Proceedings of the Standing Senate Committee on
Banking, Trade and
Commerce
Issue 18 - Evidence - Afternoon sitiing
OTTAWA, Tuesday, February 25, 1997
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-70, to amend the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the Income Tax Act, the Debt Servicing and Reduction Account Act and related Acts, met this day at 1:55 p.m. to give consideration to the bill.
Senator Michael Kirby (Chairman) in the Chair.
[English]
The Chairman: Senators, our first witness is Mr. Roy MacSkimming from the Don't Tax Reading Coalition. He appeared before this committee some years ago, as he was reminding me, when we were considering the original version of the GST.
Please proceed.
Mr. Roy MacSkimming, Don't Tax Reading Coalition: Thank you, Mr. Chairman and senators, for this opportunity to speak on behalf of the Don't Tax Reading Coalition.
In my day job, I am policy director of the Association of Canadian Publishers, which is the book publishers organization.
The Chairman: Do you mean to say, if we get the copyright bill you will be back to see us?
Mr. MacSkimming: You can count on it, sir, yes. There seem to be many active files affecting our industry in one way or another.
However, the group I am representing today comprises national organizations and represents writers, teachers, students, librarians, booksellers, manufacturers and also the publishers of books, magazines and newspapers. I suppose our name says it all.
As a coalition, we are opposed to the taxation of reading. We do not believe the tax serves the public interest in an era when literacy, information, knowledge and life-long learning are the keys to a vibrant society and a good life.
The number of individual Canadians who are actually, by extension, members of this coalition, exceed 600,000, if you take into account all the members of all the groups that have joined together ever since the introduction of the original GST bill. For that reason, this chamber is quite familiar with our group and with this issue.
Liberal senators were vigorous and eloquent in their campaign to avoid the GST on reading when it was about to be applied as the first tax on reading since Confederation.
At the present time, Conservative Senator Di Nino's Bill S-11 is moving to debate before the Standing Senate Committee on Social Affairs, Science and Technology and so the Senate chamber may yet finally resolve the thorny issues around the tax on reading.
The Prime Minister vowed to remove the GST from reading in a letter to our coalition's chairperson in 1992. In letter, Mr. Chrétien wrote that applying the GST to books and periodicals discourages reading and hinders the causes of research and development.
Now, however, with talk of an election looming, we still have the tax on reading. The government has recently made several moves to reduce the impact of the GST on reading. Rebates have been increased to 200 per cent for municipalities, educational institutions and hospitals.
Fittingly, the Honourable Senator Joyce Fairbairn was actively involved in that decision. Finally, reading has an exception from harmonization in the Atlantic region in the sense that the provincial portion of the harmonized tax will not apply to books. We acknowledge and applaud these changes, yet they have created new issues.
Every Canadian who wishes to purchase reading materials outside the context of a formal learning setting or institution or outside the upgrading of literacy skills will still pay the tax. The GST on reading still applies to every purchase made for a grandchild, self-help, self-improvement or just for the joy of reading. The individual has no status in terms of these rebates, and yet hundreds of thousands of Canadians have asked two successive governments to remove the tax.
Deficit reduction targets have now been exceeded by the government and so we hope the newspapers are not correct when they say that the government has become "politically dependant on deficit reduction." The government should consider that Canadians do not hold the deficit a priority to the exclusion of all other priorities. It is time for this government to keep its only GST-specific promise of which we are aware.
There are a number of issues of practicality that are raised by the issue of tax-inclusive pricing and pre-pricing in the Atlantic region. In the area of books, the cost of pre-pricing every book sold in the harmonizing provinces will actually hurt Atlantic Canadian consumers. The booksellers tell us that the cost to them of price-stickering every single copy of every book they put on their shelves will be up to 50 cents per copy. That number is not just made up. It is based on a study and analysis done by Atlantic booksellers with input from Chapters, by far the largest single book-selling retail chain in Canada.
These costs will of necessity be passed along, in one way or another, to the consumer. Perhaps the remedy for the consumer will be simply to buy fewer books, and that does not serve the public interest.
Consumer choice, as a result, will be reduced in the Atlantic region. Booksellers will be reducing the inventory of slower-moving titles. Booksellers operate on extremely narrow margins. The average profit across the whole industry, including the chains, is about 4 per cent, pre-tax. They simply will not be able to afford to carry as many titles, and so diversity and choice will be reduced for readers.
Somewhere between two-thirds and three-quarters of all books sold in Canada are imported. Canadian publishers account for only about one-quarter to one-third of the books and therefore we cannot be responsible for pre-printing prices on jackets. We cannot expect U.K. or U.S. publishers to put two different prices for different parts of Canada on their books.
One of the peculiar things about the book business is that books are sold on a fully returnable basis. That is, book stores may return to the publisher any unsold copies after a certain period of time. Once these books are returned, they are then redistributed to other stores. The books get recirculated into the system, but no bookseller will buy a book if there is an old price sticker on it. Typically, those stickers identify the book store that pre-stickered it. In these cases, the book will be virtually unsaleable. Protective dust jackets will be damaged by the necessity to remove the sticker.
If seed packets and greeting cards and magazines are to be excluded from the pre-pricing requirement in harmonization, books should be excluded also. Most of the outlets in Canada that sell magazines also sell books, and that can also be applied to greeting cards. It is not sensible to have two separate regimes for the pricing of reading material. In the case of magazines, the 15-per-cent tax on magazines will make Canadian magazine prices the highest of any G-7 country.
Most countries have instituted favourable rates under their sales tax regimes for both books and magazines. Magazine subscriptions have proved to be especially price-sensitive, so making those subscriptions even more expensive will add to the difficulties of Canadian magazines which, as you know, are already struggling, as is the government, with the current ruling of the World Trade Organization regarding Canadian magazine policy.
Because of their timeliness, visual appeal and prices, magazines are often the reading material of choice for younger readers and for new learners, and a 15-per-cent tax on those magazines will reduce choice for those readers.
Finally, applying the GST to Canadian subscription magazines will give foreign-based magazines an unfair advantage, since many U.S. publishers in particular do not charge the GST on the subscriptions which they mail into Canada to Canadian readers.
The coalition estimates that the total cost of removing the GST from magazine subscriptions and from book purchases at the consumer level will be about $88 million. This is a relatively inexpensive investment in terms of increasing literacy and access to reading material and knowledge. The benefit to Canada will outweigh that investment many times over.
I would be happy to attempt to answer any of your questions.
Senator Stewart: Reading is a very inclusive term. Can you give us a percentage breakdown of the kinds of publications you are including? For example, could you tell us how much of the material that you denominate as reading is mystery stories? As you know, at every airport book store, there is a segment of them. There is another segment of paperback fiction, perhaps three times as big. Once in a while, one will see a genuine, educational book.
Can you break down, in the case of books, either hardback or paperback, the differing categories as percentages?
Mr. MacSkimming: I cannot give you precise figures at the moment. I do not have Statistics Canada's survey of the book market with me. However, I can give you general numbers.
Senator Stewart: That would be better than nothing.
Mr. MacSkimming: At the wholesale level, the level which Statistics Canada surveys, the Canadian book publishers' revenues are approximately $1.2 billion for all types of books in Canada.
Senator Stewart: Published in Canada?
Mr. MacSkimming: Some of them are Canadian-published and some of them are distributed here by Canadian publishers. This amount is the receipts, the sales revenues, of publishers operating in Canada. That accounts for the great bulk of imported books because they go through a distribution network involving Canadian publishers who also act as distributors.
Of that amount, I believe the classification of educational books or learning materials is about one-third. Roughly two-thirds, then, of those sales are going through conventional book stores in the form of books for the general public.
Senator Stewart: And they would be primarily entertainment?
Mr. MacSkimming: They are fiction, self-help books, biography, history, political books, children's books.
Senator Stewart: The point of my question is obvious. One would be much more sympathetic to removing a tax on genuinely educational books than on some of the paperbacks we see in airports.
Mr. MacSkimming: That would be discriminating on the basis of content or perceived cultural value.
Senator Stewart: We do that in the case of food. You were not here this morning, were you?
Mr. MacSkimming: No, I am afraid not. For some books it is clear that they are entertainment, if you like, or escapism. Others are in a grey area. Much fiction is of a literary quality, if you think of Alice Munro, Robertson Davies, John Updike. These are books that are not exactly escapist. They do provide intellectual challenge and food for thought.
Senator Stewart: If we just take the concept of entertainment, why should I have to pay a tax on a new television set which I buy for entertainment, as opposed to a book which I buy for entertainment? Just because one is for reading, which might imply that it is educational, surely that is not adequate to make that distinction.
Mr. MacSkimming: We can only argue from our own position which regards reading matter as, by definition, a means of conveying and transferring information and knowledge. Reading material is, and always has been, at the base of our educational system, but there is also the issue of life-long learning.
Senator Stewart: What about the issue of magazines? Can you tell us what percentage of magazines that are sold in Canada are written in Canada? I use that language to avoid the Sports Illustrated problem where they are made in Canada but do not originate in Canada.
Mr. MacSkimming: We can break that down into magazines available on news-stands and those available by subscription. On the news-stands, about 85 per cent are not Canadian. Canadian magazines tend to do much better in subscriptions, though. Slightly over half of all magazine subscriptions sold in Canada are for Canadian magazines, written, printed and edited here.
Senator Stewart: You are saying that all reading material should be exempt from a sales tax?
Mr. MacSkimming: Yes, sir, that is correct.
Senator Meighen: Did you say that most American magazines that sell in Canada by way of subscription would not charge GST?
Mr. MacSkimming: I would say that many do not. Some do. If they have a large Canadian subscriber base, they take that trouble. However, there are thousands of consumer magazines, and many do not.
Senator Meighen: When you and I buy a magazine at a news-stand, Canadian or otherwise, do we pay GST?
