Proceedings of the Standing Senate Committee on
Banking, Trade and
Commerce
Issue 20 - Evidence - March 4 meeting
SAINT JOHN (New Brunswick), Tuesday, March 4, 1997
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-70, to amend the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the Income Tax Act, the Debt Servicing and Reduction Account Act and related Acts, met this day at 9:05 a.m. to give consideration to the bill.
Senator Michael Kirby (Chairman) in the Chair.
[English]
The Chairman: Our first witness this morning is Anne Bertrand, from the New Brunswick Economic Council.
[Translation]
Ms Anne Bertrand, President of the New Brunswick Economic Council: Good morning everyone. My name is Anne Bertrand. I am President of the New Brunswick Economic Council. On my left is the Council's Assistant Director, Ms Johanne Losier. Just to give an idea of who we are, the New Brunswick Economic Council represents the province's francophone business people. We currently have approximately 1,000 members, most of whom are entrepreneurs, companies, small and medium-sized enterprises. In our view, an SME is a business with approximately ten employees or less, and these make up a large part of our membership. The New Brunswick Economic Council is pleased to be here today to express its support for the harmonized sales tax. Our members have told us about the advantages and disadvantages of it. Our presentation will provide you with a summary of our observations as well as some information on who we are. So I will start by talking about the advantages of the harmonized sales tax. First of all, it eliminates the duplication of effort involved in collecting the provincial and federal taxes. Our council feels that is a very critical point, since our members have often told us about the huge burden they have right now that would be lifted with the new tax; in other words, they would no longer have to prepare two texts, two sets of documents, and do all the paperwork for the federal tax and the provincial tax. Under the new system, the administrative work would be cut in half.
The second advantage is that the new tax (HST) simplifies the paperwork involved in tax remittance. Since we will just have to deal with the federal government, there will be just one system of records, one set of books to keep and one contact person or contact office instead of two.
The third advantage would be the lower costs involved in collecting and remitting taxes, for the same reasons as already mentioned.
Fourth, input tax credits would be increased. I do not know whether most of you are familiar with the tax credit system. It is a tremendous advantage for our entrepreneurs. In fact, governments predict that it will translate into improved economic development. That remains to be seen, but it is clear that the new tax credit system will definitely lessen the economic burden of our businesses.
Fifth, some industries will become more competitive, such as tourism, restaurants, et cetera. Their products will be taxed at a lower rate which will certainly increase competitiveness in those sectors.
And the last point, another advantage, is that consumers will be less confused about the price they have to pay. We realize all Canadians want to know exactly what the price is before getting to the check-out counter. You may recall that when the GST was introduced, there were two types of tax and a tax on the tax. Consumers, and we are all consumers, everyone around this table, prefer to know exactly how much the product costs before getting to the check-out counter. So we think the HST will be a huge advantage for the consumer and therefore a direct advantage for our entrepreneurs, for our members.
However, there are also disadvantages. Obviously, any change requires work. The HST will no doubt translate into higher prices for some services that are currently not subject to the provincial sales tax.
Let me give you an example. I am a lawyer. It is my livelihood. So, as a lawyer, the service I provide will no doubt be taxed at a higher rate than before. Since 1991, I have had to charge a 7-per-cent tax. Now, I will have to charge a 15 per cent tax on my services. So the HST will be a disadvantage for the service sector.
A second disadvantage of the HFT is that it will temporarily reduce the amount spent on advertising in this region. Based on what we have heard, national chain stores are having trouble changing their advertising, their catalogues, et cetera, for the Atlantic region because they have to give two different prices for their items. We think the disadvantage will be temporary, that it requires some adjustments, but it will not be a disadvantage in the long run. So, that gives you a quick overview of the Economic Council's position, and we are ready to answer your questions.
[English]
Senator Oliver: I heard with interest the comparison of the advantages and the disadvantages. The advantages column, as you have related it, is much longer than the disadvantages column. If you had been here yesterday and listened to what some of the people had to say at that time, it is probable that your disadvantages column would have been substantially longer.
Did you see the editorial in the local Saint John's paper this morning, talking about the disadvantages? Did you read that?
[Translation]
Ms Bertrand: Unfortunately, I was on the road very early this morning. Since I had to come from Fredericton, I did not have a chance to read the editorial.
[English]
Senator Oliver: What I would like to do is just ask you to comment on a few things, on which organizations such as APEC have already commented, saying what people in Atlantic Canada should be aware of. They say that:
...some of the largest gains from the HST will be felt in motor vehicle sales, entertainment, household durables and semi-durables. Energy and fuel costs will also very seriously hurt consumers...
You said nothing in your comments about the low income earner, or the person who is on a fixed income and is quite elderly, and the way that this tax will impact on them. APEC does comment on those people, and APEC says that there are three major problems that they see with this tax. Perhaps you could comment on the three. The first is the tax-in pricing issue; the second is tax evasion caused by the tax, and the third is financing problems created by the new tax. In other words, because people will have to pay more, wait for rebates and so on, they will need to raise more capital to fund their businesses. That is true of small business in Vancouver.
Would you comment on those three things that APEC says are very major concerns to businesses in Atlantic Canada?
[Translation]
Ms Bertrand: I must be careful when speaking on behalf of APEC. Our members have clearly told us they support the harmonized sales tax. To respond to your first criterion, that the sales tax be included in the price, if you have had the chance to check what the New Brunswick provincial government planned to do, you would see right away that it will mean a certain amount of work for entrepreneurs, those who have clothing stores, or who sell other products.
But we also realize the government did not expect us to do a complete overhaul of our stores, but rather do the following: the tax-included price must appear in a few places throughout the store. If you do not change the tax-included price on an item, you have to indicate it either on the container, the counter, the shelf or even put up a sign right near the group of items to be sold, so that the consumer is made aware of the tax-included price in the store. For the time being, retailers are not being asked to change the price sticker on every item. However, if they want to do so, they can.
I would now like to give you an example. When there is a discount sale, when you want to lower the prices, say, of winter clothes during a spring sale, the store owner has to change the sticker on every item. That is what we could ask retailers to do. For the time being, there is no obligation to do so, the owner can put up separate signs that show the tax-included price. However, if the store owner wants to put new stickers on, it is like having a sale, it is like the work involved in a sale.
In hardware stores, for instance, there are obviously far more items. It will be far less work to just indicate the price of the groups of items on a shelf, on the containers. You do not have to change the price on every item. That would be like doing the inventory, which must be done once a year. For now, on April 1, apparently that will not be the case.
If I could respond to your two other concerns, the Economic Council cannot speak on behalf of other groups. I am sure they will appear before this committee. We just want to speak on behalf of entrepreneurs. What will this mean to them? They are business people, people who provide goods and services. And those business people have told us they want a harmonized tax because it will lighten their administrative burden, and simplify the life of store owners because they will deal with just one government to remit the tax they collect.
Also, consumers, clients, will have tax-included pricing. So, let's say a client has $40 in his pockets; he has two $20 bills, $40, and he looks at an item like this one and the price indicated is $34.99. It will show that the HST is included. So the gentleman who has that item in his hand can immediately go to the check-out counter, take out his $40 and pay for it. He knows exactly what to expect. Our members have told us that their clients want that.
We hope it will really encourage consumers to spend. That is what we hope, that is what our members have told us. However, we do recognize that there will be some initial disadvantages in terms of the administrative work involved. I hope that answers your questions.
[English]
Senator Oliver: Would you mind saying something about people on low incomes and elderly people on fixed incomes, and the way in which they will be disadvantaged? As you know, the HST is the combination of the Federal GST tax and a provincial sales tax, which in every province is slightly different. Some provinces tax certain goods, and some do not tax others. Under this new harmonized GST, a lot of new things will be included, and that will impact negatively on those on fixed income. Can you comment on that?
[Translation]
Ms Bertrand: Yes, senator, as you know, the price of some products will go up because two taxes will be collected. However, the price of some products will drop, such as heating and electricity. Going to a restaurant, to McDonald's, will be cheaper. Yes, it will be cheaper to go to McDonald's, I know that. When it comes to certain items, clothing, for instance, of less than $100 will be taxed at a higher rate, but clothing of more than $100 will not be. It will be taxed at a lower rate. You cannot possibly look now at every possible impact this will have on low and middle-income earners. That is definitely impossible right now.
However, the government did say there would still be tax credits. I am not in a position to speak on behalf of the government on that point. On the whole, products will be taxed at a lower rate. Yes, services will be taxed at a higher rate, but the overall effect of these changes will be positive for consumers and for business people and that is our position.
Senator Losier-Cool: Thank you, Ms Bertrand and Johanne for coming to see us. The Economic Council represents organizations from all sorts of sectors. Are there any big organizations? Are your members small businesses or medium-size enterprises?
Ms Bertrand: Most of our members are small and medium-size enterprises, with approximately ten employees or less. However, we certainly do have larger employers with a few hundred employees.
Senator Losier-Cool: Earlier on, you gave us a clear explanation of the pricing by using the summary. Could you explain the fourth advantage you have here? The tax credit, the inputs. It came up yesterday as well. Could you give us some fairly simple examples, as if you were the teacher and I were the student?
Ms Bertrand: I will try to explain it to you, because I have the feeling it is a concept that is still difficult to grasp. When you run a business, a small business, let's say a farm, I will use myself as an example, someone like me who runs a store. I have to buy products. So, I pay the tax. I used to pay the provincial tax and the federal tax. But when I sold my products, I charged both the provincial and the federal tax on them. When I collected the tax from my clients, the consumer, I kept it for up to three months, depending on my system. Then I would have to remit that tax to the government. The government allowed me to have an input tax credit system, but only for the federal tax. So, if I had collected ten thousand dollars' worth of federal tax and had taxed twenty thousand dollars' worth, I took the $20,000, subtracted $10,000, and gave the remainder to the federal government: $10,000.
Now, with the harmonized sales tax coming in on April 1, not only will I be able to do that calculation for the federal tax, but I will be able to do it for both taxes. So, if I had to pay $50,000 in provincial and federal taxes, now that they are harmonized, if I sell products that are worth $70,000 in tax, I can subtract the entire $50,000 from the $70,000. I could not do so before. I didn't have that option. Under the new tax, a small business owner will remit a lower amount to the federal government because the numbers are very clear.
We have always collected two taxes, but we could not claim the tax credit on the provincial tax. Now, we will be able to. There will obviously be less money to remit to the government. And if you look at what the provincial government pointed out, this new tax means $170 million less in revenue for them. They will get less money from business people like us, because there is less to remit. Do you understand? They have given us an input tax credit system whereby we can now claim the entire credit. That is really the key, the key word, the full credit. Before, it was only the GST credit. Now, it is a full credit on the entire HST. I do not know if my explanation is clear, but to us, it is one of the greatest advantages.
This will make it easier and more economical for our entrepreneurs to run their business. And do not forget that we had some very difficult years and if we can continue keeping our operating costs down, then we might be encouraged to do more in our stores, to perhaps hire the person we could not last year because our cash flow position would be better. That is an important point.
Senator Losier-Cool: Another small point. Yesterday, we heard people talk about national catalogues. When you talk about advertising, I see that listed as a disadvantage. How do most of your businesses advertize? In newspapers, in flyers? Would a national catalogue be of interest to your members?
Ms Bertrand: I found that very strange. We listed it as a disadvantage, because we were told it would be one. However, if you think about it, the Atlantic region represents 8 per cent of the total Canadian market. I would hope that Sears Canada would not suddenly stop advertising its products in Atlantic Canada. it is impossible.
What we are asking the big giants is to simply change their catalogue by quoting a tax-included price for residents of New Brunswick, Nova Scotia and Newfoundland. If you take an example from the United States such as L.L. Bean, if you look at the catalogues they send to Canada, they already have two prices in the catalogue. There is the American price and the Canadian price. We are just asking our Canadian giants, our big businesses, to indicate two prices. There will be one price for the rest of Canada, and one tax-included price for us here in Atlantic Canada. That is what we are asking. I do not think it will be a huge burden. It will be a burden, but a temporary one.
Senator Simard: I would like to thank Ms Bertrand and her colleague for accepting my invitation to appear here today. I certainly supported this group of business people and am pleased with the way francophones in New Brunswick businesses have gotten themselves organized. Perhaps I should mention in passing that I was the first person to give you the start-up funds, in the first year of your existence. And I never regretted the steps taken by the government I was part of.
So it was a great pleasure for me to meet you and it still is. My arguments in favour of the GST were very good. Ms Bertrand has told us that since the GST, business enjoyed input tax credits.
Ms Bertrand: Yes.
Senator Simard: I would have liked to hear you say that. Maybe I heard this expressed in 1970, that the GST input tax credit would be an advantage. Besides, during the last seven years, it has been proven that Canadian exports had a favourable edge. However, I agree that people should organize and that business people should organize and examine things and find new methods. I think that your group and the business people, your members, have an interest in looking at what this tax might mean for consumers.
I reminded you before that we've heard several groups and it is going to be going on all week. We're going to see and hear consumers, the small ones, the average ones and even the middle-class ones. They are going to be severely penalized. And you seemed to say that the additional cost this tax will represent for business people to get organized, even if we're certainly talking about a new form of included tax, well, you seemed to say twice that this would be a "one time cost". Of course, I think this additional cost is going to be repeated in all the yearly and semi-annual catalogues.
Ms Bertrand: If there is a question in what you've just said, you are saying that the burden of changing the catalogue is going to occur every time one is put out?
Senator Simard: Yes, yes.
Ms Bertrand: But you certainly recognize that today in our technologically advanced world, with computers and such, once you've changed your software to put prices on articles, it will just repeat every time. You will not have to start everything all over every time.
Senator Simard: No, but the machine will have to stop for each operation. Because we were told and the statistics show that 4 per cent of purchases go to the Atlantic or the Atlantic region. So the machine will have to stop for each operation.
Ms Bertrand: But if I can put all this into a much smaller context, I will give you an example. If you have a cash register in your store, let us say I go to a store with greeting cards, paper and various other things. There is a cash register there. That cash register has to be changed. Its software will have to be changed so that now it will indicate a tax-included price and the receipt will have the sales price before the tax and after.
Senator Simard: I was talking about the wholesalers and manufacturers, madam.
Ms Bertrand: Fine, then I will use examples to get to the wholesale level. Once the technology has been changed, you will not have to redo it all the time. The software recognizes if there has been a price increase every time. Let us say a ballpoint pen cost $1 last week and that as of April 1, it ois going to be $1 plus 15 per cent, so make it $1.15. If, in a year's time, the price of the ballpoint pen goes up to $1.10, the software will automatically add on 15 per cent to the $1.10.
It is the same thing for catalogues. If you take a dishwasher for $200, say, the software will have to be changed to indicate the price including the sales tax. So you have $200 and $230 tax included. Let us say the price of the dishwasher goes up to $300 at some point; then all the software has to know is what constitutes square one. It is $300, so $345 tax included. So that will be done automatically.
Senator Simard: I understand your dishwasher example. However, I have two questions. I will combine them into one. No doubt you are authorized to speak for your group. If the government were to give a business in the Atlantic region the choice between the tax-included and the tax-added-on formula, would you be in favour of the latter? And if I could also ask you, if you know anything about it, you might remember that the McKenna government last fall announced they were getting ready to impose a new tax or an increase in taxes for companies. You did not mention that here?
Ms Bertrand: We personally had talks with the provincial government about this matter of a corporate tax. For the time being, the indications are that if it were to be imposed, it would be very close to what they have in Nova Scotia and that is 0.25 per cent on fixed assets. So we already have a committee set up to examine what it means. We recognize that the provincial government will have to make up its shortfall somewhere.
Senator Simard: Yes, that is true. You uphold your reputation with the English and French companies. And I think this new tax, as in the past, will be passed on to the consumers.
Ms Bertrand: This corporate tax will not be imposed on small and medium-size businesses. That is very important.
[English]
The Chairman: Our next witnesses are from the New Brunswick Medical Society. We have Dr. Tony Wade, who is President of the New Brunswick Medical Society; Dr. Doug Brien, who is Treasurer, and they are accompanied by David Balmain, who is Executive Director, and Janet Maston, who is Assistant Executive Director, all of the New Brunswick Medical Society.
Dr. Tony Wade, President, New Brunswick Medical Society: Good morning. Thank you for allowing us to appear before this committee.
The New Brunswick Medical Society is a professional association of physicians within the province. Membership is composed of family physicians as well as specialists.
[Translation]
Today, my colleague Dr. Doug Brien and I are here to present our concerns about this new form of taxation. Dr. Brien is the treasurer of our corporation. I would also like to introduce David Balmain, our Executive Director, and Janet Maston, our Assistant Director.
[English]
We are talking to you today as small business owners, because indeed that is what self-employed physicians are. We pay for our own office space and everything that goes with it, including heat, light, telephone, rent and staff; in other words, we must pay the bills and we must make a payroll date. Most doctors employ a minimum of one or two other people in their offices, which means approximately 2,500 across the province.
For physicians practising in New Brunswick, Nova Scotia and Newfoundland, harmonization means that an unfair situation with respect to our costs of doing business is about to become much worse. To explain what I mean by that, we will need to go back over some recent history.
When the GST was introduced in 1991, physicians' services were designated tax exempt. That means that we do not collect the GST in relation to our professional fees, and we cannot claim input tax credits with respect to the goods and services we purchase in the course of running our offices. Therefore, unlike other small business owners who can claim input tax credits, physicians must absorb the GST.
The fact that our situation is not consistent with the tax treatment of other small business owners is frustration enough, but our situation is not consistent with the tax treatment from other health centres. For example, prescription drugs are zero-rated. That means no GST is collected for the sales of prescription drugs. However, pharmaceutical companies can claim input tax credits. They get back the GST paid in relation to the cost of producing the drugs. In addition, hospitals have been able to claim an 83-per-cent rebate on GST paid on their input costs. Physicians have never been able to understand why government chose to treat these equally important health services in such very different ways for tax purposes.
A KPMG study conducted for the medical association shows just how inequitable the current situation is. The study estimates that the GST alone has cost some employed physicians in Canada an additional $1,000 to $1,500 per year to run medical practices. Physicians across the country are outraged by this inequity, and continue to fight for taxation fairness. You can just imagine how physicians who practise in the three soon-to-be-harmonized provinces feel. The harmonization of the GST with the PST in those three provinces will compound the difficulties for physicians in New Brunswick, Nova Scotia and Newfoundland. In fact, a second KPMG study shows that running a medical practice in New Brunswick will cost an additional $1,400 per year. This adds up to a total of $2,900 that we will have to pay, above and beyond what other small business owners pay. The situation is unjust, and must be addressed.
As we appear here before you, we want to make it clear that we are not asking for special consideration or treatment. We are simply asking for a level playing field with other small business owners, a situation which has been rendered impossible by the current and proposed taxation structures.
