Proceedings of the Standing Senate Committee on
National Finance
Issue 20 - Evidence - Meeting of December 14, 2009
OTTAWA, Monday, December 14, 2009
The Standing Senate Committee on National Finance, to which was referred Bill C-62, An Act to amend the Excise Tax Act, met this day at 11 a.m. to give consideration to the bill.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Honourable senators, I call this meeting of the Standing Senate Committee on National Finance to order. Today, we are dealing with Bill C-62, An Act to amend the Excise Tax Act, which was read a second time in the Senate and referred to this committee for consideration. The bill seeks to harmonize the sales taxes in Ontario and British Columbia. At the end of the meeting, if honourable senators are ready, we will do a clause-by-clause consideration of the bill and report back to the Senate as a whole.
We have three panels today, honourable senators, the first comprising officials from the Department of Finance Canada. We will then hear from the First Nations group that has expressed concerns with this legislation. I am glad we have with us Ms. Gill from the Department of Finance. She can anticipate some of the issues that might be raised with respect to First Nations, which will help us. Finally, we will hear from the Canadian Manufacturers & Exporters with respect to the impact of this legislation.
[Translation]
To begin our study, we have witnesses from the Department of Finance. They are Louise Levonian, Assistant Deputy Minister, Tax Policy Branch, Nancy Horsman, General Director, Tax Policy Branch, Lise Potvin, Director, Sales Tax Division, Pierre Mercille, Senior Legislative Chief, GST Legislation and Sarah Gill, Senior Officer, Aboriginal Tax Policy Section.
We will begin with testimony from Ms. Levonian.
[English]
Louise Levonian, Assistant Deputy Minister, Tax Policy Branch, Department of Finance Canada: Thank you very much, Mr. Chair and members. We do not have specific opening remarks. However, if you like, I can give you an overview of what the bill is supposed to be doing.
The Chair: That would be helpful.
We all have a copy of the bill. We all appreciate that we have to go from policy to actual words in a piece of legislation, and later we will be asked to focus on various sections of the bill and vote yes or no. Anything you can do to indicate what the sections of the bill achieve would be very helpful.
Ms. Levonian: I will start off with an overview of the bill, and Mr. Mercille can go through some of the clauses.
The main purpose of the bill is to provide a framework for the implementation of the HST, including the policy flexibilities provided for Ontario and British Columbia. Basically, this is to implement the decision of Ontario and British Columbia to harmonize their sales taxes with the GST.
The essential features of the bill include the charging provision, the tax base, the initial rates for the provinces, and the provincial component of the HST. This will all be part of the Excise Tax Act. It then delegates certain areas to be prescribed in regulations. I will go through those in a little more detail.
The essential parts of the bill provide for British Columbia and Ontario to be able to have a harmonized sales tax, and it provides the rates at which they will begin. Ontario will begin at 8 per cent and B.C. at 7 per cent. If those provinces choose to change their rates later, the bill allows us to do that through regulations.
The bill also provides for the inclusion of other provinces that wish to harmonize. For example, if Manitoba, Saskatchewan or Prince Edward Island wanted to enter the HST framework, the bill allows us to do that through regulations as well.
Very importantly, the bill also includes the date of implementation, which is July 1, 2010, for Ontario and British Columbia.
The bill contains clauses that provide rate flexibility to the provinces. Previously, the harmonized framework for the Atlantic provinces did not allow this flexibility.
Point of sale rebates are also now allowed, up to 5 per cent of the base in the province. Also, ITCs — input tax credits — are allowed to be denied in specific instances, and that was not allowed before. Those flexibilities have been provided for in this bill.
Many of the provisions in the bill provide for rate flexibility. Before, we had a common rate across all harmonized jurisdictions. Now, there are already differences in rates. B.C. will have a 12 per cent rate and Ontario will have a 13 per cent rate. As a result, we will need rules to explain how the differences in rates will be calculated. When you move property from Ontario to B.C., for example, there will be a 1 per cent rate differential. Therefore, we will need to calculate how that is paid and when it is paid, which will be provided for in regulations.
Specific clauses in the bill contain provisions for direct sellers, which is a specific type of sector; partnerships; when property is moved from one province to another; and the importation of services and intangibles. These clauses allow for rate flexibility.
In the case of mutual funds and financial institutions, those calculations will be delegated to regulations. There is a relatively complicated set of rules on how much tax financial institutions that function in more than one province will pay. The bill will allow for exactly how those calculations will be done because of the rate flexibility that will be put into the regulations.
Other provisions in the bill allow for the denial of input tax credits, as well as for exactly how they are calculated.
There are also specific provisions concerning provincial housing rebates. When a province chooses to provide a rebate when someone buys a house, the bill stipulates what those are. It is exactly the same thing for public service body rebates. Rebates are provided to certain public sector bodies, and the bill prescribes what those rates and thresholds will be provided for in regulations.
There will also be an electronic filing requirement for certain companies. The conditions under which e-filing will be required will be provided for in regulations.
The end of the bill sets out a schedule containing the provincial rates.
I will stop there and see if there are any questions.
The Chair: That is a good start.
You talked about flexibility. Is this flexibility only going forward for Ontario and British Columbia, or will Newfoundland and Labrador, New Brunswick and Nova Scotia opt into these new flexibilities that did not exist for them?
Ms. Levonian: Absolutely. Right now, the bill provides for any of those provinces, and any other province, to opt into the framework. Ontario and B.C. have signed a CITCA, which is a comprehensive integrated tax coordination agreement. It governs how the rates will be set and how we will work with the provinces in that regard.
The current CITCA with Newfoundland and Labrador, Nova Scotia and New Brunswick contains a most-favoured province clause. Therefore, if a new agreement comes into being, it must be offered to the current HST provinces. Those provinces currently operate under the old CITCA, but they will have the option adopt the new one. If they choose to come on board, they will have the same flexibilities as Ontario and B.C.
The Chair: Is this agreement an executive-level agreement, or is it something we will see back here in due course? Does it go through the legislative process?
Ms. Levonian: It is a Governor-in-Council approval.
The Chair: We will not see that, then.
Ms. Levonian: No.
The Chair: We will not, unless we ask for it, of course.
Would anyone else like to make an intervention, or would you like to wait for questions from honourable senators?
Ms. Levonian: I can wait.
The Chair: It would be helpful if you could indicate what the various sections of the bill achieve. Is someone able to do that?
Ms. Levonian: We could do that.
Pierre Mercille, Senior Legislative Chief, GST Legislation, Department of Finance Canada: I could do that, but it may use all the time we have because the bill is 34 pages long. I can quickly cover the major themes.
The Chair: Major themes are good.
Mr. Mercille: One of the major themes is the addition of Ontario and B.C. as participating provinces. As was pointed out, the main amendment is the last page, which is the schedule to the bill. You can see that Ontario will have a rate of 8 per cent and British Columbia will have a rate of 7 per cent.
The Chair: The headings read "Schedule (Section 44)" and "Schedule VIII"; is that correct?
Mr. Mercille: Yes. If other provinces also want to join, there is a definition of "participating province" in clause 2 of the bill. Regulatory powers are created to add new provinces that would sign a CITCA with the Government of Canada. The tax rate is also defined. That is the main element for the addition of Ontario and B.C. or the addition of a province, should another province choose to join.
As was indicated, a main element of provincial tax policy flexibility is provincial housing rebates. The main provision that deals with rebates is clause 28 of this bill. It provides for setting out the rate and thresholds by regulation because the province has the flexibility to choose those items.
Another important area of flexibility is in respect to public service body rebates for municipalities, charities, hospitals, et cetera, depending what the province chooses to do. Clause 29 allows flexibility to fix the rebate for the provincial component of the HST paid by those entities.
The Chair: Is that clause 29 of this bill?
Mr. Mercille: Yes.
The Chair: That is on page 23.
Mr. Mercille: This clause amends section 259 of the Excise Tax Act.
The Chair: Clause 29 of Bill C-62 is found on page 23 in the English version.
Mr. Mercille: Another element provided for under the CITCA agreements is the recapture of the input tax credit, ITC, by large businesses and financial institutions on a temporary basis. According to the agreement, it is for a period of five years and then it should be phased out over the next three years. The rules will be provided by regulation as well under clause 23 of the bill.
The Chair: What does that mean in layman's terms?
Mr. Mercille: Every business involved in commercial activity purchases inputs to make whatever they sell. They pay tax on their inputs, but they will charge tax when they sell their product. Therefore, they are entitled to an input tax credit. If they are involved in commercial activity, they can get all the tax back that they paid on their inputs. However, they will charge the tax to the purchaser of the product.
Through the production chain, the tax could be charged many times. This mechanism allows for the avoidance of double taxation and the embedded tax. The Government of Quebec currently allows businesses to recapture ITCs under its provincial sales tax. For a limited period of time, businesses will be prevented from recapturing those ITCs.
The Chair: There will be an allowance for double taxation for a period of time?
Mr. Mercille: Yes. That was one element negotiated for the provinces to join this agreement.
The Chair: That will be phased out over a period of five years.
Mr. Mercille: They are allowed to recapture up to 100 per cent of ITCs on specific items for five years followed by a mandatory phasing out over a maximum of three years.
The Chair: Eight years.
Mr. Mercille: Yes, eight years in total.
Ms. Levonian: The input tax credit denial is very small. The amount they are prevented from claiming is under five per cent.
The Chair: I am assuming — and I know my colleagues will want to ask more questions — that this measure is to ensure more revenue going to the provinces as this is introduced.
Ms. Levonian: That is essentially true. If you deny input tax credits, more revenues stay with the province.
The fact that input tax credits are allowed generally, and will be allowed completely in eight years, is one of the main beneficial features of a value-added tax, as opposed to the retail sales tax that Ontario and B.C. currently have.
The Chair: Yes.
Mr. Mercille: Those rules will be provided by regulation under clause 23 of this bill.
An element provided in this agreement is point of sale rebate. The province can decide to allow up to five per cent of their base. We did not need to do amend the legislation to do this because point of sale rebate already exists for books in the three harmonized provinces. We are using the same regulatory power to provide this for other products on which Ontario and B.C. have decided to give a point of sale rebate.
The Chair: Is there any limit on the number of items for which there can be a rebate?
Mr. Mercille: It is five per cent of the GST base in the province.
The Chair: On any product or service?
Ms. Levonian: In total. They are only allowed point of sale rebates on up to five per cent of the entire GST base in the province.
Mr. Mercille: The majority of the amendments in this bill are consequential amendments. The three harmonized provinces — the participating provinces — have a provincial sales tax rate of 8 per cent. If they were to change their rate, they all had to change it together.
