Proceedings of the Standing Senate Committee on
Banking, Trade and
Commerce
Issue 22 - Evidence - March 6 meeting
HALIFAX (Nova Scotia), Thursday, March 6, 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 1:00 p.m. to give consideration to the bill.
Senator Michael Kirby (Chairman) in the Chair.
[English]
The Chairman: As you know, we are here to continue our hearings on Bill C-70, the bill to essentially implement the harmonized sales tax, the HST.
Our first witness today is the Honourable William Gillis, Minister of Finance for Nova Scotia, the MLA for Antigonish County since October 13, 1970, as I recall. I say that as someone who was intimately involved with the minister in that campaign some 27 years ago.
With the minister is Robert Moody, Deputy Minister, and Bruce Hennebury, Director of Fiscal Policy Division.
Mr. William Gillis, Minister of Finance, Government of Nova Scotia: Honourable senators, ladies and gentlemen, good afternoon. I would like to welcome members of the Senate Banking Committee to our province. I want to thank the committee for the opportunity to present the views of the government of Nova Scotia on the harmonization of the sales tax system.
Mr. Chairman, Nova Scotia came on board for harmonization for a good reason. We have been strong supporters of the plan to create a single tax system that is fair and simple. We remain solidly behind that plan. Quite simply, harmonization is good for Nova Scotia.
Harmonization is part of a new direction for the Nova Scotia economy. The HST is a key part of the total tax package introduced by the government of Nova Scotia last spring. It is a plan that makes taxes work for Nova Scotians. It is a plan that offers help to low income Nova Scotians. It is a plan that builds on a solid financial base.
This government, as the committee would know, has made the tough decisions. Nova Scotians should control their own financial future. We set out to rid Nova Scotia of deficits. In April 1996, my predecessor, the Honourable Bernie Boudreau, tabled a balanced budget. This is the first such budget in 25 years. By the end of this month we will accomplish that goal.
We are committed to building our economy. The HST is key to reaching that goal. We have already developed a "Made in Nova Scotia" tax plan. For individual Nova Scotians, taxes are going down. This year, for the first time in the history of this province, our government is lowering the personal income tax rate. Beginning this July, every Nova Scotian will receive a 3.4-per-cent break on their Nova Scotia income tax. We believe that the tax system should work for average Nova Scotians, for families, and for people working to have a better future.
I have talked to a lot of people about the harmonized sales tax. Not too many mention this major benefit. The government is giving back $32 million to Nova Scotians through cuts to their personal income tax. Some people forget about that. But our plan always has been to have a tax system that benefits all Nova Scotians.
We have also doubled the money going to low income earners who work very hard in order to make ends meet. Two years ago, we introduced a $12 million low-income tax reduction program. In the April, 1996 budget we added an additional 12-per-cent reduction. That is $24 million in one program for low-income Nova Scotians. The people I am talking about are seniors who are earning less than $15,000 a year and are on a fixed income. Now some of these people will not pay Nova Scotia income tax, and many others will pay less. The government has increased the savings from $200 to $300 per person. We expect about 18,000 seniors to benefit from this particular program.
As well, our Direct Assistance Program targets $8 million to low-income Nova Scotians. The Direct Assistance Program is designed for those low income persons who, for one reason or another, do not benefit from the other tax enhancements. We expect approximately 77,000 Nova Scotians will benefit. Approximately 20,000 of those are seniors who will get $90 per person or $125 per family.
We are also maintaining our assistance program for the disabled. We recognize that everyone wants to participate fully in our society. We have set aside $215,000 to help particularly those who need to adapt their vehicles or who require a computer to communicate. In addition we will pay the provincial share of income tax changes announced in the recent federal budget.
We have also introduced special rebates to help the housing industry, fire departments and tourism. We are actively pursuing offsets to assist the municipalities.
Finally, there is our capital tax. The capital tax rate remains at the low end of the range in Canada. This new tax will bring in approximately $40 million per year. This additional money will help to pay for our tax cuts and sector rebates.