Dr. Doug Brien, Treasurer, New Brunswick Medical Society: We understand that a similar message was delivered to you by the Canadian Medical Association representatives last week in Ottawa, and we also understand that they provided you with copies of the KPMG studies. If that is not the case, we can certainly have copies provided to you.
The Chairman: Those documents were given to the committee just this morning. They came in from Ottawa.
Dr. Brien: We wanted to take this opportunity today to reinforce the message from the CMA, and as physicians who will be directly hit by harmonization, we felt the need to make our own case. We are also making the case for all those who will be indirectly hit by harmonization. We need to re-organize our offices in response to additional overhead costs. In my family practice in Saint John, I could see the $2,900 that might be used for patient services rather than for taxes. It might be used, for example, to pay for extra hours of work for my two part-time nurses. I would love to have them for longer hours during the day time, or perhaps for a summer student to help me with my charts, or to do some research in the office. In Dr. Wade's family practice in Bathurst, it may be for a computer technician to provide technical support services. Alternatively, having to cut back on services that make our offices run more efficiently is not a decision we look forward to making.
Another option that we will need to examine as a way to address the additional overhead costs is direct patient charges of some kind. We do not want to be forced to look at either of these options as a means of recovering the increased costs of running a medical practice. However, in today's tough economic climate, it is very difficult, if not impossible, to simply continue to absorb substantial increases in overhead costs. At some point, it just cannot be done.
A number of businesses have already served notice that they will cease operations in the provinces with the harmonized sales taxes because of the increased cost of doing business. We are simply concerned that harmonization will have a further negative impact on our ability to recruit new physicians in Atlantic Canada, because of the practice cost implications.
We are constantly reminded that the GST was supposed to be a flow-through tax paid by the ultimate consumer of a good or service. That was supposed to be one of the fundamental principles of the GST. In our view, physicians have been treated in a manner which is contrary to this fundamental principle. We would emphasize once again that we are not looking for special treatment. We are seeking fair and equitable treatment. We support the Canadian Medical Association's recommendation to revise the Excise Tax Act so that the health care services funded by the province will be zero-rated.
We have made our case to the provincial Finance Minister, the Honourable Edmond Blanchard, but we have been told that his hands are tied. This is a federal issue. We have also raised our concerns with the federal Minister of Finance, the Honourable Paul Martin, but to no avail. Needless to say, we certainly appreciate your interest in the GST harmonization, and in getting first-hand information on how it will affect the people of New Brunswick, Nova Scotia, and Newfoundland.
Dr. Wade: We are prepared to entertain any questions you may have dans les deux langues officials. If we are unable to provide a complete response, particularly in some of the technical issues, we will be more than happy to follow up that matter with you as soon as we can.
[Translation]
Senator Hervieux-Payette: If I am getting this right... my question is just to clarify the difference between the new tax and the GST. You can't deduct the former GST and now you will not be able to deduct the harmonized tax which now of course includes the provincial tax. But when the GST was introduced, you were in the same situation you are in today. There is no difference except that the amount is going to increase because taxes were added on. Am I wrong?
Dr. Wade: We just want to be treated equitably compared to other small businesses. With the GST, we were penalized $1,500 a year. With the new tax, it is going to double. We surely were not happy with the GST and the first rules, but we're certainly doubly prejudiced with this new Act.
Senator Hervieux-Payette: But you are not answering my question. I am asking whether already, under the GST, you could not deduct the taxes you were paying because you were in a sector where you cannot pass on the tax to the consumer because the consumer is getting the service for free.
Dr. Wade: Exactly, we were not being treated on equal footing initially, and we are still not being treated equally.
Senator Hervieux-Payette: So the problem does not have anything to do with what's going on today, it is the structure itself. You are in the same situation as dentists and other health care professionals. Maybe there is, I do not know, the optometrist who sells me a pair of glasses, then I will pay the GST on the glasses. However, if eye examinations are free in my province, well then my optometrist or my ophthalmologist will not be able to claim his value added tax.
Dr. Wade: On the contrary, for dentists, most income actually comes from outside the government. Whereas in our case, 99 per cent of our income comes from the government. We are unique in that situation in all areas of the private sector and in all health care sectors. You can't compare us to dentists because most of their revenue comes directly from their patients.
Senator Hervieux-Payette: I worked with the Quebec Minister of Health for four years. What I understand about what you are asking is that for all practical intents and purposes you are asking for an increase in your professional fees from the government to cover this extra expense and so this would be an issue to be negotiated by the College of Physicians. You are in a very different category. I mean, when you compare yourself to the small and medium-size businesses, you will not mind if I am not necessarily in agreement with you. All SMEs sell their services, as you've just said, to consumers, who at the end of the day, will either pay the GST or the HST. However, in your case, your remuneration comes only from government, except for plastic surgeons whose services are not covered.
If a plastic surgeon has a private clinic, and that is common in Montreal, can he claim the GST from his clients as the service is not insured?
Dr. Wade: A very, very small part of everything that is paid to doctors comes from the private sector, maybe 1 per cent. That means it has a very small impact.
Senator Hervieux-Payette: Let us say that I understand and I sympathize. You are in a unique system where you have to pay taxes on supplies and all the different things you buy to exercise your profession. You already have to pay taxes and so you are going to have to pay an additional tax at the provincial level through the harmonized tax. You are saying, we want compensation. The question that remains unanswered is: Is it $350 million, as the government claims, or is it $60 million, as stated in the KPMG study? Is the only solution in the nature of a change to the GST Act? Can't it be a solution negotiated for your members on honorariums?
Dr. Wade: We just want to be treated equitably, like everybody else.
Senator Hervieux-Payette: I do not know anyone who is going to be happy at the thought that they are going to pay a new tax. I think that considering your remuneration is paid by the State and that, in the final analysis, it is a bit like one hand washing the other, and whether the money comes from additional remuneration or whether the system is changed, what I understood from the departments is that it would only be more complex because you would again wind up in another special category. Finally, you would be the only ones enjoying the status of not paying any taxes, at the outset.
Dr. Wade: On the contrary, we are the only ones in that situation today.
Senator Hervieux-Payette: Thank you.
[English]
Senator Angus: First of all, I just want to make sure I understand. This Dr. Pugh who appeared here before us yesterday is one of your members. You agree fully with his submissions to us, and also the submissions that were made last week by the CMA, and by various people in Ottawa. In this regard I would like to try to clarify something, because I think you have made an excellent case for this unfair treatment that you are getting. I think it is important to clear up some of the misunderstandings, as you were attempting to do in response to my colleagues' questions a moment ago.
Let me deal first with the issue of how much it would cost if your recommendation of zero-rating were to be implemented. Yesterday, I think Senator Rompkey relied on wrong data, perhaps obtained from the government, that indicated that the cost would be some $350 million to Canadian taxpayers. Could you, perhaps, set the record straight in that regard, based on the findings of the KPMG report?
Mr. David H. Balmain, Executive Director, New Brunswick Medical Society: Mr. Chairman, in much of the material that we have seen, and the research we have examined over the past number of months, one can probably find as many figures to respond to that question as there have been presenters. We have seen a federal figure that speaks to the matter of about $300 million; we have seen another figure from the federal government that speaks of something approaching $200 million. The figures from the KPMG study deal specifically with physician services. Our belief is that the figure is closer to $80 million. Again, there is some debate about whether or not dental services and things of that nature are included. We think that they are different because of the ability of the principals to pass on the cost of the tax to the final consumer, which is something that physicians do not have available to them.
We do not want to get into a debate about the value in terms of the end cost of this measure, because it is debatable depending upon your assumptions. What we would like to restate is the fairness or unfairness of the tax system, and whether or not a party is able to negotiate increases with another party, such as government, really is tangential. The major issue is whether or not the taxation itself is fair, and our point of view is that we are not for or against GST or HST. We simply want the treatment to be equitable.
Senator Angus: I just want to refer you to a document that we received this morning from Dr. Kazimirski, who is President of the Canadian Medical Association. We asked her some questions last week during her appearance before the committee, and she undertook to get back to us with a clarifying answer. I am referring to page 2 of her letter, dated February 28 but which we received today, addressed to Senator Kirby as chairman of this Senate committee. She writes as follows:
In our written brief, the CMA position is that the current situation is unfair and needs to be corrected. Therefore, the CMA has recommended "that health care services funded by the provinces be zero-rated." This not only reflects the fact that 99% of physician revenues are from governments, but the CMA believes that all health care providers in private practice but are publicly funded should be treated fairly if health care policy is going to be consistent with sales tax policy.
For physicians, the KPMG study estimates that the cost of bringing physicians in line with other self-employed Canadians and small businesses who have the ability to claim ITCs is $83.0 million (pre-tax), or approximately $60.0 million (after tax). To put this in perspective, $60.0 million represents 0.06% of total government program expenditures ($109 billion, 1996/97).
Do you agree with that statement, or would you like to amplify it?
Mr. Balmain: We would not argue with Dr. Kazimirski.
Senator Angus: Further, in order to get this clear, because it is all very well, as you know, to criticize proposed legislation. However, if you are to get anywhere with your criticism, it is always a good idea to put up concrete recommendations or an alternative proposal. In that regard, I was pleased to read that the clarity which is set forth here in this document, which is another document we were given on January -- it is dated January 21, and it is a brief submitted in Ottawa by the CMA. I just again want to make sure that I understand how this would work, and I refer to pages six and seven of that document. The concluding paragraphs are the following:
... The CMA respectfully recommends (1) that health care services funded by the provinces be zero-rated. CMA has been advised that this could be accomplished by amending Bill C-70 as follows:
(1) Section 5 of Part II of Schedule V to the Excise Tax Act is replaced by the following:
Then follows wording with which you are familiar. If, for example, this committee were to recommend that change in the bill in its report back to the Senate, and the Senate were to accept that recommendation, and on through the process of legislation, would that solve your problem? Would this be a resolution of the problem that you say exists in regard to equitable treatment of your profession?
Dr. Wade: Yes.
Dr. Brien: We believe it would.
Senator Angus: I was not surprised to hear you testify this morning that the situation was bad enough with the provincial sales tax as it was before this legislation, but this legislation compounds the problem and, in effect, doubles the burden on doctors in those three provinces. In fact, it is getting to the point where it is sort of the straw that breaks the camel's back, is that correct?
Dr. Wade: Correct.
Senator Angus: You will now have difficulty in attracting new experts and physicians to this province?
Dr. Wade: Correct, and keeping the ones we now have in the province.
Senator Angus: The sick in this province will accordingly feel the negative effects?
Dr. Wade: Definitely.
Senator Angus: Just focusing now on what you just said, "keeping them in the province," are you telling the members of our Senate committee that this situation has now reached the stage where doctors are leaving the province?
Dr. Wade: Doctors leave the province for many reasons, and in this case you are quite correct. This may be the straw that breaks the camel's back. It is just adding trauma to injury.
Senator Angus: You met with the Minister of Finance, and also with the representatives from Mr. Martin's office in Ottawa.You will be interested to note that a number of his representatives are present here in this room this morning. I urge you to take the opportunity to find out whether, indeed, there is some milk of human kindness in these individuals.
What was their reaction? What did they say to you when you gave them this very clear, fair and reasonable proposal to amend this iniquitous law?
Mr. Balmain: Are you speaking of the provincial government or the federal government?
Senator Angus: Both. I am just trying to find out what rationale was offered -- and I cannot find any rationale -- for persecuting your profession in this way.
Mr. Balmain: Mr. Chairman, we are trying to walk a very narrow line between the two sides at this table, and we do not want to fall off on either side. The response that we got from the provincial government was that we had made a good case; that the KPMG figures seemed reasonable; that our estimate of impact is probably fairly close, but that the decision is now a political one.
In terms of the response that the CMA received from the federal department -- and they had met with the federal government on a number of occasions, from 1991 to the present, on the original tax, the GST -- and now, on the proposed harmonized tax, the response has been very similar.
Senator Angus: Again, I fail to see what the rationale is, because according to you, they said that the response was a political one. I cannot see any political capital that an incumbent government could derive from such persecuting legislation as this. As a Tory, of course, I hope that they do not change the legislation, because then I know that every member of the CMA will support us, not only financially but at the polls, and very loudly. We must hope they do not change it, as we would change it.
The Chairman: The purpose of the hearings is to allow witnesses to comment on this legislation, senator.
Senator Angus: I am quite serious, Mr. Chairman. As you know -- and as you said very kindly yesterday -- I am fairly involved in the medical world and at the present time, as you also know, the whole health care system is undergoing very basic reforms that are difficult to adjust to, especially when you add problems of this nature to the situation. I am told that, literally, not only is it driving physicians and members of physicians and surgeons organizations out of a particular HST jurisdiction such as New Brunswick, but possibly right out of the profession itself. The situation has become so difficult. I am just trying to find out if there are valid reasons for having a provision such as this. I can understand there being two sides to the question, but I fail to see the other side in an issue of this nature.
Dr. Brien: That has been our point: neither do we. We have looked at all of the information that has been given to us by the governments, and we do not understand why this has happened to us as well, and we do not understand why we are orphaned, as we are in this situation. It makes us a bit paranoid at times.
The Chairman: Thank you very much. We appreciate your taking the time to appear before us today.
Honourable senators, our next witnesses are from the Greater Moncton Chamber of Commerce, the Fredericton Chamber of Commerce, the Saint John Board of Trade and the Atlantic Provinces Chamber of Commerce. We will hear one spokesperson from each group.
Mr. Jeff Kelly, Director, Greater Moncton Chamber of Commerce: The Greater Moncton Chamber of Commerce is a local business organization comprised of over 700 members who, in turn, employ over 25,000 employees. As the largest business organization in the greater Moncton area, the chamber welcomes the opportunity to present its views to this Senate Committee on Banking Trade and Commerce on the proposed harmonized sales tax.
The Greater Moncton Chamber of Commerce has been a supporter of the government's efforts to harmonize the provincial sales tax with the GST. The chamber has stated on many occasions that it believes that harmonization will bring about efficiencies in the way consumption taxes are remitted by business and collected by government. Further, enabling most businesses to now realize input tax credits for the provincial sales tax portion should spur the general business community to offer lower prices to New Brunswick consumers and to be even more competitive in foreign markets.
However, since the release of the memorandum of understanding last April, a number of issues have surfaced which are cause for concern to the greater Moncton's business community, and in particular the retail business community. Most of these issues are fall-outs from the proposal that would require vendors to price and advertise goods and services sold to consumers on a tax-inclusive basis.
The government's stated objective in introducing tax-included pricing is to satisfy the preference expressed by Canadians to know the full price of goods and services in advance of their purchase. We understand this preference by consumers, and we certainly respect it. However, in our view tax-included pricing, including the rules designed to alleviate some of the costs associated with compliance, will lead to a host of problems and to confusion among consumers. For example, the creation of options for pricing will mean that different pricing policies may apply from one store to another. Indeed, it is possible that different pricing policies may apply within any store. This will result in a complex pricing environment where the consumer will become frustrated. Therefore, in our opinion, with tax-included pricing in its proposed form, the stated objective will not be achieved.
We have stated on many occasions that tax-included pricing will create distortions in the marketplace to the extent that it will cause price perception differences. The result will be that business in the harmonized zone will be at a competitive disadvantage. Furthermore, we have argued that tax-included pricing should not be implemented until a majority of provinces have agreed to join the harmonization agreement. A nationwide, consistent policy on tax-included pricing is essential, in our view. Otherwise, we feel that the cost of goods and services in the harmonized zones will be higher, in both the short term and in the long run, with no particular gain to business or consumers.
In summary, we support the concept of harmonization. However, we suggest that the tax-included pricing component be eliminated, or at least delayed, until a majority of provinces have joined the tax harmonization agreement.
Mr. David Neal, President-Elect, Fredericton Chamber of Commerce: The Fredericton Chamber of Commerce is grateful for the opportunity to make representations to the Senate on the views of member and non-member businesses in the greater Fredericton area regarding the proposed harmonized sales tax, Bill C-70.
The Fredericton chamber is made up of 568 member firms within the greater Fredericton area. Of this number, 84 per cent are classified as small businesses with under 20 employees. We believe that small business is the backbone of the Canadian economy, and the sector with the ability to create and sustain the largest number of jobs.
The Fredericton chamber, along with other chambers of commerce and boards of trade in New Brunswick and throughout Canada, have been in support of a national harmonized tax for years. The initial, and continued, desire is that the entire country will be on a harmonized tax basis to replace the goods and services tax and provincial sales taxes.
Members of the Fredericton Chamber of Commerce see a harmonized tax as a benefit, as long as tax-included pricing is not part of the scheme. Measures which lower the overall tax rate a retail business must charge, the ability to claim the entire HST as an input tax credit, and the simplifications for remitting the tax collected to the government are seen as good news for business. A competitive market could see the savings a business may potentially realize being passed on to the final consumers.
The HST has been, and continues to be, an item of grave concern to our members since the currently proposed HST was announced in 1996. The item of concern is the tax-included pricing component, and the question is: Why? Initially, both the federal and provincial levels of government did not appear willing to accept the arguments put forward to them regarding the additional costs to retailers of implementing the HST with the tax-included pricing. The four pricing methods set out in January 1997 have not solved the problem, and in our belief have added to the confusion a customer will find when they enter a retail establishment.
The members of the Fredericton Chamber of Commerce who are in the hospitality industry, for instance, are concerned not only with the additional cost to reprint menus, flyers and coupons, but primarily with the perception that rates in New Brunswick are higher than in Prince Edward Island. Tourists booking their holiday with an Ontario travel agent may not get the full story on tax-included pricing and tax-excluded pricing.
The Fredericton Chamber of Commerce has been directly involved in meetings with the federal Minister of Finance and departmental officials, the Premier of News Brunswick and the Minister of Finance of New Brunswick, and their respective offices.
The Fredericton chamber hosted an HST seminar on February 3. At that seminar, attended by over 350 business people who were both members and non-members of our chamber, a survey on the tax-included pricing was circulated, and 171 responses were received. Seventy-three per cent did not support HST as proposed, and 65 per cent did not support the tax-included pricing, primarily because of the competitive disadvantage with other jurisdictions, the implementation costs, and the consumer confusion which will inevitably result. Eighty-five per cent of the respondents did not support tax-included pricing if it meant higher prices for goods because of the additional costs to retailer. A copy of these survey results are included for your reference.
When these results were offered to the provincial government, we were led to believe that they did not want feedback if it was contrary to the agreement signed by the four governments. This is why we are appearing here today, to express that, overall, the chamber movement supports the HST without the requirement of tax-included pricing in any form.
It is extremely difficult for small business entrepreneurs to hear from government that their concerns have been heard and are justified, but will not be acted upon. In private business, if the will is present and the facts are correct, a way is found to accomplish the task.
With me today are two members of the Fredericton chamber: Mr. Stuart Blair, a retailer who is associated with a national office products buying group, and Mr. Ted Mangnall, a Canadian Tire associate dealer. I invite these gentleman to address their concerns briefly to you now.