Mr. MacSkimming: Yes.
Senator Meighen: If the government were to decide to eliminate the GST on Canadian publications, do you think we would get into the same trouble as we have on other fronts when we tried to favour our own industry? After all, if the American publications are not collecting it, why should we impose it?
Mr. MacSkimming: In terms of supporting the domestic industry, we would be amenable to that idea. However, people more knowledgeable about our international trade obligations would be able to say whether we would run afoul of the GATT on that.
Senator Meighen: If I walked into a bookseller's in Atlantic Canada, when and if this legislation is passed, will I pay 7-per-cent GST and not have to pay the provincial sales tax in addition?
Mr. MacSkimming: Yes, books have been exempted from the provincial sales tax and are to be exempted under harmonization. The consumer will still pay only 7 per cent.
The practical problem for publishers and booksellers is the issue of pre-pricing each copy. The sticker is supposed to be tax-exclusive. Generally, that is not done. Across the country, the publisher puts the retail price on the cover of the book and the GST is added at the cash register. That is the regime we would like to see continued in the harmonizing provinces.
Senator Meighen: Your basic position is that you would like to see the removal of all value-added tax from books?
Mr. MacSkimming: That is our fundamental position, yes.
Senator Meighen: As a compromise, you welcome paying only 7 per cent and, even better, you would like the ability to advertise the book at $20 plus taxes, for example, in the store?
Mr. MacSkimming: Yes, we would. As long as 7-per-cent GST must be imposed on the sale of books, we would simply like signage at the point of sale to inform consumers that the books on sale are subject to GST, rather than having to include the GST in the sticker price.
Senator Meighen: There is not much national advertising in the book industry, is there? Would that be a problem? Other industries have raised that this proposed legislation would cause a problem in that regard.
Mr. MacSkimming: There is some national advertising undertaken by book publishers, primarily in consumer magazines. As well, The Globe and Mail is a national newspaper read outside of Toronto. However, that is not the big issue.
Senator Meighen: Do they typically include a price?
Mr. MacSkimming: Not necessarily, no. Sometimes yes, sometimes no. It depends.
[Translation]
Senator Simard: In the third paragraph of your brief, you state that American publishers have ignored Canada's repeated demands and that many have not registered and do not collect the tax.
In your view, do Americans violate Canadian law? What can Canada do? Should we just let them?
[English]
Mr. MacSkimming: I am not sure what practical measures Revenue Canada takes to enforce Canadian law. The American publishers may see it as a kind of extraterritoriality.
Senator Simard: I suppose they could seize the books at the border.
Mr. MacSkimming: It is more a problem with magazines; with periodicals. The subscriptions are coming in through the mail to the subscriber. The transaction is done through the mail between the U.S. magazine and the individual subscriber in Canada, so it is very difficult to police. It is only the higher profile magazines, which have a large number of Canadian subscribers, that take the trouble to collect the tax and remit. As it says here, they do not do this from state to state in the U.S., so they do not see why they should accommodate Canada.
Senator Stewart: I can add a little information on this. I buy a fair number of books, both in the United States and in the U.K. Blackwell's at Oxford, for example, collects the tax and, when a package arrives from them, it is stamped with very large letters, "GST collected." That is generally true for major booksellers in the United States shipping into Canada.
However, last fall I received a package of books from the United States. I had to go to the post office, in response to a summons, to pay $12 because the package label did not state that the GST was paid.
When I opened the package, I discovered that the invoice showed that the GST had been paid. I wrote a letter to the appropriate people enclosing a copy of the invoice. The post office had charged me not only the GST but a $5 handling charge. I think that is the technique that is used in the case of books.
Senator Oliver: Did you get your money back, including the $5?
Senator Stewart: Yes, I got both parts back. The problem is quite different in the case of magazines, as the witness says.
Senator Kenny: It seems to me that the nub of your argument is this: Reading is good. Therefore, we should not tax it.
Mr. MacSkimming: It certainly is good. It is good for you and it is good for society. It actually serves a number of Canada's larger social and industrial goals.
Senator Kenny: How many other good things are there that you think that we should not tax? We could spend months here listening to people who have good causes and who want special treatment for their area. You can make a case about food. You cannot live without food. We treat it differently in some cases. What are your thoughts, as an individual, on how many exceptions we, as a society, can afford to have to the system?
Mr. MacSkimming: Clearly, it is a thorny question. The setting of precedents in one area can then leave the government open to demands in many others. For reading, there is a consensus in many parts of society and even in some jurisdictions, that reading material should be treated differently. That is to say, it is possible to discriminate on the basis of values, social values, cultural values, and long-range social goals in terms of literacy, education and life-long learning.
In Quebec, for example, books are not taxed provincially. In the Atlantic region, books are to be excluded from the harmonized tax. In European nations that have a VAT or GST-type tax, books are either zero-rated or taxed at a lower rate than other commodities. There is a recognition in society that reading is fundamental to the social good.
Senator Kenny: It is almost the reverse of alcohol and cigarettes. There are sin taxes and virtue non-taxes, if you will.
Do you have studies which show a correlation between lower-priced books and literacy?
Mr. MacSkimming: No, we do not. We do have a Woods Gordon analysis from several years ago which showed that for every 1 per cent increase in the price of books, there is a corresponding decrease in sales.
Senator Kenny: That talks to the health of your business, as opposed to whether Canadian children are learning how to read or write.
Mr. MacSkimming: I think it reflects a drop in both consumption and sales revenue.
Senator Kenny: Are you not really a buggy-whip industry? Are you not really about to fall off the map as far as reading goes? If we were sitting here 10 years from now, would we have this litter of paper around or would we all be reading without the necessity of publishers? Will we need libraries and books, or will we be able to read without the benefit of all this paper that you are seeing here today?
Mr. MacSkimming: My personal views are predictable. I feel books will always be in demand as one of the most practical, convenient, low-priced vehicles for conveying information and acquiring knowledge.
It is difficult to take a piece of machinery with you everywhere you go, for example, on the beach or on an airplane.
Senator Kenny: What about a lap-top?
Mr. MacSkimming: There is also a problem concerning how many hours of the day you want to stare at a screen. Those are all rather subjective views and anyone can have such views.
In terms of whether there will be any continuing demand for our products, though, Canadian book exports have more than tripled in the past four years. There is a constantly escalating export sale of Canadian writers and writing. Canadian authors are becoming increasingly recognized abroad; their novels are being made into films. All the media of communication and learning, including the electronic media and multi-media, will coexist with books. They will not kill books any more than the movies did in the 1920s or than TV did in the 1950s.
Senator Oliver: My first question has already been partly asked by the last questioner, but I was about to ask about the effects of the Internet. Is your opinion not tempered? If you go into the Internet now, you can get the content of the magazines that you have been discussing, the newspapers, most books, learned journals, and so on. You can download them in your own home without paying any tax. Does this not temper your position of wanting amendments to ensure that there is no tax if we can now get it free?
Mr. MacSkimming: I do not think that publishers will be prepared to make their publications available free of charge on the Internet. In the long run, there needs to be a regime for making the Internet a viable marketplace for the consumption and sale of intellectual property.
Senator Oliver: There is an unlimited amount of things that you can get off the Internet now. You can download them into the privacy of your own den and read them and there is no tax today.
Mr. MacSkimming: I am not sure that you would find available through the Internet the range of materials that you would find in a good book store. I think that there are many publications still only available in printed form. Granted, what you are saying is true. It is a revolutionary development. However, I am not sure, at this point, that the distribution and the purchase of the physical book will be so eroded by that development. This is all futurology because, at the moment, we do not see the impact on the book market of the Internet.
The main impact at the moment is in the area the virtual book store where people are starting to use the Internet to buy books. A commercial transaction takes place where they still buy the physical book and pay the price.
Senator Oliver: They are also using it to read newspapers, to read articles in various journals and, if you are doing a research paper as a student, to get research information from newspapers and various libraries around the world.
Mr. MacSkimming: This is true.
Senator Oliver: Your view is not tempered, notwithstanding the reality today?
Mr. MacSkimming: How would you have it tempered?
Senator Oliver: I am asking you. I would have thought it would be.
Mr. MacSkimming: At this stage, because I am from the book industry and that is the field that I know the best, we do not see the Internet impinging heavily on our industry yet. It has not yet been developed as an alternative marketplace to the book store or the library.
Senator Oliver: Your paper ends talking about an $88-million saving or loss, if your proposal goes through. Do you have a proposed amendment that you would like us to look at? You have referred to Senator Di Nino's Bill S-11. Is there anything in there that you like or do not like? What are you recommending to us as a committee looking at Bill C-70?
Mr. MacSkimming: We have our ultimate or idealistic position, which I believe is addressed by Senator Di Nino's bill, of simply zero-rating reading materials, whether they be books, magazines or newspapers under the Goods and Services Tax.
Senator Oliver: Is that the proposal you are adopting and recommending?
Mr. MacSkimming: That is correct. Short of that, if the harmonization plans go ahead, we are seeking relief under the requirement for tax-inclusive pricing and pre-stickering of products. We are asking for the same exemption that has been given to magazines, greeting cards and seed packets.
The Chairman: Thank you for coming, Mr. MacSkimming.
Our next witnesses are from the Consumers' Association of Canada.
Ms Rosalie Daly Todd, Executive Director, Consumers' Association of Canada: Mr. Chairman, on behalf of the Consumers' Association of Canada, we appreciate the opportunity to appear before you today. I wish to begin with a brief plug for the association; I hope you will forgive me. This is our fiftieth anniversary year.
We are a group of volunteers who dedicate their time to improve the marketplace for all Canadians. We have chapters in all the provinces and the territories. We have six offices, five of them manned by volunteers. We are active in five areas which include financial services, communications, health care, food, and general marketplace issues such as standards.