This bill allows flexibility for the province to choose their tax rate. Therefore, we cannot treat the three provinces — now the five provinces — as a zone in the legislation. They were treated as a zone before. Many technical amendments have to be made throughout the legislation to ensure that we can properly determine the tax for the structure of a specific provision where, for example, a good may move from one province to another.
I will give you a simple example. We have rules for direct sellers. They account for tax on behalf of vendors that go door-to-door and do presentations in homes, et cetera. The direct seller accounts for the tax on the suggested retail sales price sold by independent contractors. Everything is fine when they do it in the same province. However, if the direct seller is located in a province with a rate of 7 per cent and the direct seller sells a product in a province with a different rate, we need a rule to accommodate the difference in the tax rates.
The rules treating harmonized provinces as a zone have to be modified because different tax rates are allowed in different provinces. There is a series of these amendments. I do not think you want me to list all the clauses to do that.
The Chair: They are here in the bill?
Mr. Mercille: Yes.
Clause 20 of the bill amends section 225.2 of the Excise Tax Act dealing with financial institutions. This is the way that financial institutions operating both inside and outside of the participating provinces determine their net tax. These rules were made to recognize that if an institution has its head office in a participating province, the majority of the inputs would be at 13 per cent. If the head office is in a non-participating province, the majority of the inputs will be at 5 per cent. This formula is rather complex. It allocates the tax you would have paid if you had purchased your inputs where you made your supplies.
In simple terms, it is a rule to determine the net tax for financial institutions when they operate both inside and outside of participating provinces because of the higher rate of tax in a participating province.
The Chair: I got lost with all the "prescribed" elements in clause 20. There is a "prescribed person" and a "prescribed class." May I was assume what is "prescribed" is in the regulations?
Mr. Mercille: Yes, it will all be "prescribed" by regulation. Regulations under the Excise Tax Act are made by the Governor-in-Council. The phrase "prescribed by regulation" can be found in many places in the bill because we have to accommodate for rate changes in the future since provinces now have the flexibility to change their tax rate, which will automatically change the rules.
The Chair: Everywhere I read "prescribed" as an adjective, I should read it as "prescribed in regulations"?
Mr. Mercille: Yes. There is actually a definition of "prescribed" in subsection 123(1) of the Excise Tax Act. Unless there is information and things like that to be provided on a form by the Minister of National Revenue, it means prescribed by regulations.
As a general rule, this bill also provides regulatory powers to accommodate the transition to the new harmonized sales tax. As well, it provides participating provinces with the flexibility to change their rebate rates — the threshold rate for housing and the rate for public service bodies.
You may remember that 40-odd pages of legislation were required just to change the GST rate. Now, on an ongoing basis, the provinces can change their rates by notifying us; we provide the flexibility to do those rate changes.
I want to point out that flexibility by regulation applies only to the provincial component of the HST. I am referring to proposed section 277.1, which is outlined in clause 37 of the bill. An example of something we would prescribe by regulation would be transitional rules and how to account for tax in relation to a transaction that straddles the implementation date of July 1, 2010.
The Chair: That is only for the provincial governments; is that correct?
Mr. Mercille: Yes. To give you an example of the simple tax on supplies when you go to a store, subsection 165(1) of the Excise Tax Act provides for the 5 per cent tax rate, and 165(2) provides for a tax at the rate contained in the schedule that I discussed earlier. Everywhere there are charging provisions, they are basically based on subsections 165(1) or (2). They are all separated like that. The new regulatory powers are there to effect the provincial component of the HST.
The Chair: You referred us to clause 37 of the bill. I notice, in the small print on the side of the page, the words "Definition of 'new harmonized value-added tax system'." Are we changing the harmonized sales tax to a harmonized VAT, value-added tax?
Mr. Mercille: The GST is a VAT. This is a label we use to ring-fence those regulatory powers that I just discussed. Those powers will be a function of an agreement entered into between the Government of Canada and the government of a province. This is just a label for a definition. There seems to be a preference to use that label, but it is still the harmonized sales tax.
The Chair: In public parlance and discussion, it is still the harmonized sales tax.
Mr. Mercille: Yes.
Senator Ringuette: Is there a compensation scheme for the two provincial governments?
Ms. Levonian: Transitional assistance is being provided to Ontario and British Columbia. For Ontario, the amount is $4.3 billion, and for British Columbia, it is $1.6 billion.
Senator Ringuette: What is magic in these numbers?
Ms. Levonian: There is really no magic, per se. The calculation is 1.5 percentage points of GST in the province. It is just a consistent way of providing the same amount of transitional assistance to each province that wants to come on board the harmonized sales tax regime.
Senator Ringuette: Why this compensation?
Ms. Levonian: It is provided to the province because this is a beneficial economic step for the entire country. That is why the amounts were paid to Ontario and British Columbia — as was paid to the current harmonized provinces in the past under a different formula.
Senator Ringuette: How does it differ from what has been paid in compensation to New Brunswick regarding the Atlantic HST?
Ms. Levonian: When the three Atlantic provinces came on board, the policy at the time was that the rates be exactly the same across all the provinces. I think Newfoundland's rate was 12 per cent, and it was 11 per cent for the other two. They had to bring their rate down to 8 per cent across the board, so there was a significant revenue loss to those provinces.
The compensation provided at the time was the amount over 5 per cent. The loss of 5 per cent for those provinces was eaten by the individual provinces, and anything above that was compensated by the federal government. It was done over four years; I believe it was 100 per cent, and then 75 and 50 per cent. It came down.
Senator Ringuette: Did I hear you right? You were saying this transition is five years.
Ms. Levonian: The transition for Ontario and B.C.?
Senator Ringuette: Yes.
Ms. Levonian: The amounts are not paid over five years. For Ontario, it was negotiated in CITCA: $3 billion on July 1, 2010, and $1.3 billion the following year on the same anniversary. For B.C, it is paid over three years. I do not have the specific numbers at hand, but I think the first payment is $750 million. However, the payments for British Columbia are made over three years and for Ontario they are made over two years, which is just what was negotiated with each province.
Senator Ringuette: If my memory is correct, when we harmonized the GST in New Brunswick, all tax collection was done by the federal government. Is this the same situation?
Ms. Levonian: Yes.
Senator Ringuette: The provincial employees whose job it was to collect sales tax for the province were transferred to the federal government. Is the same thing going to happen, with no jobs being lost?
Ms. Levonian: That is correct. Under the memorandum of agreement and the CITCA that was negotiated between B.C. and Canada and Ontario and Canada, there is a provision that allows for the transfer of employees. The best possible arrangements will be made to transfer the employees of Ontario and B.C. to the federal government. In particular, the best effort will be made to retain these employees where they currently are located.
Senator Ringuette: Was an economic impact study done by your department?
Ms. Levonian: Specifically, no, but many studies have talked about the merits of a value-added tax.
Senator Ringuette: How will this legislation impact the native communities in Ontario and B.C.?
Ms. Levonian: I will take a stab at that question.
First, this is obviously a decision that Ontario and B.C. have taken to harmonize their tax. The impact will depend on how that tax is structured. It will depend on the tax rate, the point of sale rebates and the ITC denials. These are all decisions made by the province. The impact on individuals is derived from the decisions made and the analysis done by Ontario and B.C.
Senator Ringuette: That is not the question I asked. What will the impact be for native communities that are sales tax exempt at the point of purchase?
Ms. Levonian: I think I understand your question. The other part of the answer is that these decisions are Ontario's and B.C.'s to make. Currently, under the GST, when a purchase is made on reserve, there is no tax. When a purchase is made off reserve and delivered to a reserve by the agent, there is, again, no tax.
Under the RST in Ontario, when a purchase is made off reserve but not delivered to a reserve, there is no tax. Under the GST, there is tax. In B.C., however, when a purchase is made off reserve but not delivered to a reserve, there is tax. In Ontario, specifically, when a purchase is made off reserve and not delivered to a reserve, under the GST there is tax.
Does that answer your question?
Senator Ringuette: Currently, there is no provincial tax, but there will be when the taxes are combined.
Ms. Levonian: Under the current rules, there will be tax but only on off-reserve purchases not delivered to a reserve that are not already exempt, such as basic groceries and medicines, et cetera. Goods currently taxed under the GST that are not delivered to a reserve and that are taxed ordinarily will continue to be taxed. That one area will continue to be taxed.
Senator Ringuette: What impact will this have on the GST tax rebate for the citizens of these two provinces?
Ms. Levonian: There will be no impact on the GST credit. Ontario has provided a low income credit, and a rebate could be provided through that mechanism. It does not affect the GST. It is the provincial component of the HST, and they have implemented a low income credit.
Senator Ringuette: Will that be administered through this act?
Ms. Levonian: No. The low income credit is an income aspect and not an excise tax aspect. The federal government will administer it on for the Province of Ontario.
Senator Eggleton: First Nations people carry a card with them and they get a retail sales tax exemption. I would assume that this bill does not provide for that?
Ms. Levonian: That is correct. The Excise tax Act already provides for a point of sale rebate. The bill does not cover specifically what point of sale rebates a province will provide.
Senator Eggleton: If a province wants to make the same kind of provision in relation to the cards, will it be within its authority to do so?
Ms. Levonian: It is within its authority to provide point of sale rebates. However, under the CITCA, the federal government has to be able to administer the point of sale rebate that they choose. For example, if Ontario were to choose red shoes, we would not be able to determine how many red shoes are sold in Ontario. Therefore, in order for the federal government to administer the program, certain provisions require that the necessary data be provided.
Senator Eggleton: One aspect is different from the present system, whereby First Nations people have a card that exempts them from paying retail sales tax. They would no longer have that, but if the province wished to continue such a rebate, similar to the GST, whether on reserve of off reserve, it has the authority to do so. Is that what you are saying?
Ms. Levonian: I am not sure that I understood the question. Certainly, on-reserve purchases would not be taxed. Anything purchased off reserve but delivered to a reserve would not be taxed. If the purchase were made off reserve and not delivered to a reserve, under the GST system, there would be a tax; and under the harmonized system, if it were to continue with the same rules, there would be a tax.
Senator Eggleton: How do you equalize where off-reserve First Nations people stand with their tax-exempt cards with this new system?
Ms. Levonian: There are two different ways to do it. One would be for Ontario to provide a point of sale rebate, but conditions are associated with that. We would have to ensure that it was possible to administer. If you put that aside, Ontario has complete flexibility to provide rebates for such purchases. There are many different ways outside the HST and GST system for Ontario to equalize those revenues. Again, Ontario and B.C decided to harmonize the tax system.
Senator Eggleton: You said that it is up to the province to determine any rebate and that it will not change in this federal bill.
