter: I'm serious. Where, when you do something to yourself, is it a crime?
The Chair: Maybe, and this is only my interpretation, if you cheat the tax system, in a sense you're cheating yourself.
Mr Cousens: Overeating would be one.
Mr Kwinter: Anyway, we've decided we're taking that out anyway. Is that correct?
The Chair: Yes. Bullet point 2.
Mr Phillips: I found this a very useful point, personally. I call it part of encouraging compliance. I think it's all part of social assistance reform, unemployment insurance reform, all sorts of stuff.
Mr Sutherland: I just hope that we could have it reworded maybe in a summary. But the essence of what it's saying is ensuring that both unemployment insurance and social assistance support people who want to work, whether that may be only at part-time jobs, those types of things. But the clear thing is that both of those systems aren't penalizing people who may want to work but can only work part-time. They say, I guess, that 100% tax on every dollar you earn is in some cases deducted from people on both those programs, that type of problem.
The Chair: Which is a real disincentive to work.
Mr Sutherland: Yes, but may also encourage people to use the underground.
The Chair: Any further comments on bullet point 2? Okay, bullet point 3.
Mr Phillips: I wrote the words "sort of agree" here, in that I think the tone of our report, in my opinion, has to be careful that we don't look like we think the whole solution is just to come down with hobnail boots on people. If we do that, I think we lose credibility. That's the first part.
There are, by the way, many recommendations here like this. I do think that part of the solution is going to be in letting people know there are penalties to be paid if you flout the thing. I think, secondly, trying to provide ways that people appreciate maybe better than they do that there's a price we all pay if a lot of people cheat. I wouldn't want to be married to the exact language here.
Mr Sutherland: Really what you're saying is some form of public education about the problem, the extent of the problem, how it impacts them and what the possible consequences are, under some type of recommendation to that effect?
Mr Phillips: Yes.
Mr Cousens: Agreed.
Mr Kwinter: When I read this, I got the feeling that if the thrust was going to be, "If you do this you're a criminal and here are the terrible things we're going to do to you," I don't think that's going to be terribly effective.
I think if we had a public relations program that educated people to things that they may not even think are sort of contrary to good economic public policy, things that they're doing where they pay cash and, "We're not doing anything," point out some of the issues that are there, what the harm is to the system, and then also talk about, with an implied threat, that we've got to do something about this and people are going to be penalized in some way for doing it -- I would agree with the thrust that we should not be coming down with the main thrust being, "You guys are criminals and here's what we're going to do to you."
It should be an educational process to make people aware of what the underground economy is and the things they're doing that they may not even think are, you may say, illegal, if that's the term you want to use, that what they're doing is illegal.
The Chair: That's a good point. There is a perception in some part of the broader public that what they're doing really isn't illegal.
Mrs Irene Mathyssen (Middlesex): It may be somewhere else, but I've been thinking in terms of the soft sell that Kimble was talking about in terms of public education, "This is what you're tax dollars buy," and you show what the tax dollars buy, the health care, the education, and, "When those tax dollars are not available, these services are going to be jeopardized," You could combine, "You may be breaking the law without even knowing it," with the benefits that people do indeed receive from the tax dollars they contribute.
The Chair: Bullet point 4.
Mr Kwinter: I think point 4 is incorporated in what we just talked about. It's the linkage of the two.
The Chair: Yes. As I read it now, I see that. I think you're right. It's certainly related.
Mr Sutherland: I guess I would say yes and no to that. I see what bullet point 3 is saying, that people need to understand that their tax dollars are spent for education etc. If I understand recommendation 4, it's basically saying that people are willing to pay a price if they can see the absolute direct benefit. For lack of a better example, I'll come back to the tire tax. The tire tax revenue was going to deal with the problem we have with used tires. That's the sense I get reading that. Maybe I'm wrong. Likewise, I'm willing to pay a higher price for post-secondary education as long as I'm receiving the direct benefit of that. That's what I interpreted that to mean.
Mr Kwinter: If you go back to bullet point 3, it says "emphasize the economic harm which results from underground activity." That's a general term, where these are very specific things. I have no problem with separating the two concepts, but I think they should be together, because that's what we're talking about.
Mr Sutherland: All right, that's fine.
Mr Kwinter: "If you're doing these things, these are the results of your actions."
The Chair: So we're going to strike number 4?
Mr Kwinter: Blend number 4 into number 3.
The Chair: Okay. Bullet point 5.
Mr Sutherland: I'm not really sure bullet point 5 is something you could incorporate into a formal recommendation. It's more a piece of advice rather than anything you could use as a specific recommendation.
The Chair: Any other comments on bullet point 5?
Mr Carr: I liked it.
The Chair: Then we have an agreement to leave that in. Again, as we go through these points, some of them are directive, some of them are suggestive and some of them are in the interests of maybe helping us understand better the problem.
Mr Sutherland: I guess again, if I go back to bullet point 5, what I would say is it's more of a comment. So if people thought it was an adequate comment, somewhere then this should be incorporated into the body of the report rather than put forward as a recommendation, noted as a comment by a certain group. If you want to put it in under perceptions of the problems of taxation, then it would seem that would be an adequate place to put this in as a comment. I'm just not sure how it works as a recommendation, though.
The Chair: Again, just recognizing that as we go through these, some direction has to be given to the research officer.
Mr Sutherland: If it can be incorporated into the body of the report then, under the perceptions, that would probably be a better place for it.
The Chair: Bullet point 6: I'm sure no one disagrees with that.
Mr Cousens: It's not going to be a big recommendation. It's part of the context. It's part of the spirit of establishing an environment for a good life and living well.
The Chair: Bullet point 7.
Mrs Mathyssen: Number 7 I think has a very good idea there. It just needs to be clarified. Perhaps the government should provide more information to the public so that we explain how expenditure reduction and the use of revenues raised through taxation is more positively utilized and indicate our goal of better utilization of funding through the public sector and with the public sector.
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Mr Sutherland: I think this recommendation ties into some of the work that actually the public accounts committee is doing. That's basically what it's saying: The need for a legislative accountability framework is really what it's calling for within the public sector. I think some recommendation to that effect is very clear. Also, then, not only having that in place, but ensuring that the public understands what that accountability framework is.
The Chair: Any further comments about point 7?
Mr Cousens: What did you decide to do with it? It just goes into the history or the context? It's not a point.
Mr Sutherland: Which one are you looking at?
Mr Cousens: The need.
Mr Sutherland: We were suggesting this ties into what's being recommended at public accounts, which is a legislative accountability framework being clearly established and the public being made aware of what that is.
Mr Cousens: Fine.
The Chair: Is that okay? We come to the "Enforcement/Compliance" section. Oh, I'm sorry. My pages are mixed up. I've got to go back from page 5 to page 6. I understand bullet point 7 much more clearly now. Okay, page 6, bullet point 8.
Mr Sutherland: I would suggest we put this down as one for further study. While it was recommended, I didn't think we received a lot of evidence to support that, so it's something someone should provide more study on.
Mr Kwinter: Mr Chairman, can I make a recommendation that as we move to each page we start our numbering over again? Otherwise, it's going to be very confusing. You're talking about bullet point 8 on page 6, where if you talk about bullet point 1 on page 6, you know where it is.
The Chair: I'm willing to do whatever any committee member would like, as long as we know what we're talking about.
Mr Kwinter: The point I'm making is that the bullet points aren't numbered, and if you've got to keep carrying numbers over, there's no way of finding them.
The Chair: Okay, henceforth we will start at the top of the page and call the first bullet point 1, and when we complete that page we will call it whatever number we're at and so on and so forth. So we'll call this page 6, bullet point 1. Of course you know, Mr Kwinter, that now I have to renumber all the bullet points on this page.
Ms Campbell: I have a question concerning this first recommendation on page 6. Is it the committee's thought that this be moved to a recommendation section discussing further study, further research?
Mr Sutherland: That's my sense anyway, that it have further analysis and further study, because while it was recommended, I didn't think we got a lot of evidence to support whether or not it would be effective.
Mr Carr: My feeling on that is that you're asking, in effect, for something similar to more regulations. I can't see us being interested in doing that.
Mr Cousens: Don't even ask for more study, because someone's going to wake up some day with nothing to do and start studying it.