This is one of a number of appearances CAC has made before various committees on the issue of the GST and sales tax reform, going back as far as 1989 before the tax was introduced. I myself began my career with the CAC in August of 1990 by preparing and presenting a submission on this issue to this very committee.
I was uncomfortable then and I am uncomfortable now representing the Consumers' Association of Canada on this issue. I am uncomfortable because CAC has always been opposed to consumption-based taxes because of their aggressive nature. Essentially, they are unfair because they hit low-income consumers the hardest. This basic philosophical point somehow always gets lost in the debate.
CAC got involved in the issue of GST introduction and later GST reform, because it was apparent by 1989 that, like it or not, we would get a federal value-added tax. Since such a tax was inevitable, our goal was to make recommendations for a tax that would be as much in the consumer interest as possible.
Our recommendations were was based on five principles. Looking back on what we proposed, I am struck by how well those principles stand up today. Our strong view about the basic inequity of consumption-based taxes led to our first principle which was to keep the rate as low as possible.
At the time the GST was introduced, we had done independent research that said that it could have been brought in for as low as 4 per cent or 5 per cent, if our other principles were respected. In order to keep the rate as low as possible, the tax had to be administratively simple for business and government, which led to our second principle, that it should be broad-based with no exemptions. That is CAC's answer to Senator Kenny's questions.
Because low-income consumers are the real losers with consumption-based taxes, we had a third principle. That is to say, generous, fully indexed tax credits delivered to low-income consumers on a timely basis. We suggested monthly, if possible.
The old MST which the GST replaced was a hidden tax. That experience led us to strongly recommend a fourth principle: The GST should be a visible tax. I want to quote from my August 1990 submission on this point:
Consumers have a right to know how much tax they are paying and to whom they are paying that tax. The most undesirable characteristic of the present sales tax, the MST, is the fact that it is hidden from consumers in the price of goods. This has allowed the government to raise the rate and broaden the base without taking much political heat for its actions.
We were not just concerned that the tax be visible. We wanted a fifth principle, too; that is consistency in its display. We were concerned that, to quote again from the previous submission:
-- leaving the method of displaying the GST up to the retailer will subject consumers to a confusing array of techniques that could make comparison shopping impossible... The CAC wants to make its position on visibility perfectly clear. Leaving the decision to each individual business and service on whether or not to include GST in prices, as now planned, would create an intolerable consumer nightmare. Consumers must have a consistent method of comparing prices from store to store.
At that time, the CAC recommended that the price for all goods and services be displayed tax-free. To quote again:
With this method, consumers can monitor whether or not promised reductions from elimination of the MST are really being passed on. Also this method has the potential to keep government more honest and responsible since consumers will always have a very clear picture of the size of the tax bite. Those who argue that this method is more difficult because it demands a quick tax calculation, to arrive at a total price, forget that most Canadian consumers are used to having provincial tax tagged on at the cash register.
If I could sum up our overall recommendation in one phrase, it would be: Keep it simple, with a low rate, no exemptions, visibility, consistency and equity for low-income consumers.
Unfortunately, to a large extent, those principles were not respected when the GST was introduced.
As we appear again here today, I cannot help thinking of a slogan from the 1960s presidential campaign: "In your heart, you know he's right." I believe that, to a large extent, CAC got it right the first time.
CAC addressed the issue of harmonization in several papers which we wrote during the 1990s. Our conclusion was that we supported harmonization, but it should not be attempted until the flaws with the federal portion of the tax were corrected. More specifically, the rate was too high, there were too many exemptions, and tax rebates were not fully indexed.
On the issue of visibility and consistency, most establishments had chosen tax-out pricing as CAC had recommended, although there was not total consistency in the marketplace.
More recently, polls have shown that consumers want to know what the bill will be before they arrive at the check-out counter. Part of this confusion, clearly, is due to dual tax systems, provincial and federal, each with its own exemptions.
CAC was willing to modify its original position on visibility, from tax out to tax in, as long as two conditions were met. First, receipts and invoices had to clearly identify the tax. Second, there had to be consistency of display so that consumers could comparison shop.
That brings us full circle to the present proposal to harmonize tax in Atlantic Canada. As I have already said, CAC's recommendation has been to get the federal portion right first and then harmonize. We have other concerns with the present proposal, concerns about visibility and consistency first of all.
CAC commends the government for its good intentions and its concern for consumer convenience which prompts the proposals for tax-in pricing. CAC was willing to be convinced that a consistent system of tax-in pricing, with appropriate invoices and receipts, was sufficient to ensure visibility, which in turn helps to ensure government accountability. However, the present proposal is inconsistent.
Because of a number of practical problems with tax-in pricing being mandated for one region of the country only, we understand that multiple display methods will be required. We are concerned that consumers will be confused. We are concerned that any attempt to change to a tax-in method of display is premature, and it cannot be done effectively on a piecemeal basis in one region only.
We appeared last month before the Commons finance committee and heard submissions from several businesses. They raised other concerns for Atlantic Canada residents. One of the major benefits of harmonization should be administrative cost savings to business and government from which the consumer should ultimately benefit in low prices, and, even ideally, in increased competition from new entrants into an improved marketplace. Instead, business is raising concerns about both one-time and ongoing costs because of special pricing for Atlantic Canada. Any such costs would find their way into the pockets of consumers in Canada's poorest region.
As alarming to CAC are statements about marginally profitable Atlantic Canada businesses going under or companies from other regions finding this market too costly. Such issues raise concerns about decreased choice in competition in Atlantic Canada, as well as lost jobs and economic hardship.
In conclusion, in the opinion of the Consumer Association of Canada, the government should take another look at the present proposal, particularly on the issue of tax display. It does not appear to be possible to arrive at a simple, consistent method of tax display based on tax-in pricing at this time. Remember, there is a big difference between what consumers appear to want and what they would be willing to pay more to have. In this case, from CAC's viewpoint, the price tag appears to be alarmingly high.
Thank you, and we would be pleased to take your questions.
Senator Angus: Were you here all morning, Ms Todd and Ms McCall, or just towards the end of the morning?
Ms Todd: We were here just at the end.
Senator Angus: At the beginning of the morning, some people were here from the Department of Finance, and they were explaining the bill and the reasoning behind it and why the methods being adopted are so great, in their view. Has your association made any representations to the Department of Finance at any stage in this process respecting the display issue?
Ms Todd: Not formally, nor do I believe we were asked.
Senator Angus: As I listen to you and read the document you filed, you seem to support a harmonized sales tax.
Ms Todd: We support harmonization. We wish that the base had been lowered and exemptions eliminated before that happened. That issue is dead at this point, unfortunately.
Senator Angus: I am confused about something, and perhaps you could elucidate. It seems to be a contradiction in terms. On the one hand, the government has decided to go to bed with this tax-in policy, one price, one thing for the consumer to see. At the other hand, they say, "When you get to the check-out counter, you will know how much tax you pay because you will get a tax receipt."
I did not understand why that would be. In your case, you want the consumer to know just how much tax they are paying, but on the other hand, you would like them to know it before they get to the check-out counter. Here comes the display issue again.
Ms Todd: There is a confusion. As I understand it, different items within a store would be priced differently. In a department store which sells books, the price, as I understand it, will be on the barrel. Some items will have dual pricing. Others will have tax-in pricing. There are at least four different methodologies. Logically, I thought the government was doing this to make it simpler for consumers, which we support. However, the reality is, because it is only being done in one region, it is not more simple; it is more complex.
It is not just a visibility issue. It is a comparison-shopping issue and a confusion issue. Ultimately, it becomes a cost issue because businesses say: Not only will the consumers be confused but, in order to confuse them, there will be additional costs that "guess who" will be paying at the end of the day.
The original rationale was to make things easier for consumers as they shop, but that is not happening. That is one of our concerns.
Senator Angus: Rather than four options -- and I am inferring this from what you say -- you believe there should be one method?
Ms Todd: We always said that there should be one consistent method and that that method should respect the idea of visibility so it would be harder for you to hike the tax next time. The easiest and most effective way of doing that is tax at the cash register. Consumers in some ways do not like that; however, I suspect they would be happy with it if they were told that businesses will charge more to cover their costs of price-changing. The present method is almost universal.
Senator Angus: The bottom line is no tax-in pricing.
Ms Todd: Exactly. We were willing to go along with it if it could be done on a simple, consistent basis. From what we are hearing, that cannot be done because it is only being done in one region which causes a number of problems.
Senator Kenny: Are your concerns about tax at the cash register satisfied by the fact that the receipt received by consumer will list the price and the tax separately?
Ms Todd: It would have been had there not been a confusing pricing system before you get to the cash register. In other words, if the whole country were going tax-in, there would be no distribution problems in and out of Atlantic Canada causing four different methods within some stores or different methods between stores, making it difficult to comparison shop on an item. If there were consistency, yes, we would support tax-in pricing as long as the receipt showed the tax.
Senator Angus: You indicated that this was one of your concerns, and I see your point there.
Another issue which was brought to our attention is that this is basically shifting the burden onto the consumer and away from the business. Do you have anything to say on that issue?
Ms Todd: Again, you are telling me out of context. If you are talking about the visibility issue, yes.
Senator Angus: No, not the visibility issue. I am talking about the cost issue that, ultimately, the consumer will bear the brunt of all of this.
Ms Todd: We are hoping it will be brought in on a revenue-neutral basis. Certain items will be taxed at a higher rate for the first time, and some of them are essential goods. I understand clothing is to be taxed in at least two of the provinces. A whole series of goods will be taxed at a higher rate.
Our viewpoint is that consumption-based taxes hit low-income consumers the hardest. It will be difficult for some people.