Mr. Stuart Blair, Executive Member, Fredericton Chamber of Commerce: Honourable senators, my name is Stuart Blair. I am with the Covey Office Group, an office supply company in Fredericton. I am also a member of a national buying group called Basics.
What I wanted to addressed today is the perception that we retailers will get a windfall through HST and be able to pass on those savings to our consumers. With me today I actually have facts and figures of what it will cost me, as Covey Office Group, an independent living in Fredericton, to comply with both flyers and national catalogues, and the increase in the costs.
As a retail company, the grand total of provincial sales taxes that we pay in our business that we could pass back to consumers is about $25,000 a year. Our business is set up in such a way that we have zones across Canada. At the present time, there are three zones, and I share the same zone as Victoria. As of April 1, just to comply with flyers for the upcoming HST, I must be in a zone unique to New Brunswick, or unique to Atlantic Canada. The cost will be $75,000 to go out and set up flyers for three new zones; flyers that cannot be used anywhere else in Canada. When you equate that to 6 members out of a buying group of 30 -- because that is all that will be affected -- it will cost $12,500 for each of those six just to change the flyers, etcetera, for the zones.
When it comes to producing our national catalogue, and disclaimers that we would need to put in there, we did not even enquire what it would cost to include tax-included pricing, because we had already been told by our other members that the six of us were on our own. In other words, they want no mention whatsoever of tax-included pricing coming to the attention of the rest of the Canada. It looks as though it will cost about $10,000 just to put the disclaimer, one-thirty-second, on the page. Really, when I thing about the $25,000 that I would have made in tax savings and add these two charges, I have used up just about everything, and that without even having started on the POP materials.
Mr. Ted Mangnall, Member, Fredericton Chamber of Commerce: My name is Ted Mangnall, and I have the Canadian Tire Associate Store in Fredericton.
I concur with Stuart as far as the savings that will passed on. I was just going through my brief that I received from Canadian Tire, and they have an estimate of $8.8 million, or 56 person-years, that will be used to implement this tax. If I take that figure down to my store level, I do also support the HST as a tax, but I cannot support the tax-in pricing.
As an example, it goes from a tax issue to a marketing issue. An item that is 99 cents now, with tax-in it will be $1.14. In time, even though it might be a marketing issue, I cannot leave six cents on the table in relation to that item, because I must make up something somewhere to pay for the cost of implementing this tax. That item will go to $1.19, in some cases. There is not enough savings to place it at $1.09 because of the margins, and the impact that we have on our margins as it is today.
Another item that we raised at another meeting was the question of TV advertising. In Atlantic Canada, we cannot include pricing, whereas the rest of Canada will be able to include the price of anything in their ads. I cannot say that an item will be $9.99 when it is that price in the rest of Canada. For me, that item will be $11.14, or whatever. We may be excluded from the company's TV advertising campaigns because of this.
Mr. Paul Daigle, President and Chief Executive Officer, Atlantic Provinces Chamber of Commerce: The Atlantic Provinces Chamber of Commerce and its constituent members, the New Brunswick Chamber of Commerce, the Nova Scotia Chamber of Commerce, the Newfoundland and Labrador Chamber of Commerce and the Prince Edward Island Chamber of Commerce, represent the collective interest of 126 local chambers of commerce and boards of trade, and some 17,000 business and professional individuals across the Atlantic region. The chamber is by far the largest and most representative business organization in Atlantic Canada. We welcome this opportunity to present our views on Bill C-70. Our board of directors considers it important for the committee members to know, right up front, that the APCC has been a long-time proponent of tax harmonization, and we continue in that support.
In fact, our organization has been advocating a harmonized tax since the GST was first introduced. We believed, and we continue to believe, that the HST will be good for business, and good for the consumer. We contend that the harmonized tax will have a stimulating impact on the economy and job formation, if efficiently and responsibly introduced and administered.
Our major objection is not with harmonization of the two taxes, but rather with the tax-inclusive pricing component. The latter, we believe, will substantially undermine the intended purpose and benefits of harmonization; namely, reduced costs, administrative efficiencies, greater simplicity and an enhanced economic and business competitiveness.
Tax-inclusive pricing will unnecessarily increase costs to business and the consumer; will introduce complexity and confusion for both groups; will result in administrative inefficiencies, diminish competitive equity, and generally result in the inconsistent treatment of businesses. It will also effect a disruptive transition phase, which will result in considerable frustration and anxiety for everyone, especially the consuming public. This it will do -- and, in fact, is already doing -- and for no apparent good or legitimate reason.
The main rationale advanced by government for tax-in pricing is that they claim the consumers want it. This may be so, but at what cost? Our assessment of the issue is that the consumer does not want tax-inclusive pricing if it means paying substantially higher prices -- and this it surely does. There is every reason to believe, and no evidence to the contrary, that tax-in pricing will result in considerable increase costs to businesses, and, without question, those costs will be passed on to the consumer. The atlantic chambers are left to wonder, therefore, what the real motive is behind this initiative.
As the Canadian Chamber of Commerce argued so convincingly before this very committee a couple of weeks ago -- and I think it bears repeating:
The tax-in part of the HST Harmonization may be related to fulfilling the 1993 "Red Book" promise. Nevertheless, tax-in pricing is not essential to the economic benefits derived from sales tax harmonization. There has not been any provincial call for tax-in pricing and it seems to be only a federal requirement that will arguably cost the harmonizing provinces money and jobs...Responsible economic and taxation policy-making demands that tax-in pricing be evaluated on the implications for business competitiveness and real consumer benefit, rather than on the political basis of a GST replacement. We are past this pure political dimension and must look at cold reality and the cost to the economy.
Another related concern has to do with the fact that Atlantic Canada, with a population of roughly 2 million people, will be pushed even further out of sync. with the rest of the country. It is ironic to consider that when Quebec harmonized its retail sales tax with the GST, tax-in pricing was studied and rejected, we are told, because of its huge cost implications. It would be one thing for an Ontario or a Quebec to go it alone on this kind of initiative; it is entirely something different for three small provinces to do so.
This is undoubtedly the classic case of the proverbial tail preparing to wag the dog. If Quebec refused to take the risk, even with its much larger and more concentrated market and tax base, it seems totally unreasonable and somewhat irresponsible and reckless to impose such an untested concept on Atlantic Canada.
As has been stated many times by chambers of commerce and boards of trade at every level, and by other business associations and their members, the tax-in pricing will have significant, one-time adjustment costs in any circumstance. However, when tax-in pricing is introduced in one region alone, or when there are different rates of tax in different regions of the country, this circumstance will thrust huge, continuing costs on the Canadian retail sector: for example, costs associated with fundamental systems restructuring of retail operations in the areas of warehousing, distribution, advertising and re-ticketing.
It is not just the larger chambers of commerce and boards of trade -- some of which are represented here this morning -- that are concerned with this issue of tax-in pricing and the HST implementation process. Just to illustrate, we have included in our brief a couple of examples of the continuing concerns and frustrations very recently expressed by a couple of our smaller chambers in quite disparate jurisdictions of the region. These two member organizations have expressly requested that we pass along their positions as well to the committee.
Just to summarize, the Yarmouth Chamber of Commerce, for instance, is concerned because professional fees with respect to work in progress for certain services is an issue that they believe has not been fully addressed. They are also concerned about the financial burden imposed on export companies having to pay the 15-per-cent tax up-front, and then collect later. The Industrial Cape Breton Board of Trade expressed concern about problems with the staggered phase-in and the impact on its car dealers. These are just a couple of the examples on which, time and again, we have received feedback from our 126 chambers of commerce and boards of trade.
In conclusion, APCC continues to support harmonization of the GST with provincial sales taxes because of the benefits it represents for business and for individuals -- and we want to emphasize that continued support However, our organization is of the firm belief that the tax-in pricing component should be delayed until all, or at least a majority, of the provincial jurisdictions are on side, or until further independent study can clearly illustrate the assumed benefits to the economy.
It is our contention that introduction of tax-in pricing on a regional or piecemeal basis will reverse or nullify many of the efficiency gains in the retail sector over the past couple of years. If the tax-in scheme is postponed until it can be implemented nation-wide at a single rate, such costs will not be incurred, and the full benefits of sales tax harmonization will not be lost. We urge you, therefore, to give this matter serious consideration.
Mr. Thomas J. Gribbons, First Vice-President, Saint John Board of Trade: My name is Tom Gribbons and I am Vice-President of the Board of Trade here in Saint John. We welcome this opportunity to appear before the Senate committee during its hearings on the harmonized sales tax.
The Saint John Board of Trade is an advocate for business to all levels of government, and promotes the economic development potential of the Saint John region. We have over 900 members representing more than 600 companies in greater Saint John.
The Saint John Board of Trade once again reiterates its strong support for harmonization of the federal and provincial sales taxes. In fact, we came out in favour of harmonization in 1991, long before the idea was seriously being entertained. Let me tell you why we support the HST: For a capital-intensive industry base such as we have in New Brunswick, the harmonization of the two taxes is good news. Business will benefit as the input tax credits are now applicable to the whole goods and service tax base. This will make New Brunswick businesses more competitive, and enhance their export capability.
For all businesses, but particularly for small businesses, having only one tax administration system, one auditing system, one collection system, will significantly reduce their costs of doing business. Savings from a lower overall tax rate, down from almost 19 per cent to 15 per cent, combined with the above advantages, will pass through to the consumer in what we believe will be lower prices.
There is one exception, however. From the day that the HST paper was released last spring, we have led the charge in Atlantic Canada against the one provision which will negate the benefits of the HST: the requirement for a hidden tax, called tax-included pricing. Tax-included pricing and the HST are two separate and, we believe, unrelated items. One might actually say that they are mutually exclusive. There are many reasons, in our view, why the HST should be implemented in this region. However, we believe that there is no logic to tax-included pricing.
We believe that there are four main problems with tax-included pricing: one, the cost of compliance to retailers; two, price perception or perhaps I should say misperception; three, customer confusion resulting from the four proposed options for implementation; and four, that this region of 2 million people will be totally out of sync. with the rest of the market of approximately 350 million people in North America.
Let us deal with each of these items in turn: First of all, the cost of compliance for retailers. As this bill has worked its way through the system to the Senate, a few changes have been made which mitigates some of the cost of compliance. Not all costs have disappeared, however. We are still faced with the problem of re-ticketing items, which is very labour intensive, and the requirement for disclaimers on flyers and in catalogues. Those items are still there in the legislation, and that matter was spoken to earlier by my counterpart from Fredericton. When retailers are faced with increased costs, those costs will be passed on, and who will ultimately pay? The consumer, of course. This means that what the consumer might have saved because of a reduction in the overall HST rate could very well disappear.
The second issue was price perception. A retailer's job is to find the right price points for their merchandise, and impulse pricing is a tool often used to attract customers. Never before has a government involved itself in the pricing of merchandise. We have already heard of the example of items priced at 99 cents now being priced at $1.14. I will not belabour that point. But now we have government involved in the pricing of merchandise.
The third point was customer confusion. The four options for displaying HST, as recently announced by government, rather than simplifying the process will lead to increased customer confusion. How can customers comparison shop when, as they go from store to store, they can see that the price is posted differently or, indeed, is posted in four different ways within the same store. Imagine the confusion felt by a tourist coming in from the United States or from central Canada. This puts the three provinces at a competitive disadvantage, not only with Prince Edward Island within our own region, but also with other provinces and the U.S., because our prices will appear to be higher.
You will all remember that not too long ago this region -- and Canada as a whole -- was faced with a major issue caused by cross-border shopping. With New Brunswick bordered by the United States and Quebec, where prices will be seen to be cheaper, and also by Prince Edward Island, we will again be faced with cross-border shopping due to perceived lower prices in those jurisdictions.
The fourth issue, 2 million people out of sync with 350 million other North Americans: Does it make sense? We believe that there are no major negative economic consequences if the requirement for tax-included pricing is removed from the proposal in the legislation on HST.
The intent of harmonization was to simplify taxation and improve competitiveness in our economy. We strongly agree with that. Tax-included pricing was intended to simplify pricing for consumers. Instead, we believe tax-included pricing only increases consumer confusion, adds to retailer costs and leads to the perception of uncompetitiveness.
Opposition to tax-included pricing has been consistent and widespread in this region. Retailers from small local businesses to large national businesses strongly oppose TIP. With me today are two members of our board of trade from the retail community, Mr. Bob McVicar and Mr. Gary Smith, who would be more prepared, in the question and answer session, to talk about the specifics as to how it affects their business in the retail industry. We believe this provision is damaging to a region already struggling, and a region where the retail industry is what we consider to be fragile.
Study after analysis by firm after firm has confirmed the cost of TIP to be in the millions of dollars. Through lengthy consultation, government has received this very factual information. The facts are indisputable: The costs will be passed on to consumers while retailers survive. However, in the process, many retailers will simply disappear. Government's refusal to stop the introduction of TIP can only be interpreted a political move because the case is strongly made that tax-included pricing makes no sense for business or for consumers. Tax-included pricing is an unnecessary addition to the government harmonization initiative.
We would ask the Senate committee to recommend to the government that harmonization of the GST and PST be implemented in this region, but without the tax-included pricing requirement.
Senator Oliver: You have certainly persuaded me that we should try to do something to help this very bad situation if we want to keep Atlantic Canada competitive. On the other hand, I really need your help, because the very first presenter this morning said the opposite. I do not know whether or not you were here, but if you were not, permit me to take a minute just to tell you what was said, and I need your help in determining just what is the position in the Province of New Brunswick.
The first presenter was from the Conseil economique du Nouveau Brunswick, and Anne Bertrand made the presentation. She said, in effect, and I must translate:
The Economic Council of New Brunswick is an association of francophones, and they have a group of 1,000 members. The members are small and medium-sized businesses. The Economic Council of New Brunswick is in favour of imposing a harmonized sales tax and including the price in.
What is the position in New Brunswick? Can you help me?
Mr. Daigle: All I can say is that we have some 58 chambers of commerce and boards of trades in New Brunswick alone, and the position of those chambers, and the members they represent, is reflected in my brief. They back the position of the Atlantic Provinces Chamber of Commerce, as do the members sitting around this table, which is: that we support HST, and we are strongly and adamantly opposed to tax-in pricing.
Senator Oliver: How do you account for what we were told by the first presenter today?
Mr. Daigle: I think you would have to go back and ask Anne Bertrand to explain her members' position. I am not in a position to do so.
Mr. Kelly: I was here when she made that presentation. She did not mention that she polled retail members, and I was very surprised as well when I heard that presentation. I was very surprised that they supported tax-in pricing, and my guess would be that they have not polled the retail members. We do not know that for sure, but she did not indicate that she had polled the retail members. Judging from our poll results, I would be very surprised if she had polled retail members, and that is how I would explain the difference.
Mr. Neal: The poll that we conducted was answered by both members of the chamber of commerce and non-members of the chamber of commerce. There were 171 respondents; 58 of them were retail, 65 were service, construction was five, manufacturing was 12 and there was no response from 31. There is a broad range there. We believe we are speaking for the Fredericton business community, both members and non-members of the chamber of commerce.
Senator Oliver: Is there a difference between the English-speaking and the French-speaking business people in the Province of New Brunswick? How can you help me with the discrepancies that we are hearing this morning?
Mr. Daigle: One of the comments that Anne did make, which surprised me and our other retail members here, because we discussed it, is that she was suggesting that there was very little ongoing cost. You have already heard from retailers on the ground who have gone in and studied the cost to their respective businesses, and we have received complaints about this time and time again. It is not only the up-front cost but, our retailers say, "Look at our numbers. Look at our numbers. Here they are. This is what they say."
I am not a retailer. The person who made that presentation this morning is not a retailer. Our retailers are saying "Here are the real costs." We know that from talking directly with our retailers, and having them express their views here this morning.
Senator Oliver: Ms Bertrand also said there would be no increases in power costs. What do you say to that? She said that this morning, in response to a question from me.
Mr. Gribbons: I do not think we can really comment on that at this particular time, senator, because we have done our own studies. We have been extremely vocal on this one from our own perspective, as also have our fellow organizations. We get feedback from all members on all aspects of our own organizations. It is, to be quite honest, quite surprising that this organization would come up with this sort of conclusion.
As to whether or not there is a difference between the French and English community in this respect, I do not think so. We are talking about a business community that must pay the same taxes, that must do the same sort of accounting at the end of the month, from one end of this province to the other, and our membership is telling us quite clearly that tax-included pricing will be a very dangerous aspect to what is, otherwise, a good proposal.
Mr. Kelly: The Greater Moncton Chamber of Commerce represents both francophone and anglophone members, and we have polled our retail members, both francophone and anglophone, and have a clear message that tax-included pricing is just not acceptable. We find this information surprising, unless it did not come from the retail sector and the impact of tax-included pricing was not fully appreciated by the Conseil economique du Nouveau Brunswick.
Senator Oliver: I understand now, I think, what the position of business is in New Brunswick with respect to tax-included pricing. What is your recommendation as to how this committee should set about to cure the problem? Are you suggesting a form of amendment, and if so, what form do you recommend we advance to the Senate of Canada?
Mr. Gribbons: Senator, I think our recommendation, at least from the Saint John Board of Trade's perspective, would be simply to defer the inclusion of tax-included pricing. If one were to look at the legislation that has been tabled in the New Brunswick legislature for this measure, tax-included pricing is not part of that legislation. It will come later, in the regulations. The HST, the harmonization of the two taxes, that is in the legislation. Our recommendation is that you defer the tax-included pricing.
Senator Oliver: Is that something that the federal government can do through federal legislation, or is that a provincial matter?
Mr. Daigle: First of all, we have said to the governments, both provincial and federal, that even if they feel so strongly about this that they want to include it in the legislation, then put it in the legislation but do not trigger the tax-included pricing provisions until there are at least seven provincial jurisdictions on side. We do not even object to it going in the legislation, if need be, but do not trigger it when you only have three maritime provinces going forward with tax-inclusive pricing. That does not make sense.
Our recommendation to you, senators, is that you not proceed, or that you recommend against proceeding with that provision. If they wish to include it in the legislation, that is fine with us, but do not trigger it until you have at least seven jurisdictions on side.
Senator Angus: If it is so bad, why would it be any better if all the other provinces buy in?
Mr. Neal: As someone so eloquently stated today, we are a few million against 350 million in North America. We are setting ourselves apart by having tax-inclusive pricing in three provinces in Atlantic Canada, totally contrary to the rest of North America. Many of our businesses sell throughout North America. For instance, we have a book store. When we get a call on our 1-800 number, we must ask where the caller is calling from so that we can figure out how to quote that person a price. We are setting ourselves apart; we are making ourselves an island. It is all very non-competitive.
Senator Angus: My point was that in the 350 million, you are including the United States, and you are saying, if I understand you correctly, defer it, which is fine, but until when? Forever? To be realistic, we cannot control what the U.S. does, and they would never do a stupid thing like this.