Mr Sutherland: I would think some fine researchers and academics --
Mr Cousens: No, I'd rather see them doing what we want them to do. I'd say drop it and move to the next. My thinking is, let's get some good solid recommendations there that have some meat on them that we can hang our hat on. On some of the small points, just say background or context; they're not going to really change the world, but some of them can.
The Chair: Indeed, would not bullet point 1 be a recommendation that one might suggest to the banking community?
Mr Cousens: No.
The Chair: I'm not saying we do, but that's where it would belong.
Mr Cousens: Someone might.
The Chair: Yes. Not us, though.
Mr Cousens: I'd say no action.
Mr Sutherland: That's fine.
The Chair: So we've deleted bullet point 1 on page 6. Bullet point 2.
Mr Carr: That's a good one, obviously. You can't disagree with that.
Mrs Mathyssen: Does this refer to red tape? If it refers to the hoops small businesses have to go through to report retail sales tax and GST, couldn't we fill that out a little and specifically recommend that it be made easier for small businesses to report and deal with reporting of PST and GST, the handling of that?
The Chair: We could, Ms Mathyssen. I think the statement's quite inclusive. I think "compliance" means all aspects of dealing with business. This would be a suggestion for change, without a doubt, because it is quite complex.
Mr Kwinter: Can I present a dissenting opinion? You're not addressing the fact that compliance, particularly in the small business sector, needs to be kept as simple as possible. You're just saying that the way you comply with whatever is out there is as simple as possible. That may be a contradiction.
I suggest that maybe it should say that the regulation be as simple as possible. It's a given that we're asking everybody to comply and to say you're going to comply in a simpler way. It's the regulation of that particular tax regime or whatever it is that I think should be simpler, as opposed to the compliance.
Mr Sutherland: I believe farther on we do have a recommendation to that effect which talks about streamlining the regulations and simplifying the tax system. I believe those are the recommendations.
Mrs Mathyssen: Then it's just repetitive.
Mr Sutherland: So people are comfortable if we put it under that, simplifying the tax system and streamlining the regulations for small business, something to that effect?
The Chair: I suspect there will be a lot of repetition as we go through points that are made, because they're made by many people and there is certainly some repetitious overlap, I guess I could say. Bullet point 3.
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Mr Cousens: That's part of the simplification of the tax structure, as per.
Mr Phillips: I agree with Don. When that person explained all they went through, it struck me that it was almost an invitation to not comply. The small but neat point that was made in that presentation that I found interesting -- I'm not sure it's important enough to put in our report -- was the use of technology. Because toll roads are coming in, there will be some automatic chips embedded. I think one of the subpoints this person raised was, could you do the same thing, the automatic chip for a truck as it crosses the border sort of stuff? As I say, I'm not sure it's a big enough issue to put in our report, but it struck me that as a mild side issue there is a business opportunity here to develop technology to help some of these industries comply more quickly. It may not be important enough to put in our report, though.
The Chair: So this is repetitious and needs not be included, then. Is that right?
Mr Phillips: I think it was part of the one right above, simplification.
The Chair: Okay. Bullet point 4.
Mr Sutherland: I would tie this back in with the recommendation about the public relations-education component, under several subheadings; not only the impact, but maybe put this one as the subheading "Consumer Protection Issues" and highlight some of these, the health risks associated with purchasing illegal alcohol etc.
The Chair: Losing warranties, things like that.
Mr Sutherland: Yes. So it's a subheading under public education: "Consumer Protection Issues" or "Health and Safety Issues," whatever.
The Chair: Everybody agrees with that? Bullet point 5, an interesting bullet point indeed.
Mr Phillips: I'm reluctant to endorse it, because I happen to think, as a cynical opposition politician, that this is a way to indirectly raise a lot of taxes without ever saying it. This is the whole approach that's being taken in Ontario and probably in other jurisdictions, and I'm not sure we've really thought through whether or not this is a good recommendation. So it's one I'm reluctant to endorse.
Mr Cousens: Agreed.
Mr Sutherland: Agreed.
Mr Carr: If we were building a tax structure and starting over again, it might be acceptable to do this, but the problem for the public, in my perception, is not unlike Gerry's. When governments talk about increasing fees, they don't lower anything else; it's just another way of increasing taxes. They call it fees and user fees, but we never seem to get a corresponding reduction in other areas. If you were to start from scratch and build a tax structure, I would probably be in agreement, but with governments of all political stripes, any time you hear about user fees you'd better hold on to your wallet because the bottom line is that you're going to be paying more in total taxes. So while I can sympathize with the way it's done, I don't think I can support this.
The Chair: I think the message is clear there. Bullet point 6. It's the one bullet under "Interjurisdictional Cooperation."
Mr Cousens: There is great validity to this, but it goes beyond just tax enforcement. We're seeing that with the tobacco problem, whole banks and the tracing of moneys going across the border. There has to be interjurisdictional involvement, not only in Canada but -- I think this is open-ended enough that our researcher could expand it -- we need interprovincial plus intergovernmental. I think there's great need for that, expanded to include a number of issues, whether police forces can share, banking information can be shared. Then the criminals would have some limits, because they've got tools we don't begin to have. I say yes, but more.
The Chair: Any further comment on that bullet point? Seeing none, we move to the heading "Enforcement/Compliance" and bullet point 1. This is on page 7.
Mr Phillips: I think this is worthwhile, but it has to be carefully worded, in my opinion -- what I said earlier -- so we don't look naïve, that just by telling people to be good corporate citizens and pay their taxes, they'll do it. I think part of our recommendation is going to have to be around a sensible communication of the price we pay for this. The researcher is going to have to craft it carefully to avoid us being laughed at: that the committee suggests good corporate citizenship, that a public announcement by the Premier to be a good corporate citizen will solve the underground economy. Anyway, I've made my point. I think it's an important point to make, but carefully crafted.
Mr Sutherland: I think this comes under the public education stuff that we've already talked about and can be incorporated under that.
The Chair: Bullet point 2?
Mr Phillips: It's the same thing as 1 to me.
The Chair: Everyone agrees? Okay, bullet point 3?
Mr Phillips: One thing I thought we heard was that the business community faces many tax auditors and that there's a benefit we could provide, in addition to it being helpful in dealing with this, of simplifying the tax audit system and better cooperation between the levels of government on tax audits and what not.
Mr Sutherland: On that point, I don't think we could make that recommendation until we deal with the issue of harmonization of PST and GST. If I remember correctly, they said it's easier with the income tax because you only have one set of auditors because it's the one tax system and the feds pick it up on behalf of the province etc, but on the sales tax it's more complex because you've got provincial sales tax auditors and you've got federal. If we want to make that recommendation, I think we'll have to come back to that after we have some discussion about what should be recommended on PST-GST.
Mr Cousens: The government did have some interesting successes to talk about as it has added auditors in certain areas in recent years. It has in its own efforts found success by the special task forces it's now brought in. There is a sense here in which we can, I believe, recognize the efforts of the ministry already to address some of these concerns. They seem to have the freedom to expand it, and then we're getting support from the government in those areas. It's not a recommendation, but it is part of the context, that I felt the ministry really was being encouraged to do what it had to do.
The Chair: If the members don't mind me making a comment, I find something strange about this bullet. It says, "The return on such investment seems to be there" -- I think that's evident by some of the information we've received -- "providing the additional personnel do not become permanent once the problem seems to be resolved." That part of the statement -- I don't know. I think if you take away the audit opportunity, then the problem is going to grow, and as you increase that audit opportunity the problem seems to resolve. I think they would have to be in place permanently, wouldn't they?
Mr Cousens: You just don't know; you always keep looking at it.
The Chair: It's kind of like raising taxes, I suspect. You reach the point when you don't need to have any more auditors because there's not going to be a return for increasing the number of auditors, but we haven't reached that saturation point at this point in time. Anyway, it's just a comment.
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Mr Sutherland: I think the thrust of the recommendation is that there needs to be greater auditor surveillance. I'm not sure we have all the answers on how that's done, or whether we necessarily want to accept the rest of the recommendation, but certainly greater auditor surveillance was the sense I got that people support.
The Chair: So everybody would agree with that and delete the second sentence? Okay.
Bullet point 4: I'd just like to make a point. In the town where I come from, whenever someone has been audited and there has been a large tax defrauding of the government, he or she usually gets their picture and the story printed in the small biweekly paper. It's an opportunity for some sensational news in a small town. I don't know if that's the same thing that happens in a large urban centre like Toronto.