Ms Marnie McCall, Director, Policy Research, Consumers' Association of Canada: Of great concern to us are low-income people, the lack of indexation of the rebate, and the fact that Newfoundland and several other provinces across Canada claw back the GST rebate from people on social assistance who already have a desperately hard time. Those people will now not get the GST rebate in Newfoundland, and they will pay additional tax that they have not paid before on things like clothing, shoes, home heating fuel, electricity, telecommunications. The impact of the harmonization on those people who are on social assistance may be catastrophic in many cases.
I do not know whether it is within the bailiwick of this particular piece of legislation to require that the rebates actually wind up in the hands of the people who are entitled to them. If it is within your jurisdiction, you might want to consider proposing an amendment requiring that the rebates actually end up in the hands of the people who are entitled to them.
Senator Angus: You say it is a fait accompli and beyond the scope of discussion in terms of the broadening of the base.
We are here to examine the merits of this piece of legislation and we have not seen too much merit up to now.
The broad principle of harmonization has many positive elements, ultimately, if it could be done all at once, rather than with Quebec first and then with these three provinces and at different levels. Now you are saying that the broadening of the base of the provincial sales tax to include all the same items that the GST covers has potentially damaging connotations.
Ms Todd: We are saying you should get rid of the exemptions and lower the rate. We are afraid that, if you go to harmonization, you will never go back to that essential step.
Ms McCall: That is operating from the premise that there must be some sort of consumption tax, and that is a premise that we do not accept.
Senator Angus: You do not accept that in the first place.
Ms McCall: No, but given that everybody else seems to accept it, we would like to minimize the impact as much as possible.
[Translation]
Senator Hervieux-Payette: Following up on those questions, my understanding of the situation in those countries of the European Union who have a longer experience of added-value taxes is that they are going towards a harmonized tax base that would cover all the same goods and services and have a uniform rate. In other words, they tax all the same things at the same rate. Otherwise, individual countries find out that they become less competitive. However, in those countries that have a value-added tax, the rate is rather high, up to a maximum of 18 or 20 per cent, or even higher. The income tax rates are usually much less than in North America and in Canada.
In your reasoning, if you had a choice, there would only be an income tax. You have a preference for one way of collecting taxes. You still recognize that government needs to collect taxes.
The labour market has undergone enormous change and there are many more self-employed workers, which presents vast implications for the reporting of income. Do you not think that saying that an added-value tax is regressive is swimming against the current, considering after all that it is applied equally to everyone?
[English]
Ms Todd: Senator, the point is that low-income consumers pay a higher percentage of their income for essentials. On that basis, it hits them the hardest.
One of the concerns with the value-added tax and the European experience is that it seems to be easier to hike that and have a higher proportion of your tax mix from that source, as opposed to income taxes which are more fair in that they are based on income.
[Translation]
Senator Hervieux-Payette: I am certainly partial towards low-income families. When I look at the fixed expenses of a low-income family, there is food, rent, clothing, electricity and other utilities. You propose an even wider tax but at a lower rate. Would you go so far as to suggest that everything that is consumed, food, drugs and so on should be taxed, which would mean having a rate of 10 per cent instead of 15 per cent?
[English]
Ms Todd: The last time we did the research on the federal portion, it could have been 4 or 5 per cent instead of 7 per cent. However, the economists will tell you that, when you do not tax food, you are benefiting the people who can afford the steak and the salmon and who do not pay tax on it. You are distorting the purchasing decision of the low-income family who might like a pizza but the tax on take-out food makes that impossible.
We said keep it low and simple. By keeping it low and simple, you do not incur large administrative costs. That keeps it less expensive. Ideally, that was the way to go.
[Translation]
Senator Hervieux-Payette: I do not think consumers in general would be very happy, especially about taxing food. In many cases, 25 per cent of the income of poor families goes to food, and I am not talking about frozen pizzas and take-out dinners.
There should be a larger rebate for single-parent families. At any rate, exempting groceries had almost unanimous support throughout Canada. There was a consensus that it would be a mistake to tax food or drugs under the pretense of widening the tax base. I want to be sure we understand each other. These are the two areas that are exempted. There are a few other minor exclusions but these two components are necessities of life. So I wonder what makes you think that people want a wider base, because I, for one, have not seem much support for this. To have a lesser rate, fine, but a wider base? I wonder. What would you make subject to tax in order to widen your base and reduce the rate?
[English]
Ms Todd: I am not sure that they preferred the tax to begin with, so the tax will never be popular. The last time we did the calculations, not taxing food would drop at least one percentage point off the rate. Again, you have to keep in mind that we were the ones proposing the most generous tax rebates and we wanted them monthly because we felt it was important to get that back into the consumer's pockets as quickly as possible.
Senator St. Germain: Happy 50th anniversary to your organization. Are you both volunteers as well?
Ms Todd: No, we are staff.
Senator St. Germain: Your rationalization of consumption throws me off. I was always under the impression that if I bought a Rolls Royce and my poor brother bought a bicycle, we both had transportation; I would pay $30,000 tax at 15 per cent, and he would he pay $15 tax on his $100 bicycle.
I do not understand your rationale. I agree with the broader base, we should have kept the tax lower. It was a mistake of the previous administration, and it is a mistake of this administration that they are tinkering with it and trying to do something that is politically expedient on the east coast to live up to a promise, forcing a harmonization and taking $1 billion from Canada.
Can you explain to me why you feel that low-income people are penalized by a consumer tax? Are not the real consumers the people who are buying the big ticket items?
Ms Todd: If you were to add up all the little taxes paid by low-income consumers versus those paid by high-income consumers, the person with the low income would pay out a higher percentage of their income in sales tax.
A Rolls Royce is expensive, but not for the person who can afford to buy it. They would be hit harder by paying tax on their income without any way to hide it. That is the theory and, if we did the math, it would probably work out.
If I had brought my economist today, as I had planned, I would be directing these questions to him. He would do a much better job of demonstrating to you that, yes, in fact, the low-income person does get hit the hardest by sales tax.
Senator St. Germain: So what would you recommend, then?
Ms Todd: Although we are discussing theory here, the European experience has shown us that it seems to be easy to raise these taxes once they are in place, which is one reason we are concerned that they should remain visible in Canada and therefore harder to raise. We feel they are not the better form of taxation.
Senator St. Germain: I agree that they should be left open. Mr. Ferrabee from the Restaurant and Foodservices Association said here earlier that when you ask people what foods they want more of on menus, they say juice, salad and fruit. Yet, they buy Coke, fries and hamburgers. You allude to that at the end where you say that what consumers say they want and what they really want may be two different things.
I do not think the tax should be hidden. I think this is a terrible error on the part of those advocating this. I do not think it is being explained fully. I think it is being sold on simplicity as opposed to reality. Every government needs revenue. If they have an avenue to collect it, and if there is no resistance because people do not know what the government is doing, it will be exploited fully.
Ms Todd: Our point is that if it could be simple, we would probably support it. However, good intentions aside, the reality is it cannot be kept simple, and therefore we cannot support it.
Senator St. Germain: Is there any form of taxation under which low-income earners will not be paying a higher percentage of their income toward taxation?
Ms McCall: If there must be a value-added tax or GST, there must be a targeted rebate returning all the taxes that the very lowest-income people pay. Rather than giving them some sort of card which exempts them from paying tax in the first place, you return the tax to them as fast as possible.
The difficulty is that, as with the current system, it is not indexed. It is not sufficient. Particularly when provincial governments are clawing back that rebate from the very poorest citizens, it does not work. It will wind up being unfair to some people all the time.
Senator St. Germain: Is this claw-back taking place in all the provinces?
Ms McCall: It is not, but it is definitely occurring in Newfoundland, possibly in one of the other Atlantic provinces, and in at least one of the prairie provinces. In Newfoundland, it was announced in the paper last week.
Senator St. Germain: You are advocating that those below a certain income level be given some form of credit for the tax they are paying, by whatever method. That adds to the bureaucracy and the costs.
Ms McCall: The sales tax rebate system does not have to be all that complicated because it can be piggybacked on other systems that already exist through Revenue Canada. In fact, a new bureaucracy is not necessary. There are already other things tied to family income, such as the child tax credit and so on. There would be some administrative cost but not the cost of setting up an entirely new bureaucracy.
The simplest way is to say that everything is taxable at 4 per cent and you must submit to the government 4 per cent of everything you sell. How much simpler can you get? However, that is not what we have.
Senator St. Germain: Do you include even medical products?
Ms McCall: Yes. We include everything, with no exemptions. Then it is dead simple. The simpler it is, the less costly the system is. Then you give the most needy people a direct rebate or some form of subsidy. You can deal with it that way, if you have the tax at all.
A tax can be very complicated, as we all know, even when applied to food. We have all heard for years about muffins. If you buy six muffins, there is no tax; if you buy one, it is taxable. Not only does this not make a lot of sense, it is not efficient from the consumer's point of view. If you buy six at a time, it is probably cheaper, so why would you not buy six at the time? However, on the other hand, it discriminates against people who would end up throwing three muffins out because they are single or older and they do not eat that much. To get the saving, they are wasting. It is not efficient in any way.
Senator St. Germain: Have you any documentation that indicates that the people you represent would support this broader base? Also, have you any statistics on tax-in pricing? We have had surveys cited to us which suggest that 57 per cent want the price to include the tax. Have you any date on that?
Ms Todd: No, but I would ask you to look at the questions. They are not asking whether they would still like it if it cost more, if it hurt their region economically, et cetera. They are just saying, "Would you prefer to know before you get to the counter?" The answer to that question is, "Yes."
On your first question, certainly our active volunteers have supported this position since 1988-89, but I consider the people who are active with CAC to be consumer leaders and they have attempted to determine what is the public interest when a value-added tax is being instituted. It may not be popular, and most people will not understand the nitty-gritty of it, but if we are going to do it right, how do we do it? Certainly our own volunteers support this.
Senator St. Germain: How big is your organization?