Ms. Levonian: It is not necessarily part of the bill. Under the CITCA with Ontario, there are ways to do it, but the federal government would have to agree. As well, there are ways to do it outside the system.
Senator Eggleton: What would the federal government have to agree to? If it were done in the same way that rebates occur under the GST, it would be quite acceptable. It is the card that is not acceptable; is that what you are saying?
Ms. Levonian: By way of example, we have to determine how much is purchased off reserve but not delivered to a reserve. The businesses that make the sales would have to distinguish between what is being delivered to a reserve and what is not being delivered to a reserve. There are associated data limitations.
The way in which we administer the HST is one of the simplest systems available around the world for a value-added tax system. Under the HST, businesses do not have to track the differences between the provincial component and the federal component. They collect the tax revenue and submit it. They throw it into a pool and we divide it up among the provinces based on economic data. I cannot emphasize how much more simple this is than having to track two taxes collected and what rebates are paid under two levels of government. The federal government takes the revenue, looks at the rebates and allocates to each of the provinces. Business simplicity underlies this kind of system.
Senator Callbeck: When the three Atlantic provinces harmonized taxes in 1997, they did not have any flexibility. I understand that there is a provision in the agreement that they signed in 1997 such that if in the future other provinces harmonized, they would be able to apply for the same flexibilities. You mentioned that the compensation received by the three Atlantic provinces was based on a different formula than the one on which B.C. and Ontario would be based. Do the Atlantic provinces feel that they have a fair deal or do they feel that B.C. and Ontario are getting a better deal?
Ms. Levonian: There have not been discussions to say how they feel about their deal. However, on a per capita basis, the Atlantic provinces receive more than Ontario and B.C. will receive, even though the formula used back then did not compensate for the 5 per cent of revenues that they lost through harmonization.
Senator Callbeck: Has there been no discussion with them?
Ms. Levonian: There have been discussions about the new flexibilities, whether they are interested in them and what the process would be to get CITCAs to them that would be similar to those for Ontario and B.C.
Lise Potvin, Director, Sales Tax Division, Department of Finance Canada: They have not raised any concern. The amount of assistance available to Ontario has been known since last March, and no concern has been raised either at the political level or the official level.
Senator Callbeck: There are a number of flexibilities in this legislation. Are the provinces required to opt in to all of these flexibilities or can they select some and not others?
Ms. Levonian: Under the present CITCA, they have the ability to accept the entire new agreement. The government would offer the current HST provinces the entire new CITCA.
Senator Callbeck: They either take all the flexibility or none?
Ms. Potvin: To clarify, they have the ability to access all the flexibilities, but they do not necessarily have to use them. For instance, you are able to have point of sale rebates, but you do not necessarily have to exempt anything in particular if you choose not to exercise that option.
Senator Callbeck: I was wondering about the impact the HST has had on the three provinces in Atlantic Canada. I assume from what you say that you have not done any studies or analysis of this.
Ms. Levonian: There are a number of studies, one in particular by Michael Smart, which looks at the benefit of moving to a value-added tax. If you wish, we can provide a copy.
Ms. Potvin: The Smart study found that investment increased by 11 per cent following harmonization and that any business savings were passed on to the consumer. The reduction in tax on business inputs translated to low prices for consumers.
Senator Callbeck: I know that a number of studies have been done, but has the department done a study?
Ms. Levonian: We have internal economic models that would confirm the benefits of a value-added tax. We have not studied the impacts on Ontario, have we?
Ms. Potvin: We have produced some numbers that estimate taxes on business inputs and have confirmed that a value-added tax is beneficial.
Senator Callbeck: I am wondering about the three Atlantic provinces that have been harmonized for 12 years. Do you have figures on those provinces?
Ms. Potvin: The study that was done was the C.D. Howe study by Michael Smart, which found that investment in those provinces increased 11 per cent relative to what would have been the case otherwise.
Ms. Levonian: The study was specifically focused on their adoption of a value-added tax. As far as economic analysis goes, there is clear evidence that it is beneficial to move to a value-added tax.
Senator Di Nino: Fundamentally, we are talking about a constitutional right by the provinces to run their own tax systems. This has very little to do with the Government of Canada. I think we need to restate that this is really a constitutional authority that gives the provinces the autonomy to collect their own taxes however they wish to do so; is that correct?
Ms. Levonian: Yes.
Senator Di Nino: Senator Greene gave us some statistics, which I do not remember precisely. How many OECD countries have a harmonized tax regime?
Ms. Potvin: All but one. I stand to be corrected, but I think only the U.S. does not.
Senator Di Nino: The U.S. is the only OECD country that does not have a harmonized tax regime?
Ms. Levonian: We have not figured out the exact number, but over 130 countries throughout the world have a value-added tax.
Senator Di Nino: There has been commentary about the importance of competitiveness in world markets. Could you comment on that?
Ms. Levonian: A value-added tax, in general, is beneficial from a competitiveness standpoint. It removes embedded tax throughout the system, as Mr. Mercille mentioned. In addition, most importantly, it removes tax on exports, so it makes Canadian companies competitive in the world market.
Senator Di Nino: We tried to make that argument with the GST and did not succeed very well. That is why I thought I would let you do that. In the final analysis, it does make the items to be exported less expensive; is that correct?
Ms. Levonian: That is correct.
Senator Di Nino: Is that one of the fundamental reasons why the Atlantic provinces saw an 11 per cent increase in economic activity shortly after they introduced the harmonized tax?
Ms. Levonian: Removing tax on exports is one of the fundamental reasons, and also removing the tax on business inputs. Everything you buy has tax on it — tables, pencils, wood, et cetera — and that builds up the price of the final product. With a value-added tax, the taxes paid on all the inputs that go into the final product are given back to you. Therefore, there is only one tax and it applies to all goods and services across the board. This does not distort decisions from a purchasing perspective. The tax applies across everything and, therefore, there is no distortion. Goods that have huge amounts of embedded tax will have a higher price than goods that do not, by chance, have a lot of value-added components, and that distorts economic decisions as well.
The Chair: Unfortunately, we have run out of time, but you have done a good job in giving us a basic understanding of the legislation.
Does anything in this bill interfere with the concept of First Nations who live on reserve ordering goods off reserve and having them delivered to the reserve?
Ms. Levonian: Absolutely not.
The Chair: There is nothing that interferes with that practice?
Ms. Levonian: No. There is no problem with goods purchased on reserve or off reserve and delivered to a reserve.
The Chair: Do the provinces of New Brunswick, Nova Scotia and Newfoundland and Labrador have a similar process whereby they can order off reserve, deliver on reserve, and there is no tax?
Ms. Levonian: Absolutely. This is across the country, in all provinces, even provinces that have retail sales taxes. The only two provinces that currently do not do have this are Ontario and P.E.I.
The Chair: On behalf of Standing Senate Committee on National Finance, I would like to thank you very much for the good work you are doing and for your excellent presentation.
I am pleased to welcome, from the Assembly of First Nations, Chief Angus Toulouse, Ontario Regional Chief and, from the Association of Iroquois and Allied Indians, Grand Chief Randall Phillips of the Oneida Nation.
Thank you both for being here. You have the floor.
Angus Toulouse, Ontario Regional Chief, Assembly of First Nations: Honourable committee members, I want to thank you for giving me the opportunity to make this representation. This subject is a matter of extreme importance to Ontario First Nations and First Nations people, therefore I appreciate the opportunity to be heard.
In the last two weeks, we have had chiefs' assemblies in Toronto and Ottawa, and in both meetings we spent countless hours discussing the impact of the proposed HST on our communities. The chiefs are very concerned and are determined to resist the imposition of this law and its resulting taxes on their citizens. Such law and tax imposition is contrary to First Nations treaty and Aboriginal rights.
In this presentation I want to address three topics: one, the lack of consultation and accommodation of Ontario First Nations in the development of the HST proposal; two, the economic impact of HST on First Nations; and, three, a proposed amendment for inclusion in Bill C-62.
On the lack of consultation and accommodation, First Nations in Ontario have not been meaningfully consulted and accommodated on the harmonized sales tax. Committee members will know that when Aboriginal and treaty rights stand to be adversely affected by legislation or by any Crown conduct, affected First Nations are required to be consulted. This is in the Constitution Act, 1982, section 35, and has been recognized by the Supreme Court of Canada in the Haida and Mikisew cases.
Aboriginal and treaty rights need not be established; they need only be asserted. Ontario Finance Minister Dwight Duncan agreed with First Nations leaders that the First Nations tax exemption is an Aboriginal and treaty right; yet, we were not consulted when the memorandum of agreement was being developed, and we were not included in consultations regarding the CITCA, the comprehensive integrated tax coordination agreement.
Needless to say, the present point of sale tax exemption provided for in the Retail Sales Tax Act will be eliminated in the HST. This will have a major impact, and it is incomprehensible how we could have been left out of the entire process.
I acknowledge that Ontario has at least made some efforts to discuss our concerns and has expressed support, most recently by way of correspondence from Premier McGuinty to Prime Minister Harper, but these have not been meaningful consultations and they have not resulted in any accommodations. Ontario blames the federal government for the failure to address our rights and interests. The federal government has ignored requests for consultation and will not respect the rights acknowledged by Ontario under the current retail sales tax exemption.
As far as economic impact is concerned, constitutionally protected rights and treaty rights are not the only issue. The HST will have a negative impact on First Nations' economies, yet there has been no economic impact study with respect to the increase in valued-added tax paid by First Nations communities on reserve. This includes First Nations members living in poverty on reserve, northern First Nations communities that are dependent on off-reserve vendors, and the increased agency costs absorbed by Aboriginal and non-Aboriginal small businesses that serve First Nations communities.
Not only will First Nations people now have to pay an additional 8 per cent, the HST will cover all sorts of things the RST does not, such as fuel, electricity and other essentials.
Rebates and tax credits will not work for our people. Rebates do not match the taxes paid. Rebates come in the mail later. Rebates will not feed us when we need the money today to buy basic goods and services.
Finally, rebates assume that the federal government can implement this system across First Nations. The track record on implementation is terrible. From drinking water to simple road access in remote First Nations, the federal government does not manage First Nations governance.
In Ontario, 25 per cent of First Nations are fly-in communities. The HST will increase the costs of doing business and hurt economic development for a segment of the Ontario population that is least able to absorb more financial hardship.
The draft language being proposed for inclusion in Bill C-62 reads:
The following schedule shall be added to the Act.