Mr Sutherland: I'm not sure what Mr Vaillancourt meant when he said penalties should be personalized. I would assume if they're fines and they're assessed against you, they are personalized. Was he meaning something else besides that? Does anyone recall that?
The Chair: I think this already happens, does it not? It becomes public knowledge if someone's defrauding the government. It's not kept a secret.
Mr Sutherland: If the local papers report on local court cases, then yes, it would. The thrust of what they're saying here is that there needs to be greater awareness of enforcement and the conviction of those who are evading the system.
Mr Carr: I don't know what he was getting at, whether he meant the government should take out ads and publicize the names of people. Maybe that is what he was getting at, but I certainly wouldn't agree with that, so take it out.
Mr Sutherland: I think what was recommended and what the ministry said it is doing is issuing press releases for significant convictions, as is done by the Ministry of Labour for occupational health and safety, and the Ministry of Environment and Energy for companies with environmental --
Mr Kwinter: Maybe instead of having the word "personalized," it should say "publicized."
Mr Sutherland: Yes, maybe that's it.
Mrs Caplan: I think that's what he meant, "publicized." It's just a misprint; not that Hansard would misprint.
Mr Kwinter: They already are personalized, because they're being assessed against a particular person.
The Chair: Okay, bullet point 5: increased penalties.
Mr Sutherland: I'm just wondering how we want to deal with this. The Ministry of Finance did talk about what is already in existence, and as we know, the Minister of Finance did make some announcement in the House before Christmas about increased penalties. I don't know whether folks want to say there should be additional penalties on top of those. It's a pretty general comment, and I'm just not sure.
Mr Kwinter: It seems to me that the penalties are set by statute -- they're not arbitrary on anybody's part -- and if there's to be a change in the schedule of fines, that would have to be an amendment to whatever statute governs this particular event. If the feeling is that whoever is assessing the penalty is not assessing the maximums or that the maximums are too low, I think that's something we have to look at, whether that's the recommendation we're going to make. But just to make the general comment -- I don't know what the problem is. I don't know whether the range of penalties is sufficient but there aren't enough of them being assessed at the highest level, or whether they should be increased. I don't know what the recommendation would mean unless we had that information.
Mr Sutherland: Actually, maybe that's better: review and assessment of penalties provided. What we really want to know is, are the penalties having their deterrent effect?
Mr Phillips: I'm a bit reluctant to embrace this recommendation, because I don't think we ever examined it. I had the feeling that the people from Finance who came to us said, "Listen, it isn't the size of the penalties that's the problem, it's just our enforcement of it." I don't think there was any evidence that the size of the penalties was a problem; it seemed to me the problem was elsewhere. My feeling would be, unless somebody actually wants to spend the time and go through the penalties and prove to the committee that they're out of whack, I don't think they are necessarily.
The Chair: Again, I have no doubt it will be decided in the courts, and based on precedent law, case law, decisions will be made by those with the authority to apply penalties.
Bullet point 6? That would suggest they're not, I guess.
Mr Sutherland: I just think it's a given and it's not something we need to put as a formal recommendation. If we've said there should be greater audit surveillance, that's basically the same thing.
Mrs Caplan: On this, Mr Chair, I'd like to just put on the record that while I think it's important to have the enforcement and compliance recommendations as part of the report, one of the things we also heard was that enforcement of compliance has been an issue for a long, long time and that generally, if people are determined to find ways around paying their tax and there is a complicitness, enforcement is not as effective as really trying to change a public attitude. One of the ways you get better compliance is where individuals feel it's in their best interests not only to comply themselves but to encourage others by reporting. Part of the concern I have is that because there's an attitudinal acceptance of the behaviour, with trying to enforce greater compliance I think we could see a lot of resources wasted.
I'm not sure that more policing and enforcement measures would be as effective as in some way trying to address the other issues. While I don't have any problem with seeing them included in the report, I don't think we should for a minute assume that these are going to solve the problem. I don't know if we want to put a disclaimer in there under enforcement and compliance, maybe a little mention that says we really have to look at the cost-effectiveness of that enforcement before we see government spending a whole lot of money to try and police.
The other thing I'd point out is that one of the things we've seen, and I don't mean to be partisan in this, is that as the NDP government has increased taxes, we've actually seen a decline in revenues. My concern is that I don't want to see increased dollars going into enforcement have a negative effect, where you actually get less compliance as a result of the increased enforcement. I want to make sure the taxpayers are getting value for money, so anything you're going to do should be tested first. I don't know if there is a way of reflecting that in the recommendations, but I think that would be a good thing to do.
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The Chair: I'm curious. You said that as taxes have been increased, there's been a reduction in revenue.
Mrs Caplan: Yes. Have you not noticed that?
The Chair: Absolutely, I have. But I would probably have a substantial debate with you about why that's happened. I think it wouldn't necessarily be just because taxes have been raised, but there are many other factors.
Mrs Caplan: The point I'm making is that the reality is that over the last couple of years, as your government has increased taxes, we've seen revenues fall in spite of the desire to increase revenue by increasing taxes. I don't want to see the same thing happen here, where you put more money into enforcement and actually encourage greater tax evasion and less compliance. I'm making that point.
Mr Sutherland: If I understand what you're really getting at here, it's that in our comments about auditing or whatever, you want another comment put in that takes into consideration some assessment of the effectiveness of that enforcement audit.
Mrs Caplan: One point that was made that I found was very interesting was how little research has been done in this area. I'm assuming we will have a recommendation here that suggests that there be the kind of research and audit and information data collected that has been absent. Certainly one area where I think we could get some good research and data is in the area of cost-effectiveness of enforcement and compliance. That would be something I'd suggest be added. You see, we make certain assumptions, that if we put more money into enforcement we are going to get the result of more compliance and less evasion and lessening the number of those who don't pay their fair share of taxes.
The Chair: I just have a very simple question to ask in this. Did the taxes increase because the revenues fell, or did the revenues fall because the taxes were increased? Is that not a good question?
Mrs Caplan: Yes, it is a good question, and I hope the people at the ministry are asking those questions and looking for the research. I have my perception -- and I think it is a perception, because there are no hard data -- but I do believe that as you increase taxes, you chase businesses and individuals out of this jurisdiction and therefore you get much greater job loss. Therefore, increasing taxes does not necessarily increase your revenues, as you have found out, for a whole lot of reasons. It could be both of the reasons that you have mentioned.
What the contributing factors are is a very important public policy question. That's why I'm suggesting for this committee that when we look at the underground economy, all the implications of which are even more difficult to understand, as we have heard in testimony before the committee, we recognize that the tried and true, simple enforcement model solutions may not yield the desired result.
So I would put a caution. Even though a lot of people have come forward and said better enforcement, and "Do this and do that," I think it would be prudent for this committee to say to the government, "Do the research and make sure your enforcement dollars are being used cost-effectively." That's all I'm saying.
The Chair: Okay, thank you. Bullet point 7.
Mr Kwinter: I'd just like your clarification on number 7. When we talk about "truly random pre-audits," is that a random pre-audit throughout the whole system or a random pre-audit in an identified sector that has a high potential of getting results?
The Chair: It may be that Mr Vaillancourt would be the only person who could answer that.
Mr Kwinter: The reason I ask is that I think it's an absolute waste of taxpayers' money to do a random pre-audit. You're liable to wind up auditing school teachers or other people who have absolutely no opportunity to do anything with their taxes other than pay them because they're deducted at source.
On the other hand, if there are areas of people who are self-employed or whatever, real estate salesmen, people who have an opportunity to circumvent the tax laws and to benefit from the underground economy, then I would say that if you want to do random audits in that sector, no problem. But just to have a random audit, where you're liable to have auditors literally wasting their time because they're going to go out there and get no benefit from their efforts -- and let's face it, the way this thing is supposed to work is that there's got to be a cost-benefit for the auditor. If he goes out, he's got to have a fairly good chance of coming back and making some money or justifying why he's there. That's the reason for my comment.
The Chair: I'd just like to make a comment, if I may. I did have a small business, an insulation and construction company, and we were audited by Revenue Canada. I don't know of any of my friends who have ever been audited, but I do know that once I was in business, it was only three years into the business that we were audited. I found that very interesting, and it was a random audit, they told me.
Mr Sutherland: What I'd like to have some focus on in this recommendation, and maybe tie it into earlier ones about increased audit surveillance and assessing effectiveness, is the second point about matched data files and the cross-referencing of different databases. I would hope we incorporate that as part of the recommendation, that this be explored as a way of looking at things.