Ms Todd: We have had about 10,000 donors through the years. We reach about 200,000 Canadians through a newsletter and we have about 300 people active on committees on national issues at any time. We have chapters in every province and in the territories.
Senator St. Germain: What about the economic skill? Are they all at the lower level?
Ms Todd: I would say they are at all levels and in all walks of life.
Senator Buchanan: Mr. Chairman, I am going to concentrate on low- and low-middle-income families. We have quite a few of them in Nova Scotia, as you know.
I divide the HST into two sections, as far as consumers are concerned. The first is what has been called the big-ticket items, on which the new tax will decrease from about 18.6 per cent in Nova Scotia to 15 per cent. Therefore, there is a saving. Those big-ticket items are things such as automobiles -- mainly new automobiles -- refrigerators, refrigerator-freezers, stereo consoles, big-ticket furniture items, and so on.
The other side of the coin is that the cost of necessities of life, things that people must have, will increase. I refer there to power rates, home heating fuels, gasoline at the pump, stamps, clothing under $100, children's clothing and shoes. Someone mentioned rent. Rent will definitely be affected in Nova Scotia because landlords will pay bigger power bills and bigger home-heating fuel bills. They will not absorb those costs; they will pass them on in rent. Seniors and others, mainly low-income and low-middle-income people, who pay rent will pay higher rent.
Would not you an agree this is a ludicrous situation? P.E.I. is a hop, skip and a jump across the water. Let us take a small item that to some people is a big item: postage stamps. At the moment, in Nova Scotia, a book of 10 stamps costs $4.82 and, in P.E.I., it costs $4.82. After April 1, if this bill becomes law, in P.E.I., they will still pay $4.82, while in Nova Scotia, they will pay $5.18. In a 100-stamp booklet, the people of P.E.I. are $3.60 ahead of us. On 200 stamps, they are $7.20 ahead.
The Chairman: If you buy enough, you will pay for the ferry crossing or the bridge toll. Please come to the question.
Senator Buchanan: A friend of mine intends to buy 100 stamp books and have them sent to him to save the trip across the bridge. He pays $1 for the postage to bring them across. I am asking the witnesses: Is that not a ludicrous situation?
Senator Simard: The answer is yes.
Senator Buchanan: Is he right? Is the answer yes?
Ms Todd: Yes.
Senator Buchanan: I heard people saying this morning that this tax is revenue-neutral. There is no way this will be revenue-neutral to seniors, low-income, low-middle-income people, those who do not go out every month or every year and buy a new automobile or a new refrigerator or a new freezer or new stereo consoles or big-ticket furniture items. There are people who do and they will save money, but they are not in the brackets I just mentioned, so the revenue neutrality comes as a result of the big savings for these people, but no savings, and increased costs, for the people in lower income levels, in power rates, home heating fuel, gasoline at the pumps, stamps, clothing under $100, children's clothing, shoes, et cetera.
One woman told me that, last Christmas, she bought her family and her relatives mostly clothing at various stores around Halifax. All the items she bought were under $100, attracting no provincial sales tax. Last year, for example, she paid $85.60 for a nice coat for her daughter. Next Christmas, she will pay $92.50 because the HST will increase the cost of that one coat by that much. Do you agree with that?
Ms Todd: You are preaching to the committed and you are answering Senator St. Germain's question better than I did. Thank you.
Senator Buchanan: This morning, we heard from the Retail Council of Canada. I, too, have researched this. Most of the stores in the shopping centres of Nova Scotia are smaller stores, except for the key stores at one end and the other end of the malls. They employ anywhere from 6 to 12 people, most of them making low or low-middle incomes. The additional transitional costs caused by the HST -- and these are their figures -- because of advertising, computerization, and so on, will be anywhere from $80 million to $100 million. The annual costs will be approximately $90 million. They say that those costs will either mean increased cost to the consumer or they will be absorbed by the stores. In those marginal stores that are just getting by right now, those absorbed costs will cause jobs to be lost or the store may go out of business, resulting in, literally, thousands of jobs being lost in the area of our economy where people should not be losing jobs, namely, in the low-paying areas. Do you agree with that?
Ms Todd: Absolutely.
Senator Kenny: Could Senator Buchanan appear as a witness in future?
The Chairman: We would not have sufficient time.
Senator Stewart: If he were to appear, would he explain why he voted for all these taxes back a few years ago?
The Chairman: Why did he vote to put the GST on electricity and home heating?
Senator Buchanan: I can ask you a question. Why did you oppose it so much if you now think it is fine?
Senator Stewart: You broke the eggs and they cannot be put back.
The Chairman: Senators, I do thank Senator Buchanan for making his last question short. For the first time today, we did not hear the litany of all the shopping centres in Halifax which he visited.
Senator Stewart: Mr. Chairman, the ground I was going to explore has been opened up by Senator Hervieux-Payette and by Senator St. Germain. It is really for greater certainty that I ask these questions.
You are opposed to consumer taxes of any kind because, as you say, they are unfair to low-income Canadians. They hit them the hardest, right?
Ms Todd: Yes.
Senator Stewart: Then you say that if there is to be a consumer tax, you are opposed to exemptions?
Ms Todd: Yes.
Senator Stewart: Even though the exemptions might be described by some as the necessities of life?
Ms Todd: Yes.
Senator Stewart: You reconcile your position by saying that the low-income Canadians should be given a tax credit in an efficient way.
Ms Todd: It should be a timely, quick return.
Senator Stewart: All right. That is fine.
Senator Simard: It should be matched with an equal rate for all Canadians.
Senator Stewart: You do not find that the present tax regime is adequate in that regard?
Ms Todd: That is correct.
Senator Stewart: Would you detail why it is not adequate?
Ms Todd: There are too many exemptions. The rate is too high.
Senator Stewart: Forget the exemptions for a moment. There is some attempt to help low-income Canadians. Do you think that in the present tax regime -- not the harmonized tax -- the tax credit is adequate?
Ms Todd: It is not adequate. It is not fully indexed. It is clawed back in some provinces as named by Ms McCall.
Senator Stewart: As far as the federal government is concerned, is the tax credit adequate?
Ms Todd: No.
Senator Stewart: Could you be a little more specific? We cannot touch what they will do in the provincial jurisdiction with regard to the tax credits, but look at the federal situation. How ought that to be corrected?
Ms McCall: It may have been adequate at the time it was introduced, but the fact that it is not fully indexed means that its value has eroded over the time since it came in. It has not kept pace with inflation, so that is taking money away.
Senator Stewart: Could you be specific as to how much?
Ms McCall: I am sorry, I cannot do consumer price index calculations in my head. We have been running between 1 and 2 per cent inflation for the last five or six years.
Senator Oliver: We are at 2.2 per cent now.
Ms McCall: The GST came in in 1989, so that is 8 years, and so approximately 16 per cent of the value of the rebate has been lost to inflation. It does not add up quite like that, but a substantial amount has been lost.
It is paid quarterly. That may be administratively efficient in terms of the cost of processing, but since it is paid quarterly, it is that much more important that it be fully indexed and that it fully recover the cost.
This committee and the federal government should have a concern about what provincial governments decide to do about the GST. The purpose of the GST rebate is to benefit low-income Canadians, not provincial governments. That is the business of the federal government.
The Chairman: Thank you very much for coming here today.
Our next witness is Ms Debra Ward from the Tourism Industry Association of Canada. Many of you will recall that Ms Ward appeared before us when we were discussing our report on Crown financial institutions. Thank you very much for coming again. Please proceed.
Ms Debra Ward, President, Tourism Industry Association of Canada: It is a pleasure to be here today.
I always like to start off speaking not so much about my association but about tourism, because it always surprises people to know how big it is in Canada. Tourism is a $42-billion-a-year industry in Canada. To put that into perspective, that translates to $80,000 per second, 60 seconds in a minute, 60 minutes in an hour, 365 days a year. Even though it is made up of 60,000 small businesses across Canada, tourism is one of the largest businesses we have. Of that figure, $11 billion is earned in foreign exchange. That represents non-Canadians coming to Canada. Depending on how you do the calculations, that makes us the third- or fourth-largest export industry in Canada. Tourism is larger than pulp and paper, forestry, fishery and natural gas. The only industries which are larger and which bring in more foreign exchange are auto parts, automobiles and business services.
When we look at issues of taxation, of course they are of prime interest and importance to our industry.
Tourism faces some unique challenges. Tourism products are unlike any other commodity in how purchasing decisions are made. That is why the issue of tax-in pricing at point of sale is so important to us. By the time you are at point of sale, you have long made your decision to purchase a tourism product and you have already paid for it. There is no point of sale in tourism. The proposed legislation of tax-in pricing at point of sale just cannot work for tourism. If it works at all, it will work to make the harmonized provinces look unfairly expensive in comparison to the non-harmonized provinces.
Having said that, the Tourism Industry Association of Canada supported a value-added tax when this was discussed three or four years ago. We also supported the move towards a harmonized tax across Canada. The initial discussions we had with the Department of Finance began on a very promising note. We were talking about a 10-per-cent tax across the board, both provincial and federal tax included, and 100-per-cent ITC credits. It is pretty hard to say no to that. We agreed with a 10 per cent national tax. We think it would do the two things right: It would be simple and fair.
Further calculations were made and we were told that 10 per cent was too low; the numbers did not work. We were then asked how we felt about a national sales tax of 12 per cent. We said, "Not as warm and cuddly as we do about 10 per cent, but 12 per cent is good, too, and we can live with that." We realized that the ease of compliance and the simplicity and robustness we could have with the Visitors Rebate Program under a harmonized system would likely outweigh the impact of any additional taxes on specific tourism items. Lots of items in the tourism sector are being taxed for the first time under harmonization, such as ski hills. However, we had never considered the impact and issues around a partially harmonized system until last year's announcement. This has added a new level of complexity which the GST and national sales tax concept were created to eliminate. Rather than make everything easier for business and consumers in making their purchasing decisions, the proposed system will make things more complicated.