SCHEDULE XI: FIRST NATIONS AND HARMONIZED SALES TAX AGREEMENT PVAT EXEMPTIONS
To ensure conformity with the laws of Canada and further to section 8.3(1) of the Federal-Provincial Fiscal Arrangements Act, any provincial value added taxes (PVAT) that have been exempted by a participating province shall be exempt under the Excise Tax Act.
That is the amendment we are proposing for the Senate's consideration.
In conclusion, these are reasonable accommodations that will avoid significant economic hardships that would otherwise result from imposing the HST on Ontario First Nations. These accommodations are within Canada's authority and can be implemented administratively and legislatively in a manner consistent with the work previously done by Ontario and First Nations leadership in Ontario concerning the maintenance of the point of sale exemption. Because the federal government refuses to meet with us and the province, we have every reason to believe that we will not be heard or dealt with fairly once the bill leaves this committee. Accordingly, we urge this committee to ensure that our rights and interests are accommodated.
Thank you for listening to this presentation and our concerns.
Randall Phillips, Grand Chief, Oneida Nation, Association of Iroquois and Allied Indians: Thank you, Mr. Chair, for this opportunity.
[The witness spoke in his native language.]
I currently hold the position of Grand Chief for the Association of Iroquois and Allied Indians, one of four grand chiefs in Ontario. Our association has existed for over 40 years with the purpose of lobbying to protect our community's rights.
I was also chief of my home community for several terms. I have been involved in this business for nearly 30 years, so I bring some experience to this table.
Also within Ontario, I hold the chair of the chiefs' committee on child welfare and social issues. Over the last couple of years I have been inundated by stories from many communities about the impacts of a variety of things on income-related issues.
I will take this opportunity to explain the basis of our opinion of the federal government. The Canadian Human Rights Commission has established a tribunal on child welfare to study unfair and inequitable practices on child welfare issues, which is ongoing. I mention that to illustrate the fact that many other things impact our income and our ability to deal with these challenges.
My presentation will be in four parts. I will speak about the process and an amendment, or what I call an observation. I would like to get into more detail on the impact of this bill on First Nations. You have heard from other witnesses that there have been no studies of the impact this will have on people. There have been studies on the impact on business only. Finally, I will rebut some of what you have heard.
With respect to the process, the speed with which both the provincial and federal governments have tried to pass this legislation is unprecedented. This is not an emergency; it is not a 9/11 or an Afghanistan issue. The attempts to do away with regular parliamentary procedures have raised red flags for me and hampered the ability of Parliament to hear from people.
You heard from those who were ready. First Nations have always been ready with respect to challenges from governments on their rights, but you did not hear that from the common people because you did not give them time to actually mount their arguments or present them in a fashionable way. There was one day of hearings in the province, one day of hearings with the federal government and one day of hearings in the Senate for this major piece of legislation. It goes beyond the need of an administrative transfer or administrative approval of what the province is doing.
It needs to be said that this legislative change will give the provincial control of taxation to the federal government. The previous witnesses used the phrase "federal government agreement" a number of times. It is not clear in the legislation how these things are enacted.
As First Nations, we have taken every opportunity to act as diplomatically as we can. We participated in every session possible, albeit it was short and we were not as prepared as we would have liked. However, the process does not lend itself to the optics of good governance or to caring about the rights of Canadians or those of the First Nations.
The Ontario regional chief read out the amendment. I do have copies available in French and English. We tried to provide this to the federal standing committee, but unfortunately we did not have the copy prepared in French and so it was not accepted. There was some issue when it was read into the record, but we have that available for you now.
I am suggesting that this amendment is a win-win-win situation — not a win-win situation — for the province, the federal government and First Nations. We got tossed into a tennis match with respect to this issue. The province and the feds both said no, that it was the other's responsibility, and you heard some of that banter again today. Being the tennis ball in that match is no fun whatsoever.
I will try to bring some clarity to this issue. The amendment addresses the requests of the provinces. They want some assurance from the federal government that they approve and that the actions that are going on in Ontario will be maintained. This amendment does exactly that. It provides support for the letter that the premier sent to the Prime Minister on this issue saying they were supportive of this attempt by First Nations to have this issue resolved. It is in keeping with the wishes of the province.
The federal government said that this is a provincial issue, that they will not get involved and that there will be no amendments. This amendment does not change that legislation one iota. The province will still move to the HST. It gets support from the federal government to do so. The federal government honours the wish to have the provincial legislation approved. The amendment does not change or alter this. It does not affect the motions put forward by the federal government and those put forward by the provincial government. It does not affect the direction to the Senate to fast-track these things based on the fact that the federal government does not want any substantial amendments.
I think the Ontario regional chief mentioned that the amendment also speaks to the notion of the honour of the Crown and section 35 of the Constitution Act. The amendment does honour the fiduciary responsibility of the federal government that goes beyond Ontario citizens; it flows on to Canadian citizens. These rights are entrenched in the Constitution of this country. The amendment protects those things.
As the Ontario regional chief said, it also provides a mechanism for consultation. We have been told there is no need for consultation because the bill is a policy decision. Given the extraordinary efforts to fast-track this legislation and to provide other avenues for ongoing dialogue, it is not just a policy switch; it is a legislative switch. It also speaks about transferring jurisdiction in terms of its tax powers from the provincial government to the federal government. That is a major shift; it is not just policy.
Finally, as the Ontario chief said, the CITCA agreement does not provide for this. Presentations earlier said there are clauses to allow for that, but it does not allow for that, for any of these exemptions. There is a blanket notion of a 5 per cent flexibility clause that they could deal with to deal with some of these issues. It does not protect our rights; nothing in that agreement does. The provincial and federal governments should have acknowledged the impact on our rights when they made that agreement. The bill was fast-tracked, and we had no time whatsoever to influence that agreement.
I want to make something clear with respect to the impact on First Nations. There was some debate about trying to make a difference between on-reserve and off-reserve residents. This tax is residence blind. It applies to First Nations on and off reserve. This notion that there is an enclave called a reservation that is the only place to have tax status is a misnomer. The argument we make and continue to make is that these are rights. The Supreme Court of Canada has already decided in two cases — when it comes to elections and to employment and training — that First Nations governments have the responsibility to ensure that their people have access to programs.
My decision has already been made: First Nations governments have a responsibility to protect the rights of all our citizens, regardless of residency. This is not an on-reserve or off-reserve issue. We have had people paying this tax for years, and yet organizations like the tax federation would have you believe that we do not contribute anything in taxation to this country. It is either one way or the other, and we cannot continue to have one group tell us that we do pay tax and the other say that we do not. We do in fact. That is a misnomer and it impacts us all.
With respect to tangible results, at least 200,000 eligible people here in Ontario have always had some participation in this point of sale exemption. This means everyone who, according to the Indian Act, is eligible to be a status Indian, and even that is under question. The federal government is now trying to tell us who are and are not status Indians. There have always been challenges and conflicts with respect to our rights and who we are.
The harmonized sales tax is a definite switch from business to consumers. With consumers, we are talking about incomes. We are talking about the spending power of people. Now we are talking about the spending power of people who are the most impoverished, the poorest and the most unemployed. We have the highest unemployment rates and social assistance rates. We have people with disabilities collecting various disability pensions; approximately one third of all First Nations people can be deemed to have some sort of disability. We have retirees on a pension, on fixed incomes. We have students in universities right now who are also on fixed incomes. We have people in training programs. All of these things have been promoted over the years in terms of trying to help us get out of the social and economic conditions in which we find ourselves. Now we are being challenged with this tax.
I would like to make a point about the major employers on First Nations communities. We are talking about business investment and the business environment. This tax will not do anything to create a better business environment in First Nations communities, but the major employer is First Nations governments. These employees have not had raises for years. They have not kept up with the cost of living index. They have not had any increases and their spending power continues to be eroded. This tax is an extra burden on them. We are talking about no increase to the people that you expect to pay this tax. If you want a consumer tax, you need some wealth within those consumers to do so. You are attacking a population that simply does not have that wealth.
The Ontario regional chief said that there will be an immediate impact of 8 per cent. When you do not have to pay eight cents today but have to pay eight cents tomorrow, there is an immediate impact. The idea that there will be a rollout of federal funds to help the transition might be helpful, but how will we identify that? Many of our people, for personal and legal reasons, do not file income tax. We will have to invent a whole new system of how to administer this tax. You heard from government officials earlier who said that the government may have a rebate, so again there is no guarantee whatsoever that they will actually spend this thing.
We talked about economic development. This goes back again to business development. There is no guarantee whatsoever that business will reinvest this money back into the savings of consumers, none whatsoever. You heard earlier this notion about an 11 per cent growth in investment over a 12-year period — not the initial year when this is changed, but a 12-year period — which does not indicate to me that these changes will do anything to spur any economy.
When we talk about spurring economy, honourable senators, First Nations people are also the highest unemployed. The idea is that this tax will create 500,000 new jobs. First Nations people will not benefit from those jobs. Again, we are looking at an impact on a targeted people. This will happen.
Look at our communities. A study was done in B.C. that has not been replicated yet, but the results are glaring. Almost 90 per cent of all the money that comes into First Nations communities exits First Nations communities and ends up non-Aboriginal urban centres where the products are purchased. The idea that we do not pay taxes is a misnomer right from the start.
We will have less disposable income. What does that do in terms of real life? For people like the senators around this table today and those who have good incomes, this will not mean anything. Eight cents off of every dollar will not mean anything if you make $200,000 a year, but if you make $200 a month, then the $24 that you will lose will have an impact. It will start to impact personal spending habits. We already have a population that has health concerns. This spending will possibly prevent them from seeking health services. It will certainly impact nutrition in terms of the kinds of foodstuffs they will be able to purchase. Regardless of whether this tax is applied on food, they will lose 8 per cent of their spending power.
With respect to the condition of homes, the money will certainly not go into repairs or anything else that leads to good healthy environments or good safety. This bill will have an effect on everything we do.
I have not heard anything in the course of the last few months with respect to this bill about how it will impact the people and what it will do to save the people from the imposition of this tax. It has all been about business. Over the last 10 or 15 years, we have seen the pendulum swing. There has been more focus on business support and development, as well as the regulatory side of business, which has allowed for job creation. Economic stimulus is required to help businesses do that, so there is still some question with regard to business and whether or not we are supporting the proper system. Nevertheless, that seems to be where the money goes.
There should be guarantees that force businesses to pass along these savings. After all, we are forcing them to enter into a tax regime that will save them money.
The Chair: Grand Chief, I do not wish to be impolite. This committee is anxious to hear from you, but you have been speaking for 20 minutes. We have less than 15 minutes left, and I have four senators who are anxious to clarify points raised in this bill, and you could be very helpful in that regard.