We have designed a total package of tax changes, of which the HST is only a part. Our changes are designed to give extra help to the working poor, to reward all Nova Scotians, to stimulate small and medium-sized businesses, while making sure larger corporations continue to pay their share.
Harmonization is good for Nova Scotia. We will make this economy work, and we have the strengths and traditions to do that. Harmonization is just one more weapon in our arsenal, one more tool in the tool kit. Our future, as many of the committee members would know, is in exports. We have always been a trading region, selling goods to the world. Now we are reclaiming that part of our history and making it work again. Over the past four years, our foreign exports have increased by 35 per cent. HST will increase that number. We believe that this is just the beginning.
Harmonization will boost our strategic sectors such as high tech and information technology. The HST makes it more profitable to set up a computer or software-based company here in Nova Scotia compared to the non-harmonized areas of Canada. Just ask companies like Newbridge, Mentor, and Keane.
The HST makes it more profitable for businesses to expand, or for new businesses to locate in Nova Scotia. We are becoming THE place to do business. The HST is not the only reason to invest in Nova Scotia, but it tips the scales in our favour.
One of our paper mill stores in Port Hawkesbury is expanding. Our business service companies are stepping up their investments in equipment by 45 per cent this year. Our telecommunications sector is investing 10 per cent more this year. Clearly we are a good place to invest. Our business investment growth rate this year -- and this is an important point <#0107> as estimated by Statistics Canada in data released recently, for our capital investments is over 18 per cent, which, in percentage terms, leads all provinces in Canada. I think this is important. Moreover, the HST makes everyone of those investments more practical and more economical. The HST will make our record better, our future as a modern economy secure.
We know lower business costs are the key to attracting new investment. As a result of harmonization, Nova Scotia's gross domestic product is expected to grow at a minimum of 0.8 per cent, based on the harmonization. If you want to know why the three governments in Atlantic Canada have taken on the rarely rewarding task of changing our tax system, that is your answer. We are doing it because, in the long run, it is the right thing to do.
Harmonization represents a drop in the tax burden for Nova Scotia. It is not a tax grab; it is a tax break. We will take in approximately $100 million less each year. Harmonization is good for the economy. A lower tax burden means lower business costs. A lower tax burden means a more competitive economy. A lower tax burden means more businesses are able to expand and hire more people. A lower tax burden means more jobs. It is that simple.
Mr. Chairman, we have not forgotten the consumer. This tax will absolutely lower the cost of doing business for thousands of Nova Scotia companies. No longer will they pay 11 per cent in provincial sales tax. For example, look at a new restaurant setting up business in places like my hometown, Antigonish. They will save thousands of dollars in taxes when they build the kitchen, put in the equipment, and buy the plates, glasses, cutlery, tables, and everything else. That restaurant is saving money. The price of its food can be cheaper. Who benefits? The consumer.
There are others who agree with us. The Atlantic Provinces Economic Council, APEC, is one. You heard directly from APEC in New Brunswick. They say the changes will be very positive for businesses and consumers. The Metropolitan Halifax Chamber of Commerce and the Canadian Federation of Independent Business agree harmonization is simpler and fairer. These are the people who work in our private sector where the competition is very real.
We believe competition is a good thing for business in Nova Scotia, from the bed and breakfast operator in Cape Breton trying to outdo the country inn in Maine to the sawmill in Enfield up against the lumber mill in Quebec. This is competition. Our businesses must be given the chance to compete without tax rules holding them back.
Tax-included pricing has been the subject of much discussion over the past six to eight months. One reality remains: public opinion surveys consistently show that consumers want tax-included pricing. Although our approach to tax-included pricing has been flexible, we have not lost sight of the fact that this remains a benefit to local Nova Scotians and to visitors from away. This is a simpler and a fairer system for all consumers. The Consumer Association of Canada says so, too.