Mr. Neal: As Mr. Daigle and others have set out, defer the implementation of such a provision until at least a majority of the provinces come together. The number that was quoted was seven, and it is very important that Ontario is included as one of those seven.
Mr. Daigle: This was a real fallback position for us.
Senator Angus: You mean you would rather scrap entirely the tax-in pricing?
Mr. Daigle: We are not in favour of tax-included pricing.
Senator Rompkey: I was, like Senator Oliver, interested in the difference between Anne Bertrand's position and the position that we have just heard. As I understand it, basically the two positions are similar overall. Anne Bertrand said this morning that francophone businesses supported it because it would simplify collecting, it would simplify paperwork, and would entail keeping only one set of books. It would be less costly to collect and rebate. It would increase competitiveness.
I assume that you agree with all of these things; that basically the harmonized sales tax is a good thing. What you are focusing on is the tax included in the pricing. As I understand it, the concerns fall into two categories: one is the consumers and the other is the chains, if I can put it that way.
On the subject of the consumers, I wonder just where the confusion lies, or if, in fact, there will be any confusion. I have a book which is sold at the grade 6 level, which is called Te Snow Pony," and on the back I see three prices: $2.99 U.S., $3.99 Canadian, and $4.20, GST included. When the girl in grade 6 went home to her mother and showed her the book, her mother said, "Well, did you have any difficulty with the pricing?" and the girl said, "No, none whatsoever." If a girl in grade 6 has no problem with the pricing on her books, what consumers will have problems? Perhaps we are underestimating the intelligence of consumers. That is my first point.
On the chains, I would like you to comment on these remarks. Anne Bertrand made the points that changing stickers was really just like having a sale; that you change the stickers for a sale, and you can change the stickers pretty easily in other cases. She was asked about catalogues as well, as I recall, and she said that with computers today, you can really change items very easily. Your program will very quickly tell you what the change is that is needed if you increase your price, or even decrease it.
The concern falls into two categories, that of consumers and that of the chains, and perhaps you would comment on both of those issues?
Mr. Gribbons: Mr. Chairman, I would like to try. As I mentioned in the introduction, I am a vice-president of the board of trade. I am not a retailer, but we have some very good retailers here who live with this situation every day. They will be required to pay the money in order to make these changes that you are talking about. What I will do is defer to a couple of members of our board of trade, and also we have some gentlemen here from Fredericton. Let us talk to the people who will actually be required to do this. It is not quite as simple as you would make out, with your anecdote about the price structure on a bookrun for an entire nation. We are talking about three small provinces.
Mr. Kelly: One of the points, senator, is how confusing it would be for consumers, and as a retailer I believe it would be very confusing for consumers to have possibly four different prices on the same unit. Whether or not the re-ticketing is expensive, the point is that there certainly is a cost, and what would be the gain for our customers, as retailers, in going through that whole process? I do not understand what the gain would be for the consumer to see all of these different prices, and handled in all these different ways.
On January 17, we had the suggestion of how to alleviate some of these pricing difficulties: putting on bin-pricing; putting on different pricing, whether it is on a hanger or whether it is in a box. I do not see what the benefits to the consumer would be, and I do not see even the political advantage of having that customer feel that there is tax-included pricing. I do not see the gain, and there certainly would be a larger cost than I think was predicted by Madam Bertrand.
Senator Rompkey: Do you acknowledge that consumers want to see a single price?
Mr. Kelly: I believe that the consumer would love to see a single price. I think the biggest problem is that it is not a single price across Canada. We are an independent retailer, and it really would not affect us very greatly to go with tax-included pricing, but I feel pain for the national chains, whom it would affect greatly. The biggest problem is that in P.E.I. they will not have tax-included pricing, wheras in Moncton, New Brunswick we will have tax-included pricing. This will cause confusion; it will cause extra cost for us, and less cost for them.
I do agree with you, senator, that in a perfect world the customer wants tax-included pricing. I, as a consumer, would also like to have tax-included pricing, but I would also like to have clear pricing, and this suggested method will be no better than what we have now.
Senator Rompkey: What is the comparison with the situation in Europe, where people are travelling throughout the European Union and meeting all sorts of different VATs, and so on, and having to adapt to quite a lot of change?
Mr. Gary Smith, Member, Board of Directors, Saint John Board of Trade: With respect to your last point, you must remember that we have eight different tax regimes in this country, whereas in Europe there is only one. It is very easy to introduce tax-inclusive pricing when there is only one tax zone. TIP in a national sense, even today, has as lot of barriers attached to it because, as a retailer, I would need eight different flyers to get the TIP message across. That is why it is impractical in Canada to put TIP across the country until you harmonize all the sales taxes as well.
Going back to your point about the magazine with the three prices, I believe that Ms Bertrand has oversimplified the issue. Most retailers today do not re-ticket. They have a POS -- or point of sale -- system through which they scan most merchandise. In my store, I would have 20,000 different, individual shopkeeping units. Each one of those shelf labels would need to be changed to include a dual price ticket, which would be a tax-out and a tax-in price.
With respect to the magazines, one of the pricing options is that you do not necessarily need to ticket it; you can put a conversion chart above the magazine section so that consumers can look up and see that $2.95 Canadian converted into a tax-inclusive price. The same would apply to greeting cards and/or seeds.
All of those require that the consumer must go through the task of looking up on a conversion chart containing multiple pricing, in an attempt to simplify the task of determining what the final price will be. I do not believe that that will happen. I believe that customers will come to the cash register, and there we will be forced to educate that customer as to what tax-inclusive pricing really means, and they will demand that the $2.25 on that magazine is the final price they must pay, because the government has told them that the price you see is the price you pay. That is the message that they are giving, and that the consumer is getting. The confusion becomes paramount in the whole process, and then you must deal with all the other issues that have been explained earlier. That is why we continue to speak about the ultimate confusion to the consumer, the debacle that we will have at the cash registers when our cashiers will be faced with trying to explain tax-inclusive pricing, all four options, to consumers.
Mr. Bob McVicar, Chairman, Retail Task Force, Saint John Board of Trade: Mr. Chairman, my wife and I operate the Body Shop stores in Saint John, Moncton and Charlottetown, as well as the Bass River Chair store here in Saint John. We have four retail stores and we are local operators.
There are many complicated issues involved in this matter of tax-included pricing. Perhaps one of the reasons we are in the ditch where we are today is the sort of idea put forward this morning by the lady to whom you refer. She says it is a simple matter of changing tickets, and I think that that is the basis on which perhaps this whole tax-inclusive pricing issue got started in the first place. Those who were involved in that decision-making process thought it was just a simple matter of changing some price stickers. I think Gary has explained fairly well that it is not as simple as that.
In this day and age where everybody is under the gun in terms of finances, including governments, every nickel that is spent must be justified. In our last count, based on the retailers who have so far realized what we are about to face and begin quantifying their expenses, the most recent number that we have heard is somewhere between $90 million and $100 million is the current, cumulative cost for those retailers who have figured out what they think it will cost them.
What is the benefit of tax-included pricing? The government tells us that tax-included pricing is being promoted because consumers have said that it would be nice to have. With the financial restraint that everyone at all levels is facing these days, I find it difficult to understand why anyone would spend $90 million to $100 million on something that was nice to know, nice to have, nice to do. There is no payback, there is no value-added factor or component to tax-included pricing. It is simply imposing a further layer of expense upon an industry where there is already no fat. Having something nice is one thing, but when it costs another $100 million-plus, what is the point?
Senator Rompkey: What percentage of the increased revenue will it cost to make the changes? My understanding is it is a fraction of 1 per cent.
Mr. McVicar: What increased revenue?
Senator Rompkey: There will be a benefit to New Brunswick and the other Atlantic provinces as a result of this harmonization.
Mr. Smith: You are talking about the ITC?
Mr. McVicar: We do not understand what you are referring to in terms of increased revenue. You mean this $900 million?
Senator Rompkey: No. If the result of this change is increased revenue to the region --
Mr. McVicar: It is important not to split hairs, I think. There are two issues: There is the harmonization of taxes, and an improvement in the situation for all businesses in terms of input tax credits. We have come out here universally and said that we support harmonization. That is a separate issue. However, tax-included pricing has been married to the introduction of harmonization, but has absolutely nothing to do with harmonization -- and, in fact, counteracts some of the benefits of harmonization. The one thing really has nothing to do with the other. We strongly believe that harmonization, in terms of reduced administration costs and improved input tax credits, is a benefit to all Atlantic businesses to which it applies, and in the long run will improve our competitiveness, nationally and internationally. That is a very valid argument.
Tax-inclusive pricing, on the other hand, has nothing to do with any of those things. These are two unrelated issues that have been married together, for reasons that we can now only conclude to be political, because the one has nothing to do with the other. All that tax-included pricing does is add costs to retail businesses and offsets some of the benefit to retailers.
You must know that, with respect to the real benefits from harmonization and improved input tax credits, although there are some benefits that fall to retailers, the bulk of the benefit really goes to manufacturers, not to retailers.
Mr. Smith: That is right, and the government has stated that the ITC benefit to Atlantic Canada is somewhere in the range of $700 million, of which somewhere in the range of 17 to 18 per cent would come back to the retail community. In fact, that 17 to 18 per cent of ITC benefit is not a true figure. That figure represents ITCs for all the merchandise that is sold. The benefit is only derived from the ITC where you have expenses. However, it is significantly less than that figure; probably a quarter of what they state is the benefit to retail.
Senator Comeau: I could not help but chuckle a little bit as my colleague across the way was asking questions, not quite understanding where you are coming from on the tax-included pricing, because some of my colleagues still believe that the manufacturers sales tax was a far superior tax than the goods and services tax, so that is where they still have a long way to come and go.
I wish to come back to Mrs. Bertrand, because I think she did, in fact, open up the whole question of the tax-included pricing, and she did come squarely across as speaking on behalf of her membership, saying that they preferred government-imposed, government-legislated, tax-included pricing. I think that came as a shock to a number of us, to have a representative of the business community appear before us and say, "This is what my members want and this is what will be good for our members." I could not help but note that Mrs. Bertrand is a lawyer, so I am not sure just what the impact will be on her own specific business, and I think the question was raised this morning as to where she might be coming from.
This is where you people might be of help. She did kindly leave us with a list of the Conseil economique membership. Mr. Kelly, you come from the Moncton area. Quite a few of her members must be from Dieppe, or Shediac -- all that whole region. You might wish to take her membership list and find out if you do have any crossover of members between your group and hers.You might, in fact, poll some of her members and find out if they do prefer to have the federal government and the provincial government impose tax-included pricing on their goods and services, and we will see what might be the result. We would be interested as a committee to find out what the results would be of that type of poll.
Mr. Kelly: I will talk to the director of the chamber, and we will pursue that and get back to you on it, and try to understand the differences of opinion. Obviously, there are diametrically opposed opinions here, so we will find out.
Senator Comeau: We had a witness here yesterday from Mark's Work Warehouse, who expressed some concern about the possibility of having to compete with Prince Edward Island retailers, and that their prices might be advertised quite differently and that it might create an advantage. I see Mr. McVicar might be in the same position, having a business in P.E.I. as well as in New Brunswick. Are your members aware that this might be of some concern, especially now that fixed link is built?
Mr. Kelly: Absolutely. If we have tax-included pricing in our advertising, the perception will be that our prices are higher. However, I think Mr. Carol's point yesterday was primarily about clothing that was priced at under a hundred dollars, and it would be effectively lower as well. That is a big concern for a lot of people, that there is actually an additional tax here coming into that area, and I think that was what Mr. Carol was also concerned about.
Senator Comeau: One last question for your tourism industry, and I assume you have a number of tourism people among your membership. It has been said that the harmonized tax will be quite positive for the tourism sector because visitors will be able to apply for a rebate. I am just trying to picture myself getting into my car with the family and driving into your region from, let us say from New York City or wherever, arriving in Nova Scotia, driving around, and people remarking on what a great pricing structure we have because they can apply for a rebate on all their purchases. They will say to themselves, "I must start saving receipts from restaurants, and all my gas receipts, because the price in restaurants, hotels and so on is quite expensive, but I have this great deal because I will be able to apply for a rebate." Have you any idea whether the it does, in fact, impact positively on tourists when they must pay higher prices, but knowing that they will be able to get a rebate?
Mr. McVicar: First of all, those proposed rebates only apply to merchandise that you would take back with you. They do not apply to services consumed, so it would not apply to food and lodging, I believe.
Senator Comeau: They will pay higher taxes for gas, probably a higher price for hotels and motels, and for services such as theatres, movies?
Mr. McVicar: If you do it, you do not get the tax back; if you take it back with you, you may get the tax back.
Senator Comeau: I cannot take back a play, for example.
Mr. McVicar: Yes.
Senator Comeau: There is another sector of the industry that will be impacted quite negatively on, I assume, combining the two prices. There is a little bit more to tax-in pricing, that is, until we get all the provinces harmonized?
Mr. McVicar: There is no question that there is some debate on that issue. It is a debatable point regarding harmonization and the tax bases, and you may reach different conclusions on that detail, and clearly we have come down on the side of harmonization, so from our point of view, we still support harmonization, notwithstanding some of these issues, but we are here today primarily to oppose tax-inclusive pricing.
Senator Comeau: However, harmonization providing it is done across Canada?
Mr. McVicar: That is a good point; I am glad you raised it. A large number of the competitive disadvantages and the incremental costs that are involved in tax-included pricing, which make up the bulk of our opposition to it, frankly, have to do with the fact that we are taking three Atlantic Canadian provinces with 2 million consumers out of a Canadian marketplace of 30 million people. Whether or not you are a member of a national organization, as some of these folks are, or you are part of a national chain or, in my case, you are a franchisee of some national organizations, a significant portion of the efficiencies of operation are gained through those kinds of associations with retail organizations that are carrying on business in a single way in a market of 30 million people.
With tax-inclusive pricing, what is being proposed puts two million people, including those retailers -- whether they are independent, local, franchised, or part of national organizations -- in a little ghetto of a sort where pricing is different and requires additional work. Thus things that are done nationally, and the efficiencies that were gained from those national functions, go away. Not only do the efficiencies go away but a cost is layered on. Thus you go from having some efficient advantage to having a disadvantage based on an incremental cost, and that is the big problem in terms of cost.
Of course, the competitive issues are that people coming into tax-inclusive pricing provinces from provinces where no tax-inclusive pricing exists will not be informed, frankly, that there is a difference in pricing, will view the sticker prices and shock will occur. You can say that we will post signs, and we will do this, that and the other, but if you speak to any retailer about the situation, one of the first things that retailer will tell you is that consumers do not read signs easily, and it is difficult to communicate that kind of information. In North America, we are dealing with a marketplace of 350 million people, and for decades now, North Americans have built up their price perceptions of what value is, and what things are worth in that marketplace, where there is no tax-in pricing. With this harmonization, we are taking 2 million people in three Atlantic provinces and setting up a different regime, and that does not make any sense.
Senator Comeau: I will wrap it up by making one last comment: I guess I am a little bit of a doubting Thomas as to how we in Atlantic Canada are much smarter than the rest of the provinces of Canada, and that we got into this great deal with the federal government to have a harmonized tax with tax-in pricing.
The Chairman: In listening to the two of you, I would point out that you have used the word "harmonize" in two different ways, and I think we better be very clear -- and this is just for purposes of clarity. One issue is the harmonization of the provincial tax base for the sales tax and the federal tax base for the GST, and I heard the witnesses say that they favour that. The second issue of harmonization was whether or not the combined federal and provincial tax is the same to be charged across the country. I think Senator Comeau a couple of times has used the word "harmonization" when referring to the situation inter-provincially, across the country, and a couple of other times he used harmonization in asking whether the federal tax base and the provincial tax base is the same. As I heard the witnesses say, they favour the common tax base in the region, but they are concerned because of the lack of harmonization across the country with the tax-in pricing; is that correct?
Mr. McVicar: Frankly, the lack of harmonization across the country, if three Atlantic provinces are to have harmonization, never mind tax-inclusive pricing, harmonization for as long as we have it.
The Chairman: Being the same tax base federally and provincially?
Mr. Smith: Yes.
The Chairman: We are using a word here to be mean two different things. The same tax base on which the federal and provincial tax applies, that is what you mean by harmonization, correct?
Mr. McVicar: Correct. That becomes confusing in talking of the issues. I would say to you that as long as three Atlantic Canadian provinces have this harmonization deal, and with all of the positive things that it does for business -- aside from tax-inclusive pricing -- gives us a competitive advantage in this country over provinces that do not have it. We are pleased to have that advantage, and the longer we have it, the more pleased we will be.
The Chairman: I thought we ought to clarify that point.
Our next witness is Mr. Tony Bastow from the New Brunswick Automobile Dealers Association.
Mr. Tony Bastow, President, New Brunswick Automobile Dealers Association:I would thank you for the opportunity to speak before your committee and to voice the concerns of our association. Apart from being the representative of the New Brunswick Automobile Dealers Association, I am also a new car, automotive retail dealer in the province of New Brunswick.
The New Brunswick Automobile Dealers Association represents over 98 per cent of the new car dealers in the province, over 100 new car dealers. As such, we are one of the largest collectors of sales tax in the province.
At our annual general meeting held in November of 1996, the effects of harmonization in the automobile business was discussed at length. As a result, the New Brunswick Automobile Dealers Association supports harmonization in principle and the obvious benefits to the economy of reduced sales tax in streamlining collection efforts.
However, our association opposes the idea of tax-inclusive pricing for a number of reasons, the least of which we do not understand why it is necessary to include the tax in the price. It seems to me and the association that the Canadian consumer has been transacting business on the basis of the price plus tax ever since sales tax was first levied.
We addressed these concerns in a letter to the Honourable Edmond Blanchard, New Brunswick Minister of Finance on November 28, 1996.
More specifically, in the automobile business, tax-inclusive pricing creates all kinds of problems which will adversely affect our ability to do business in an already unstable retail market which is fiercely price competitive. In the automobile business we rely heavily on national brand advertising to support our local advertising efforts.
We are also involved in Atlantic area dealers' advertising associations which provide cost effective, Atlantic flavour advertising with economies of scale. Tax-inclusive pricing will create confusion in the marketplace and will make dealers in harmonized provinces appear to be uncompetitive, eroding our credibility in pricing.
Tax-inclusive pricing will also dramatically increase our advertising costs as we lose the level playing field in pricing we have enjoyed with the rest of Canada. This will render national and Atlantic area advertising ineffective for the dealers in harmonized provinces.
New vehicles are displayed with the manufacturer's suggested retail price label. These price labels are produced by the manufacturers and include retail equipment and pricing. These manufactured suggested retail price labels are important because they give credibility to the pricing and provide the consumer with a fair price for comparison purposes.
If we, as car dealers, are forced to provide tax-inclusive pricing, we will no longer be able to use these labels as it will not be practical for manufacturers to provide different labels for only three provinces which produce less than 10 per cent of the total sales.