Mr. Phillips: Mr. Chair, I thank you for the reminder. I hope I have given you the impression that 20 minutes does not even begin to address the concerns we have in terms of how this bill has been fast-tracked.
I have four conclusions. The amendment to include the exemption clause is a win-win-win situation for everyone, and I think that needs to be discussed. This bill will have a hard impact on people, and there should be clear protections to minimize the impact. No studies have been done as to the impact of this tax on the people, only on business. I ask this Senate committee, in sober second thought, to consider the rush on passing this bill. There are constitutional challenges available to First Nations people in this country that are not available to Ontarians and Canadians, and we intend to exercise them should we be ignored.
Honourable senators, I am here as a diplomat to plead with you to think about the people that this bill will impact. Over the years, there are many examples of First Nations people growing to distrust this government and distrust the process in terms of how we move through these issues. I use the Senate as an example when I say that there is hope that these institutions will work for the people.
The Chair: Thank you very much, Grand Chief and Chief Toulouse.
You said you were being ignored, and I can assure you are not. The Senate was anxious to hear from you. We appreciate your kind words with respect to the fine work being done by the Senate.
I will now go to senators who are most anxious to engage in discussion with you.
Senator Ringuette: Did anyone from the native communities in Ontario or B.C. appear before the one-day hearing held by the House of Commons?
Mr. Phillips: Yes.
Senator Ringuette: Who and from where?
Mr. Phillips: The two people you see in front of you, as well as Chief Keith Matthews from British Columbia. He could not be here today, and I believe he did send a notice of regret.
Senator Ringuette: Were the three of you the only people invited to the hearing?
Mr. Phillips: Yes, and because the motion was fast tracked, we just found out the day before the hearings.
Senator Ringuette: You have indicated very strongly that you asked to meet with the federal government in an effort to be consulted. A few weeks ago, officials from Indian and Northern Affairs Canada appeared in front of this committee, and I asked specifically if they had a representative role in regard to the HST situation in Ontario and B.C. They said no. Which minister did you ask to meet? Did you ask to meet Minister Strahl or Mr. Flaherty?
Mr. Toulouse: Mr. Flaherty is the one we asked to meet, and I believe we copied Minister Strahl on those requests.
Mr. Phillips: I had an opportunity to directly ask Minister Flaherty for this meeting, and he indicated yes. Once more information was found out in terms of what we wanted to talk about, and then the denials started to come from his office more and more.
Mr. Toulouse: I sent a letter to Minister Flaherty, as did Minister Duncan, the Ontario Finance Minister. We have also had the premier intervene and ask for a similar meeting with the Prime Minister, hoping to get him to advocate for this meeting with Minister Flaherty, Minister Duncan and our political confederacy in Ontario. That is what we have requested, and we have not yet received a favourable reply.
Mr. Phillips: We wanted to clarify the notion that it was just up to the province to change this legislation. The province told us clearly that it was the federal government that refused to do so. That is why we wanted to meet with them. I wanted to clear that up, because you hear both sides of these things.
Senator Ringuette: If my recollection is correct, Indian and Northern Affairs Canada issues the native numbered card that allows you to get the provincial sales tax exemption at the point of sale.
Mr. Toulouse: That is what they use administratively to track the purchases.
Senator Ringuette: Therefore, there is a federal responsibility in all of this.
I can understand your concern because the GST and HST are regressive taxes. The lowest income consumer pays more in proportion.
I am also somewhat concerned because we have been hearing for three years that this government has consistently reduced taxes, while they do not seem to mind raising your taxes by 7 and 8 per cent with this bill.
Mr. Phillips: There has been a constant erosion of our tax protections over the last few years, ever since the Canada Revenue Agency was created. This is a personal comment only, but I think one of their mandates is to specifically look at how to remove those exemptions from First Nations people. By transferring power from the provincial government to the federal government, and to this agency, they have done exactly that.
Senator Campbell: I should first state I spent all of my time here in Ottawa on the Aboriginal Committee, and I understand and have great sympathy for the concerns that you have expressed. In fact, I have consistently supported your positions over the years. However, I cannot go with you on this particular issue.
We continually support the tripartite agreement, nation to nation to nation; from your nation to the federal government and the provincial government; is that correct?
Mr. Phillips: The provincial government is not a nation.
Senator Campbell: When you negotiate, if the provincial government is not a nation, we have no problem here because it is between you and the feds. The province is in there, making it tripartite.
Mr. Phillips: Tripartite, yes.
Senator Campbell: There is no question that you have constitutional rights. I agree with you completely.
I have difficulty understanding how the Ontario Minister of Finance says, "Yes, I agree with what you are saying," and there does not seem to be any movement or shifting between these three parties.
I would love to hear from the First Nations who live on the East Coast. They have been living with the HST for 12 years, and I do not know what the situation is like there.
For a win-win-win scenario to occur, you need the agreement of all parties involved. How do you go about achieving it? How do you go about ensuring that your constitutional rights are recognized by the other two parties?
Mr. Toulouse: That recognition will be achieved if the proposed amendment is agreed to and this schedule is added. That will give us the certainty we are looking for in terms of what the province is saying can fit within this schedule; that is, First Nations, harmonized sales agreement, PVAT, exemptions. The amendment would add Schedule XI to the bill "to ensure conformity with the laws of Canada and further to section 8.3(1) of the Federal-Provincial Fiscal Arrangements Act."
Senator Campbell: In essence, this gives you what you want. We do not know if it gives the province and the federal government what they want because we do not really know what they want from this tripartite arrangement.
I believe you when you say they told you this, but that will not help us come to any further conclusion. I suggest that at the end of the day there will have to be a sit-down, not just between Ontario and British Columbia, but the First Nations across Canada where this applies.
I wonder what has been happening for 12 years in those areas where there are First Nations and why they have not objected strenuously to this.
Mr. Toulouse: We have. If you think that we have not objected to the GST, we certainly have. We have the same issues there.
Senator Campbell: Many people have objected to the GST.
Mr. Toulouse: We have the same issue there concerning consultation and accommodation.
I am running out of time and I wanted to read a resolution from the Union of B.C. Indian Chiefs. Grand Chief Stewart Phillip, Chief William Charlie and Chief Bob Chamberlin sit on the executive. Do I have enough time to read it?
The Chair: We have three senators who wish to ask questions. Why do you not table it so that we all have a copy?
Senator Campbell: Thank you, Mr. Chair.
The Chair: I will ensure that the clerk circulates it to each of us here.
Mr. Toulouse: For the record, the UBCIC passed the resolution along with a letter outlining their concerns.
I will also leave with you the resolution that was passed at the AFN Special Chiefs Assembly. All First Nations of Canada passed this resolution in relation to the imposition of the HST.
The Chair: Honourable senators, this is in English only. Could I have permission to table it without waiting for translation? Otherwise, we will have to ask the witness to read it to us.
Senator Di Nino: The translation will come after.
The Chair: It will come in due course.
Hon. Senators: Agreed.
The Chair: Thank you.
Senator Mitchell: This is more of a technical point. We were told, and it is generally known, that right now in Ontario, First Nations people do not pay sales tax if you buy a product on reserve. If you buy it off reserve and it comes on reserve, you do not pay it. If you buy it off reserve and it stays off reserve, you do not pay it. Under the HST, the first two will remain the same — on reserve, and off reserve and brought on reserve. However, you will now pay tax on those items bought off reserve that stay off reserve.
If you now do not pay the sales tax on products that are bought with your card off reserve and stay off reserve, why could not you just do that with the HST? What are they saying is the technical problem with continuing to do it with the HST?
Mr. Toulouse: I have heard that they will use the administrative arrangements of the GST. We have had issue with the GST from the start.
Senator Mitchell: Therefore, they are saying that they cannot just make that modification.
Mr. Toulouse: We are saying that this kind of language would ensure that. It would be clear that both governments are saying, "We do not want to make this a situation where our marginalized citizens will be even more marginalized." I have heard both governments saying this is not an attempt to squeeze that 8 per cent out of the most marginalized people. We are being told that they want to maintain our point of sale exemption.
All we are saying is that we want to ensure that that happens so we do not have this battle after the legislation passes. If this amendment is the cleanest way to guarantee and ensure that that happens, why can we not do it? That is how we are approaching both levels of government.
Senator Mitchell: If you can do it for the sales tax, why could not do you it with the HST? It would be a matter of modifying the way the GST is being used.
Mr. Toulouse: Exactly.
Senator Eggleton: I do not believe that First Nations people buying products or services on reserve or off reserve and using them on or off reserve should have any greater tax burden under HST than they have now under the combination of GST and RST. I think the question is which level of government does that and how they do it.
Your amendment is obviously intended to spell it out very clearly, but it does not refer to First Nations. It provides for more than that and states that any provincial value-added taxes be exempt under the Excise Tax Act. What else is included in that exemption? In addition to those who hold the card, have you analyzed what else would be covered?
Mr. Toulouse: In the HST?
Senator Eggleton: I am referring to your proposed amendment. What other kinds of exemptions would be included? I am not talking necessarily about First Nations, but generally. The amendment does not refer to First Nations.
Mr. Phillips: That is its appeal, Senator Eggleton. We have been told that the province wanted to maintain this exemption but could not because of the CITCA and the transfer of jurisdiction to the feds.
This language matches and mirrors that. It entitles us to address the argument that says they could not maintain our point of sale exemption because the legislation did not allow them to do so. Therefore, we just matched that as simply as we could.
Given the time frame, did we study how this proposal might expose itself to other things? No, we did not have time to do so. The issue is that there are already agreements within CIDA and elsewhere that protect this notion from becoming open ended. There are already provisions within those other agreements that do not allow this to happen to any extent.
We are trying to capture in legislation what was told to us verbally. This is where the difficulty is because none of the senators were in the room when that was said.
Senator Eggleton: Official from the Department of Finance were here just before your panel. They said there was nothing to prevent the province from assisting you. Chief Toulouse quoted Ontario Finance Minister Dwight Duncan and Premier Dalton McGuinty as being sympathetic to your circumstances. Why would the province not provide for it?
Mr. Phillips: We do not know. I compared the situation to a tennis match and we are the tennis ball. I suggest that honourable senators be the tennis ball for a couple of days. You will then understand why we do not have answers to those kinds of questions.
Senator Di Nino: I want to pick up on the comment made by Senator Eggleton. This is really an agreement between two provinces and the federal government. Premier Campbell and Premier McGuinty have indicated strongly that the HST is about provincial autonomy and we should pass the bill. Finance Ministers Duncan and Hansen have said strongly: "Pass this legislation; it is about our constitutional rights to be able to do this." They have never suggested any amendments that I know of or suggested that we should look at other issues.