You will hear later today and tomorrow some businesses and organizations saying that tax-included pricing is a good thing. No doubt you will hear some businesses say it is a bad thing. We say that on balance, it is the right thing to do because it is what consumers want. All of us know the old adage, "the customer is always right". Consistently, the Government of Nova Scotia has lead the drive for tax-included pricing. Tax-included pricing is an integral part of harmonization. Tax-included pricing is a fundamental building block of this new simpler tax system.
Before I close, I want to say that Nova Scotians are a proud people. We want to return to a time when self-reliance, a positive attitude, and free enterprise were a way of life. We believe it is possible. The harmonized sales tax is part of the plan.
We would be happy to respond to whatever questions you have in the time that is available.
Senator Angus: Minister, I must say, certainly on behalf of my colleagues on this side of the table, and I am sure my other colleagues, that we are delighted to be in Nova Scotia. We have had quite a week conducting these hearings, not only in this province, but in your sister provinces of Atlantic Canada, New Brunswick and Newfoundland.
You probably are also aware that we of the Progressive Conservative persuasion insisted on these hearings taking place here in your part of the country, not that we oppose in any way the concept of your tax reform or of a nationally harmonized sales tax. Rather, it is because of the clumsy implementation process as represented not only by tax-inclusive pricing, but also the speed with which it is being visited upon your people. We have had an absolute outpouring from the citizens of Atlantic Canada, asking us to bring our attention to this fact. It is not at all that we have a beef with the principle of harmonization, but rather with the tax-in pricing and the whole implementation process.
Senator Comeau: Mr. Minister, my question is on tax-included pricing. For the past two to three days now, virtually every group that has appeared before us has been dead set against tax-in pricing. The only two individuals who commented positively about tax-in pricing were a lawyer and a manufacturer's representative, neither of whom were retailers. They were exporters. Therefore, I look forward to the group of businesses which you say will be speaking positively of tax-in pricing, particularly to finding out if any of them happen to be retailers. Essentially, up to now retailers have not been positive at all; they have been absolutely negative.
The Minister of Finance from New Brunswick, Mr. Blanchard, indicated that he had no particular preference to have tax-in pricing, that it was not a burr under their saddle. The Minister of Finance told us, in Ottawa, that the request to have tax-in pricing came from the provinces. Mr. Dicks, Minister of Finance from Newfoundland basically said that he could not care less whether or not tax-in pricing was in.
Essentially what it comes down to, sir, is that the province of Nova Scotia is leading the way to have tax-in pricing. Other than public opinion polls, which everybody seems to say are driving this tax in-pricing issue -- and public opinion polls are a rather dubious way of conducting public policy -- can you give us one good, solid reason why we have tax-in pricing?
Mr. Gillis: I think the best reason for tax-in pricing is "what you see is what you pay." What is fairer than going into a shop, seeing an item for $9.99, going to the check-out, giving the person a $10 bill and getting a penny back -- what you see is what you pay. You ask, "is it driven by public opinion polls?" No, it is not. You have to realize what the consumer wants. We heard from the Consumers Association of Canada that when the public opinion polling was done, one of the things that was clear was that the consumers wanted to know the price.
That is what they are saying, and I do not think we should look down on public opinion polling because all of us are politicians in one form or another, and many of us have been associated with public opinion polling in one way or another. That is what consumers are saying, what you see is what you get. I do not think there is anything unfair about that.
Senator Comeau: My understanding is that the province of Nova Scotia is the last hold-out on tax-in pricing, that it is up to the province of Nova Scotia now to say yes or no, because the other partners in this agreement are ready to start reconsidering.
Mr. Gillis: I cannot talk for two other provinces and the government of Canada. That is totally unreasonable. I made clear where we stand. Surely Paul Martin is entitled to speak for himself, surely you would not want a mere Minister of Finance in one of the provinces down east to say what is his position. New Brunswick and Newfoundland know where they stand, and I am sure they have told you, as has Mr. Martin.