I believe the Ministry of Finance presentation said that our effectiveness in auditing increases when we have people or corporations on the tax rolls. Sometimes it takes a while to get them on our tax rolls, but by cross-referencing the other databases, I believe we were told this could occur. I'd be interested in that portion of the recommendation.
Mr Cousens: That's what they're doing already; maybe not enough, but they're doing it. Excellent.
The Chair: That brings us to page 8, bullet point 1.
Mr Sutherland: We've dealt with both 1 and 2.
The Chair: Okay. "Taxation," bullet point 3.
Mr Cousens: Agreed.
Mr Sutherland: I don't agree on that point.
The Chair: Is that what we're going to say?
Mr Sutherland: There's disagreement on point 3, so we'll have to leave that one.
The Chair: Okay. Bullet point 4.
Mr Sutherland: I don't think we've got enough evidence to convince me one way or the other what the benefits are. Although I know Mr Cousens said he didn't want us to put unnecessary questions out there for further research, clearly this, to me, would be one that requires further research before getting a recommendation.
Mr Cousens: Let's ask for it then. That's a good question.
Mr Sutherland: Okay.
The Chair: Isn't this something that retailers can do now? Isn't this something that retailers do do now?
Mrs Mathyssen: I would agree. Woolco always advertised that it included GST in its prices, and all taxes are included in prices in Holland. I don't know.
Mr Sutherland: But I believe you're not supposed to be able to incorporate the GST into the price. That was one of the problems. I understand some companies did that at the very beginning, but I believe they've had to change that.
Mrs Mathyssen: Oh, okay.
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The Chair: Point 5?
Mr Phillips: I found that a bit of a subissue, sort of a throw-in on the underground economy, and I'm not sure we've spent enough time debating it. I think we run the risk of this being a smorgasbord of recommendations about which people will say, "You couldn't have had time to" --
Mr Sutherland: The municipal issue was dealt with by the Fair Tax Commission, so if people want to examine it maybe they should look at the recommendations of the Fair Tax Commission on those topics.
The Chair: So that would also include bullet point 6?
Mr Sutherland: Yes.
Mrs Mathyssen: Maybe we need to simply refer to the Fair Tax Commission and the continuing work there.
The Chair: Point 7? Point 8?
Mr Sutherland: They're very general. People may want to make some comments on them, but I don't think, in terms of getting to the heart, they give us enough substantial evidence to work with.
Mr Cousens: It's not the underground economy. That's not really the issue we're faced with. If we're looking at the underground economy, it doesn't have to do with tax loopholes. That's a different issue.
Mr Sutherland: Okay.
The Chair: We'll go then to taxation harmonization, bullet point 9.
Mr Carr: As you know, the Ontario government's going to have a decision to make on that. As I understand it, the whole GST is going to be looked at by a federal finance committee for a year. Our party's called for that in the past, but my feeling is that it'll probably be a year before the federal government gets involved with it. I favour supporting that and I think the Ontario government has to come up very quickly with a policy.
I don't see it happening, because I don't think you can get the provinces and the federal government to agree on how it should be done. But as we are going to have a year of discussing whether the GST should become a hidden tax, I think the Ontario government needs to have a clear position. I would encourage this committee to make a recommendation to the Minister of Finance on what should be done. How to simplify and harmonize is going to be a difficult task, but I certainly think that's something we could recommend to the minister.
Mr Sutherland: I'm going to suggest that we don't recommend that, given that Mr Carr has said the federal government is looking at it and it's going to take a year. They have made a public commitment to eliminate the goods and services tax. As a result of that, I wouldn't want to recommend harmonizing it at this stage.
We know, though, that the Minister of Finance has been given that advice by the Fair Tax Commission. It has recommended, under the question of fair taxation, that that be done, so the advice to give it some consideration is with the minister already. I'm just worried about making a recommendation to harmonize with something that may not be there in a year.
Mr Carr: I don't want a debate, but I don't think they said in the election that they were going to get rid of it. They're going to get the same amount of revenue. I think everybody knows that. My point is that the recommendation we have is that somehow the federal and provincial governments have to harmonize. If we don't call it the GST, maybe we could say that the Ontario retail sales tax and the federal whatever tax be harmonized. That way we could get around it.
Mr Sutherland: You're recommending that there should be harmonization of whatever provincial and federal sales tax may exist.
Mr Carr: Yes. What may exist, assuming that they somehow get rid of it. I think what will happen is it'll be just changed, harmonized, maybe hidden, and then everybody will think it has gone away. I still think we can recommend that, and I would say this: in spite of your point about it being a year that the government will be looking at it, I think this is one recommendation we could put in that might actually be worthwhile, one of the big points, because it is going to come up in discussion over a year. However you'd like to word it, I just think that people want governments, provincial and federal, to have some type of harmonized system, whatever you call it or however it works, and we should call for that.
Mr Sutherland: I'm not so sure I could support a recommendation about harmonization. Maybe we want to have some type of recommendation that's broader than just sales taxes but says that provincial and federal governments should work on who's responsible for what type of taxation so there's only one taxation system. Maybe there should only be one sales tax system, maybe there should only be one income tax system, that type of way, so it's easier. It may be worth considering.
Mr Carr: If it's a problem, I guess we'll leave it out.
Mr Sutherland: Okay, or people can make comment.
The Chair: On page 9, bullet points 1, 2, 3 and 4 all make comment with regard to harmonization in the GST.
Mr Cousens: Then let's turn the page.
The Chair: Thank you, Mr Cousens.
On page 10, under the heading "Taxation and Fairness," bullet point 1.
Mr Kwinter: The word "moderate" is of no relevance. They can be balanced and fair and not be moderate. To say they should be moderate -- that's a quantitative thing. What may be considered moderate to one person may not be moderate at all for someone else. I would suggest that word be taken out. If you're going to use that about fairness, it should be "balanced and fair, otherwise, all moral obligation to pay will be lost." As I say, when you say "moderate," that's a subjective opinion about what is moderate.
Mr Sutherland: I would think the first three recommendations on this page can all be incorporated into one recommendation about a sense of developing a consensus on a fairer tax system.
The Chair: Okay. Under "Taxation Deterrents to Evasion," bullet points 4, 5 and 6, starting with number 4, and I bring to your attention that the first bullet point on page 11 also is one of those that would be considered a deterrent to evasion.
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Mrs Mathyssen: I just want to raise a point about bullet point 4, that it is perhaps somewhat contradictory to our resolution to simplify things. It says the obvious way to reduce opportunities to evade tax is to increase the amount of information reported to tax authorities. I'm wondering if that doesn't bring us right back to red tape and complicated reporting that we said we were going to recommend be less complicated.
Mr Sutherland: I also think these three recommendations somewhat tie into what we were talking about under "Enforcement and Compliance" when we were exploring what types of auditing should go on. We talked about cross-referencing lists, and if we go to bullet point 6, there are three or four examples given of what could be done. If we had one recommendation about further study and exploring what additional types of information might need to be provided in a way that doesn't create a lot more paperwork or red tape, I think that would incorporate the three recommendations.
The Chair: Everybody's in agreement with that?
Mr Kwinter: I just thought of something. When you talk about bullet point 6, "Improvements in tax administration can always reduce the scope for tax evasion," there is no question that how oppressive a government wants to be really determines at what level you can enforce any kind of regime.
I have in my hand an interesting document. It's a little replica of a certificate, and it is issued in Mexico by the secretary of Hacienda y Credito Publico, which is public housing and credit. I have a company in Mexico, and this is a certificate I am issued with. If I go into a restaurant on company business and present this to the waiter, he then fills out a receipt that has exactly the same kind of certificate on it, puts the name of my company on it, puts the amount on it and gives me that receipt, and he files it as well. I don't know whether that's a deterrent or whether somebody actually does anything with it, but everybody who claims a meal as a business expense must do that.
You have to understand what the costs might be. It's also comparable to when you file a customs return when you come back to Canada. If you think that anybody really looks at that other than for statistical reasons, you're wrong. There's just no way they can do that. If you look at the forms and the numbers, they never go above 1,000. Every form has a number: it's 792, and then the next time you come through you get 643, and the next time you go through you get 491. As I say, they never go above 1,000, and there is no way they can really use that information other than just statistically, where someone can sit and compile the number of people who've come through that point and the value of what they're declaring. But to cross-reference it with anything else, they can only do that in the same way we do audits where there's a suspicion that something is wrong and they pull you out and do it.
