Proceedings of the Standing Senate Committee on
Social Affairs,
Science and Technology
Issue 24 - Evidence
OTTAWA, Tuesday, April 15, 1997
The Standing Senate Committee on Social Affairs, Science and Technology, to which was referred Bill S-11, to amend the Excise Tax Act, met this day at 9:38 a.m. to give consideration to the bill.
Senator Mabel M. DeWare (Chair) in the Chair.
[English]
The Chair: Honourable senators, we were able to schedule two witnesses today to speak on Bill S-11. I thank them very much for appearing on such short notice.
We welcome you. Please proceed.
Mr. David Hunt, Coordinator, Don't Tax Reading Coalition: Madam Chair, thank you for the opportunity to speak to the committee. We were pleased to come to Ottawa on short notice because we were afraid we might not get a chance to appear before the committee.
My name is David Hunt. I coordinate the Don't Tax Reading Coalition out of Toronto, a national coalition representing groups and associations which in turn represent retail booksellers, authors, teachers, librarians, public sector administrators, students, printers and publishers.
The number of individual Canadians represented by those groups is greater than 600,000 among the coalition. The number of individual Canadians who have become involved in one way or another in this campaign is well over a million, as reported to us by, among other people, the House of Commons mailroom staff.
This Senate is familiar with our coalition. Senators from both parties and independents have been vigorous and eloquent in attempting to avoid having the GST imposed on reading in the first place and then in attempts to have it removed. Senators from both parties have stated within the last year that this issue transcends partisan politics, that applying the GST to reading was not the right thing to do as a long-term strategy and that removing it would be a good thing for the country.
The GST was the first federal tax on reading in Canada's history. It is the only time reading has ever been taxed federally in Canada outside of wartime. The GST is the highest tax on reading material imposed by any G-7 country. It is one of the highest taxes on reading material imposed in any Organization for Economic Cooperation and Development country.
The GST as applied to reading material has caused a significant and lasting downturn in sales, particularly of books and of magazine subscriptions, in this country, which has caused serious problems for publishers and writers. We would submit it is a frightening harbinger for the country. If we are creating a country which reads less, we are creating a country which will produce and compete less.
We would suggest that Canadians have made their extraordinary contribution to deficit reduction through the GST on reading material. There was an argument raised at the time that it was necessary to tax everything possible in order to bring down the deficit. We suggest that has happened and that, in fact, deficit targets are now being met and exceeded. Canadians now deserve some kind of deficit dividend. Removing the tax from reading material is one for which Canadians have loudly and forcefully asked and one which would be an important investment in Canada's future.
There are a number of countries to which we would like to compare ourselves which tried to tax reading material in the past and which ultimately removed their taxes. The most telling example is the Republic of Ireland, which applied their value-added tax to reading material when they introduced it. They removed it six months later when they discovered that it had caused a reduction in sales, and that reduction in sales of reading material was to a lesser extent than the reduction experienced in Canada. The Republic of Ireland does not currently tax reading material. In fact, the government has made a commitment that they will never again attempt to tax reading material because they consider it to be that important.
If you have been following the economic fortunes of that country, the Irish economic turnaround is being touted as one of the miracles of the new Europe. The fact is that Ireland has the greatest economic growth in Europe and is one of the most successful economies at adjusting to the new information economy and the new realities of industry. The Government of Ireland has said that one reason for that is that they took a position that they wanted to be a country that reads. To assist in that endeavour, it was decided to remove the tax from reading material when they realized that it was reducing sales of reading material.
The Liberal party repeatedly promised to remove the GST from reading material prior to the 1993 election. There was a priority policy resolution passed at the 1992 Liberal policy convention and reaffirmed at a Liberal policy convention after the election stating that the Liberal government will remove the GST from books and other reading material. I have a copy of that resolution.
That policy resolution was quoted to us in a letter from now Prime Minister Chrétien prior to the 1993 election. He said that the Liberal party had passed a resolution to remove the GST from books and other reading materials and that he would adhere to that policy.