It has been suggested that we could alter these labels locally to reflect the tax-in pricing. This costs money and we feel that altering the pricing at the dealer level again erodes the credibility in pricing which is so important in our business.
In the actual mechanics of the automobile sales transaction, the amount of sales tax is a nebulous figure. Most automobile transactions involve a negotiation process concluding with a price, in many instances, different from the price label. Tax cannot be calculated until after the process is finalized, so what would be the point of displaying a tax-included price up front?
In addition, over 50 per cent of new and used automobile transactions involve a trade. In these instances, the sales tax is calculated on the trade difference, again the tax cannot be calculated until the transaction is complete.
In conclusion, the New Brunswick Automobile Dealers Association supports the implementation of a harmonized and reduced sales tax. However, we feel that the implementation of tax-inclusive pricing, especially without Canada-wide harmonization, will drastically reduce the positive benefits of harmonization by placing an unnecessary financial burden on Atlantic Canadian retailers and creating confusion in the marketplace.
Senator Rompkey: Senator Angus asked the automobile dealers about tax-in pricing, and he was told that it was not a problem. The testimony we heard in Ottawa was to the effect that every dealership in Canada has a stack of cardboard stickers on which they write the price with a pen to try to entice a potential customer to buy a car. They told us that it was not a big deal for them to have to write the tax-in prices on the cars. They said that tax-in or tax-out pricing will not break their industry. They told us that what is important is that the rate will drop and it will be easier to sell cars. They said it was almost a side issue from their perspective."
Mr. Bastow: Obviously dealers in New Brunswick have a different view from our patriots in Ottawa. We believe that reduced taxes will benefit our business but, as I commented, tax-inclusive pricing will create a problem. Perhaps they did not consider the national tax-inclusive pricing advertising scheme.
Senator Rompkey: Excuse me. This was the view of the national association.
Mr. Bastow: CADA is looking at it from a national perspective. I represent New Brunswick. Only three provinces in Canada will be harmonized, and it will adversely affect us in advertising issues. If they made that statement, they were not thinking of the three Atlantic provinces. That seems to be the case in many instances.
Senator Losier-Cool: They also said it will move more cars in Atlantic Canada because there will be a reduction in the sales tax in Newfoundland from 19 per cent to 15 per cent; and in Nova Scotia and New Brunswick from 18 per cent to 15 per cent. It will mean savings of $1,400 on $30,000.
Mr. Bastow: I do not question that at all. I agree that the reduction in sales tax is important for us, and I agree that an 18.8-per-cent reduction in the sales tax in the province of New Brunswick will be good for our business. However, are we going to offset that by the additional costs of having to provide tax-inclusive pricing? We do not know the answer to that, but we believe at this point in time because of the loss of effective national advertising schemes, because of the difference in pricing, one will offset the other.
Senator Buchanan: I have no difficulty with the content of your brief, and I have spoken to many car dealers in Nova Scotia who basically agree with you.
In the first place, they are pleased with the reduction of approximately 3 per cent in the overall costs. Second, with tax-inclusive pricing, as you say, will cause confusing in negotiations. I have been involved with negotiations with cars with many of the dealers you know in the Halifax-Dartmouth area, so I know that this will cause them confusion when negotiating an end price. They will have to show the tax on up front which will change their whole negotiating procedure. Third, they tell me that there is no question there will be a saving, but the additional cost that they will have to pay because of tax-inclusive pricing will substantially reduce that 3 per cent, in some instances to below 1 per cent. Do you agree with that?
Mr. Bastow: There is no question of that from the General Motors side. We have a dealers marketing association in the four Atlantic provinces, and all of the pricing in that association and all of the advertised pricing is done on a four-Atlantic-province basis. Now, three out of four will be harmonized. Immediately we start to dilute the association. The costs savings derived from an association like that are tremendous, and we will have to offset that by doing more local advertising ourselves. There is no question that it will dilute the savings resulting from the reduction in sales tax.
The Chairman: Our next witness is Mr. David Amirault from the Atlantic Provinces Economic Council, APEC.
Mr. David Amirault, Economist, Atlantic Provinces Economic Council: My comments relate to the lead article of the APEC, winter 1997, Atlantic report, of which you should all have a copy. There is a full technical report on the HST which is being released later this week, and I can certainly make copies of those available for the committee.
I would begin by turning the clock back a few years to the introduction of the GST. It is clear to me and to many economists that the GST redistributed the tax burden in this country. The removal of the manufacturers' sales tax and the simultaneous introduction of GST shifted the tax burden from regions with relatively large manufacturing bases to regions with relatively large consumption bases.
In 1990, the last year that the manufacturers' sales tax was collected in Canada, $700 of manufacturers' sales tax was collected for every man, woman, and child in Ontario and Quebec. In Newfoundland and Prince Edward Island, less than $100 worth of manufacturers' sales tax was collected on a per-capita basis. The benefits of removing the manufacturers' sales tax were concentrated in Quebec and Ontario. Consumers across Canada paid for the removal of the MST. While a few manufacturers' goods might have gone down in price, by and large the impact was to create higher prices. The benefits of going from MST to GST were largely concentrated in Quebec and Ontario, where the costs were more equally distributed.
Even in 1988 before the GST was introduced, it was estimated that removing the MST and replacing it with an equal yield national value-added tax would produce a $480-million welfare gain for Quebec and Ontario, while it would produce a $120 million welfare loss to the Atlantic region. In addition, I call your attention to the chart on page one in the article, Provincial Own Source Revenues, which shows the differences in own source provincial revenues collected and how negatively impacted provincial governments in Atlantic Canada were by the introduction of the GST which was an infringement on the tax base which was very important to provincial governments in Atlantic Canada. It is no accident that the three provinces that are now harmonizing their sales tax are the three provinces which have the highest dependents on consumption taxes in Canada.
Nevertheless, APEC is still in favour of the GST, and in fact we are also in favour of its logical next step which is the HST. The GST is simply a much more efficient sales tax. There needs to be a recognition, however, of the regional impacts that the GST has brought about, and the fact that the HST is happening, pretty much because of the negative impacts the GST had on the region.
APEC estimates that, in terms of the savings to business, there will be much greater savings from the HST than there ever was from the GST, from the Atlantic provinces. We estimate that $585 million in embedded tax burden will be removed from the businesses in the harmonized sales tax zone. While the three provinces will wind up getting a relief of tax burden of $585 million for businesses, businesses in the rest of the country will still be paying approximately $5.7 billion in embedded sales tax, which gives a huge advantage to businesses and the business climate in Atlantic Canada.
This brings me to the indirect tax burden that businesses feel from provincial sales tax generally. For one thing they are discriminatory against businesses since they do not treat all businesses equally, but we have estimated that there is about $6.3 billion in embedded sales tax burden that is being felt throughout Canada. Again, $585 will be removed when harmonization takes place. This tax relief will flow from the fact that, under harmonization, most businesses will have the sales tax on business inputs fully put through. A $100 business purchase will be a $100 business purchase. There will be no embedded sales tax.
Much of the $6.3 billion that I have estimated nationally is the embedded sales tax burden as it makes its way through to final prices for consumers, and therefore in Atlantic Canada the removal of $585 million worth of embedded tax burden will mean a benefit for consumers.
I would turn to APEC's analysis for consumers. It is clear to me that the impact, in total, will be positive for the Atlantic business climate. For consumers, however, more analysis needs to take place. How much of this business savings will flow through to consumers? Rather than estimating that assumption, APEC turned our attention to the data from the GST, and how it was passed on to consumers and how businesses behaved in terms of absorbing part of the cost of the GST. Rather than picking an assumption from out of the air on how much flow through will occur, we let the data on the GST's introduction lead the analysis. This is a much more prudent approach to modelling the impact of tax changes on consumers since it is built on real data.
It also yields a much more conservative estimate of the benefit for consumers which incidentally is still positive. In fact, APEC's estimates from our modelling that we have been doing over the last two or three months, suggests that, in Nova Scotia and New Brunswick, consumers will be stimulated to spend approximately an extra $35 million in retail, in each province. In Newfoundland the impact will be even larger, approximately $52 million. The reason is that Newfoundland's sales tax is already so broad that the movement from the HST has much larger benefits to consumers there.
In essence, the research suggests that the benefits to businesses and consumers are significant. Could they be bigger? The answer is obviously yes, in my opinion.
There are two measures I want to talk about today that could be taken to improve or to maximize the benefits for the region in the harmonization package. There is a need for federal and provincial governments to truly harmonize the sales tax collection in the region, and by that I mean there needs to be a harmonized and concerted approach to routing out the underground economy that crept up once the GST was introduced and will likely creep up after the HST.
There will be some savings from the harmonization of tax collection efforts. Some of those savings should go towards eliminating the underground economy which is likely to crop up in very specific sectors. In fact, in the article I make specific reference to industries where there is a labour component to installed goods such as flooring, cabinets and so on. The labour component is likely to be driven underground. A technique which has gained a lot of momentum since the GST's introduction is one where consumers purchase supplies on the basis of a, supposedly, do-it-yourself job. They buy the supplies, bring them home and covertly hire a labourer to install them, and therefore avoid the HST. That is likely to increase now that the HST is being put it place. Therefore, I think there needs to be a concerted federal and provincial effort to curtail the underground economy.
Finally, let me talk about how the HST will negatively impact on businesses. It is clear to me, from talking to business owners in the region, that the amount of working capital required to finance this tax is likely to increase. While businesses will get the full input tax credit, they will likely have to wait two to three months to get it. Because of that, it means they have to finance the tax. I call your attention to page 4 in the article which states:
Particularly troublesome is the 15% tax charged on supplies imported into the region from other Canadian provinces.
Many firms in Atlantic Canada as you may know, source a lot of their supplies from Quebec and Ontario. In fact, APEC estimates that $14.5 billion worth of interprovincial imports takes place between the harmonizing and the non-harmonizing zone. Even if you take two thirds of those, if there is an 8-per-cent sales tax increase, although it will be credited back, the working capital required to front that will be significant. In fact, based on our calculations, there may be an increase in working capital required of anywhere from $65 million, assuming monthly remittances of HST credits, to $130 million if it is a bimonthly remittance of tax credit. This is a financing issue and it could easily be resolved if the treatment of international exports were extended to interprovincial imports.
International imports only attract a 7-per-cent GST. Consumers will still pay the 15-per-cent HST. If we were to extend that to interprovincial imports, this issue would largely disappear.
Senator Buchanan: I am a bit confused here. It seems that APEC is in completely in favour of the HST but business organizations such as the Chambers of Commerce and Boards of Trade are not nearly as convinced as you are in your support of the HST.
They are not objecting to a harmonized tax. They do object to a harmonized tax in three small provinces of Canada with the smallest, P.E.I., left out entirely. Only 2 million people out of 28 million people will have HST in this country, and they object to that because that is not harmonization.
They also strenuously object to tax-inclusive pricing and they claim that the costs of tax-inclusive pricing to their retail businesses and services could very well wipe out any savings they have from the tax input credits. Why is it that APEC is almost 100 per cent in favour of HST, and everything included in HST, when businesses say it will be bad for them for the reasons I just mentioned? You were present when they talked about this.
Mr. Amirault: As an economist, I am certainly not in favour of tax-in pricing. I think, however, it is being blown out of proportion. I talked to many retailers who actually are in favour of tax-in pricing. The Atlantic Association of Building Suppliers called me last week and told me that they think that harmonization is the best thing since sliced bread, and I have talked to other individual retailers who share that opinion.
Senator Buchanan: Many retailers in the Halifax and Dartmouth areas are very concerned, and they are not theoretic economists. They are hard-nosed business people who have been in the retail business for years who know what happens when they have a reduction in price because of something like this. It may look good on paper, but in reality it will not work.
They talk about two million people being out of sync with the rest of the country; the cost of complying with the tax-included pricing; price perception or perhaps I should say "misconception"; terrible customer confusion; and so on. I have not heard anyone in the retail business who disagrees with that.
Mr. Amirault: I have. The Atlantic Association of Building Suppliers told me they are in favour of tax-in pricing.
Senator Buchanan: Some building supply people are very upset about tax-inclusive pricing.
Mr. Amirault: As I mentioned I am certainly not wholeheartedly in favour of tax-in pricing, but I do believe that the costs of it are being exaggerated.
Senator Buchanan: You are the only one I have heard say that. We talked to the Retail Council of Canada and to the various Boards of Trade and they all agree that the cost of doing this will be $80 to $90 million annually, and that the transitional cost will be $80 to $100 million. No one seems to disagree with those figures. That is a lot of money.
Mr. Amirault: Yes, it certainly is a lot of money. I am not in favour of tax-in prices, but will we make such an important issue out of it that we will scare consumers? We are in a very fragile recovery.
Senator Buchanan: Consumers are not scared, they are confused. They do not know what this is all about.
Mr. Amirault: You are absolutely right, consumers are very confused.
Senator Buchanan: Just last week I found out that, after April 1, if this bill is passed, when I buy a ticket to go from Halifax to Ottawa, or Halifax to Toronto wherever, I am better off to buy that ticket in Ontario, P.E.I. or Quebec than Halifax, Nova Scotia, because it will cost me 8 per cent more to buy it in Halifax, Saint John, Moncton or St. John's, Newfoundland. Does it not concern you that we have fractured this country to a point?
Mr. Amirault: It does. We need a national harmonized sales tax. In fact, I believe that, now we have the fixed link, many people from Prince Edward Island will do their shopping in Moncton. Retail items will go down in price.
Senator Buchanan: What retail items?
Mr. Amirault: Electronics, camcorders, VCR's, anything you name will go down in price. Every retail item will be cheaper after this.
Senator Buchanan: Your statistics on retail sales indicated clearly that most retail goods purchased in our provinces are goods of under $100 in clothing stores, children's clothing, and that type of thing. We heard from representatives of the retail clothing chains here and in Ottawa who told us that people buy items under $100. One example I like to use is the lady who bought her Christmas gifts of clothing for her nieces and daughters last Christmas at various stores in the Halifax area, and 90 per cent of them cost under $100. She paid 7-per-cent GST but no PST. If she buys clothing for the same people this Christmas, she will pay 8 per cent more if she buys in Nova Scotia.
Mr. Amirault: That is why we actually estimated in Nova Scotia and New Brunswick there will be about $10 million less of clothing expenditures. In Newfoundland it is slightly different because the exemption is only on children's clothes. We have actually estimated that clothing, footwear, and jewellery sales in Nova Scotia and New Brunswick are likely to go down by $4.3 million in Nova Scotia and $4.5 million in New Brunswick.
Senator Buchanan: What is that going to do for the small, marginal retailers?
Mr. Amirault: Obviously for people in the clothing industry it will be negative. However, if you take all the retailers together, and if you add up all the pluses and all the minuses, we still come up with a plus of $33 million.
Senator Buchanan: You come up with that figure because it includes expensive, luxury items such as fur coats. The Automobile Dealers Association told us that their savings to the consumer will be reduced from 3 per cent to less than 1 per cent because of the additional costs, because of tax-inclusive pricing. Do you agree with that?
Mr. Amirault: I agree that some items will go up, but I also agree that some items will go down and that, in total, the amount will increase by about $33 million.
Senator Buchanan: How many low- to middle-income seniors buy automobiles every year, stereos, camcorders, fur coats, compared to the number of people who must use electricity, gas for their cars, and other necessities which will go up in price? When people go to the gas pumps after April 1, if this bill is passed, instead of paying $0.59 a litre, they will have to pay $0.63 to $0.64. Then APEC may admit it was wrong.
Mr. Amirault: The issue of the impact on low-income consumers is certainly relevant. However, I do not think we should stop the HST because of it. What we must do -- and it is being done in Nova Scotia and New Brunswick -- is bring in low-income tax relief. We introduce other measures to neutralize.
Senator Buchanan: I have heard mention of the child tax credit. We must keep the issue separate from the HST because there is no relationship between the two.
Mr. Amirault: It certainly neutralizes part of the impact. When you introduce a tax, it should be a broad tax. That is the essence of the GST and the HST. With a broad tax everybody pays a certain amount. If certain groups are being hit harder than others, then you introduce a tax credit or some type of tax relief targeted to those individuals.
Senator Buchanan: We heard from the Tourist Industry Association that the 15-per-cent rebate to tourists will mean a boom in that industry. However, we also heard evidence to the contrary. We heard that 80 per cent of American tourists who come to Canada do not bother to apply for the GST rebate. How will it help the tourist industry of our provinces if P.E.I. is charging 8 per cent less for most of the items that tourists buy?
Mr. Amirault: That is a good point. In terms of the total impact, there is no question in my opinion that the impact is positive. However, certain groups will be hit. In fact I do believe that low-income people will be hit by the HST.
[Translation]
Senator Losier-Cool: Thank you, Mr. Chairman. With the whole series of questions put by my colleague, mine was almost put at the same time. I'd simply like to know if you read this morning's Telegraph Journal? In view of your expertise and your knowledge of Atlantic region consumers, on page 1 of the paper it says that the "Champlain Mall" is going to have to shut down because of this new tax. Isn't saying that a little defeatist? Because I look at the title of your report where it says that harmonization is going to stimulate and motivate the consumer. I would like to have your comments on that.
Mr. Amirault: Sorry.
Senator Losier-Cool: Do you have any comments on --
[English]
-- what was making the front page of the Telegraph Journal this morning?
[Translation]
Mr. Amirault: Well, I didn't read this morning's Telegraph Journal. I can only point out that we ran a model that took us two months to set up and that determined that in the area where the taxes would be harmonized there would be a positive impact of $33 million in New Brunswick, $36 million in Nova Scotia, and $52 million in Newfoundland. That's a positive impact.
Some sectors will be hindered and others will be helped by the new tax. Overall, there is going to be a positive impact. As to whether there are going to be negative effects, of course there will be. Overall, it is going to be a positive impact. My opinion is there's no reason for there not to be a positive impact.
Senator Losier-Cool: Yesterday, we heard a lot about people saying that consumers do not know what the contents are. Can your organization play a role? There was talk of communication, of making the whole thing known, of popularizing the information, if you will, so that the majority of Atlantic region consumers can really understand what it all means.
Mr. Amirault: That is a problem for me, because even coming from the airport this morning, I told the bus driver: I am in town to talk about the harmonized tax. He said: It will be an absolute disaster. It will have an impact, the price of food will go up. That is not true. There is a lack of information on the impact of the tax. We have written a very reader-friendly four-page article on what the impact will be. We are currently preparing a report that will be ready by the end of the week, which will be a little bit more complete, for anyone who wants a copy. So my opinion is that the impact of the tax is more or less positive. There are negative aspects that have taken on such a significant dimension that we are scaring consumers. What is more, we are in a period of extremely fragile economic recovery. And it is irresponsible to exaggerate the costs of the tax. They are surely not as high as some people think.