My concern is that there is no end of controls you can put in, but very quickly there becomes a law of diminishing returns, because the enforcement and the resources required to do anything with that information become more expensive than what you're trying to resolve, and this is the point I was making about the random audits. In a free society, the whole basis of our income tax is on an honour system and a voluntary system, with sufficient penalties and random audits to try to keep people honest. If you ever tried to check up on everybody, the whole system would collapse on you. Everybody in the country would be checking up because it would take that many people to do it. That's the only caution I make about these recommendations that require more and more bureaucrats looking at things to try to improve the situation.
Mr Sutherland: I think that's why we are hoping that the three recommendations say more study on what type of information would give you a valuable return to make it worthwhile, not just for the sake of having it done to create more problems.
The Chair: Further comments on "Deterrents to Evasion"? Do you have enough information, Ms Campbell? On page 11 we deal with some sector-specific recommendations, and the first heading is "Construction." That would be bullet point 2.
Mr Sutherland: The one I'd be interested in pursuing -- and again I don't want to make it a formal recommendation but another one that I'd say needs more study -- is bullet point 4, "Compulsory Registration for Contractors and Workers." I believe that somewhere in the presentations it was indicated that they do this in other areas and it was successful in helping, and also I think from a consumer protection standpoint. Number 2 says yes, they want it, but I think number 4 may help you achieve number 2.
The Chair: Thank you. Further comment on recommendations for the construction industry?
Mr Phillips: On bullet point 2, I wasn't sure this was the solution to levelling the playing field. Sometimes you get into these things where a very complicated issue is thrown in as a side issue and we end up supporting it without realizing that we are supporting something that's quite complicated. I'm a bit reluctant to say that a solution to the underground economy is to ensure that publicly funded work is done by union contractors or through "reform of the current fair wage scheme" without knowing more about it; not that I may not be in favour if I knew more about it, but I for one would be reluctant to endorse that as a solution to the underground economy without knowing a lot more about it.
Mr Carr: To group all three under "Construction" together I couldn't agree with: putting more registration, regulation on any industry. I just couldn't. Rather than go through it specifically, all three of them, I couldn't agree.
The Chair: Okay. "Beverage Alcohol": We'll start with bullet point 5.
Mr Kwinter: Mr Chairman, can I get a clarification? I'm not familiar with the designation of an "enterprise crime." What is the significance of that?
The Chair: I'm not sure. Can the research officer help us with that?
Ms Campbell: I'm afraid I can't answer that either.
The Chair: Unfortunately, we don't have a copy of the Criminal Code with us to look that up, but maybe we could ask the research officer to get us a definition of that. Although we won't be able to use it today, we will know at our next meeting with regard to the underground economy. That's February 2.
Ms Campbell: Would you like a definition sooner?
Mr Kwinter: I'd just like to know how you get designated as such and what the implications are.
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The Chair: Then I guess it would be fair to say that without knowing what an enterprise crime is under the Criminal Code, it would be difficult to come to some conclusion with regard to the bullet point.
Interjection.
The Chair: We would have to take a break, would we not? If it's really important to you, we can take a five-minute recess.
Mr Sutherland: Maybe we can find out the information some time during our hearings in the next few days.
The Chair: Sure. We're going to be meeting, so if you can get us that information within the next couple of days, that would be good.
We'll go to bullet point 6.
Mr Sutherland: I believe that was dealt with under the other recommendations previously.
The Chair: Yes. Bullet point 7.
Mr Sutherland: Same thing.
The Chair: Yes, it's been dealt with before as well. Page 12, the first point on the page, the last point on beverage alcohol.
Mr Cousens: That's a given; never mind.
The Chair: Okay. Under bullet point 2 on page 12, taxation under beverage alcohol.
Mr Sutherland: That's fine. The question is establishing what is the rate. That's the real issue.
Mr Kwinter: The problem with that statement is, and it's the same one pertains to tobacco, is the role of the tax regime to control the use of these products through taxation, or is the role of the government to decide what is good for society and what isn't, to use taxation as a way of raising revenue but not as a method of control?
The idea that the government controls the use to minimize its damage to society by its tax levels, or whether it does it by education and by all kinds of other programs, is a very basic one. I think that's something that has to be determined. Is it the sole purpose of the ministry of revenue to control the use of these products by taxing them, or is its sole purpose to have a product that has been determined by the government to be legal and, as a result, tax it to raise revenue without necessarily being responsible for curbing its use? Because it's counterproductive. If you're saying to the tax collector to keep raising the tax to the point where nobody buys it, that's very easy. What is the role of the Minister of Finance, to get revenue from the product or to control it?
Mrs Caplan: Perhaps I could just make a point on this one, because I think what Mr Kwinter is saying is very valid. However, it's not just the role of the Minister of Finance, whose role it is to raise revenue to pay government's bills. From another life, I know that the government in general -- cabinet, Minister of Finance and others -- does discuss the kinds of policies that will have a positive influence in terms of the public good. And taxation policy is very much a public policy lever, whether it's a lever where you offer tax incentives so businesses will come and create wealth and participate in your society, or whether you tax a product such as tobacco. You'll recall we heard from the Addiction Research Foundation that there's a very definite correlation between taxation and prevalence.
I'd repeat what I said yesterday, that Ontario and Canada in general lead the world in lowering tobacco use, particularly cigarette use, in its jurisdiction. It is directly related to the level of taxation.
There are I think two public policy imperatives. Certainly, from the perspective of the Minister of Finance, those revenues are very important, but from the perspective of a Minister of Health or a Minister of Community and Social Services or a Minister of Economic Development and Trade, the taxation policies can have a very definite impact on the economic wellbeing and therefore the health of the province. So I think it's not necessarily just one or the other. I'm glad Mr Kwinter raised that point because it does give us a chance to remember that when we're looking at the underground economy, it also has different influences.
Mr Sutherland: I come back to my point again. I agree with the recommendation. I don't think it deals with the underground economy, because they haven't told us where they think that level is and they haven't told us whether higher taxation to discourage drinking is better than maybe some of the damage caused by the underground activity associated with high alcohol prices, so I just don't see how their recommendation helps us in dealing with the underground economy specifically. The others would be an ongoing debate for another day.
Mrs Caplan: I remember very well because I had some discussion with the Addiction Research Foundation people who were here on exactly that subject. It was their view, and I must admit I very much agreed with them, that particularly for tobacco, and to a lesser degree alcohol, there's a real concern about people moving into the underground economy and the purchase of smuggled products. While their general support has always been to look at the taxation lever for those products so that you can lower use, they did say that they felt taxes should not be increased because it tends to lead to greater smuggling. However, if I recall, clearly they were not in support of tax reduction at this time. That was the Addiction Research Foundation.
Mr Sutherland: Yes, they wanted to maintain.
Mrs Caplan: They wanted maintenance, but they did very strongly say that we should be very concerned about the behavioural change from the purchase of legal products at the price including the taxes, the shift, to the purchase of the smuggled product. So I have some concern about this recommendation because the advice from the experts was that we should be very careful in this particular area, that the public policy imperatives were in conflict, so to speak.
The Chair: We're going to delete it. Is that right?
Mr Sutherland: That's my suggestion. It doesn't give any specific recommendations on where to go.
The Chair: Okay, point 3.
Mr Sutherland: Support.
The Chair: Agreement? Okay, point 4.
Mr Wayne Lessard (Windsor-Walkerville): Yesterday, I mentioned the point about the submission that was made by the distillers' council about the fairness of taxation levels and the relationship between beer and wine and distilled spirits. This was one attempt by the distillers to have some fairness with respect to the taxation levels between those two.
I think it relates somewhat to bullet point 3, where it's indicated there should be no tax increase on beverage alcohol products. But I think the point the distillers' association is trying to make is that if there are any increases, they should be towards fairness between the three different types of products. I don't know if we want to maintain the recommendation that they've made specifically, but I think there should be some discussion in the report about their general argument about the fairness in the taxation levels between beer and wine and distilled spirits. I think that point was made in the notes that we received today as well.
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The Chair: Ms Campbell. You were just going to say that.
Ms Campbell: I was just going to say exactly that.
The Chair: Okay. What is the committee's recommendation with regard to point 4?