This government has been very supportive of tourism and its fundamental role in the economy of Canada. This support has been validated in a number of fundamental ways. Our travel-trade deficit, which is the amount of money spent by Canadians out-bound as opposed to people coming to Canada, is down to $3.5 billion. In this current paper, we are down to somewhere around $3 billion. Tourism in 1995 was up 7.1 per cent, well above the national economy's rate of growth.
Equally, a survey undertaken by Compas Research, not taken for the tourist industry but for broadcasters, indicated that 36 per cent of Canadians felt government investment in tourism was appropriate to creating jobs and wealth. We know that tourism can do the job and we know that Canadians support government actions which support tourism.
Our successes speak for themselves. I believe they are in part a result of the open way in which the tourism industry is able to address issues at tables like these. It is for this reason that we urge the utmost care when implementing the HST.
A decision to visit a region, whether for leisure, for a convention or for incentive travel, can be made or unmade in an instant. Any action which can lead to confusion, cost or complexity may turn a potential visitor from a Canadian destination. Partial harmonization may cause all of the above.
From a compliance standpoint, tourism businesses are advertised in the marketplace with brochures, in national and international magazines, through television ads which are usually seen cross-border, through 1-800 lines and through the Internet. These tools must be interchangeable and comparable, and serve local, national and international needs.
If there is one form of tax-inclusive pricing in the harmonized provinces, something else in the rest of Canada, and then perhaps something else in the international marketplace, the poor person on the end of the phone who is trying to give you information on how much the bed and breakfast will cost will have to ask for detailed information on where you live before she can give you a price. This does not make sense.
We are down this road. We will not back away from it. Consequently, it is important for this government to understand and realize the implications of a partially harmonized tax system on the sale and purchase of tourism goods and products. Therefore, we have a number of suggestions to put before you which we would ask you to consider and support.
First, we suggest that the government work with the tourism industry to monitor and evaluate the impact of partial harmonization and taxation policy on tourism sales and purchases, both within and outside the harmonized regions. What is this tax doing to hurt tourism and to help tourism? We are suggesting here that we should work together to find out a bit more of the specifics.
Second -- and this is one of our key issues here -- the Government of Canada should delay tax-inclusive pricing until the harmonized tax is national and, therefore, fair and equitable to all provinces. Let us keep it simple. I think the Consumers Association of Canada had some excellent points. The idea of keeping the tax simple and fair should be paramount. We do not see the fairness in tax-in pricing for the harmonized provinces.
Third, in partnership with the tourism industry, the government should work to maintain, improve and/or develop appropriate programs and initiatives to support the continued growth of tourism. That is a convoluted way of saying that consumer taxes will have an impact on tourism. We all know that. We are not foolish. We are asking for a recognition that that might occur. In the cases where it does, let us sit down together with our mutual interests clearly on the table to find ways together to mitigate some of these taxes.
Fourth, in partnership with the tourism industry, the government should continue to improve the Visitors Rebate Program to ensure its effectiveness as a tool to enhance economic activity and visitation.
The Visitors Rebate Program is offered to international travellers on accommodations and goods for export. The harmonized regions will have a huge advantage over the non-harmonized regions in this particular area where they will be able to give a 15-per-cent rebate to travelers who visit Nova Scotia, New Brunswick and Newfoundland. Unfortunately, more people may buy stamps in Prince Edward Island, but they may not travel more to P.E.I. because it will not have this advantage. Therefore, when a traveller from Japan comes to Nova Scotia and buys a $1,000 fur coat, he or she will get $150 back.
The Visitors Rebate Program is a key element in our ability to sell more, sell better and sell harder -- sell more Canada. As you will note in the last budget, the government has opened the door to a review of the Visitors Rebate Program, to find ways that it can be more effective to sell Canadian tourism Abroad.
We would like to thank you for the support of tourism which you have demonstrated. We have some fundamental issues with partially harmonized taxation, not with harmonization as a whole, although we think the rate is too high. We look to the Senate for sober second thought. We hope that you will find it within yourselves to correct those things in Bill C-70 which should be corrected for the betterment of Canadians and, in my case, for the betterment of tourism.
Senator Stewart: Ms Ward, can you give us any figures with regard to where the tourists come from and what parts of Canada they visit?
Ms Ward: Our biggest tourist group by far is from the United States. They represent about 80 per cent of all international travel at, I think, about 13 million overnight visits per year. They represent about $8 billion of revenue. The next largest group is from England, followed by Japan.
Senator Stewart: When you say England, do you mean Great Britain?
Ms Ward: I mean the U.K., at about 600,000 to 700,000 visits per year. That is followed by have Japan, France and Germany, and then we go down the list. The general rule of thumb is that the farther away they come from, the longer they stay here and the more they spend. One visitor from Japan may be worth three visitors from the United States.
Our really big travelling group, the one which we must never forget, is Canadians travelling in Canada. They make up about 80 million person-trips per year of 80 kilometres or longer overnight. We are our biggest customer, by far. However, we are we tend to stay in our own provinces. About 85 per cent of all that travel is in our own province. It tends to be visiting friends and relatives. In terms of travel which produces income, while there is a lot of travel in Canada by Canadians, a lot of it is not as rich as some of the travel from afar.
In terms of destinations, Toronto is our number one destination, followed by Vancouver. Then you are looking at the national attractions, which would be Banff, Lake Louise, Whistler and the mountain parks areas.
Senator Stewart: You seemed to imply -- and perhaps in fact you were stronger than that -- that the three Atlantic provinces entering into the harmonization, insofar as accommodation and goods to be taken home, will have an advantage.
Ms Ward: For international travel and for business travel, that is correct. I can explain, if you like. The way it works is that if your business is holding a meeting in one of the three harmonized provinces and you have your hotel bills, which would include meals, room nights and meeting rooms, your business would pay 15 per cent on those services. In addition, as a business, you would have a 100-per-cent deduction on your input tax credits. It will work just like the GST inputs work right now. You would pay it and at the end of the quarter, or whenever you claim your taxes back, you would claim that whole 15 per cent. Therefore, you would pay no tax. This is as opposed to going to a province that is not harmonized, where you have to capture and hold on to your PST. There is no rebate on that.
I will give you a good example. Our conference will be held in Newfoundland in November. That would have cost us 12 per cent on every room and every meal before harmonization. We would have paid that as a business expense. There is a 12-per-cent provincial sales tax in Newfoundland.
Because we will be in Newfoundland after harmonization, we will be paying the tax initially at 15 per cent, and then when we do our GST input-output calculation once per quarter, we claim it back. We will have saved 12 per cent.
The Chairman: What you are really saying is that at the present moment because of the way you calculate the GST in and out, the provincial sales tax goes out and does not come back. Under the harmonized system, however, the provincial sales tax goes out but also comes back.
Ms Ward: Yes.
Senator Angus: This is only for businesses.
Ms Ward: Yes. That is an important distinction.
Senator Stewart: You have talked about businesses, a Toronto association going down to, say, Halifax for a conference. Would you now give us the parallel discussion on tourists, let us say, from New York City, coming to Toronto on the one hand and Halifax on the other hand?
Ms Ward: When they go to Toronto, they pay 7 per cent on their room for their GST and 8 per cent for their PST. Let us make it easy. Let us say it is a $100 room, which amounts to $115 with taxes. They claim their GST back and receive $7 dollars. If they go to Halifax, they claim 15 per cent because it is all one tax and they get $15 back.
Senator Stewart: It seems very unfair to poor Toronto.
Ms Ward: It would be fair to Toronto if everyone were harmonized; but this is the advantage the harmonized provinces have because they signed on and the other provinces have not.
Senator Stewart: Has the Government of Ontario caught on to this yet?
Ms Ward: There are issues of control over provincial tax policy, which may be of some concern to them. They feel this is not an issue. I think they are dead wrong.
Senator Buchanan: Is it not true, though, that in the Halifax situation, motel and hotel rooms rates will probably go up because they will pay 8 per cent more on their power and heating bills?
Ms Ward: I have not seen a costing on that. That is a good question. They also buy a fair amount of goods which have been capturing a lot of retail sales taxes, as far as I understand it. When they buy their furniture, their fixtures and their landscaping materials, they are already paying a fairly high provincial tax. It depends on whose economist you believe. Some people tell me it is a wash; some people tell me there is a bit of a cost involved because of the utilities particularly. I honestly do not know the answer to that.
Senator Buchanan: Utilities will go up 8 per cent.
Ms Ward: However, other things will go down. I do not know the answer.
Senator Hervieux-Payette: Since we are comparing regions in terms of tourism for the same service, do you have the same number of rooms, and the same prices as Toronto?
Ms Ward: Of course not.
Senator Hervieux-Payette: I think the Maritimes are probably a little cheaper than Toronto.
Ms Ward: In fairness, it is a different experience.
Senator Oliver: Less expensive.
Senator Simard: Can an American citizen, individual or company visiting Quebec, since Quebec has harmonized its tax gradually, claim the 15-per-cent provincial and federal tax?
Ms Ward: Yes. Quebec has already realized the potential of this and already gives a full rebate on the 15.6 per cent.
Senator Meighen: Facetiously, I suppose New Brunswick should start advertising immediately that it would be better for you to buy your return ticket across the Confederation Bridge to P.E.I. on the New Brunswick side rather than on the P.E.I. side.
Ms Ward: Unfortunately, this is one of the areas where you see partial harmonization being the bad fit that it really is. If you are emplaning in a harmonized city --
The Chairman: He was driving across the bridge.