Senator Losier-Cool: That is my comment. Because I think that organizations like yours can take on that responsibility. If the government does it, right away people say: that is government information. You can take some and leave some, depending on how you want to read it. So I think that there must be some organizations to provide reassurance. And that is what we heard yesterday. We heard from people who were afraid, who do not understand the changes.
Mr. Amirault: The GST is one of the main reasons why people in this region are afraid. Because the GST had a very negative impact on this region. This was probably the hardest-hit region. And it is the reason why we need to harmonize our sales tax. It is simple.
[English]
The Chairman: Senators, our next witness is Ms Elsie Wayne, Member of Parliament for the City of Saint John.
The Honourable Elsie Wayne, Member of Parliament: I appreciate the fact that this committee has travelled to the East Coast to listen to our concerns. Your committee held hearings in Ottawa, but our people were unable to attend to express their views and that caused them some considerable concern.
I wish that all the Liberal members of the committee could have been here to listen to what had to be said in the last two days because it is most important. However, I appreciate the fact that there are four of the seven here.
As you probably know, I use a different approach from that used by some other MPs who might appear before you. I do not follow the party line. I have no time for that at all. My approach is not whether something is right or wrong for any political party, it is whether it is right or wrong for the people. I am serious about this.
Before I am through with my comments, Mr. Chairman, I am sure that you and others will see that this tax-in pricing is wrong for the Atlantic region.
It appears that the representatives of the Board of Trade are not worried about HST, as it will apply to the three Maritime provinces. However, I am most concerned because of what I heard from the people who gave evidence at this table yesterday. I am referring to Carolyn McNulty from Romero House, an organization that feed thousands of people throughout the year in Saint John; Pamela Coates from the National anti-Poverty Organization; and Edna Doiron from One Voice for All. These people are terrified about what will happen.
When the previous government was considering tax-in pricing, they were going to introduce a hidden tax in HST. I was mayor at the time. They came here to ask us what we thought about it. All the mayors of the province of New Brunswick went to Fredericton to meet with the minister and the message was quite clear: We told them, no way, absolutely no way. What you heard here today was what he heard in that room, Mr. Chairman. In fact, he heard it right across the nation. You and others, Mr. Chairman, made some statements in support of our position, and I would thank you for that. I would urge you to take that same position and stop the tax-in pricing.
I believe the HST will hit the Atlantic region unfairly and disproportionately, because it will impose more burdens on this region than on any other relative to the benefits which will accrue from it. Members of Parliament have been proposing amendments to make it fair and why in fact the Senate Standing Committee on Banking, Trade and Commerce argued in favour of killing this bill.
This bill is inherently unfair, not only to the people, it is equally unfair to the low-income regions of the country, the regions which lack a significant manufacturing base.
Having dealt with the issue of regressivity and unfairness with respect to both individuals and regions, let me now deal with the question that has often been asked which is whether or not there are alternatives. Clearly the issue that one must deal with, given the billions of dollars that are intended to be collected by this tax, is whether or not this is the only way of solving the government's problem.
Senator Angus: Who said that?
Ms Wayne: The chairman said it.
The Chairman: I must say I am impressed with how articulate I once was.
Ms Wayne: I must say, sir, at that time you were absolutely correct, and that statement still applies today. You have heard that from many witnesses. Several representatives of the Retail Council of Canada, which is composed of a non-political group of business people, came to see me in Ottawa. They represented K-Mart, Sears, Shopper's Drug Mart, Canadian Tire, Mark's Work Warehouse, Northern Reflections, Randy River, Home Hardware, Hudson's Bay, Metmart and Greenberg, and Winners, just to name a few. They said, "Your population is so small compared to central Canada, Quebec and out west, and our revenue is so small, why would we pay hundreds of millions of dollars to implement this tax-in pricing? Tell us why we would stay in those locations"
Mr. Chairman, when they said that I was truly shocked. When Elsie is speechless, something is having an impact. I asked them if they were serious about withdrawing from the region, and they told me they are business people. I know that one of the senators asked whether it would have a negative impact on the mall in Moncton. The answer is: Yes, it will have a negative impact; and yes, it will have a negative impact right here, senator.
The premier's representative has stated this this will create jobs. I am telling you that we will lose a lot of jobs, senator. I wish you had time to come with me to the malls in Saint John where you would meet the people who are working there. They are all worried today.
There is an image out there. Who or what is responsible for it, I am not sure, but the image is that people are very cynical about politicians these days. They are also very cynical about the Senate. I was no exception until I went to Ottawa and recognized the need for sober second thought. We need that sober second thought now. People are relying on you to carry their message back to Ottawa.
People are cynical because, when the House of Commons Finance Committee looked at the proposed GST in November of 1989, the Liberals, in a dissenting report, stated:
Since it would be easier for the government to raise the GST rate in the future if Canadians were not aware of how much tax they were paying at the moment, it is imperative that the GST be visible. The Liberal members cannot support a hidden tax.
Canadian taxpayers have a right to know what taxes they are paying. Any reform of the tax system should be designed to help Canadians understand how much and to which level of government they are paying their taxes.
They fought tooth and nail then, but today they are in favour of it. When they were in opposition they opposed it, but now they are in government they are going along with it. No. The people of Canada will not allow that.
I received a letter from Lee Valley Tools in Ottawa wherein they state that this is a looming tax disaster for New Brunswick, Newfoundland, Nova Scotia and Lee Valley. They will no longer send catalogues to us, and they will no longer fill phone orders from these three areas.
In addition, J.C. Whitney and Company have instructed their dealers that they are to charge 25 per cent more after April 1 on all orders.
Mr. Chairman, that is just an example of how this will affect our region. Some people in the House of Commons refer to us as have-not provinces. Some believe we are always on welfare. Our people want their dignity, they want to work. They do not want this tax, Mr. Chairman.
I have here a list of eight every-day items, a smoke detector, diapers, a girl's fleece-lined outfit, an infant's snowsuit, boy's winter boots, a child's car safety seat, a lady's coat and men's work boots. The total cost, before tax, on those items at the present time would be $414.74. With the GST added it is $29.05 more. There is no PST. The total tax paid is $29.05. For those same eight items, the tax-included prices would bring the cost up to $443.79. The HST would be $63.22, 114 per cent more.
As you heard here today, our people cannot afford this. Everyone I meet tells me that they will not come to my shop any more because they I cannot afford it.
We have a gentlemen sitting here in the front row. He owns a tavern as well as other businesses. He and others thought they would be paying less when they go to buy their beer and wine for their customers after this comes into play. Instead, the McKenna government has now told them that there will be a 10 per cent surcharge which will not be refunded. They will pay 15 per cent and get their rebate, but they will not get a rebate on the 10 per cent. They do not pay that now.
We must help our people. I have a great deal of respect for those who have appeared before this committee. I know that Denis Losier, a former cabinet minister in the McKenna government who is now head of Assumption Life, has been able to reach an agreement for Assumption Life. I am pleased he has been able to do that. They will get a rebate. I do not know if that will apply to the others who sell mutual funds in these three provinces.
In this morning's paper, a gentleman from Hudson's Bay commented on Eaton's, which is part of our history, going bust. He mentions the fact that national retailers are being forced to re-sticker hundreds of thousands of items to suit a purely political agenda because the government does not want the public to see the HST. He says that the HST bill requires retailers to include the new tax in the total price and in the past the sales tax was displayed separately. He also suggests that Paul Martin listen to the argument from the Hudson's Bay Company president who says that the tax-in requirement must be scrapped. On public radio he said that no retailer really does well in the maritimes in relation to other parts of Canada.
He went on to say that the maritimes currently benefits from centralization and that if they were to decentralize all of their computer systems, marketing systems, and distribution systems the cost would be astronomical and prices would go up substantially. He says it would probably increase the cost of distribution by 2 per cent, which means they would have to raise prices by as much as 5 per cent. You can do it but it is unbelievable. In Canada, if you operate nationally you do about 4 per cent of your volume in the maritimes. He says that the tax-in change will cause all kinds of problems and they will have to stop the presses and run 4 per cent of the fliers at a different price. That will cost money.
These people have pleaded with the government and they anxiously await your findings. They have said they will not be marked on April 1. What they are saying is that they will not comply, Mr. Chairman. Hudson's Bay will not comply. They told us that they must consider pulling out of the maritime provinces.
It is a very serious situation. I am banking on you going back to Ottawa and recommending amendments to remove tax-in pricing from the bill. Of course, like you when you were in opposition, I would like to see the bill defeated. Do not let our people down, they cannot afford it.
Senator Angus: Would you say then that the bill which was passed on Friday by the New Brunswick Legislature, when combined with Bill C-70, if indeed it is passed in Ottawa, will be an advantage to this area?
Ms Wayne: Definitely not; not in any way, shape or form.
Senator Angus: Not in any way, shape or form?
Ms Wayne: I do not know why our premiers agreed to this. There is no question they were compensated, but we all know, that the Auditor General was very critical of the fact that the inclusion of that $961 million was in the 1996 deficit.
We have also been informed that we have a problem with Revenue Canada. They are saying that there is no way that we will be able to do this. We must consider the future. This has been a major mistake.
Senator Angus: Do you know why the federal government is doing this?
Ms Wayne: Yes, I know. It has to do with the Red Book. During the debate on what the Prime Minister may have said during the election campaign, Mr. Martin stood up in the House and agreed that they had promised to scrap the GST but that he could not do it because it would be too expensive. No one has pointed a finger at Paul Martin since.
The Prime Minister of Canada did make the statement that he would abolish the GST. However, this measure does not abolish anything. This creates a problem. I believe that he were here to listen to the people, he would go back and say to his government, "This is wrong. We must not do this. We must not have tax-in pricing". He might even consider whether this bill should proceed because the the HST will put the three provinces out of sync with the rest of Canada.
I will leave a brief with you here from a Mr. Ralph Murray. Mr. Ralph Murray worked in transportation all of his life. He spent the majority of it in Montreal and he held the position of Canadian General Manager of Transportation for a major shipping company. He said that we hear so much about establishing a distinct society for our friends in Quebec but the government is creating a distinct society in these three provinces if you go ahead with this because we will be completely out of sync with the rest of the country.
Senator Angus: I gather you are saying that you will be distinctly disadvantaged.
Ms Wayne: We will be extinct if you continue.
Senator Angus: Yesterday we heard that it was the poor people, the unemployed, the people on welfare and the elderly who would be adversely affected by this legislation. We even heard that doctors would be disadvantaged. Are you now telling us that it will be bad for business as well?
Ms Wayne: The Retail Council of Canada told me that 10 members, accounting for roughly 30 per cent of Canadian retail sales, had given them, in confidence, detailed estimates of the impact on their firms of the tax-in pricing regime. These companies alone would incur an annual net ongoing cost of almost $28 million and a one-time transitional cost of $27 million. On that basis they estimated that the retail industry as a whole would incur a continuing annual cost in the range of $90 million and a one-time transitional costs of roughly $90 million. The members were very concerned that, in trying to deal with this burden in the small Atlantic market, they would be forced to raise prices or leave.
The Retail Council of Canada, as you know, is made up of business people. They are not politicians. I have never seen them so worried as they are this time around. If this legislation was advantageous, they would be praising it, not fighting it. The business people from Moncton, Fredericton, Saint John, and those on the Acadian Peninsula are terribly concerned about the tax-in pricing.
Senator Angus: You heard the witness yesterday indicate that the provincial governments here, these three Liberal governments, seem to be giving away the sovereign right of these provinces to indirect taxation. What do you have to say about that?
Ms Wayne: I have to say that if this was good for all of Canada all premiers would have come on board. I have known John Savage for a long time. He was a mayor when I was a mayor and we worked together. I also know Brian Tobin because he worked to save the Via Rail line, which they used to call the "Elsie Train" but he was unsuccessful. I have known Frank McKenna since he took office. It is sad that only three Liberal premiers that have agreed to this. If this goes through, there will no longer be any Liberal premiers.
You cannot do that to these people here, you just cannot. You can find a way out for the government, if they need to save face. That would be fine. Find a way to do it right, but you must eliminate tax-in pricing.
Senator Hervieux-Payette: According to Statistics Canada, the annual savings for an average family in your area will be $255. For a low-income family the annual savings will be $76.
As a senator and I thank you for the respect you have shown our institution. We rarely receive compliments about our work, so I welcome your comment.
The Atlantic Economic Council and the Conseil économique du Nouveau-Brunswick, which I do not consider to be a political organization since, they are in fact under the directions of renowned economists of your region, both say this will be beneficial.There are two sides to the story: your alarmist view, and the view of the people whose work, credibility and careers are at stake. They are advising the population of the maritimes that this will be good for business.
The Atlantic Economic Council say that, of items which are part of regular consumer spending, in eight instances sales will increase and only in four will they decrease slightly. Sales of motor vehicles will increase by 19 per cent; hotels and restaurants by 13 per cent; entertainment goods and services, which, I suppose, is tourism by 10 per cent. All of that means a net increase of 33.4 per cent. That is positive for this region because, if jobs are created, the economy will work better.
I would like to separate the political views from the expert views.
Ms Wayne: I have no problem with that. We have with us, Mr. Gilles Vernier, a businessman from the Grand Falls area who can tell you that Madam Bertrand was not accurate in her presentation. She talked about paying the PST and the GST when they purchase their products and that there will not be an increase in that figure. He will have to pay 8 per cent more up front, and he may have to borrow that money. The product could sit on the shelf for a long time. When he sells it, he may only recoup a small portion of the cost.
We spoke to Madam Bertrand afterwards, as did most of the businessmen. With respect to the lady, I think she may have adopted a different view since her presentation, because her remarks were quite inaccurate.
I cannot believe how the Atlantic Provinces Economic Counsel has drawn the conclusions it has. You heard from the business community, specifically the chambers of commerce and the boards of trade, who represent all of the Atlantic region, and they told that this was not good.
The Atlantic Provinces Economic Council asked our people in the maritimes whether, before they arrived at the cash register, they wanted to know the price and not have to add tax on. They said that was what they wanted, but the council forgot to ask them whether they objected to paying more. They did not tell them that diapers and children's snowsuits would cost more.
Senator Hervieux-Payette: You can certainly single out one item which will increase in price. However, with a harmonized sales tax we will broaden the base and lower the rate with the overall result being a plus for your province.
Ms Wayne: No, it is not because you pay it on many more items than you pay it on now. On some items you pay PST but not GST. On some you pay GST and on others you do not. This will apply to everything. That was the deal that was struck. The premiers knew this would be costly and they tried to strike a deal. In the end, the poor taxpayer will pay more.
How often does someone buy a car? There will be savings on the purchase of a car or a fur coat. Middle-income families will suffer as well as low-income families.
Senator Hervieux-Payette: On many items you buy at the grocery store you are taxed at 18 per cent. That will be reduced to 15 per cent. In Quebec it is now 13.5 per cent with the harmonized sales tax. There was no revolution over this. It works well and there is only one administration agency.
Ms Wayne: In their case there is no tax-in pricing. They refused to do it.
Senator Rompkey: That is not the point she is making.
Senator Hervieux-Payette: I am talking about the percentage. As you know, the tax will show on every bill and 80 per cent of the population is in agreement with that. You will know the tax component of what you will pay, but what will come out of your pocket will be the amount on the price tag.
Ms Wayne: It will be more.
Senator Hervieux-Payette: Consumers will benefit from that. I am a consumer. I buy for my family.
Ms Wayne: The chairman of the APEC said that this will not be good for the retailers.
Senator Hervieux-Payette: I am not talking about the stores.
Ms Wayne: It would appear to me that, notwithstanding what you have heard from everybody here, you have made up your mind, Madam Senator, that it is good. I hope that is not the case.
Senator Hervieux-Payette: I am the only one who has lived with a harmonized sales tax. That was introduced by a Conservative government in Ottawa and a Liberal government in Quebec. I must remind you that we have experience in this area. You are with a group that has already put that in place, and that has benefited from a higher consumption rate, which is, of course, producing more taxes. However, there is still a deficit and, if the federal government has agreed to fill the gap resulting from what will be collected as a result of this change, somebody somewhere will benefit from it.
You mentioned that the Auditor General was complaining about the reporting procedure. However, you must agree that almost $1 billion will be reimbursed to the maritimes as a result of this change.
Ms Wayne: That cannot continue, so where will they collect it from later?
Saint John, New Brunswick, is the city closest to the U.S. border, and we have worked extremely hard to get our people to buy here, invest here. This will drive the underground economy and cross-border shopping up again. Consumers will not pay $50 if they can purchase the same item for $20 or $25, even though there is the exchange on the dollar t to consider.
I am still relying on you to help us make changes to this bill to take that tax-in pricing out.
Senator Hervieux-Payette: To be accurate, the harmonized sales tax will be totally reimbursable to those who come from other countries. That is a benefit Quebec has enjoyed. In fact, retail stores are very happy this system is in place. There is only one place where they can claim their reimbursement. This will give you a competitive advantage.
The Chairman: Senators, our next witness is the Minister of Finance for the Province of New Brunswick, the Honourable Edmond Blanchard. Minister, we look forward to your opening comments. You have just distributed a brief to us. We will then have a period of questions and answers.
Mr. Edmond Blanchard, Minister of Finance, Province of New Brunswick: Before I begin I would like to introduce the individuals with me: the Deputy Minister of Finance for New Brunswick, Mr. John Mallory, and Mr. Norm Campbell, Assistant Deputy Minister responsible for taxation and fiscal policy.
[Translation]
As Minister of Finance for the Province of New Brunswick, I am pleased to be here today to explain why New Brunswick has chosen to sign the agreement to harmonize its provincial sales tax with the federal GST. When I announced the signing of the agreement on October 23, 1996, I called it the most significant and progressive tax reform measure this province has undertaken in decades.
[English]
The decision to harmonize was not an easy decision and was not made lightly. However, we knew it was the right decision because it would allow us to build on the fiscal successes of the last nine years. It was also the right thing to do for New Brunswick's future, to ensure progress continues.
Since taking office, the Government of New Brunswick has established an excellent track record in dealing with the fiscal situation of our province.
[Translation]
When this government came to power in 1987, the province had a stifling debt load. We knew it had to be addressed immediately. The government was aggressive in tackling the financial problems of the province. We developed a long-term fiscal plan and stuck to it. Sound fiscal management of the province's revenues and innovative taxation policies have achieved positive results.
[English]
Harmonization is one more component of that aggressive agenda. It was and is the right decision for New Brunswick, for the New Brunswick economy, for business, and for the consumer. Now that many fiscal goals and objectives of the government have been met or established, we are ready to move on to the next phase. The concept behind harmonization has been praised frequently by business and industry. We have received letters and submissions which have supported and encouraged this move.