We are nearing the end of that first Liberal term in office and we still have a reading tax. The government has made several moves to reduce the impact of the GST on reading, and we appreciate that and applaud them, as we did at the time. Tax rebates have been increased to 100 per cent for municipalities, educational institutions, schools and qualifying literacy organizations. Senator Joyce Fairbairn was actively involved in that decision and we applauded it.
The removal of the GST from reading material as sold to individual consumers is the last outstanding GST-related promise of which we know. It is the only commodity the current government ever promised to remove from the GST base.
We know that the government is aware that the steps taken do not go far enough. They do not satisfy the electoral commitment to remove GST from sales of reading material to the public. The Minister of Finance recognized as much in a letter to us in February. He said to us that obviously more needed to be done. He indicated that often real and lasting progress in government occurs in small, measured steps.
We are suggesting that now is the time to take the next small, measured step which, we submit, should be removing the GST from reading materials or at least books and magazine subscriptions sold to individual Canadians.
Currently, every individual Canadian who wishes to purchase reading materials pays the tax. The GST rebates announced in October apply only to institutions. That means that post-secondary students who mostly buy their own textbooks, literacy learners who mostly buy their own materials, Canadians purchasing books as gifts, and Canadians purchasing books for self-help or to further their knowledge on their own time or just for the joy of reading are still paying the tax at full rate.
In 1996, Statistics Canada did a huge adult literacy survey which again confirmed what every other study on this issue has found, that the most important single determinant of adult reading skill is the presence of reading material in the home as a child.
It has been suggested to us that the best way to address the literacy problem is through the rebates on formal literacy programs that were announced in October. However, we see that essentially as a corrective measure. If the government is serious about attempting to develop the literacy skills of Canadians, it has to address what happens in the home and recognize that sales of reading materials to individual Canadians, particularly lower-income Canadians, is where the GST has hit the hardest.
Removing the GST from reading material or even, if you choose to take it in small steps, from books and magazine subscriptions at this time, would not be an expensive measure. Deficit reduction targets are being exceeded. Tobacco tax increases are reaping unbudgeted windfall revenue. There is money available within the system to cover the GST shortfall that would be incurred by removing the GST from reading material.
You have before you our calculations of annual GST revenue on publication sales in Canada. That is actual money to the government. There is no further stream of revenue available for sale of reading material.
We have sat down with officials from the Ministry of Finance to look at these numbers, and they have had no argument with any of them. The only area where they have disagreed with our figures has been on the amount of GST that was being collected prior to October on sales to public sector bodies; that is, the amount of GST that was being collected and then not committed. However, that is a moot point now that those rebates have been increased to 100 per cent. Essentially, these are figures that the coalition, the industry, Canadians and the Department of Finance agree upon. This is the net GST revenue on sales of those materials.
We have done some calculations in the industry and looked at academic-economic models done in Britain when the Chancellor of the Exchequer was considering taxing reading material. We concluded that if the tax were removed from those items, more than 25 per cent of that revenue would continue to flow back into the government through offsetting tax increases, principally corporate income tax from publishers and personal income tax from people employed in the entire reading industry, if you will, and from authors, editors, designers, printers and book store staff.
The printing and publishing industry is highly labour-intensive. It is the second largest industrial employer in Canada, according to the Canadian Banker's Association, and the ratio of employees to sales is higher than in any other industrial sector. That means that if the tax is removed and sales go up, which we certainly anticipate, the industry response would be to take on more staff. Those individuals would be paying personal income tax and there would be increased corporate income taxes from the publishers, the printers and so on.
One model we looked at concluded that the most conservative estimate of how much of that tax revenue would begin to flow back to the government as a result of removing the GST from reading material would be 25 per cent. Less conservative estimates go as high as 40 per cent. However, sticking with the most conservative estimate of 25 per cent, we are talking about a $60 million annual investment in Canadian reading skills.
It must be stressed again that this is not a government expenditure program. We are talking about removing a tax which everyone seems to agree should never have been imposed in the first place, except as a deficit reduction measure or as a means to get the GST through. A number of senators said at the time that they absolutely supported removing reading material from the GST base, but would vote against doing so because they felt the GST was the right tax at the right time. That is certainly the opinion of individual Canadians. Even among Canadians who support the GST as a tax, 75 per cent say that it should not apply to reading material.