I think, generally speaking, that you have sympathy around this table for what you are saying. You have had sympathy from the Senate all along, and I do not think that will change.
I understand that Ontario and B.C. are providing credits for those with lower incomes. Ontario is providing tax reductions to mitigate some of the impact. Basic goods like groceries are exempt from this proposal altogether. It is difficult for us to consider an amendment, particularly since this is an agreement between the federal government and two provinces.
Would you be happy if we were to reflect this in an observation in an effort to urge all parties to continue to work with you to explore ways to do this?
Mr. Toulouse: The Canadian Centre for Policy Alternatives put out a document today or on the weekend. One section talks about some of those rebates. It states:
Low income families and individuals, many members of First Nations and others who do not tend to file tax returns will be significantly worse off as they will derive no benefit from the credits or the PIT cuts.
The report clearly shows that our people will not benefit from rebates and those kinds of opportunities that may be available.
The Chair: However, that is available to you if your people were to file an income tax return.
Mr. Toulouse: Yes, but the reality is that many of our people on social assistance and many of our elders have never filed. The report acknowledges the situation of First Nations citizens.
Mr. Phillips: I would like to see an ongoing and open dialogue with all levels of government to ensure that there is a mechanism to address policy or legislative changes that affect our people. It would mean we do not have to come to these hearings and make presentations to say we have been ignored, forgotten or whatever language we ending up using. That is our goal here.
Not having had that in this case, I would like to see the exemption. An exemption does not change anything with respect to this legislation. The province gets its legislation, the federal government does what the province requests, and the province has a mechanism to deal with us in a better way. The exemption secures that discussion rather than leaving it open to a policy decision.
The notion of an observation is rather new to me. Any time there is an opportunity to have a dialogue to clear up something, it is good. An observation would send a clear message to other senators and to members of the House of Commons that when you talk about Aboriginal rights, you cannot steamroll these things regardless of whether you have motions to fast-track or minimize parliamentary procedures.
At the end of the day, you cannot bypass the fundamental constitutional and treaty rights of the Aboriginal peoples of this country. An observation might permit members of government in both the House of Commons and Senate to recognize that they have a responsibility, that they are doing something wrong and that they must reflect on it before we take other legal actions, international legal actions.
We are not done with this matter, ladies and gentlemen. I heard the comments that this is a done deal, that you will put in your two hours, pass this and go off for Christmas.
We are talking about poor people. They will not have the same kind of enjoyment at Christmastime that everyone has. Let us not forget that. We are talking about people who do not have the opportunity to voice their opinions to all of you distinguished ladies and gentlemen and to have this kind of dialogue. We are here to represent that silent voice.
Would we like to see a way to have some dialogue? Yes. An observation is one positive way to say that our efforts are not being discounted and that here is an avenue to address this issue. We have not had the proper studies or dialogue to determine the impact. I would support an observation as a minimalist effort, honourable senators.
The Chair: Seeing no further questions, I take this opportunity to thank you both very much, Grand Chief Phillips and Chief Toulouse. You have explained your position well. We tried to have a representative from the British Columbia First Nations here today, but unfortunately that could not be worked out. However, we have the information you have passed on to us.
We will now proceed with the third panel, which comprises one person. We had tried to have another witness; however, we are very pleased that we have, on very short notice, a representative of the Canadian Manufacturers & Exporters, Jean-Michel Laurin, Vice President of Global Business Policy. Mr. Laurin was here some time ago on a previous matter that we handled.
I pleased to be able to welcome you back. You have the floor, sir, to talk to us about Bill C-62.
Jean-Michel Laurin, Vice President, Global Business Policy, Canadian Manufacturers & Exporters: Thank you for inviting me to appear before the committee today on behalf of Canadian Manufacturers & Exporters to discuss sales tax harmonization. It is an important measure that will help improve the tax competitiveness of Ontario and British Columbia and make exports originating from these two provinces more competitive in domestic and global markets.
Before I begin, I would like to say a few words about the association I have the privilege to represent. We are the voice of manufacturing and global business in Canada. As such, we represent more than 10,000 leading companies nationwide. More than 85 per cent of our members are small- and medium-size businesses. Our members represent every industrial sector and every export sector of the economy.
We have members in every province and happen to have very active divisions in Ontario and British Columbia. In fact, my colleagues and our members in these two provinces have been advocating for the harmonization of their provincial sales tax with the GST for years. Therefore, I am pleased to be here today to talk about Bill C-62.
Sometimes, especially when we face significant economic challenges, as is the case today, governments have to do the right thing even in the face of political opposition. That is what we believe leadership is all about, and it is what British Columbia and Ontario are trying to do with their initiatives to harmonize their provincial sales tax with the GST. It is the right thing to do for their economies and for Ontarians and British Columbians.
One of the most important things we have learned from the recession that has battered the Canadian economy over the last year or so is that you have to create real value to sustain employment and generate income growth. The financial market crash has shown that no one can create lasting wealth simply by spinning other people's money around and around. Eventually that money needs to go into producing goods and services that people want to buy; otherwise, it leads to financial bubbles and major trouble for the economy.
Another lesson from the recession is that our economy is increasingly affected by global market conditions. We have to compete around the world for customers and suppliers, for skills, intellectual property, credit and business investment. Our companies have to be world class, and the business environment in which they operate has to be world class as well. Competitive pressures have only become more acute as a result of the recession.
In this context, we should be aware that the way taxes are raised has a significant impact on investment, innovation and job growth — all of the elements necessary to sustain a healthy economic recovery. Budget measures introduced by governments around the country also serve as a healthy reminder that taxpayers must eventually pay the bill for the stimulus and income support programs we are relying on to dampen the effects of the recession.
As demand for education, health care and other public services continues to grow, we need to be aware that the way taxes are raised has a significant impact on investment, innovation and job growth. These lessons are becoming more obvious as the economy slowly begins to recover.
As you know, the sectors that we represent have been severely impacted by this recession. From peak to bottom, manufacturing sales have declined by more than 25 per cent around the country and exports have declined by more than one third. In that context, "business as usual" definitely cannot be an option for governments or for the businesses upon whose success the economic recovery ultimately depends.
Sales tax harmonization is exactly the kind of forward-looking policy reform that will be critical in strengthening provincial economies, speeding along recovery and creating job opportunities in the future. Harmonization will save businesses money, lowering the cost of investment and innovation in new technologies, productivity and environmental improvements, as well as in the development of new markets, all of which are extremely important in rebooting the economy, securing jobs and helping businesses make the changes they require to compete and grow in global markets.
[Translation]
Businesses in Ontario and British Columbia currently pay $6.9 billion per year in provincial sales tax when they buy inputs like construction materials, furniture, office supplies, energy, legal and professional services and road vehicles. They need those inputs in order to be able to produce goods and provide services. Under the new harmonized sales tax program, businesses in Ontario and British Columbia will no longer have to pay that amount. Both governments and businesses will also see additional savings in tax administration costs.
Tax experts and other experts in the field are of one mind on the advantages of a harmonized sales tax system. Introducing the HST in these two provinces will attract investment in the private sector because the tax system will be simpler. This is why this initiative is so important for businesses competing to attract and retain investments that the provinces need most in order to develop an economy based on advanced manufacturing, knowledge and wealth creation.
Ultimately, the greatest beneficiaries of the harmonized sales tax will be the citizens of the two provinces. The savings achieved by business will result in lower prices for consumers and in continued employment in the most competitive industries.
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That was certainly the experience in the Atlantic provinces after they harmonized their sales taxes when the HST was introduced in Atlantic Canada in 1997. Business investment in new products, new technologies and new markets rose 12 per cent, while consumer prices fell in the aftermath of tax harmonization. The tax rebates proposed by the provinces will further reduce those costs for consumers.
To conclude, I want to stress that sales tax harmonization will help build a more competitive private sector in B.C. and Ontario capable of creating jobs in the future because it is investing today in new products, new technologies, new skills and new markets.
By doing the right thing now, we will help our economy to recover faster. We will be in a stronger position to pay off the debts we have incurred before and during the recession. Above all, we will continue to generate jobs and income growth that are so important in maintaining the quality of life that Ontarians, British Columbians and all other Canadians enjoy today and in the future.
Senator Ringuette: Mr. Laurin, you stated that the experience of the Atlantic provinces after tax harmonization in 1997 was that it spurred a 12 per cent investment increase and reduced costs for consumers. I am from New Brunswick. I am anxious to know the source of that study because I have not noticed it. If there was an increase of 12 per cent in investment, it was not specifically because of the HST. It was because economic growth was on the rise in Canada and around the world. As a New Brunswick consumer, I have not seen the reduced costs that you mentioned. What is the source of your reference?
Mr. Laurin: I was referring to a study done by Professor Michael Smart at the University of Toronto. I have a copy of the study that I can leave with the clerk of the committee. The study, published in February 2007, is entitled The economic impacts of value added taxation: Evidence from the HST provinces. Specifically, he looked at the impact of HST not only on consumer prices but also on businesses. The 12 per cent increase in investment that I quote comes from that research.
Obviously, I am not saying that as a result of tax harmonization in Ontario and British Columbia we will see the same impact on business investment, although other variables are at play. We have talked to our members who say that they have been severely impacted by the recession in that sales are down significantly and they have seen job losses across the country in many manufacturing industries. They are asking what the nature of the recovery will be. Everyone realizes that if Canadian companies want to succeed, they need to be globally oriented. We cannot rely solely on the U.S. market. More and more companies are looking at expanding sales to other markets and at introducing new products and services.
Currently, the key issue for companies is cash flow. We have significant difficulty finding the cash required to do all the things companies that need to do. The HST would go a long way in helping to boost that cash flow for manufacturers and exporters. Under the current system, they have to pay provincial tax on many of their inputs. Last year, they paid close to $6.9 billion, which under the HST will go back to businesses to make the investments I spoke to earlier.
Senator Ringuette: I will grant you one thing with regard to a positive outcome of the HST: reduction of red tape in respect of sales tax. However, it is quite a coincidence that you cite the exact same study with the exact same numbers as the sponsor of this bill, Senator Greene, cited in the Senate last week. I guess that is simply a coincidence. Furthermore, you are here today to express how the HST will impact your business community.
I will read Professor's Smart's study, although I do not agree, given that my experience in New Brunswick is quite different. That will be for another day.
Senator Eggleton: I speak from an Ontario perspective, so my questions and comments will be relevant to Ontario. I will not try to speak about British Columbia.
The HST is receiving a great deal of attention, in particular from those who will now have to pay tax but have not paid tax under the PST. This is part of a much larger reform package of both income tax and tax rebates because the HST would be subject to the same rebate that the GST currently is subject to.