In contrast, tax inclusive pricing has emerged as the most controversial issue surrounding this initiative. New Brunswick's approach to tax inclusive pricing has always been broad-minded and flexible. We have listened to the concerns brought to us by the retailers and we have tempered our position with those concerns in mind. I have made the point time after time that we will be flexible in implementation and that we are always willing to consider reasonable alternatives. This is why we have responded to input from retailers and have agreed to a number of options for compliance. The in-store options were a direct result of input from retailers and we are confident that the options will allow retailers to satisfy their customers' preferences without undue cost or disruption to their businesses.
Our decision on tax inclusive pricing and advertising will also be influenced by input from the business community. There is concern regarding our long borders with Maine and with Quebec. We need to ensure that retailers in these border communities have competitive equity with their neighbours in the marketing of their goods and services. Retailers in the rest of the province have expressed concern regarding competition from national advertisers who may not be subject to the same regulations as local or regional retailers.
However, we believe that, ultimately, it will be the consumer who will influence the retailers' marketing strategies. The fact remains that consumers have expressed their preference for tax inclusive pricing and we believe that, eventually, retailers will respond to the wishes of their consumers.
[Translation]
Although this issue has attracted much attention, tax-inclusive pricing is merely one component of an extremely complex tax reform package. The Harmonized Sales Tax Agreement addresses a multitude of issues, solves many problems and creates incredible economic opportunity for New Brunswick. It has not been disputed that business supports harmonization. Business recognizes the potential that a harmonized, value-added sales tax system provides; potential for unprecedented economic growth; potential for job creation and potential for investment. A harmonized, value-added system gives business the economic leeway to develop, expand and remain vital.
The global market grows smaller every day. Technology has brought the world to our doorstep. With harmonization, we are now in a position to compete as never before. If the New Brunswick economy is to grow, flourish and provide jobs for New Brunswickers, we must look beyond our own backyard for markets. Indeed, we must look beyond national markets and be prepared to compete in the world economy. That is an economic fact of life as we approach the 21st century. We must look to global markets to create new markets for New Brunswick products. However, to compete effectively in the global market, competitive equity must first exist for new Brunswick companies. Under the current provincial sales tax regime, New Brunswick business did not have the competitive equity needed to take on global competition.
[English]
Sixty-five per cent of New Brunswick's gross domestic product is exported to other provinces and countries. This is a significant number because it represents the highest ratio of export dependence of any province in the country. A value-added system not only makes our exports stronger and more competitive, in fact this new harmonized system is tailor-made for an economy such as New Brunswick's.
We expect a minimum of .5-per-cent to 1-per-cent increase in the GDP and 1,600 jobs per year because of this initiative. A recent report released by APEC projects significant growth in business and stimulation of consumer spending under harmonization.
[Translation]
Under the current provincial sales tax system, PST paid on business purchases is an expense. Under the value added HST system, that tax burden is removed. The result is a more viable, stable and competitive business environment -- a business environment which will attract investment to this province. Industry will look to New Brunswick as a prime location to expand and invest. This cannot help but have very positive effects on our province's economy.
[English]
Our neighbours to the south have traditionally been our most important customers. Harmonization will give us the edge we need to compete shoulder to shoulder with Americans in the American market. Value-added systems have been operating globally for many years. Many of our international competitors -- Norway, Japan, France, England, New Zealand, Australia, Sweden, and others -- all operate with a value-added system. Harmonization will place New Brunswick and New Brunswick's businesses in a better position to compete in the global markets with these countries.
Not only will we grow stronger in the international market with harmonization, but our position domestically will be strengthened as well. A strong business environment means jobs, jobs for New Brunswickers.
The Government of New Brunswick has made no secret about its agenda for job creation. It is the number one priority and we view harmonization as one more element, a very significant element I might add, to the package which creates the New Brunswick advantage. We are out for business and we are out for jobs, and harmonization will help us get them.
It is not only the export and manufacturing sectors which will benefit from harmonization, but local business and retail sectors as well. For example, tourism is a major industry in New Brunswick which, for the most part, is currently taxed at an effective rate of 18.77, one of highest sales tax rates in all of Canada. Accommodations, restaurant meals, gifts and many other items are all taxed at this rate. With harmonization, the rate will drop almost 4 per cent to a lower rate of 15 per cent. This will be a considerable break for the tourism industry. In addition, tourism operators will benefit from full, complete input tax credits, as will all other businesses registered under the HST. There is no doubt that the tourism industry will benefit significantly, benefits which will be mirrored in many ways in many other sectors.
[Translation]
New Brunswickers have been asking: "What does harmonization do for me?" Many are concerned about the broader tax base. We understand that. We have always acknowledged that the rate of tax will increase on such basics as fuel, electricity and clothing under $100. We have never denied that. However, we have also done our homework. We have looked at the numbers and the overall impact on consumers very closely. Our analysis has shown consistently that, on average, New Brunswickers will be ahead with harmonization.
[English]
The December 10 provincial budget detailed many programs which the New Brunswick Government has developed for the benefit of New Brunswickers. Between January 1, 1997, and January 1, 1999, the provincial personal income tax will be lowered by 10.2 per cent of the basic federal rate. This will return $126 million to New Brunswickers, returns which will continue for years to come.
In addition, harmonization will lower the overall tax burden on consumers by reducing the sales tax rate on most consumer goods. That, in combination with lower costs passed on to consumers from business, will result in savings for New Brunswickers.
Ladies and gentleman, to guard against any negative impact on low-income families, New Brunswick has introduced two programs, a Child Tax Benefit and a Working Income Supplement. These programs, which focus on low-income families with dependents, will more than compensate eligible families for any negative impacts they might experience.
[Translation]
The Harmonized Sales Tax will provide unprecedented opportunities for job creation. This will lead to opportunities for New Brunswickers and will provide a strong measure of stability for existing New Brunswick businesses. We are saying to the local, national and now the international markets -- Look at New Brunswick first for investment and for growth. We have the programs, the people and the tax systems to help you succeed. The Government of New Brunswick has committed to a harmonized system, for all the benefits it provides the economy, business and the consumer. When the economy is good, there are jobs. When business expands, there are jobs. When business is secure, we keep jobs.
[English]
When jobs are created and taxes are lowered, that means money in the pockets of New Brunswickers -- the pockets of all New Brunswickers at all income levels. The ultimate benefactor in a harmonized system will be the people of New Brunswick because a prosperous New Brunswick means prosperous New Brunswickers.
There is no doubt New Brunswick has taken a bold step towards self-sufficiency. As our economy grows and becomes stronger, we will become more financially independent and harmonization offers that opportunity.
Today I have given you the big picture; this government's vision of a fiscally powerful New Brunswick. When you return to Ottawa, honourable senators, I ask you to remember what harmonization can accomplish for New Brunswick right now and in the future, and I would respectfully ask that you vote for New Brunswick's future by sending Bill C-70 back to the House of Commons approved.
April 1 of this year, April 1, 1997, will be an important day in the economic history of our province. It is the day New Brunswick moves one giant step closer to self-sufficiency. It is in the best interests of this province and, indeed, in the best interests of the country, that New Brunswick becomes more self-sufficient. I ask you not to stand in the way of New Brunswick's goal of fiscal independence.
I would be pleased to entertain any questions you may have.
Senator Oliver: Do you agree with me that there is a difference in theory between the doctrine of harmonization and the doctrine of tax-in pricing?
Mr. Blanchard: I think in my presentation, senator, I have made it clear that the issues can very easily be segregated. We have indicated from the outset that the benefits of harmonization, clearly, can be achieved with or without the other. It is not to say that the other issue of tax-in pricing-in pricing has not been addressed and has not been considered as a desirable issue from our perspective.
Senator Oliver: As you know, we have heard from a number of business people from New Brunswick today, and the overwhelming evidence by groups such as chambers of commerce and so on, groups representing some 17,000 business, companies and individuals, is that they are strongly against the theory of taxed-in pricing because it is will increase their cost. They say that it will create more confusion and they are against it. They are asking us as a Senate committee to do something about it. Are you aware of that?
Mr. Blanchard: We have been dealing with this issue for about a year now. We have listened to many of the concerns that have been brought to our attention by many of the groups that you speak of, and many more that perhaps have not had an opportunity to speak with you or to address this issue before this committee. Many of the initiatives that this province, along with our sister provinces and the federal government, have agreed to are as a direct result of many of those presentations and concerns. Our bottom line is that we would like to move in this direction with ultimate flexibility of implementation. We certainly want to be in a position to deal with the concerns that have been raised, and I think we will be able to do so.
Senator Oliver: Are you agreeable to delay the tax-in pricing component and proceed with the harmonization component? I say that bearing in mind what the Atlantic Provinces Chamber of Commerce said to us today which is as follows:
It is our contention that introduction of tax-in pricing on a regional, or piece-meal basis, will reverse or nullify many of the efficiency gains in the retail sector over the past number of years.
They are asking us to delay it until such time as other provinces are harmonized. Are you prepared to wait?
Mr. Blanchard: When these presentations and advances were made to us, we listened very closely. There are others you have not heard which are, quite honestly, very supportive of tax-in pricing. Representations were made by the grocery industry, for instance, in this province, who feel very strongly that this is the way to go. I have had people call me as late as yesterday asking us to be even more firm in this regard. We have indicated from the outset that we will be flexible in terms of the date of full enforcement. We have already agreed to put that off till August.
The issue of advertising, which in my understanding of all the presentations were made, is a key issue, and it is one which concerns us. I touched on this in my presentation to this committee, because of the border situation, because of having to ensure that there is a competitive equity between people who do business in this province versus people outside our jurisdiction. On the issue of national advertisers beaming into New Brunswick via whatever means they elect to use, we must approach that in a different way from in-store advertising, and we have made that very clear. Those issues will be advanced over the next week or so and a final decision will be made.
We feel comfortable that we have addressed the issue of tax-in pricing for the in-store part of it. I think there is enough flexibility in the New Brunswick approach to address many of the concerns, whether it be in-pricing, dual pricing or, in certain instances, the issue of cards, for instance, that I was concerned about. Many merchants indicated to us that reticketing would damage inventories which would probably have to be returned in some cases. We have exhibited a lot of flexibility in that regard and I think we have addressed many of the concerns that were raised.
The advertising issue is one we have not yet resolved. We will be reviewing this in the next couple of days with our sister jurisdictions.
Senator Oliver: Some people complain that, under your system, they will have to post four different types of prices in their stores and that will confuse consumers.
Not only do you sound like a Minister of Finance, but you also sound like someone who is really promoting the Province of New Brunswick. You talked about being a fiscally powerful New Brunswick and a New Brunswick that will be ahead in the future. Do you think New Brunswick will be far ahead if major national retailers, as a result of tax-in pricing, withdraw and leave the province, and the people who are now employed by them are unemployed, and there is no competition and prices go up? In the long range, do you think that will be good for the Province of New Brunswick?
Mr. Blanchard: Our objective is clearly not to have that happen.
Senator Oliver: You know that it has been threatened?
Mr. Blanchard: Yes, and many other things have been threatened, senator. We have a responsibility to listen to these issues very carefully and to address them but, at the end of the day, we will have a more competitive economy, both for the retail sector and for the industrial sector.
I am confident that, with our approach on this specific narrow issue, we will be able to address a lot of the concerns that have been raised by some of these national retailers.
I need not point out to the Senate, and I have a study that indicates quite clearly, that the retail industry right across this country is undergoing a significant change, and we are sensitive to that issue. Our approach from the outset has been to exhibit flexibility and to be quite prepared to take advice in terms of how we can address some of the issues that are raised. However, these issues are vary from one retailer to the next and, clearly, I am quite prepared to continue to listen.
Our decision has been made. On the in-store pricing issues, we feel comfortable with the options that we have put forward. On advertising, as I indicated in my comments to the Senate this morning, we will be reviewing this in some detail in the next couple of days and, hopefully, be in a position to announce a joint decision by all of the partners to this initiative.
Senator Oliver: What will you do with your component of the $961 million from the federal government. Will any of that go to seniors and the poor?
Mr. Blanchard: We have already announced the initiative for a $25 million program to help the working poor in this province.
Senator Oliver: What about seniors?
Mr. Blanchard: It is focused on families. As I indicated, we have already announced a 10.2-per-cent reduction across the board in terms of the provincial income tax at the federal rate. We do have other fiscal tools that we can use to lower the overall tax burden to New Brunswickers and we are very serious about that. If you look at all of the initiatives that we have announced, including the fiscal ones that I mentioned in my presentation this morning, over the next number of years New Brunswick will significantly reduce the overall tax burden in this province, and on PIT alone it will be $126 million. The harmonization initiative in itself is $170 million a year that will remain in the New Brunswick economy.
Yes, there must be adjustments with the introduction of this sort of initiative. These changes are significant and they are absolutely comprehensive but, as I indicated earlier, we do have the fiscal instruments we need to make whatever adjustments are deemed necessary.
We felt that the issue of child poverty absolutely had to be addressed. Mrs. Louis, who appeared before your committee yesterday, expressed her concerns about how this initiative, this tax change would impact on herself and her four children. What Mrs. Louis did not realize at the time, because I was informed she was not made aware of this, is that the two initiatives that I just mentioned, senator, will provide her, from the provincial coffers alone, with $1,200 a year. Not only will that address her issue of an increased power rate, that will cover payment of the entire bill.
No one has been able to take issue with the model that we have, and the overall analysis of that model is clear, concise and direct that, indeed, New Brunswickers, on average, will be better off. We are speaking of consumers here. We went through a significant debate on that.
Senator Rompkey: Would you elaborate on the last point you made, because I think it is worth underlining. Yesterday we did indeed hear from the woman in question, but we also heard from Mr. Valcourt who, as I pointed out yesterday, when he was a federal minister in the Mulroney cabinet, was in favour of the GST, and now that he is leader of the Conservative Party in New Brunswick he is against the HST. He was pointing out that your government is not doing enough for people on low income. I want to give you an opportunity to set the record straight.
Mr. Blanchard: The model I referred to was quite clear. This model is made up of more than the Phamex study that is being talked about. The SPSM model, which is the one used by just about every government in this country including Mr. Valcourt's government when he was in Ottawa, uses the Phamex survey. It is an established input, output model that is quite comprehensive. It deals with the income tax data that is provided by Statistics Canada as well as price flow-through analyses.
We used a very conservative estimate of what that in flow-through would be. We estimated it to be somewhere in the area of 50 per cent. The model is clear. In 80 per cent of cases, consumers at every income level are better off.
Our government was concerned with the remaining 20 per cent, particularly as it might apply to those in the lower income range. This is why we put together what I think is a very important program. For the first time in the history of this province we will have a program, which is costing us some $25 million, which will address and focus on working families and families with children. There will be a credit of $250 per child and there will also be a working income supplement of some $250 per family. The lady who appeared yesterday had four children. She indicated that she would be earning minimum wage. She would clearly qualify for this working income supplement.
The net benefit to that lady would be $1,250 a year. That is not insignificant, when you consider that as a percentage of gross disposable income. That is a significant increase in what that lady will have to spend on necessities for her children. We are concerned, and we did move to address that issue. In fact, we went beyond where we had to be in terms of addressing the issue of how this particular tax initiative would impact on the family.
It is something we probably would have done, although perhaps not to as significant a degree, without harmonization. We have addressed the issue, senator.
Senator Rompkey: Minister, with regard to the pass through, what assumptions did you make when you calculated the impact of the HST on New Brunswick?
Mr. Blanchard: For the purpose of our modelling, 50 per cent of the pass-throughs are what we estimated the flow throughs to be. I would point out that, when the federal government introduced the GST some years ago, many concerns were raised. In fact, I believe a federal commission was set up to monitor the situation and, within a year, 90 per cent of the savings to the business community were factored in and passed onto the consumers.
Everyone who has analyzed this, including APEC, an independent from government, have assessed the situation and reached the conclusion that there will be a net gain to the consumer of some $17 million for New Brunswick, using flow through which was even lower than our 50-per-cent assessment.
In their report, APEC indicates that this is a very conservative estimation and, if there were any changes to be made in their approach, it would be on the upside. You may have an opportunity to question them on their work.
Senator Rompkey: What evidence is there on which to base those assumptions?
Mr. Blanchard: The evidence that was provided to us is clear. We have already made public the findings of the federal commission that dealt with this issue and the implementation of the GST. I am sure you can access that information, senator. As to the assessment made by the Atlantic Provinces Economic Council, I believe that information is also public. I would be pleased to deliver a copy of that information to the Senate.
Senator Angus: What would happen if Parliament decided not to pass this bill? What if it is held up because an election is called or maybe even the Senate concludes that it is not a good law. Do you have an alternative plan?
Mr. Blanchard: We hope that will not happen. New Brunswick has clearly indicated from the outset that the comprehensive agreement that we did sign provides the province with options. Notice of 18-months' notice shall be provided for us to be out of the package completely. To those who have been arguing that we are abandoning our sovereignty, I would say that is simply not the case.
We have not repealed the current provincial sales tax legislation. I think we have to keep the legislative authority in place in the event that something were to happen. We certainly do not anticipate that Parliament will not pass this law. We have been negotiating in good faith for over a year now. The people of this province have been notified that this is about to happen. I suspect that many business interests in this province have made decisions, based on implementation on April 1.
There would be an impact if this were not to pass, but the government can handle it. I am more concerned about what impact it will have on the business community.
Senator Angus: I am impressed with your motivation regarding the fiscal independence of this fine province of yours, and for the economic development that you are working towards. I think that is shared by many of your sister provinces. However, I am having a problem rationalizing the very noble principles that underlie harmonized sales tax across the nation with the TIP, the tax-included pricing. This leads me to ask: What if Parliament does pass Bill C-70, but asks that there be either a substantial moratorium or removal of the provisions for a tax-included pricing system?
Mr. Blanchard: We have made it clear from the outset that harmonization and tax-inclusive pricing are exclusive to a certain extent. Our motivation behind supporting tax-in pricing is clearly consumer oriented. Consumers have clearly indicated it is something they want. It is desirable, and it is not an issue of hiding tax. Everyone knows that, in the jurisdiction where a value-added tax is implemented, the receipt has to indicate the tax, otherwise, the business community would not be able to claim the input credits. There is no issue here of wanting to hide the tax. That is an impossibility.
I am submitting that, if that were to happen, and harmonization could proceed, it is something we could cope with. I think the consumers in our region have repeatedly indicated that this is something they want. I would simply invite the senators around this table to look at what happens in the other jurisdictions that I mentioned to see the reaction. It is quite easy to obtain information in that regard.
Senator Angus: We will be doing that, minister. I take it from your answer that your aspirations for fiscal independence and other positive benefits from HST will not be negatively impacted if the TIP provisions are taken out? Is it fair to draw that conclusion?
Mr. Blanchard: I would use a different preamble, senator.
Senator Angus: You have said that the TIP results from consumer market research, and you have concluded that is what they want. Therefore, may we, senators, conclude that, notwithstanding the very many witnesses representing thousands of New Brunswickers, you do not agree with what they have told us, that is, that this will hurt this province, and that it is a bad tax? They want us to block the bill. Are they wrong?