Mr Cousens: I personally don't think it's for us to start telling other jurisdictions what they should do with their taxes. If they do it, fine, but I don't think it's something that a committee of the Legislature or the Premier, when someone's our industry and trade rep and is talking -- I don't think it's the kind of thing where you come along and start telling them what to do.
The Chair: So then we'll delete that? Under the topic of "Tobacco," point 5.
Mr Sutherland: With all these recommendations about the Tobacco Control Act, while good recommendations, I'm not quite sure what their direct relevance is to the underground economy. I would suggest that we take them as free advice, but I'm not sure that specifically those ones, those three recommendations on the bottom of page 12 and the top of page 13, are appropriate for the report.
The Chair: Is everyone in agreement with that? Okay. On page 13, under the heading of "Taxation," on point 2. A lot of these points, just to maybe speed things up somewhat, are not long in text. I see that many of them are very similar in what their direction is. Maybe we could deal with at least those six points on page 13 to start with; well, at least the first four points, points 2, 3, 4 and 5. Is that a recommendation we should send on?
Mr Cousens: I'm not in favour of those four really.
Mrs Caplan: Which four? On page 13?
The Chair: Page 13, under "Taxation," the first four.
Mrs Caplan: While I'm hearing some comments about lack of accord, I think it's important to include those in the report because we know that one of the problems Ontario is having is with the border with the United States. We also know that this advice comes from the Addiction Research Foundation and others.
We're talking here about federal and provincial cooperation and whether the provincial government requests the federal government to speak to the US about this. These are the sorts of things, particularly in the environment that we have, good relations and good public policy. I don't think it's an unreasonable recommendation or suggestion that the provincial government talk to its neighbours in a friendly way, show them the advice of the experts like the ARF, the Addiction Research Foundation, show them the evidence of the differential in smoking prevalence and use of tobacco in the two jurisdictions, and perhaps there will be the support by policymakers so that it will not only help us out but help them out as well.
The suggestions are only to lobby and to discuss, and if we'd be more comfortable, maybe it should be to "discuss with the US counterparts" as opposed to "lobby," but it means the same thing. It's to engage in intergovernmental discussions, and I think that's positive and healthy and certainly appropriate. We have a whole Ministry of Intergovernmental Affairs.
Mr Cousens: I'm persuaded, Mr Chairman.
Mrs Caplan: I'll keep talking till you're persuaded.
Mr Sutherland: We had precedent, did we not, on the acid rain question, the clean air act, that type of thing?
Mrs Caplan: Yes.
Mr Cousens: I'm persuaded. Please, next point.
The Chair: Then that includes those first four points, and that I think concludes those first four points as well.
The next three points, 6, 7 and the first point on page 14, are all related as well. It has to do with the excise or export tax and the reimposition of that export tax. Is everyone in agreement with that?
Mr Sutherland: No.
Mr Mark Morrow (Wentworth East): Can you tell us why? We want to know.
The Chair: I'm sure all members have been watching the news or been seeing in the media recently that the province of Quebec is trying to lobby the federal government to reduce its taxes, and for the federal government to reduce its taxes as well. I don't know how successfully that's going.
What direction shall we give the research officer with regard to those three points, with regard to export tax? We have a disagreement, do we?
Mr Sutherland: Yes, we have at least one disagreement. If my colleague from Norfolk was here we'd probably have two.
The Chair: I see, a parochial decision.
Mr Sutherland: Sometimes one has to do that.
Mr Cousens: It's agreed, Mr Chair. For once you can ignore Kim.
Mr Sutherland: No. I would like to state that I thought we had a consensus at the beginning that if we agreed with it, then we'd put it in; if we didn't, then there would be --
Mr Cousens: Oh, you're serious in not wanting it in.
Mr Sutherland: Yes -- and then there would be opportunity for comment at the end.
Mrs Caplan: Not wanting what in? Discussion with the feds on the export tax? What's your concern about that?
Mr Sutherland: I have serious concerns about the export tax: (1) its effectiveness and (2) its impact in terms of what it may mean for many people in my community who are actual tobacco farmers, and what the potential impact was when it was instituted last time of cutting out the entire tobacco-growing industry in this province, particularly in my riding.
Mrs Caplan: Are you asking for a vote?
Mr Sutherland: No. What I'm saying is I disagree with supporting that recommendation. All I'm saying is I believed at the beginning that what we established was that we'd go through, and if there are recommendations we all agree upon, we put them in, and then if there are additional comments any of the three parties want to make afterwards, they can make them.
Mr Cousens: I'm just surprised that other members of your caucus haven't spoken up on that one and put you to sleep.
Mr Sutherland: It may be, if we're putting additional comments in --
Mr Cousens: It's time for them to beat you up.
Mr Lessard: I'll throw in my two bits' worth on this one. I've spoken to the Treasurer myself because I thought the export tax was effective as far as reducing the amount of tobacco smuggled back into the country and sold in the underground economy was concerned. It happens in Windsor all the time. There are plenty of cigarettes that go over to the States and end up coming back into Canada. I don't think people are going to stop smoking Canadian cigarettes because there's an export tax placed on most cigarettes once they've left the country. What we're trying to do is reduce the amount that come back into the country illegally and get sold in the underground economy.
The Chair: So you're in favour of the export tax being put back on?
Mr Lessard: Yes.
The Chair: Mrs Mathyssen, I'm sorry, I thought you were just talking to Kimble.
Mrs Mathyssen: I'm sorry, I didn't realize Mr Lessard was making a point. I actually had a question. It seems to me I had read that the Americans have already put a law in place banning Canadian tobacco from American production.
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Mr Sutherland: It's not a law banning. What they have done is limited the amount of foreign tobacco that can go into their cigarettes.
The Chair: If I could expedite a resolution to this impasse, maybe what we should do is have this included and you and any of your caucus colleagues who would be in dissent of this decision could include that. Would that not be the right thing to do? I think it is.
Mr Sutherland: I will have it noted that I am outvoted on this one.
The Chair: Okay, so we can continue. Bullet point 2 on page 14.
Mr Cousens: That's part of it.
The Chair: That's part of it.
Mr Sutherland: And that is what we've already done.
The Chair: Okay. I think number 3 and number 4 are similar. Are we in agreement with 3 and 4 then? With regard to point 5, I would then believe that no one would support that.
Mr Sutherland: I don't think we support that.
The Chair: I think that's not supported.
With regard to "Packaging and Markings" of tobacco products, point 6 on page 14 and the first two points on page 15.
Mr Cousens: I support the concept of more clear markings, prominent markings, and it's a little bit of a contradiction. At one point you say more clear and then you have "plain packs," but in some way or other there has to be a way of identifying that this is a pack that has had taxes paid on it. I think at the present time it's hard to see. That's the point behind that. But I don't want to be so specific as to say "plain packs." There's a certain marketing that goes into colours or into other things.
Mrs Caplan: That's the point that was made. There was recently a study that was done that showed that the colours and the packaging are what make the brands particularly attractive. As far as usage is concerned, if you eliminate the fancy packaging and you just have a big warning sign on them, they will be less attractive and therefore you will get less use.
I very much support this recommendation because I think, from a public policy point of view, we should do the very best we can to make sure that people know what that they're buying is hazardous and remove anything from the packaging which may be attractive to them.
Mr Phillips: I go back to the principle that I think we're involved in dealing with the underground economy. I think we should be careful of our committee not being used for several other things, because then I think people would say: "If I had known that's what the debate was about, I would have come to make a presentation. I thought the debate was around the underground economy." As worthy as some recommendations may be, for me at least, the furthest that I think we should go is to say that we should look at ways that it can be clear that the package that's available in Ontario has paid its Ontario taxes.
Mr Kwinter: I have no problem with the recommendation on the bottom of page 14, but I have a serious problem with the recommendation at the top of page 15. I understand exactly what is meant by "plain packs," but again we get to this same sort of conundrum that we have been dealing with since the history of tobacco and tobacco taxes.
If you're going to keep tobacco as a legal product and if you expect people to produce them and sell them and then you say you can't identify them, you really are providing expropriation without compensation. Then the government should get into the tobacco business and say, "There is no reason why a company should be in business and we are going to remove them from it and we're going to start producing our own cigarettes and we're going to sell them." To suggest that corporations that are privately owned and that are doing legal things by selling a product that is still considered a legal product -- but then saying, "You cannot market them, you cannot identify them so that they are distinguishable one from the other," I think raises some very basic commercial law problems and probably some charter challenges.