Ms Ward: All right. Let me do the emplaning first because I am more comfortable with it. If you are emplaning in a harmonized province going to an unharmonized province and coming back to a harmonized province, then you pay 15 per cent on your ticket. However, if you reverse that and emplane in a non-harmonized province and reverse the trip, you only pay 7 per cent.
Senator Meighen: I better get my ticket in P.E.I., then.
Ms Ward: There is an advantage to going to the harmonized provinces, but there is no advantage to leaving the harmonized provinces. I do not know if that was intentional.
Senator Buchanan: That is not very fair, is it?
Ms Ward: Senator, partial harmonization is not fair, and I do not think I have ever seen a tax system that is fair.
Senator Hervieux-Payette: Thank you. I agree with you.
Senator Meighen: There are some that are worse than others.
Ms Ward: I will give you that.
Senator St. Germain: Do most people, the Americans, for example, apply for their 7 per cent reimbursement? Do you have statistics on that?
Ms Ward: They put through about $60 million a year. We do not know exactly how much, but it is a fraction of the potential. Most people do not.
Senator St. Germain: They mostly do not.
Ms Ward: No. There are many reasons for that.
Senator St. Germain: It is not an issue, then.
Ms Ward: One of the reasons it is not an issue, senator, in our opinion, is because our dollar had been trading at 72 cents. It was a fairly inexpensive trip anyway. If our dollar starts rising, as some people say it will, then people will be looking for that rebate. We would hope the government and the tourism industry could work with the retail community to use the visitor's rebate to encourage more sales or big-ticket items.
Senator St. Germain: To play the devil's advocate, seeing that we have a dollar at the level it is, and seeing that it will most likely stay there because of the huge debt that we have and for various other reasons, do you not think that perhaps we should be charging these people a tax and putting it into the government coffers to pay down the debt and the deficit?
Ms Ward: That is a good question. You cannot simply charge people a tax on something they take out of the country. We have laws which indicate that if you export something, you do not pay federal tax on it. You can make it difficult for people to get that money back, but I do not think under our current legal system you can deny it. That is just the way our law works. If you buy something and take it out of the country, you should be able to get the tax back out somehow.
The new accommodations portion, which is very generous, was brought in because of our proximity to the United States and because of the fact that the American tax system is lower to the consumer and there is no federal tax. It was felt at the time, and I think rightly, that the Americans would have an unfair advantage vis-à-vis Canadian products if we were charging tax and they were not. You would ask, "Why should I go to a Canadian Howard Johnson hotel for $50 a night plus 7 per cent when I can go to the American Howard Johnson hotel for $40 a night and not pay any tax federally?" Therefore, the government gave us that tax portion rebate just to be fair with the United States, which is our friend and competitor at the same time.
Senator St. Germain: Whistler is growing by leaps and bounds, and you are only getting a 7-per-cent rebate there. Even though they are both owned by the same outfit, Mont-Tremblant is not growing at the same rate, yet the rebate in Quebec is 15 per cent.
Senator Angus: It is growing faster.
Ms Ward: One of the reasons Whistler grew as fast as it did is, first of all, it is an excellent hill. It is beautiful. It is all downhill. Their growth was driven by the same kind of people who went to Vail, Colorado for skiing. It was a western thing. They started skiing in the American west, and then they discovered Whistler and made Whistler an international destination. These are people with lots of money. For the most part, they are not looking for any kind of discount. That is a very high-end, specialized market at $400 a night or whatever it is.
Senator Oliver: I have two questions flowing from your paper.
You say, in relation to the Visitors Rebate Program, that you hope that the government continues to improve it. What specific improvements would you like to see?
You also say that you want to see a delay in the implementation of the tax-inclusive pricing. One of the things that this committee has been told today is that the consumer would like to have the tax-inclusive pricing. Why are you against something that we are told the consumer wants?
Ms Ward: To the first question, I think the most useful thing we can do is give more cash-back rebates, because it is not enough to give tax money back to a person after they have left the country in the form of a cheque, which is the way the majority of people get it.
Senator Oliver: Should it be at the border, then?
Ms Ward: Yes, or in some way that the government can be assured there is no fraud, but give them Canadian money back in their hand while they are in Canada. That already happens at land borders and duty-free stores. We could do it at airports. We could probably find systems to do it in retail areas as well and shopping centres.
Senator Oliver: What can we gain by doing that?
Ms Ward: We can get them to spend the money before they leave Canada so that the money goes through the economy twice. The goal here is to retain this money.
Senator Oliver: Do they have any right to ask for their money in American dollars or Deutschmarks?
Ms Ward: I think we should charge them if they do. I believe they have the right to do so, but that should come with a bill. Now we give it to them in the currency of the point of origin at no charge. We are very generous.
Senator Oliver: Is there anything else other than that?
Ms Ward: That would be the main suggestion. That would be 60 per cent of the task right there.
To your second question, we traffic in what consumers want and what Canadians want. The point was made earlier as to people saying one thing and actually meaning another. We would have no violent objection to tax-in pricing if it were consistent for all consumers across Canada. If it were for all Canadians, that would be fine, but the problem here is not should it be included but why should it be included only in a specific region of Canada while the rest of us fumble at the cash register trying to figure out how much something will cost.
Senator Oliver: You have to start somewhere, but why turn back?
Ms Ward: You have to start somewhere in some way. Timing is everything in these matters. I think the timing here is not right. Having lived with this thing since 1990, we can wait a little longer to get it right.
Senator Kenny: On your comment to Senator Oliver about having the refunds or rebates taking place in Canada and going through the economy twice, customs people world-wide are careful about how these rebates work. They often want to see the goods physically being carried onto a plane or physically going into a suitcase and down the chute or whatever. I am not an expert, but I have always concluded they did that because there is a great susceptibility to fraud and great opportunity for people to abuse the system.
Your idea sounds terrific. Tell us about the down side of it; tell us about the problems if your proposal were implemented.
Ms Ward: We have been talking to the Departments of Revenue and Finance about this for a couple of years now. The only way to be assured that you give the cash back in a sterile area is at an airport, which eliminates Newfoundland, for instance, from any benefit, or any retailer that is not a duty-free store in a sterile area.
We have been looking for other ways to accomplish this that can give the government the safety it requires.
A couple of ideas have come forward. For example, for goods over a certain amount, you would require a proof of shipping. You do not take it physically with you. You ship it out of the country.
Senator Kenny: We give a break to members of the diplomatic corps at the liquor stores. What stops the fraud there?
Ms Ward: The rule of thumb for any law is that 98 per cent of the people have to be automatically in compliance or the law is unworkable. Most people are not larcenous.
Senator Kenny: What you are saying is that there might be the odd diplomat who is getting away with a free bottle of booze, but by and large there are sufficient enforcement mechanisms in place to make it work. If so, what are they?
Ms Ward: I believe you could do spot checking. You could ask for certain kinds of proof of export, such as a shipping waybill, for an item over $1,000. If people want a rebate on an item to save 15-per-cent tax because they bought it in Senator Buchanan's province, you could insist they not just take it out of the province but that they ship it out and show the waybill and their passport number. You can put those types of safeguards in place.
You could have something like a smart card on which people would accumulate points that they could use in Canada. There are a number of things that could be done.
Senator Kenny: An airline ticket and a passport is not enough?
Ms Ward: No, because someone with an airline ticket and a passport could buy an item on another Canadian's behalf, of course.
Right now, this is happening. We have an issue here because, right now, you can sign over your power of attorney to a group that are called discounters who are acting as your agent for visitors' rebates. They are all over Canada now. This is being done without any sanction at all. They have your power of attorney, they act as your agent, they give you cash, they charge you, you leave the country with your cash, and then they make the claim to the government on your behalf.
Senator Kenny: Sort of like a Money Mart type of operation?
Ms Ward: Yes.
Senator Buchanan: I just want to make one comment on something I have been told about in Nova Scotia. For tour operators, legal bills could increase. I will explain to you why.
The Minister of Finance was challenged to explain the clause which refers to the method for determining the amount of a rebate payable under another clause to a consumer of a tour package that includes short-term accommodation, and where a registrant makes a supply to the consumer for a particular tour package that includes short-term accommodation that is made available to the consumer for any night, or any other short-term accommodation that is included in other tour packages supplied by the registrant to the consumer and made available to the consumer for the same night he is deemed to be included in a particular package that is not any other tour package.
In answer to that, the Minister of Finance of Nova Scotia admitted he could not decipher the rambling subclause, so you have to get a lawyer to do it. He is a geologist.
The Chairman: That speaks volumes as to the need for plain language, Senator Buchanan.
Senators, our last witness today is Mr. Michel Nadeau, from the Canadian Council of Grocery Distributors.
Mr. Nadeau, I look forward to your presentation, and then we will go from there.
Mr. Michel Nadeau, Vice-President, Public Affairs and Member Services, Canadian Council of Grocery Distributors: Mr. Chairman, I would like to give you a short introduction as to who we are and give a couple of key recommendations without going through this whole report.
The Canadian Council of Grocery Distributors is an association of small and large food retailers and wholesalers that serves thousands of grocery stores and major food chains in Canada.
The supermarket industry is deeply concerned about the method of application of any new harmonized sales tax. We would like to mention a few numbers before we get to the recommendations of importance to the people in this room.
Our members' sales revenue represents approximately 80 per cent of the total sales volume of approximately $55 billion of retail grocery sales in Canada. In 1995, this represented approximately 25 per cent of the total retail sector of $208 billion in Canada.
Consumers shop in supermarkets on an average of two times per week. As the population gets older, all surveys show that shoppers' trips will increase. Consumers spend approximately $110 per week on grocery items -- close to $6,000 a year.
It is important to note that some 30 to 40 per cent of the items in the supermarket are taxable. That presents a challenge to transmit the price of goods clearly, in accordance with the proposed legislation.
CCGD is active at the federal and provincial levels in pursuing public policy initiatives and has actively participated with the government since discussions were initiated for the replacement of the GST.