There was an interesting chart in a newspaper — likely the Toronto Star on the weekend — that showed that anyone earning less than $50,000 would be better off and that many people earning up to $100,000 would be better off because they would pay less under the value-added HST system than under the current system of combining the PST and GST. For those reasons and in terms of job creation, I strongly support this provincial government move. I think it will do a lot for Ontario.
However, a question is raised by First Nations people. I am concerned that they should not have a tax burden any higher than what they have now. Could you comment on how you see that being accommodated?
Mr. Laurin: I am sorry that I came in toward the end of your discussion earlier. However, I had an opportunity to appear before the House of Commons Finance Committee last week. To be honest, I am not an expert on native taxation, so it is hard to comment. I do not know how the current system treats them versus what is proposed in this bill. I would rather not answer your question because I would be speaking on an issue about which I do not know much.
My only comment is that we have been working closely with the Ontario and B.C. governments. I understand the bill needs to pass through Parliament. There have been many consultations between the Ontario and B.C. governments. I cannot speak on behalf of native groups, but we have been dealing with these two provinces to work out a situation whereby they can phase in the input tax credits over five years. We are in negotiations to see what inputs will be covered first and what the rates will be. I do not know whether you have asked them that question, but I would be curious to know whether they have had such discussions with the Ontario and B.C. governments.
Senator Eggleton: The provincial legislation has passed, I believe, but before they can execute it, this bill must pass.
Mr. Laurin: Yes.
Senator Eggleton: Professor Smart seems to be quoted frequently on this issue. Are there any other studies that indicate the impact of the harmonization process in other provinces or other OECD countries?
Mr. Laurin: I am sure that the OECD has done such research, although I do not have anything else with me today. The Atlantic Institute for Market Studies has looked at the issue as well. I cite the one study only that we have been using. We have been quoting this paper in the work that we have been doing with the Ontario and British Columbia governments over the past two years. It is a comprehensive study on the impact of the HST.
Senator Di Nino: You are the national body of the manufacturers organizations. What do your provincial partners say, particularly Ontario and B.C., as well as the Atlantic provinces, which have already harmonized? Do they share your opinion? Do they say anything different?
Mr. Laurin: That is a good question. My colleagues in British Columbia and Ontario have been advocating for the HST for a long time. I have been with the association for over six years now and I remember the HST always being on top of our list of priorities. That is why we are here today, to support this legislation.
My colleagues have been actively working on this, documenting cases of how the HST would help specific manufacturing companies. We have members who have been actively meeting with the government and trying to explain the benefits. We have been preaching this for many years and it is nice to now see the light of day.
In terms of the Atlantic provinces, we have done some sharing internally. The Atlantic provinces have had the HST for a while now, so we tend to forget about it. Our members, especially those who have operations in those provinces, are saying that the HST simplifies a lot of tax administration, especially for companies that are doing business in many different provinces. The reduction of the tax burden for companies is huge. There are a lot of savings. It is hard to quantify how much companies will save, but typically, the smaller the company, the more this will significantly simplify their tax administration.
If we look at our membership, larger companies have been advocating for the HST for a number of years because it makes sense, it is the right policy and it helps cash flow. However, smaller companies have been particularly interested in it, not only for the impact on their cash flow but mostly because of reduced tax administration.
Senator Di Nino: Some of us were here during the GST debates, and it was an interesting time to be in the Senate. There were many naysayers, people who were against the GST. I think one can say with some comfort that the introduction of the GST and the elimination of the manufacturers' sales tax reduced by a considerable amount the cost that manufacturers and exporters were able to sell their products for. That particular action to some degree was credited for the great increase in exports to the U.S. in particular, including the FTA. Certainly that was a major contributor, as has been suggested, and I agree. Do you feel that we would look for something similar to happen once the HST has been implemented?
Mr. Laurin: The timing is certainly different. Right now, we have a lot of companies that are able to produce goods for the U.S. market. The problem is the lack of demand in the U.S. market. I am not sure that if we implement this, that tomorrow we will necessarily see a corresponding increase in exports to the United States.
However, I have to say that the HST does make our goods and services more competitive in other markets. Right now there is the cascading effect of the Ontario sales tax and the PST in British Columbia. People do not see it, but at every stage of the process all of these inputs I mentioned, such as furniture, office equipment and so on, get taxed multiple times. Under the proposed system, companies will no longer have to pay taxes on those inputs, but when they are exporting these goods, they do not have to charge it to their customers either, thereby making exports more competitive.
I cannot predict how much the HST will help us to export to the United States and other markets. The free trade agreement with the United States, which was signed around the same time, also had a big impact on our ability to export goods to the U.S. I can only say that this will have a positive impact and will help our companies.
I am currently seeing companies that are retreating from the U.S. market or not necessarily bidding on contracts because they are not sure they will be able to make money. The dollar is around 95 cents right now, which is a major problem for us. Maybe the HST will give them the edge they need in order to bid on a contract and make a profit.
I would expect the impact to be positive a year or so after the HST is introduced.
Senator Callbeck: Do you have figures on the exports of the three Atlantic provinces that harmonized in 1997?
Mr. Laurin: On the variation of exports following the introduction of the HST?
Senator Callbeck: Right.
Mr. Laurin: By and large, off the top of my head, I would expect to see a significant increase up until the early 2000s. There was a recession in U.S. manufacturing in 2001-02. Since then, exports have not been increasing as much, in large part due to the fact that the dollar went from about 65 cents in 2003 to par about a year and a half ago. That certainly has had an impact on export sales revenue. I could obtain those numbers and share them with the committee later today.
Senator Callbeck: That would be great.
The other thing you said is that consumer prices fell in the aftermath of tax harmonization. How much did they fall?
Mr. Laurin: I am sorry that I do not have those figures with me. However, I would be happy to share Michael Smart's study with the committee.
The one study that we have seen has shown that consumer prices fell following tax harmonization. Statistics are readily available from Statistics Canada and I could obtain those figures.
The study isolated the impact of the HST. Many events are happening in the economy at the same time, and economists are able to isolate the impact of one policy change on consumer prices.
I am sure we could debate all day about the impact on consumer prices. If you look at the situation from a business standpoint, right now you are being taxed at every stage of the process, whereas if you have a value-added tax, you are taxed only on the value added. In other words, goods are taxed only once under that system. It is only logical that businesses will want to translate part of that savings to consumers, not necessarily the entire savings because companies want to invest in training their employees and in developing new markets. Companies will not necessarily pass on the entire savings to consumers, but we would expect to see that change occur.
The Chair: I would like your opinion with respect to consumers. I am from one of those provinces, New Brunswick, that has been very happy with the harmonized sales tax since it was implemented. However, I hear comments from many people that they would like to know what the final price is when they see it advertised.
We see value-added tax notices all over Europe when we are travelling, and in other places. They give you the final price so that when you reach your hand in your wallet to get the money to pay for the product you are going to buy, you know what the final price is, as opposed to standing in line and then finding out the coffee costs you 13 cents more than you thought it was going to cost.
From a consumer point of view, do you hear any comments like that? Would it work well for the manufacturer/ vendor to include the HST in the final, advertised price?
Mr. Laurin: Do you mean the price tag for those goods sold in retail markets?
The Chair: That is correct.
Mr. Laurin: We have not had discussions about that, but it is an interesting idea. One of the comments we hear from our members is that some people are resisting the tax policy change because now they will see the HST being charged on goods that were not taxed before. When we talk to members, they say that consumers paid the tax before, but they just did not see it. I have to pay tax on the furniture I purchase, and the wholesaler from whom I buy the furniture has to pay the full tax when they buy it from the manufacturer. The manufacturer had to pay PST on many inputs for manufacturing that furniture, so that tax is being paid at many stages in the process. We do not show it on the price and would not even be able to calculate it, but there is a cascading effect that is passed on to the consumer, whereas the new system will be transparent and people see the percentage they pay. People believe that they are paying more as a result, but inside the business many of these costs will be saved.
Senator Callbeck's question about the impact on consumer prices is a good one. We can certainly learn from the experience of the Atlantic provinces, but it will certainly result in a reduction in consumer prices because companies will be saving money. This does not even include the reduction in tax administration, especially for smaller businesses. Typically, small manufacturing companies are of a certain size. I cannot speak on behalf of smaller companies in the retail sector, but many of them have raised the issue of red tape and regulatory burden and said that the fact that taxes are not harmonized in certain provinces is a major irritant for them.
That is a very long answer to your question. There is a lot of explaining to do to consumers, and I would stress that there is a big part of the provincial sales tax that they are currently paying but not seeing because it is passed on at every stage of the production process.
The Chair: There being no further questions, thank you very much, Mr. Laurin, for being here. You have been very helpful in bringing forward the point of view of your association.
Honourable senators, that concludes our third panel for today. We will now break until 1:40, then return for clause-by-clause consideration and to discuss any amendments or observations to Bill C-62. Please consider that over the break.
(The committee suspended.)
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(The committee resumed.)
The Chair: I call this meeting back to order.
Is it agreed that we proceed to clause-by-clause consideration of Bill C-62?
Hon. Senators: Agreed.
The Chair: Honourable senators, you should have Bill C-62 in front of you so that you can follow along. The bill is comprised of 44 clauses and a schedule. I propose that I not go through each clause individually. Usually there are convenient groupings, but there is not in this instance. I propose using groupings of approximately 10 clauses.
Shall the title stand postponed?
Hon. Senators: Agreed.
The Chair: Shall clause 1, the short title, stand postponed?
Hon. Senators: Agreed.
The Chair: Shall clauses 2 through 10 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 11 through 20 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 21 through 30 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 31 through 40 carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 41 through 44 carry?
Hon. Senators: Agreed.
The Chair: Shall the schedule carry?
Hon. Senators: Agreed.
The Chair: Shall clause 1, the short title, carry?
Hon. Senators: Agreed.
The Chair: Shall the title carry?
Hon. Senators: Agreed.
The Chair: Shall the bill carry, honourable senators?
Hon. Senators: Agreed.
The Chair: Does anyone wish to propose amendments or observations?
Senator Eggleton: I wish to propose an observation.
During the committee's examination of this legislation, it was brought to our attention that certain First Nations spokespersons have indicated they will be treated unfairly under this legislation. The committee would therefore encourage the Ontario government — I mention the Ontario government because I am not familiar with how this applies in B.C. — to consider that for all First Nations people, purchasing products or services used on or off reserve be provided with no greater an HST burden than currently exists under the combination of GST and PST.
This is not a factor if you buy or sell something on reserve. It is a factor off reserve where they currently use a card. The purpose for this observation is that First Nations people have no greater burden.