I understand where they're coming from. I see some very serious difficulties with trying to impose that.
Mr Cousens: I think that's the point I made originally. I just want to see some way in which we know the taxes are paid, and I think that though the point made by Ms Caplan has great validity for other purposes, it isn't in the area of our study at this time. I respect her point of view, but I don't think this report is the right forum.
Mr Norm Jamison (Norfolk): I basically have to mirror what Mr Kwinter said on the packaging and other things. I'm sorry I was out of the room for the export tax part of this.
The Chair: So was Mr Sutherland.
Mr Jamison: I know we heard a presentation about how the packs were marked as per how the taxes would be seen as being applied to those packages. There was some concern about how they're marked now as far as how they are otherwise is concerned.
As far as plain packaging is concerned, I have to agree with Mr Kwinter that the product is a legal product, and as long as it is that way, we're opening up to some major court challenges; not only that, but really, if you look at the whole perspective and where the manufacturing and so forth takes place and the integration of the manufacturing, regardless of what I just said, it still wouldn't work unless it was done federally. At the same time, it really, in my mind, would have minimal impact, if any, on people smoking or taking up the habit.
I don't believe it's a significant part, or significant enough to belong to this report in the first place. It's something that, as we hear here in committee, is probably rather debatable as to its effectiveness and its real impact on the underground economy.
Mr Sutherland: I just want to add two comments. As to the recommendations here, and I know many of the organizations have asked for Ontario to do that, my understanding is that packaging issues and so on come under federal responsibility, not provincial responsibility, so if there's a recommendation here regarding any type of packaging or whatever, I think it should be a recommendation to the federal government to implement any type of packaging recommendation, stamping for duty etc, because it actually has that responsibility and not the province of Ontario. If the committee feels it wants to do that, I would only encourage a change suggesting that the federal government should do those types of changes.
The Chair: With regard to packaging and markings, also included in this discussion should be the second point on page 15.
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Mr Sutherland: I heard two comments, both from Mr Phillips and Mr Cousens, that whatever the worthiness of the second recommendation, this report may not be the appropriate place for that recommendation.
The Chair: It appears everyone agrees with that.
Mrs Caplan: No, there is some dissent. I don't want to get into a major discussion on it. It does seem to me that if a product is less attractive generally, it will be less attractive in the underground economy as well and you will therefore see decline in its usage there. I'm not going to get into a big argument here at the committee if the committee feels strongly it doesn't want it included. I do think that it's an important public policy point and that it wouldn't hurt to have it included in this report because I think ultimately that's the sort of thing you're going to have to look at. I think it would have an impact on usage in the underground economy as well as it would within the regular market.
Certainly, Mr Kwinter makes points on the expropriation aspect of it and that kind of thing, but more and more we are seeing what the impact of advertising is and the cost to society generally. I think we're going to see some debate and discussion on those issues, so I'm prepared to wait until then to have a chance to have the debate further. Hopefully, the discussion will become part of the tobacco control legislation because I think that is the appropriate place for it. But I don't want to let this opportunity pass without expressing my own point of view, that at every opportunity we should be looking at anything that will discourage use, whether it is in the underground economy or in the market.
The Chair: To try and expedite a conclusion to this set of concerns, it would appear that the majority of the committee members are in agreement. If you have a dissenting opinion, you're certainly entitled to make that.
Mrs Caplan: Yes, that's fine. I said it.
The Chair: That brings us to the sale of tobacco, bullet points 3 and 4.
Mr Sutherland: Just before we move on, could I get clarification on the point I brought up, that I believe packaging issues are a federal responsibility and duty. While these groups both indicated for Ontario to do that, I would suggest, if the committee feels there should be a recommendation, it's more appropriate that it's a recommendation for the federal government and not the provincial government.
Mr Cousens: I don't disbelieve you, but there may be some ways in which someone could just check out what authority we have over certain forms of packaging within the province, because if there are ways in which we can determine that it's a tax-paid product, I think that's really the point at the bottom of page 14, that it's identified as such. Somewhere or other, that's all we're really trying to do, Kim.
Mr Sutherland: Okay.
The Chair: Do you have adequate direction, Ms Campbell?
Ms Campbell: Yes.
The Chair: We're on "Sale," then, bullet points 3 and 4.
Mr Phillips: Don't you need a licence right now to sell tobacco, or do you?
Mr Sutherland: No. You only need your vendor's licence.
Mrs Caplan: Any vendor's permit; it's not a controlled substance.
The Chair: I would say too that with regard to number 4, I believe some, if not all, of those suggestions in number 4 have already been made law. Is that right?
Mr Sutherland: Or in the process of.
Mrs Caplan: It's legitimate, I think, to keep it here; the legislation has been passed.
Mr Lessard: I think they're interesting suggestions as far as trying to control the consumption of tobacco is concerned, but I'm not sure that they're really very relevant to our discussions about addressing the problems of the underground economy. The second point, reducing the legitimate sales outlets, enabling increased enforcement of existing tobacco control laws, I'm not really sure is of much assistance either.
The Chair: That may even increase the underground activity.
Mr Lessard: It may, yes. If we reduce the number of outlets it may encourage more underground activities.
The Chair: So then there's disagreement for.
Mr Lessard: I don't see how relevant these are.
The Chair: As we go through this, I guess I should remind everyone that we really are dealing with the underground economy and what recommendations we might have to discourage that. I guess that's the word, discourage it. Some of these things bring up issues other than the underground economy, for example, as Mr Kwinter said, the issue of packaging. That really doesn't have much to do with the underground economy, and Mr Cousens has said some things relevant to that as well. So these things with regard to sale then really aren't relevant to the underground economy issue. Would that be correct?
Interjections: Agreed.
The Chair: Okay. "Enforcement," points 5 and 6.
Mr Sutherland: I believe point 5 has been dealt with under our general comments on enforcement and compliance, about how that should be approached.
Number 6: "Effective enforcement is required on native reserves." I would think that if we want to deal with this recommendation, we should deal with it from a different perspective. One, there's some question whether we have any jurisdiction to enforce anything on native reserves, given the Constitution and native affairs being a federal issue. Two, though, is that there may be some room for ongoing negotiations with native reserves about enforcement, compliance and collection issues. That may be a better approach to take with a recommendation on dealing with native reserves than this specific recommendation that's put forward here.
Mr Sutherland: Does that, if there's agreement to that, give some direction to research?
The Chair: Okay. "Penalties," last point on this page and first point on page 16.
Mr Sutherland: These recommendations have been dealt with before.
The Chair: Yes, I believe they have, actually. Relevant to the whole underground economy problem, these have been dealt with, I believe.
Mr Phillips: I can't remember the testimony that supports that the need for greater sentences was at the root of it. I always figure somebody may ask me for the evidence of this eventually. I had this feeling that there were sufficient laws on the books if ways could be found to enforce them, so I'm a bit reluctant to embrace that first recommendation.
Mr Kwinter: On the second recommendation, I really think there's a bit of editorialization by the presenter when it talks about, "There should be less acquiescence to the tobacco industry and faster action." That's a subjective interpretation of what is going on. It would seem to me that's an editorial comment by them which may or may not be true.
The Chair: Is it fair then to say that these have been dealt with and need --
Mr Cousens: I wouldn't want to deal with them.
Mr Sutherland: They're not relevant.
The Chair: That brings us to page 16, "Further Research," and bullet points 2, 3, 4 and 5.
Mr Phillips: At the risk of looking like we're supporting more study and research, the thing that has emerged on this issue is the lack of evidence of the size of the problem and what not. For something that seems to be as major as this, the fact that we don't seem to have a handle on it indicates that, without saying dramatic resources should be allocated to it, I think we can support a recommendation that says our studies indicate it is a large and growing problem, and the fact that we had such conflicting evidence from experts indicates there is not currently a good handle on the problem and we think it's worthy of governments putting some resources behind understanding the problem better so that we're better able to deal with it in the future. I think we just have to be careful we don't say to put in huge resources and massive studies, but it's clear that there's more ongoing evidence needed.
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Mrs Mathyssen: What if you simplified it by simply saying, "The committee encourages the federal and provincial governments to share their statistical information," or, "Better sharing of statistical information"? Make it a positive rather than a negative.
Mr Cousens: We want the sharing of statistics, but what I think Mr Phillips is pointing to is that there is a need for more information and more study and more understanding of the scope, nature and extent of this problem. We haven't really done more than just scratch the surface. We still don't know how big it is and I don't think even after a lot more research that we would.