Magazines tend to be left out of the GST debate. Canada's 7 per cent tax on magazines was already the highest of any G-7 country. By increasing the rate to 15 per cent under tax harmonization in the Atlantic provinces and Quebec, the rate is more than double that charged by our closest competitors. Most countries within the OECD and the G-7 have favourable tax rates for both books and magazines, and in most cases that favourable rate is 0 per cent.
Magazines based and published in Canada are particularly dependent on subscription sales. Canadian published magazines dominate subscriptions sales in this country, although not news-stand sales, and that is the lifeblood of Canadian periodical publishers. Magazine subscriptions have proven to be the most price sensitive segment of the entire reading material industry. The drop in sales of magazine subscriptions statistically has been far greater than the drop in book sales or magazine news-stand sales.
The Chair: Do you have those figures?
Mr. Hunt: I do not have them with me, however I could get them to you by this afternoon.
The GST on magazine subscriptions gives an unfair advantage to foreign-based periodicals. The majority of U.S. magazine publishers, by number, are still not charging the GST on subscriptions, and Revenue Canada has been forced to abandon efforts to convince them to do so because there is no mechanism of collection.
I want to emphasize that I am saying "the majority of publications", not the bulk of magazines coming into the country, because the largest of those magazines have, in fact, registered and are collecting. However, among specialized publications and special interest publications there are literally thousands of magazines published in North America for specific audiences, such as, horse lovers, dog lovers, chess players, book review periodicals and so on. It is those smaller, specialized magazines that are not collecting the GST and are, therefore, being given a price advantage over their Canadian counterparts, specifically the Canadian magazines which can least afford to face a tilted playing field because they are specialized and, by their nature, have a smaller audience base.
We have tried in good faith for six years to help Revenue Canada to collect that tax. We said, even before the GST was brought in, that we would fight vigorously against it being applied to reading material, but that at the same time we would work vigorously to ensure that, if it were applied to reading material, there would be a level playing field and it would be charged on imported periodical subscriptions. That has not been the case. There is no mechanism.
The only mechanism Revenue Canada can come up with is that, in theory, the Post Office is empowered to check whether an individual copy of a magazine contains a GST registration number and, if it does not, the Post Office is empowered to hold that magazine and send a postcard to the subscriber telling them to come to the Post Office and pay the GST plus a $5 handling charge. I have never heard of a single case since the GST was implemented where that has happened. It does happen in the case of books, because books are larger objects and the GST owing is therefore larger, but Canada Post does not have the staff to flip through a magazine looking for the GST registration number, and everyone knows that. However, Revenue Canada continues to present that as the solution to the problem of the tilted playing field.
Essentially, Revenue Canada has admitted that there is a tilted playing field which adversely affects Canadian publishers, and particularly affects the more specialized publishers who can least afford it, but they wash their hands of it because there is no logical way to perform collections. We agree that there is no logical way to collect it. That is the conclusion that has been reached by every other country with a value-added tax that does not have a unique language.
The only countries in the world which attempt to tax subscriptions are countries with unique languages. There is a good statistic for you. American magazine publishers do not collect sales tax on subscriptions for other states. States which have attempted to apply state sales tax to magazine subscriptions have given up. Most notably and recently, California and Florida attempted to put a tax on magazine subscriptions and gave up because they realized that American publishers in other states were refusing to collect it. There was no mechanism to force them to do it. It was putting their own domestic publishers at a competitive disadvantage.
I wish to reiterate our key themes. Taxing reading is wrong. It is damaging to the country. If there was ever any doubt about that fact, it has now been dispelled. The statistics are available.
We have done the experiment. It is now time to end it and do what every other country which has done this experiment has done; that is, remove the tax from reading material.
Removing the tax from reading material is a specific, repeated, written and ironclad government promise. It was promised before, during and after the 1993 election campaign. There was a specific promise to remove the GST from books and other reading material during the first term in office. We suggest that now is the time to do that. It will not amount to much money. The country can afford to do it. We are no longer in a position where we must take this extraordinary step of taxing reading material to bring down the deficit because we have met and exceeded those targets. Canadians now deserve to have the promise fulfilled.