We would like to stress the position of our association relative to HST. The political decision has been made by the respective governments to implement HST, including a tax-in policy. CCGD feels that one of the most important factors for success in the application of the HST will be to have a critical mass throughout the country in order to implement the tax-in component of the policy. We feel that is extremely important.
We support a concept of "what you see is what you pay." This is what one encounters in Europe. The invoice you get at the cash register is not a surprise.
Ideally this should be done in all three Atlantic provinces which are harmonizing. Otherwise, the cost of implementation of a tax-in policy will be extremely high.
The supermarket industry is motivated to implement HST properly because we will be on the front line, absorbing criticism, confusion and consumers' feelings, if it is not applied clearly, consistently and smoothly.
We are therefore submitting a certain number of recommendations.
We are in favour of the move that the federal government and the three Atlantic provinces are making, and we commend them for the courage of being the first ones to try to get this legislation implemented. I know it is not easy, but there always has to be one to get things started.
The only component of the proposed HST which should be deferred is the effective date for having tax-included pricing. We are asking for a four- to five-month delay after April to comply with that policy. In other words, we are not questioning that there is harmonization or that it should be tax-in. We are only asking for sufficient time for our industry to organize our system so that when it is made available there is no messing around or confusion and everyone understands how to apply it.
In their joint release of January 16, the governments of Canada, Nova Scotia, New Brunswick and Newfoundland indicated that the tax-in provisions will be effective on April 7, with full monitoring of compliance starting on August 1. That is where we think more confusion will be created. Trying to be nice to everyone only causes confusion at the end of the day. In the interests of consumers, we want the government to take a very strong stand and say that this is the way it is going to go. It must make it as simple as possible so that the consumer at the store level will not be confused. They will pay the price that they see on the invoice, and the invoice must clearly indicate the amount of tax included.
In the event that the provincial government decides to change the provincial sales tax component included in the HST rate, it would also be very important that the four- to five-month delay we are asking for be applied to the retagged items that we have in inventory. In other words, if there is prepriced product, we need the same sort of delay to make the adjustment.
Another point refers to all other ways of displaying prices. We say that advertising, catalogues, flyers and notices must show tax-in prices only for Atlantic Canada. If businesses in Atlantic Canada were to advertise with tax-in prices and if national advertising, catalogues and/or flyers were able to show tax-out prices, this would be a competitive disadvantage for the local Atlantic retailers who are competing with national chains. Regulations requiring tax-in pricing must ensure a level playing field within the Atlantic Canada marketplace and oblige all companies doing business there to show a tax-in price on all their advertisements, flyers, catalogues or notices. In that way, there will be no confusion.
Since the government is looking at the HST globally, we believe that the federal government should also zero-rate tobacco products for GST purposes and, as Nova Scotia did in 1995, generate the equivalent amount of forgone revenue by increasing the federal excise duties and/or federal excise taxes by an approximate amount. That would eliminate the smuggling that we have seen in Atlantic Canada. In other words, we would transpose to the wholesale level the taxation component so that the buyer at the store level would not be exposed to the smuggling that we had in the past.
In conclusion, Mr. Chairman, CCGD believes that the above-mentioned recommendations would enable a smoother transition for our industry. We thank this committee for allowing us the opportunity to present our views and we hope that our recommendation will be seriously considered in the upcoming regulations.
I am open to questions.
The Chairman: Thank you, Mr. Nadeau. Am I right in saying that the things you want to accomplish, which include, among others, a delay in the implementation of parts of the program and a phase-in of other parts, can all be achieved through changes in regulations or administrative procedures and do not require a change in the law itself?
Mr. Nadeau: That is correct. We do not argue with the April 7 date.
Senator Meighen: Do I correctly understand the second paragraph of your position to mean that you are opposed to a tax-in policy unless it applies to the entire country?
Mr. Nadeau: In an ideal world, we would be asking to wait until that happened.
Senator Meighen: You are before an ideal committee that could defeat this bill.
Mr. Nadeau: We know that that is not the reality. Someone has to start doing it and if it is to be the three Atlantic provinces, so be it.
Senator Meighen: For the record, you think this legislation would be better for your organization and all concerned if the tax-in policy were only implemented when all parts of the country came on board the HST?
Mr. Nadeau: Yes.
Senator Stewart: Do you mean "when" or "if"?
Senator Meighen: If.
Senator Stewart: You mean to say "if" rather than "when," because "when" might be 50 years from now.
Senator Meighen put forward a proposition which implied that the witness was saying that his organization supported harmonization only when all the provinces were in. I thought that the witness intended to say that they would have preferred a system if all the provinces were in.
Mr. Nadeau: Yes. That is correct.
Senator Stewart: Just for the record, and for my own edification, I wish to go back to your argument concerning the proposal that the federal government should zero rate tobacco products for GST purposes and, instead, impose an excise duty or a tax in the appropriate amount. Am I correct in understanding that this would be designed to prevent a purchaser of tobacco in one province carrying that commodity into another province? It does not address the situation in which tobacco is brought into Canada from, let us say, the United States.
Mr. Nadeau: It is a very technical point and I would not like to get into a discussion on that. This is the language of fiscal and tax experts.
In order to avoid all the smuggling we have had in the past -- interprovincial smuggling as much as smuggling by Aboriginals who are exempt of retail sales tax -- we say the amount of tax should be the same but it should be at the level of the wholesaler. When the product arrives at the retail level, the tax will already have been paid and there will be no profit from smuggling. In other words, we almost eliminate any possibility of making money by smuggling at the retail level.
I would like to raise a point in regard to consumers. We hear a lot of noise about the major mass retailers that are doing business in Atlantic Canada. We hear this harmonization will cost a bundle and that the consumer will be penalized.
We need to see the perspective of the average consumer. When we speak as business people, of course, we are concerned that our pricing structure be the same from one province to another for the same item. However, the results of a survey published last month by Ekos Research clearly indicates that the consumer wants to have the sales tax included in all prices, in advertising materials, and at shelf level. They do not want to be surprised. Two-thirds of the consumers say they do not want any surprises when they arrive at the cash register.
In your deliberations, it is important that you keep in mind that the consumer wants a clear indication of what he must pay, to make his life as easy as possible, to avoid any confusion, and to let him understand that it is not a price hike. He will be paying the same amount of money, but instead of adding it up when he arrives at the cash register, the tax will already be built into the price when he chooses the item and puts it in his basket. The consumer wants a clear indication of what he will pay. He is not opposed to price with tax included.
Senator Angus: Are you with the Department of Finance?
Senator St. Germain: We heard earlier from the restaurant association. Their research shows that people say they like to eat juices, fruit and salads. Yet what do they consume? Coke, hamburgers and fries.
You make reference to some surveys. Do you think the full facts were put on the table for these people, to clearly advise them that the government will be able to raise taxes without them necessarily knowing? Were all the various factors put into the question?
In any survey, you can pretty well get any answer you want depending how you word the question. I am not saying that the surveys have been skewed, but I find it very surprising that, at one time, in previous administrations of government, people really wanted to know exactly what they were paying for something. Now, because we have proposed a harmonized tax, surveys are coming out of the woodwork to show that people do not want to know what taxes are being paid or the actual cost of the product. This is confusing to me.
Mr. Nadeau: As an example, in Quebec, we have liquor stores owned by the provincial government where all the wine or hard liquor is priced with taxes included. Everyone is accommodated by that. No one is complaining that they are paying more money for their booze in the SAQ than in the retail stores. We do have some wine in the retail stores. The retail stores do not show tax-in pricing, but the consumers know that. We are not fooling them. We are just saying at one place you have it with price including taxes and, at the other, the taxes are not included, and they know that.
We are saying let us try to be consistent everywhere and make life easier for everyone, especially on high-priced items. For us it is not as bad because food items are low-tax items. However, when you buy furniture or other major items for the house, sometimes it makes a big difference.
Senator St. Germain: I do not want to argue with you about surveys. We are looking at a situation where one small region will have one form of taxation, Quebec will have another one, other parts of the country will have another system, and Alberta will have another system. It does not make sense. We are complicating the situation. Everyone says we should simplify the system. We should make it more open instead of more closed and more complicated. This is confusing.
Mr. Nadeau: I understand. Let us make an analogy. I want to refer to a situation that happened four years ago. You all lived through it but, at the beginning, it was almost impossible for everyone. You remember the tobacco crisis that we had several years ago. You remember the position taken by the federal government mutually with the Quebec government at that time to slash the taxes by 50 per cent?
Someone had to start. Yes, it was complicated. Every province said it could not be done because of the combination of excise tax and sales tax and provincial tax. One government did it and then what happened? The other provinces followed pretty quickly. We are saying that we should get started with the three Atlantic provinces. Let us put prices with tax in. I am confident that soon the other provinces will follow. It has to start somewhere.
Senator St. Germain: With the tobacco taxes, the west did not change their prices. Now you are raising the taxes back up in Quebec and you may have smuggling starting over again.
Mr. Nadeau: We have also mentioned that the government must be careful not to fall into the same trap after dropping the tax by 50 per cent. The principle I am explaining is that we have to start somewhere. We have to start building the critical mass and trying to encourage all the other provinces to move in that direction.
Senator St. Germain: I agree with you, but if we are to start going some place, let us start going in the right direction and not in a political direction for political expediency. That is what I am concerned about here.
I disagreed with the way the GST was imposed. I agreed partially with the representatives of the consumers group who came here today. We should have had a broader tax with everything taxed at a lower rate. It did not happen that way. We are here, as the chamber of sober second thought, trying to make a recommendation to the government that will resolve this matter and make it simpler, not more complex.
It is fine to do something, but if you are adding to the problem, rather than rectifying the problem, that is regressive, instead of positive.
The Chairman: Thank you.
The committee adjourned.