We don't want this report to just die without further action, so one action will be continuing the review, study and analysis of the issues that have come out of it by the ministry. I don't think we're asking for another legislative committee to get into it beyond what we've done, but I think there's a continuing need to monitor this.
Gerry, we haven't discussed this at all, but it may be that there is some way in which some committee of the Legislature or the House has a way, a year or so from now, of revisiting this to see what actions have been taken, or maybe we just do it ourselves. I'd like to discuss that and see if there's any way, having put out the report -- as a committee, I think we've had a good consensus of action and we've listened and learned a great deal. We will be able to table some very worthwhile recommendations. I know I go away the richer having sat through those presentations. I'd somehow like to have a sense of seeing something happen to it so that it doesn't just gain dust in the library.
Mr Kwinter: Mr Chairman, I don't know what numbering you're using and whether it's bullet point 4 or bullet point 3 of further research, but it's one or the other. I would like to maybe amend that to say, "The committee should encourage the provincial Ministry of Finance and others to research areas like compliance and enforcement." What that does is it directs them to do it without implying that they should expand to do it. If they research it, that's open-ended. There's no defining it as to how little or how much research, just, "Research it." If they say they're doing it, the committee is obviously saying it's not being researched sufficiently, but if you put in, "Expand research," that immediately implies that you want them to increase the bureaucracy and expand their ability to do it.
Mr Cousens: I support that.
The Chair: Any comments on any of those bullet points under "Further Research," maybe in particular bullet point 5 or the last point under that heading?
Mr Sutherland: It says a specific way of doing it, but I think our sense is that we don't have enough evidence to suggest that one specific way of doing it is going to give us a better handle, so I think if we incorporate the other recommendations about further research into the extent of the problem and the areas like compliance and enforcement, that's fine.
The Chair: The heading "Government Policies," including the last point on page 16 and the five points on page 17, will conclude our examination of these recommendations that we have before us today.
Mr Sutherland: I would say that for the most part most of these recommendations have been incorporated. We talked about the legislative accountability framework process that the public accounts committee -- the review of programs. We may not have talked about a review to ensure effectiveness of government programs. That may be a point that we would want to put forward. But I think overall, as a general statement, things about regulation, streamlining, accountability have been talked about.
The Chair: The first sentence in bullet point 2 on page 17 is certainly one we would all support.
Mr Carr: I guess this is a good time to throw forward the suggestion I made, I think going way back to when we first discussed this, of what we can do in terms of making a clear statement. Where you put it, I don't know; probably under this section. But my feeling is that what I would like to see the committee do is come up with a clear statement, saying -- and like a lot of people, I'd like to see taxes reduced. But knowing I probably won't get that through, I'd like to throw it up to the government members to see if they would support something where this committee says as a major recommendation, and I don't know where it could fit in the document, that this committee recommend that one of the biggest things we can do is recommend to the Minister of Finance that in order to deal with the underground economy, this government will not introduce any taxes or fees for the remaining period of time that it's forming the government.
I saw Kimble sit forward, so I suspect that's going to go. Informally, I think you've heard the Premier say that he wasn't going to do that, although he also talks about fairness. As we wind down here, I'm glad to see we've got some of the members who have now woken up. I think I know the reaction, but if not, failing that, you should know that's what we will be calling for.
We may have to end up doing a very slight minority report if we can't get agreement, because I believe it's fundamental this committee should recommend it. I'd like to see if the government would do that, as Kimble champs at the bit to get your attention, Mr Chairman.
The Chair: At this point in time, I would also like to add that certainly with regard to government policies, I would think each group of caucus members here from the respective caucuses will probably have something different to say about government policy. It's very clear that's how the system works.
Mr Sutherland: I just want to say that I don't think we'll support Mr Carr's recommendation. There are several reasons for that.
Mr Lessard: He looks hurt.
Mr Sutherland: The world is not as simple as the Progressive Conservative Party likes to think it is.
Mr Carr: The member is simple, not the party.
Mr Sutherland: No, but I think if you take that into account, that says then that you can't do anything on issues such as environmental taxes, even some fees that went up this past year for specific licences. They went from $5 to $10. I have a lot of business people tell me those types of things should be directly related to the cost. Your recommendation would go against what certainly a lot of business people have even told me. I don't think we want to have a consensus from the committee that we believe a simplistic recommendation of just no increases, period, anywhere, is going to be the solution to the problem.
Mr Carr: We'll try again when it comes to our report on the pre-budget.
Mr Sutherland: Very well. Fair enough.
Mr Carr: We'll introduce the same one. Be ready for it, Kimble. You might change your mind between now and then.
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The Chair: With regard to the six bullet points on government policy, were there any specifics that the committee could agree on that it would like to send forward within the report?
Mr Sutherland: As I said, I thought most of the points had been put forward. I'm just not sure about points 3 and 4, evaluating effectiveness of government programs. I think indirectly we made some reference back there about tying that together, but we may want to make a stronger reference about ongoing efforts of the government to do that.
Mr Kwinter: It seemed to me that as we went through the recommendations, every once in a while we'd say, "Yes, well, that's covered somewhere else, so we don't have to worry about it." My only concern is that when I look at all of these under the particular heading, "Government Policies," and I think we touched on all of them, I just want to make sure that the intent is captured and that they don't get lost in the cracks where we've said, "Oh, it's covered somewhere else," and when we get to the point where it is covered, we say, "Oh, well, we covered it before," when we didn't. As long as the intent of these recommendations is covered, I have no problem, but I don't see any reason to repeat them or duplicate them.
Mr Sutherland: That's fair enough.
The Chair: Are there any further comments with regard to these? Seeing none, I would like to allow Ms Campbell to make a statement with regard to where we're at with this report.
Ms Campbell: Before I respond to that, there were three instances in the course of the discussion this afternoon when members said that the points under discussion would be put aside for further study or further research. Is it my understanding that those items should be included as recommendations, or were those just comments that were being made? The specific instances were the use of debit cards and increasing the number of transactions made through banking records, the need for greater audit surveillance and the posting of consumer prices that would incorporate taxes.
Mr Phillips: I thought that on the debit cards we sort of said that we aren't supportive of that.
Mr Sutherland: Yes, that's right; on the other two, I think we said further.
Ms Campbell: Those would go on the recommendations under further research needed?
Mr Sutherland: The last two; not the debit cards.
Ms Campbell: The committee will be meeting on the morning of February 2 to go over the next instalment of the report. I will have that ready for your reading no later than the beginning of that week, Monday the 31st.
Mr Phillips: Will we automatically get it or do we have to show up somewhere?
The Chair: It will be sent to the members from the clerk's office.
Mr Sutherland: On that point, do we need to deal with the issue of when any other comments from each of the caucuses should be submitted, or do we think we can leave that till February 2, when we get through the next draft copy?
The Chair: Because they probably, in fact I'm certain they won't be debated by the other caucuses, whether these are acceptable or not, so I believe it would only be necessary to have them put forward at that time. Would that not seem reasonable?
Mr Sutherland: So if anybody wants to put an additional report together to be attached to the report, it is due on that day?
The Chair: It would be a dissenting opinion and submitted the last day. That's right.
Mr Sutherland: Okay, great.
Mr Phillips: The only thing I'd say on that is that normally we allow ourselves a little leeway, just because in theory you'd say, "Maybe I can still persuade them," and blah, blah, blah. I'm not sure that each of our caucuses should feel they have to have it in that day if there is going to be a dissenting view, because in theory it is possible we'll come on the 2nd, only to find that the dissenting view emerges there. I would hope that on the 2nd we can come close to wrapping up the committee's report and that then we'd say that if any of us has a dissenting opinion on a portion of it, it needs to be there in the hands of the clerk by a certain date.
Mr Sutherland: I guess our goal should be that we'd like to report back for the first day the House is back, I would expect. Given that and given that most of the reports require translation, what type of deadline would we probably be looking at?
Clerk Pro Tem (Ms Donna Bryce): It's my understanding that on February 2 in the morning the full committee will meet to review the underground report and that at that point there may be a decision to authorize the subcommittee to finalize that report, I think it was agreed yesterday, on February 17. So I would say February 17 would be the appropriate time.
Mr Sutherland: Okay, great.
The Chair: This committee stands adjourned until 10 am tomorrow.
The committee adjourned at 1656.