Mr. Roy MacSkimming, Consultant, Association of Canadian Publishers: Madam Chair, I am a writer who has written five books.
Senator Bonnell: Do you support what Mr. Hunt has said?
Mr. MacSkimming: Yes, 100 per cent. He stated the issues clearly and eloquently.
Senator Bonnell: Since there is a harmonized sales tax in three of the Atlantic provinces, will the passage of this bill affect that tax? Will it affect the income of provinces? Will the measure be accepted by the provinces?
Mr. Hunt: We believe it would be accepted by the provinces. It would not affect the income of provinces at all with regard to books. I say that because the provinces have taken the leadership position that sales tax should not apply to books. They have voluntarily relinquished having the provincial component apply to books. They have accepted that that would not affect their equalization payment from the federal government. They have accepted that they would give up that revenue without compensation.
The provinces asked that all reading material be kept out of the harmonized sales tax base. Essentially, it was the federal government which negotiated the compromise that books and some magazine subscriptions would be kept out of the provincial component.
The precedent is there. The provinces took the leadership position. Our feeling is that they would breathe a sigh of relief if the federal government were to implement this promise. It would not affect compensation.
In terms of volume of money, magazine subscriptions amount to less than one-third of the volume of book sales. That proportion holds for the Atlantic provinces as well. They have already given up the bulk of that revenue on the provincial component with the harmonized tax.
Senator Bonnell: I agree with you when it comes to books. However, I wonder about the weekly and daily newspapers, along with single copies of magazines. Do they get their share of the tax from that as well?
Mr. Hunt: They accepted, only reluctantly, that those items would be included in the harmonized sales tax. The provinces zero-rated all those items, except for magazine single copy sales, which is news-stand sales. Other than that item, the provinces zero-rated all of the items to which you have referred under provincial sales taxes. They asked that that model be adopted for the harmonized sales tax. Their request was turned down.
Clearly, I cannot speak for the provinces. Nor can I speak to the technicalities of the compensation deal that is in the harmonized sales tax. My feeling is that the provinces have already asked for it. Therefore, they would be willing to give up the revenue.
Senator Bonnell: You have a feeling about it. It is one thing for you to have such a feeling; it is another thing for the provinces to sign an agreement. Do you know how many millions of dollars each province will lose if we pass this bill?
Mr. MacSkimming: We had an estimate which we think is high.
Senator Bonnell: Where did you get it from?
Mr. Hunt: From the Nova Scotia government. The Nova Scotia government estimated that zero-rating magazine subscriptions under the sales tax would amount to about $600,000 in that province.
Senator Bonnell: Why do you not say that you just do not know?
Mr. Hunt: I do not know. I told you that, sir. I told you I do not work for the provinces and that you would have to check with them.
Frankly, I do not know what the effect would be on the compensation payments, if that is your question.
The Chair: On September 13, 1996, the finance ministers of Atlantic Canada asked our federal finance minister if he would remove the tax on books. I have before me an article from The Globe and Mail, the final sentence of which states that the Hon. J. William Gillis, the Minister of Finance for the Province of Nova Scotia, said the federal minister did not say that he would not do it. They must feel that it is not a disadvantage to them in that they are asking the government to do it.
Mr. Hunt: It was not reported in the newspapers at the time, but the formal request also included magazine subscriptions.
The Chair: It states in the article, "reading materials".
Senator Bonnell: Madam Chair, I should like to support the bill with no amendments. However, before supporting such a motion, I should like to have someone from the finance department appear to give us the actual facts and not what is written in the newspaper.
The Chair: The Department of Finance seemed to claim that it would be cumbersome and that there may be other reasons Mr. Martin may be reluctant to free books from this tax. For one thing, it would further complicate taxes, which is already a costly headache for those who administer it and for businesses which collect it. Do you have any remarks about that statement? What do they mean by that?
Mr. Hunt: In fact, it would simplify administration of that tax for the businesses which collect it. I would point out that the businesses which collect it have been asking for seven years that it not be applied to reading material and have been asking for six years that it be removed. It is the booksellers and the publishers who sell directly to the public who must administer this tax, and they say, "We will gladly take on the task of segregating our revenue streams of administering if you will just do the right thing and take the tax off, as you promised you would."