Mr. Blanchard: People have come to us, senator, and indicated that they view tax-in pricing as being desirable, not only desirable from a consumer perspective, but desirable from the point of view that it would provide them with an instrument which would give them a competitive advantage as a marketing tool. Other retailers have indicated that, with certain adjustments, they can live with this. I gave you a few examples in my presentation. Nationally headquartered retailers have expressed a lot of concern, particularly with regards to the additional cost, and I have indicated from the outset that that is something that concerns me. We have certainly been prepared to listen, and to adjust our policies accordingly.
Senator Angus: Not one of those retailers has testified to that effect before this committee, either here or in Ottawa. All we have heard is a stream of witness deploring this and telling us the disadvantages, with one or two exceptions.
Medical doctors representing the New Brunswick Medical Association have told us that this will be onerous. They have no way to recover the input credits. It will add 15 per cent to their overhead. As sole practitioners, they say that they in fact are small businesses. They say it will affect the quality of medical care in your province. Why have you not acceded to their requests?
Mr. Blanchard: In many cases the situation for doctors will improve. The rate on items that they must purchase will godown from 18.77 per cent to 15 per cent. From that perspective, it will improve.
This issue with the doctors started with the introduction of the GST, and it is a national issue. It is not exclusive to the harmonization initiative. We will follow and closely monitor this issue. Their position was originally was taken in the debate on the GST. It is, perhaps, something that should have been done differently then.
This issue must be addressed at the federal level. As you can all appreciate, we are harmonizing to a federal base and, under federal rules, and we are prepared to listen.
Senator Comeau: Mr. Minister, apparently some kind of a deal has been worked out with Assumption Mutual Life. Does that deal with Assumption Mutual Life encompass the three harmonizing provinces or is it a deal exclusively between New Brunswick and Assumption Mutual Life?
Mr. Blanchard: There is no sweetheart deal with anyone. However, there is a provision under either section 12 or 14, that provides the province with authority to deal with specific issues. We have a segregated fund issue with Assumption Mutual Life. It is the only company of that kind headquartered in this province dealing with that specific issue, and we have ensured, through attribution rules and through a variety of adjustments that we have made to deal with our specific situation, that none of our New Brunswick based companies will be put at a disadvantage. We are working out the logistics and the details right now. We have indicated to the president of that company that they would not be put at a competitive disadvantage and we would take whatever measures were required.
Senator Comeau: Nova Scotia will probably have to follow suit and, if it does not, we might have a further balkanization of this taxation system.
Mr. Blanchard: We certainly will be dealing with our situation, and I can tell you I have not had an opportunity to speak directly to my counterparts in the other jurisdictions on this issue. I think Nova Scotia also has such a company in its jurisdiction. We have not come to a final decision yet. We have indicated we will address that issue as it impacts our company.
The Chairman: Mr. Minister, thank you very much for taking time from your schedule to be with us today.
Senators, we have six walk-ons, that is to say, individuals who will come forward and make five-minute statements. May I remind you they are five-minute statements with no questions or comments from senators. Our first speaker is Mr. Ken Steves from the Taxi Association, I presume, of Saint John. Mr. Steves is accompanied by Mr. Charlie Freake who I assume is another taxi driver.
Mr. Ken Steves, President, Taxi Association of Saint John: Charlie is my secretary. Thank you for taking the time to talk to us this afternoon. I think if the government had taken time to do a study on the taxi industry here in this city, we would not be attending this meeting today.
If we respond to your appeal to us to collect another 8 per cent tax on our cab fares, it will mean financial suicide. Saint John has too many cabs and not enough customers. We are one of the lowest paid industries in the country, and on any given day a driver or a private owner, working a 12-hour shift, would take home less than $3.10 an hour. We are not subsidized like the buses or the trains. On April 1, when the HST comes into effect, we will lose a lot of customers to the bus system. Anyone leaving a tavern or bar at night will be more likely to drive his own car rather than take a cab.
The taxi industry cannot afford this 8-per-cent increase to our customers, and we certainly cannot absorb the tax.
Senator Angus: How many members do you have in your association, sir?
Mr. Steves: There are 285 taxi cabs in the city and there are 597 licensed drivers.
Senator Angus: Are some of these folks in the room?
Mr. Steves: Yes.
Senator Angus: Do they all agree with what you are saying?
Mr. Steves: Yes, they do. I have their full support.
Senator Angus: What will happen if this tax comes in?
Mr. Steves: A lot of drivers just cannot afford it. We just had a taxi increase with our licensing fees. They went up $140. Last year it was only $10 and $25.
The Chairman: Is that the municipal licensing fee set by the city?
Mr. Steves: Yes. We had to drop our fares, and now we cannot even get back up to a minimum fare. How can we charge another 8 per cent on top of a fare raise? It would be astronomical.
Senator Comeau: Have you conveyed this information to the minister who was here a few moments ago saying how great this tax was going to be for New Brunswick? Has he been prepared to listen to the comments that you just made to us?
Mr. Steves: I have not talked to anybody from the government at all. I have been trying to get a hold of Mr. Blanchard, and he suggested that everybody from the province of New Brunswick who drives a taxi should go before him. It is almost impossible for us people to take the time off every day to go to these meetings. We get paid for what we do every day. We do not have a paycheque at the end of the week.
The Chairman: We appreciate your taking the time to be with us this morning. Thank you.
Mr. Steves: I hope you will take a very serious look at this because it is really going to hurt our industry.
Mr. J. Mark Lefebvre, Vice-President, Finance, Ganong Bros. Limited: I appreciate the opportunity to speak to you. You have been given a copy of a letter we sent to the Honourable Edmond Blanchard on November 27, 1996. Since then a lot of water has passed under the bridge and many comments have been added by many organizations of which we are a member, the Atlantic Provinces Chamber of Commerce, in particular. Certainly their views are consistent with ours in terms of the HST. We have outlined a few points in that letter which I will not read at this particular point in detail, but we do represent 175 employees in Charlotte County.
Our business at this particular point is about 15 per cent export, 85 per cent domestic, and we are working diligently to expand our export business.
We raise three questions on the back page of our letter. The only argument that has been put forward by the government in support of TIP is that, in surveys people have said that they want tax included. Everything being equal, why would they not? However, many presentations indicate that there are tremendous costs associated with tax-in pricing, and we would suggest that if you were to ask the question a little differently -- and I did ask Mr. Blanchard that question in some of the consultation meetings he had -- would the New Brunswick consumer still favour tax-in pricing if they understood that some or all the benefits associated with HST would disappear as a result of tax-in pricing? I would argue that the answer would be no.
In this day and age I do not think the business community needs the kind of burden that is placed on us by TIP.
Finally, many groups of committee in government, provincially and federally, are working to remove inter-provincial non-tariff trade barriers. As an exporter, particularly to companies in Japan, we constantly face those. Now we will face barriers in our own country on the remaining portion of our business.
We would ask that you recommend to Parliament the elimination of the TIP as part of this particular law, or at the very least, that they follow the APCC's recommendation, where they request that a minimum of seven provinces participate in HST.
John McCarthy, President, City of Saint John Retirees' Association: We are glad to have this opportunity to express our views before this Senate committee. My family has been in Canada ever since they first called it Canada and before. I served in two wars: The Second World War and Korea. I served as a police officer in the City of Saint John for 35 years. I am not a Johnny-Come-Lately. I want everybody to understand that I am a Canadian, and nothing but a Canadian.
I have become very discouraged in the way our governments have been performing. It is very difficult for me to say that after having putt my life on the line for so many years. I believe that thousands of other people in this province feel the same way.
The City of Saint John Retirees' Association is strongly opposed to any change in the present tax system in the Province of New Brunswick, especially the mean and unconscionable proposed harmonized tax which is to be be implemented by the Prime Minister and the Premier of New Brunswick. We put the blame where it belongs, not a red book, a blue book or any other book. We know that some citizens of this province receive far greater pensions than average pensioners. The Premier took it upon himself to give this citizen a job because he was not receiving enough pension to pay for the style of living to which he was accustomed. That is a kick in the face to those who are trying to make a living. They cannot keep kids for nothing. Perhaps you fellows could con the government into giving you another job when you retire.
Our members do not have indexed pensions. That is why we are so concerned that our cost of living will increase by 10.9 per cent for the first year, with further increases to follow.
Members of our association will be unable to attend many cultural events because, in the past, most have been sponsored by non-profit organizations which, under the present system, are not taxable, but with the HST, these organizations will have to charge 15-per-cent tax; thus depriving our members from being able to attend such functions.
Our concern is that the whole of Canada has not adopted the HST form of taxation that the maritime provinces have adopted, creating another form of separation between Canadians.
In conclusion, we feel that the Prime Minister and the Premier of the Province of New Brunswick, with the introduction of this new tax, are participating in a form of genocide, and are hoping all persons over the age of 60 will drop dead; thus saving money in the payment of any form of pension.
Remember, senators, that your position in Canada is very highly regarded. Everybody thinks the Senate is a wonderful thing right now. You should know that, because there was a party trying to dump you. I do not know what parties you belong to. The people of Canada did not go along with that and, as far I know, they probably will not. However, I think your jobs are in jeopardy if you do not honour the wishes of the people of Canada in this particular instance.
You have a very heavy responsibility here. I do not say that lightly. As you have probably guessed, I am not a politician. Your position in Canada means that you must honour the wishes of the people of Canada, you must do your duty to the people, and you must do your duty to your country. You are honourable people.
Thank you very much for this opportunity to appear before this committee. I will be glad to answer any questions you may have.
Mr. Chairman: May I say, Mr. McCarthy, on behalf of the committee, we are always delighted to have someone before us who has served his country, as you have, in two wars.
Ms Nancy Hoyt: I realize your time is limited and I will give you a very brief autobiography. I work at a daycare centre. Not all the children there are underprivileged, but a number of them are. I am talking about children who are fed three times a day at the daycare, children who come with no shoes, children who come with no underwear, children who come because you know they have been wearing the same clothes they wore every day for a week and sometimes two and sometimes three.
I know that several people have already spoken for the children of the city, and I am not going to go any more deeply into that, except that I would like to emphasize to this committee that there is poverty, and there is a lot of poverty, and the children are affected. I know I do not need to tell you that.
I want to move now on to my own situation. I work at the daycare centre. I make $6 an hour. I clear $397 every two weeks. I need not tell you that I live on less than $200 a week, and it is not easy. When I look at this new HST, I see that my light bill will go up $8 a month. This may seem like a pittance to you, may seem like nothing, but $8 a month is $96 a year. I have to work 16 hours to make $96. This is not right for the poor people of this province.
If I buy a pair of shoes that costs under $100, there will be no tax. However, if I buy two pairs of sneakers for my grandchildren, I will pay this tax. That is ironic, it is odious, and it is wrong.
Furnace oil will have an additional 7-per-cent tax on it. We need clothes in this climate. We have to have heat in our homes, if nothing else, and we require food.
If we cast our minds back a few years to when the GST was implemented, at that time the FST, the Federal Sales Tax was 13.5 per cent on anything, but it was included. We did not see it.
When the GST came into effect, no one ever policed the retailers to see if they were dropping their prices 13.5 per cent, and they did not. I can tell you because I did my only little personal study. They did for about six months.
I realize retailers have to change cash registers and they have to change prices. It will not matter if people like me are unable to keep our houses heated because we will not be in the stores buying anything anyway.
Before I came here last night I thought, I must look the word "senate" up in the dictionary. "Senate" in the dictionary is described as the supreme legislative and administrative assembly in Rome. I say this without prejudice. We must forget our political affiliations. I would prefer to see this Senate go down as the Senate that said, "Let us take another look at this. We know there are people who are having an extremely difficult time surviving on what they make now, and it is going to cost the working poor more to live."
I hope you will take all of that into consideration.
Mr. Carl Morgan: I had a prepared speech that my wife made out for me last night, and I am not a very good talker, but I will tell you why I am disappointed.
I came here today and I see a square table instead of a round table where the parties would not be separated. I have listened to two days of testimony. I heard one side say they might help us and the other side say that the bill should be passed. It is all political to me. I do not understand why they are not concerned about the people of this province.
I heard the lady say that her province made $700 million off the GST. They got it from people like me who live on a fixed income. They got it from the poor. They did not get it from the rich, who go out and buy $100 sneakers. I cannot afford that. I have four children at home, and I am going to be paying a tax on four pairs of sneakers.
Why are only three provinces going along with this HST? Why are we dividing this country? It should be across the board or nothing.
I heard the representatives of the tourist board say that people from the States who come here and spent money will get a rebate. I think the poor people of this country need the rebate. The city needs the rebate. The province needs the rebate. Nobody seems to care what is happening to them. I hope that the Senate will cancel this foolish tax. The name HST, it should be BST, and April Fool's Day is a good day for its introduction.
If our native people want something done, they have to protest. I think it is time that the seniors and the low-income people got out and did some protesting, maybe block some highways or something else. Somebody has to help us. I am sure Mr. McKenna, when he gets married to Mr. Chrétien might do something, but not until.
The Chairman: Thank you very much for coming, Mr. Morgan.
Mr. Ray d'Entrémont, President, HUGGA Guitar, Ltd.: I would like to welcome the Standing Senate Committee on Banking, Trade and Commerce to the City of Saint John and to the part of Canada that used to be the centre of wealth and power before confederation. I am wearing my power tie today. This was given to me by my daughter who is in Texas. She is a nurse down there. She could not find a job here. Only three graduates in her graduating class in Saint John could find jobs in this province. This has a little plug on it and it says, "The answer is more power." You know that I am an optimist.
I decided to make this presentation when Senator Rompkey was questioning the Saint John Board of Trade and the Moncton Board of Trade this morning. He was referring to the confusion within the tax structure, if I understood him correctly.
Tax-included pricing will hurt us in this: The perception of higher prices will drive people to the USA. We sell luxury items. They are fairly pricey and people are more and more wary of where they spend their money these days. U.S. magazines serve this trade, and everything is published with the manufactured suggested list price in U.S. dollars, without shipping, or taxes. My customers will come into the store after April 1 and the confusion will start. They will see a price tag on a musical instrument in my store of $1,627.13, and they will see one in the magazine, the exact same instrument being advertised for $999.95, and not everyone is good at math. It will create confusion. The customer will probably pay more by the time he actually lands that item because that is an exact conversion based on 37 per cent exchange and adding the 15 per cent. He will also have no warranty protection in Canada on the merchandise he buys in the United States. He will have to take it back to where he bought if he requires adjustment or repair under warranty, whereas we provide the service locally.
Two weeks ago I had a very excited customer come into my store talking about the wonderful price he was getting from a music store in the United States on a used instrument. I quoted him $3,200 taxes included. The U.S. price he quoted was $1,975. My price is actually cheaper in Canadian funds with taxes.
That is the confusion I am talking about, and I cannot see how it will get any better if we are forced to publish a taxes-in prices. I can see people walking in the store, looking around, and say, "Boy, that is a lot higher than they are charging in the States". If we happen to get a stronger US dollar, we are probably going to see what happened when the GST was introduced when we had five-hour line-ups in St. Stephen. I can see something like that happening again.
Stopping the tax cheaters from buying out of province is part of the new legislation. As it is set up, people ship into this province, and then the harmonized provinces will have to charge 15 per cent. That is fine, but if you call Montreal and get a price on something, and they do not know where you are calling from, they will, most likely, quote you a price before taxes. However, the customer will have to pay the extra 15 per cent by the time it lands, and that, I think, will generate some business for us.
More people are buying out of province than perhaps the government realizes. People come into our store and tell us that school teachers are advising students to buy out of province to avoid paying the 11-per-cent tax. That surprises me because I do know who is supporting the school system. The same teachers will complain when the music program in the schools is cut back.
We can usually match out-of-province prices, but we cannot be profitable if we have to match the lowest price in the country and then eat the 11-per-cent tax on top of it, which we sometimes have to do. The HST rules will curb that problem, I think. There will be more corporate tax revenue, and also more provincial tax revenue generated as well. That is good.
The problem is the tax-included pricing. My 23-year-old son says that the Premier of our province is half way there when he tries to attract jobs to the province, but the second half of that is to keep the money in this province.
We ask you to do all in your power to eliminate that provision of tax-included pricing from the bill.
Mr. Gilles Bernier: I appreciate the time that you have given me.
I am a little business man from Arthurette. Arthurette is located between Grand Falls and Perth-Andover. I have been in that business for the past four years, and I have had some good times. Right now I am having some bad times, because of taxes, and I always believe that small businessmen with small- or medium-sized businesses are the backbone of this country.
We are the ones who can create jobs. I believe that it is not up to the government to create the jobs. It is up to the government to create a climate in which businesses can create jobs.
Right now we are being choked by taxes. If this new harmonized sales tax passes, I cannot see how I and others will be able to survive.
I sat here this morning and heard a lady say that when she bought her product, she paid the 11 per cent and then 7 per cent. That is absolutely false.
When I buy my product from companies, I pay the 7 per cent. The 11 per cent is the provincial sales tax, and I have a tax number. I do not have to pay that when I purchase my produce but I have to collect it at the point of sale. I do have to pay the 7 per cent.
Let us say at the end of three months, it cost me in GST $3,000, but at the point of sales in that three-month period, I sold for $4,000. That means that I collected $1,000 more than I paid. I owe that $1,000 to the government.
If you go the other way around, if it costs me $3,000, but I only collected $2,000, they owe me $1,000. Now, with this new harmonized sales tax, it is going to be the same principle. I hear a lot of people say, "Well, we are going to get it all back." We are not going to get it all back. It will be like the GST. It is only the difference, which is fine with me.
The point I want to make is this: Where it is costing me now 7 per cent when the goods hit my door, now it will cost 15 per cent, an extra 8 per cent. From the time I buy those purchases, to the time I sell them, that is money I do not have. That is money I will have to borrow and interest I will have to pay. I cannot afford that.
There is also the fact that I heat my stove with fuel oil which is going to go up by 8 per cent. Electricity will go up by 8 per cent. I got about five or six phone lines, because I have got a 649 number, a video machine, a fax machine and a phone in the store. All my phone bills will go up by 8 eight per cent.
How can Mr. Blanchard or anybody else sit here and say that we are going to have a savings of approximately $250 a year? I do not know what kind of batteries they are using in their calculators. I went to school, too, and I know how to add. Those calculations just do not add up.
I got up at 4:30 a.m. in order to come here and have a few minutes to speak to you. I am pleading with you to go back to Ottawa and stop this bill. There is a lot of unemployment and there are a lot of people on social assistance in this region. How can they make up that difference? We are suffering now and, if that 15 per cent goes through, we will be starving.
The Chairman: Thank you very much. Senators, must adjourn to catch our plane to Newfoundland.
I say to the audience, we very much appreciate your taking the time to come and be with us today. I noticed that several of you were here yesterday. We appreciate your being here with us. Thank you.
The committee adjourned.