I know that people of low income, which includes many Aboriginal people, will receive credits. However, this observation is an attempt to honour a tradition that all First Nations people would continue under the same kind of provision as they now have.
This clearly puts the matter in the court of the Ontario government, and judging from the comments made, that government appears to be sympathetic. It also means there would be a change in how this is administered, I am sure to coincide with how the GST is implemented. Rather than the card, which gives an on-the-spot exemption, they might have a rebate similar to the GST rebate.
There are provisions, as there are with the GST, for —
The Chair: Are you talking about the GST or the provincial sales tax?
Senator Di Nino: The HST.
Senator Eggleton: I am putting them all in here. They are all part and parcel of it. The provisions that would deal with the provincial portion of it would probably be similar to how the GST is implemented. It will be done by the same agency, the CRA. This observation in effect says that there should not be any greater tax burden on First Nations people than currently is the case.
Senator Campbell: I would like to amend this observation to include the Government of British Columbia. I have reviewed the motion by the Union of British Columbia Indian Chiefs, signed by Grand Chief Stewart Phillip, and I believe that their concerns are the same as indicated to us by the two chiefs who were here today.
I would add, as an observation and not as an amendment, that we encourage the Ontario and British Columbia governments to consider it.
The Chair: This is an amendment to Senator Eggleton's observation?
Senator Campbell: Yes.
Senator Finley: This bill also opens up the possibility of future provinces joining the harmonization deal. I am not saying that I necessarily support this at the moment, but if the bill were to pass, I think it should include all provinces, not only Ontario or B.C.
Senator Campbell: Could we say "Ontario, B.C. and all future provinces"?
Senator Di Nino: All provinces that would be joining in the future.
Senator Campbell: My concern is that I do not know what is happening with those that are already in this.
Senator Greene: Nova Scotia First Nations people do not have the special arrangement that Ontario First Nations people have with their government with regard to receiving goods off reserve.
The Chair: Nor do First Nations people in New Brunswick. I think Ontario and Prince Edward Island are the only provinces in Canada that have a special deal.
Senator Finley: The burden will be no greater. We are not trying to create special provisions.
Senator Campbell: I suggest that we stay with Ontario and British Columbia because they are before us now. In the future, if and when other provinces come forward, we can address that again in an observation.
Senator Greene: I would agree with that.
Senator Mitchell: I have a problem with the wording because I do not think this is what we want to say — "be provided with no greater an HST burden than currently exists under the combination of GST and PST." The combination of GST and PST is what is causing the greater burden, is it not?
The Chair: No. The combination of GST and PST is what exists today.
Senator Mitchell: Well, prior to the combination of them.
Senator Eggleton: The problem is that with the harmonization, it will all be administered by the CRA. They will administer it the same way, whereas currently the PST is administered by a separate provincial entity and they do what they want.
Senator Mitchell: Maybe I am overly sensitive, but the observation refers to the combination of those two taxes, which equals the HST. That is the problem. Do you not want to say it should be no greater an HST burden than currently exists under the total taxes paid under GST and HST by native people?
Senator Eggleton: Does that not mean the same thing?
Senator Di Nino: I like the phrase "currently exists."
The Chair: You can say "under the GST and PST." You do not have to say "combination."
Senator Di Nino: I like "currently exists."
The Chair: The question is whether we need the words "the combination."
Senator Mitchell: If you took them out, then there is no question.
The Chair: It is just "under the GST and PST."
Senator Di Nino: Mr. Chair, I agree with Senator Campbell. We should keep the application of this observation to just Ontario and B.C. because the bill deals with them. I suspect that if the Ontario and B.C. governments do something, it will probably be a strong message to the other provinces anyway.
The Chair: Is there agreement to amend this particular document? I will read the second paragraph: "The committee would encourage the Ontario and British Columbia governments to consider," et cetera, et cetera.
Senator Di Nino: Could we take "the combination" out?
The Chair: We are taking out "under the combination of GST and PST."
Senator Eggleton: It would read, "than currently exists under GST and PST."
The Chair: Yes.
Senator Eggleton: To me, that means the same thing. I am comfortable with it as long as it means the same thing.
The Chair: Are we okay with this wording?
Hon. Senators: Agreed.
The Chair: Do we adopt this amended observation to be attached to the bill and report it back to the Senate?
Senator Ringuette: I agree with this observation, but I also find it very distasteful or unnerving; perhaps I cannot find the correct word in my English vocabulary.
Ultimately, the federal government is responsible for our native people. The federal government has the mandate and has the only department in regard to Indian and Northern Affairs. Honestly, I find it unethical that the federal minister, whom I like as a person, has not met with them. They asked for a meeting with the federal Minister of Finance and they did not get it. I find that disturbing because, as I say, ultimately the federal government has the overall responsibility for our native people. I do not know how we can say it politely, but we have to say it.
If the B.C. and Ontario governments do not respond to our observation, First Nations people will be paying more taxes through this legislation, which is a combined federal-provincial agreement. Maybe we need to add an additional paragraph to highlight the fact that the federal department and the minister have a certain responsibility. I truly believe that they have a role, and we are not focusing on that role with this observation. Our native people have the lowest income of any citizens in this land, and now we are passing a bill that will increase their taxes.
Senator Greene: Only because it is a special deal with the Province of Ontario.
Senator Campbell: The federal government is not responsible in and of itself. The federal government is responsible, along with the provincial governments, to deal with Aboriginal peoples.
Taxation, in this case, is a responsibility of the provincial governments. If I am correct in what I hear, the two groups that this new tax would affect are the First Nations in Ontario and P.E.I. I will include British Columbia, just to cover all bases here until I actually speak to them.
I do not believe that we should be entering into what is a nation-to-nation-to-nation issue, and it would be wrong of a committee to enter into that. If the provincial government does not want to deal with the First Nations, or the federal government does not want to deal with the First Nations, they have the opportunity to take steps to mitigate that. It would not be my choice. Certainly, my choice would be to see the minister sit down with them, but I do not think we can mandate that consultation. This goes again to the nation-to-nation-to-nation responsibilities.
I am saying this because on the Aboriginal Committee, it is almost a religious statement to say that there is a tripartite arrangement. It comes from the AFN, from the last two grand chiefs that I have met. It comes from virtually every First Nation I know. To get into the middle of that is wrong.
I think it is right to draft an observation pointing out to the Ontario and British Columbia governments that this is a concern, but the provincial governments initiated this request. At the end of day, they are responsible for ensuring that things remain equal.
We should not add anything here; what we have here indicates what the First Nations wanted. They would like it to be a recommendation. It is not going to be a recommendation. We should move forward on this.
I would be interested to have them appear before the Aboriginal Committee in order to explore this because there is also an issue for the people who are from New Brunswick. They have a special treaty, obviously, that does not include them in this, and in B.C., we are mostly "untreaty," so we are continually covering new ground.
I do not think it is the committee's place to do that. I would not support adding another paragraph to the observation given what we know today.
Senator Eggleton: The observation is essentially a recommendation; it is not an amendment to the bill. It is a very specific recommendation to encourage the Ontario and B.C. governments.
The primary beneficiary of this measure, if it is put into effect by the province, would be off-reserve First Nations people because there are already provisions with respect to products and services consumed on or delivered to reserves. The majority of off-reserve Aboriginal people now live in cities. More live off reserve than on reserve. There is still a point of contention between the federal government and the provinces as to who ultimately has responsibility for them. It has been going on for a long period of time. There is no doubt that with respect to "on reserve," the federal government has a priority, not an exclusivity necessarily, but a priority; however, it is not clear "off reserve."
This observation does what essentially has to be done in this context. It says that First Nations people would not have a greater level of burden whether on or off reserve. All First Nations people should not have a greater level of burden than the one they already have.
Senator Ringuette: I agree with Senator Eggleton and I understand Senator Campbell's three-nation concept. If you carefully read the observation, the GST is a federal tax, the PST is a provincial tax, and the HST is a federal and a provincial tax. Therefore, I think the observation should include wording to the effect that the committee encourages the Government of Canada, the Government of Ontario and the Government of British Columbia to consider that. The federal government should be included because we are talking about federal legislation.
The Chair: Senator Ringuette, you can make that point at third reading debate of the bill as well.
Senator Ringuette: Can I not amend the observation?
The Chair: You can, but I do not think you have a consensus around the room.
Senator Ringuette: I want to make the amendment either way. Since last week, I have become accustomed to losing.
The Chair: I was hoping it would not be necessary to have a vote on this. Senator Ringuette, you do not need a seconder here, but you know you can make the point at third reading. There seems to be a consensus for this particular observation. You could present another amendment and we could vote on that.
Senator Ringuette: I want to amend the observation. Just as Senator Campbell amended it by adding "British Columbia," I want to add "the Government of Canada."
The Chair: Tell us what your amendment is so we know what we are voting on.
Senator Ringuette: In English, the second paragraph would read, "The committee would therefore encourage the Government of Canada, the Ontario and B.C. governments to consider," et cetera.
The Chair: Senator Eggleton, what do you think about adding the words "the Government of Canada" to the observation?
Senator Eggleton: It is hard to resist throwing in the federal government, although in effect it will be a provincial decision. I do not see any harm in it.
The Chair: Senator Di Nino?
Senator Di Nino: No.
The Chair: Does anyone else want to comment on this before I call a vote?
Senator Peterson: I do not think that the Government of Canada is a player at this juncture. In the past, the First Nations have had a point-of-purchase exemption, so I do not know why it would not continue. In the haste of passing this, it was there; they were told it would be there and it got lost in the shuffle. Is that not the point? It was missed.
The Government of Canada is not part of this, and we are pointing that out. Hopefully they will recognize the omission, correct it and that will be it.
The Chair: By not having "the Government of Canada" in there, we are pointing out that this is a matter for the province to sort out. Is that what you are saying?
Senator Peterson: Yes.
The Chair: Would all those in favour of adding "the Government of Canada" to the observation please say "yea"?
Senator Ringuette: Yea.
The Chair: Contrary minded?
Some Hon. Senators: Nay.
The Chair: In my opinion, the "nays" have it.
Are we in agreement that this particular observation — as amended by adding "British Columbia" and in French "le gouvernement de l'Ontario et de la Columbia Britannique" and by deleting "the combination" — be attached to our return of this particular bill?
Hon. Senators: Agreed.
The Chair: Shall the bill carry, honourable senators?
Hon. Senators: Agreed.
The Chair: Is it agreed that I report Bill C-62 to the Senate, along with this observation?
Hon. Senators: Agreed.
The Chair: Honourable senators, this meeting is concluded.
(The committee adjourned.)