The examples quoted to us by the Department of Finance of retailers who would be disadvantaged if the GST were removed from reading material are owners of grocery stores, pharmacies and gardening centres. All three of those retailers already handle zero-rated goods in addition to fully taxable goods. They will not be required to add another system. They will be required to process the books under the same system that they already process food items or prescription drugs or food product seeds, which are zero-rated as food products. The minister knows that. He knows the businesses which are collecting the taxes are the ones saying, "Do the right thing and zero-rate it."
The Chair: Senator Bonnell chairs a committee on post-secondary education and has been doing a study across Canada since Christmas. The students have been quite concerned about the fact that, although universities and other institutions are exempt, they are not exempt when they go out and buy a book. We must take that into consideration as well.
Senator Forest: You certainly make some very compelling arguments. As an avid reader and one who has long been involved in education, it makes sense to me. We have not, however, heard any arguments opposed to it. What are the arguments opposed to it, apart from the money? Is that the main one? Perhaps you are not the right people to be asking, but you must have heard the arguments.
Mr. Hunt: We will do our best. We will tell you what the arguments are, even if we do not agree with them. It is part of the public debate process.
Mr. MacSkimming: The obvious ones have been mentioned. The Department of Finance, ever since 1990, has been saying that if we remove a commodity such as reading materials from the base for GST purposes, it will cost the federal treasury money and set a precedent which will lead to calls for more goods to be exempted. As well, there is the issue that Madam Chair mentioned about complicating the process of collecting the tax.
Clearly, we are proposing to simplify the issue for retailers. If they simply were not required to charge any tax on reading material, that would do away with a tremendous amount of paperwork and administration on their part.
Senator Forest: If they did not go all the way and take it off the list, how would you prioritize the remaining issues?
Mr. Hunt: The top two priorities, if you were not to take it off the list, would be magazine subscriptions and books.
To add to what Mr. MacSkimming indicated, under tax harmonization in the Atlantic provinces, because the provinces have refused to tax books under the provincial component, there must be some kind of rebate system directly to individual consumers which will be administered at the cash register. This system will require significant paper shuffling in order to avoid collecting tax. The Canada Revenue Commission, which is funded by the federal government, will have to pay all those costs. The fact that the provinces have refused to tax books under the provincial component of the tax increases the costs of administering that tax to the federal government, and that cost could be eliminated if books were zero-rated.
Mr. MacSkimming: We should add, Madam Chair, that in addition to the elimination of books under the harmonized sales tax in the Atlantic region, even prior to that, the Province of Quebec had eliminated its tax on books. There is a recognition, if we want to speak about precedents, by a number of provinces, including Quebec, that, at the very least, books should not be subject to tax.
The Chair: Gentlemen, we need to take this into consideration. I know that the Leader of the Government in the Senate is an advocate of removing tax on books. She has mentioned it several times. She said she hoped that the Senate has the courage to take the first step and walk through the door and do so now. In all respects, I do not think there is anyone who does not agree with her. I imagine revenue is the reason the tax is on books at this point.
I thank you for attending this morning. We will take this matter into serious consideration and report back to our caucuses. You have certainly set the stage for our reflection on this particular matter.
Senator Losier-Cool: I have one short question about priority before the witnesses leave. When you say Quebec has eliminated all taxes on books, do you mean all books or just books in educational institutions? Is it any books in any book store in Quebec?
Mr. Hunt: It is all books in book stores or by mail. It is an elimination of the provincial component of the tax.
Senator Losier-Cool: What about France?
Mr. Hunt: France has no value-added tax on books or other reading material.
The Chair: Thank you. I appreciate your being here this morning.
Senators, as you will see on your agenda, we have other business dealing with Bill C-300, An Act respecting the establishment and award of a Canadian Peacekeeping Service Medal. I would appreciate it if someone could move that Bill C-300 be dealt with under the subcommittee on Veterans Affairs.
Senator Cools: I so move.
Senator Bonnell: I second it.
The Chair: Senator Losier-Cool, I understand the committee would like you to act on that committee.
Senator Bonnell: I so move.
The Chair: We have agreement on that point too, so I thank you.
The committee adjourned.