The Chairman: Mr. Martin has not yet appeared before the committee. He will appear on Monday morning, and I have not doubt that some of my colleagues on the committee will ask him that question.
Senator Angus: On this issue of tax-in pricing, we have had a tremendous amount of evidence here, especially from retailers and people in national businesses. Some of them are considering not carrying on in Nova Scotia if they have to incur the costs which, they tell us, outweigh the benefits derived from the harmonized tax.
Is it not a fact that the tax-in pricing element of this legislative package is easily severable? In other words, you could go ahead with all of the benefits of harmonized sales tax, leave off the tax-in pricing, and it would not affect or retard in any way all the benefits you have derived.
Mr. Gillis: We do not want to leave the consumers out of the mix because we believe the customers are important. It is well to remember how things have changed over the life of this tax proposal. I do not want to be seen to be argumentative, but in the original scheme, it was tax-in pricing, and that was it. Each item had to be marked with a sticker saying that this was the tax-in price.
After various meetings with Mr. Martin, Mr. Dickson and Mr. Blanchard, we have come up with a much more flexible system which lowers the costs greatly in terms of the tax-in-pricing. You can have dual pricing. You can have shelf pricing which is not much different than what you get when you go into a store today, for example, a Canadian Tire store. There are individual prices on very few items. There is a rack or an arm in which the item rests, and there is the shelf price and that is it.
There is also signage, for example, with greeting cards and magazines, to prevent the torture of having to re-sticker the hundreds and thousands of cards and magazines and things that turn over fast. There is a great deal of flexibility. I think some of the earlier estimates of costs have come down greatly, although we still hear some very high numbers as to costs.
However, I think we have come to a situation that could work. We believe as you do, that harmonization offers advantages, particularly in creating jobs and putting people to work, especially the young people of Nova Scotia, too many of whom are out of work. We think we can protect the consumers, too.
Senator Angus: In terms of the severability element, it seems to me that all the benefits could easily be introduced on April 1, as we also fervently wish, and that you could leave out this terrible problem, and bring it in at a later time when things are worked out. That approach would be consistent with what you just said, that you have worked hard and have overcome many problems. I think you need to be commended for the give that has already taken place. It is simply not enough, in our view, and I thought perhaps you would find it quite logical to sever off the TIP part for now.
Mr. Gillis: You never answer a hypothetical question, and I think we have to see what your committee does. The bill contains tax-in pricing. I am not going to look at a hypothetical question of what should be done.
We believe that it is important that the people know what they pay. Among the changes, there is very little impact on cash registers. Originally it looked like many cash registers and computers would have to be replaced. That is gone. These prices and the costs have gone way down. We think it is do-able. The people that make retail go, the people that buy the items, want it. We are not prepared to back away from that. Down the road I think we will have to address that matter, but only when the time comes.
Senator Angus: That is fair, and that is your answer. I put it to you, sir, that it is not a hypothetical question, that the real answer is yes, and that it is easily severable. If that measure is not severed, this party, the one I represent, will be fighting, tooth and nail, to have the TIP removed. What would be the implications for your good province of Nova Scotia if Bill C-70 did not pass as drafted by April 1st?
Mr. Gillis: As you would know, experienced parliamentarians do not answer hypothetical questions. However, I would go back to my cabinet colleagues and Premier Savage and talk about the options once that happened. There are various provisions in the bill that we can follow. We know what we want, we think it is right for Nova Scotia, and that is where we stand, but you have to go through your deliberations, just as we went through ours. We will wait to see what happens.
Senator Angus: You get ready to meet them.
Senator Rompkey: Would you tell us a bit more about that restaurant setting in Antigonish? You can even tell us the name of the restaurant, if you like, so that if senators feel so inclined, they may go and sample it. The reason I want to ask you about it is because it focuses on a number of different things. It focuses on a small business that has to buy equipment and that relies on the tourist industry, which is a growth industry for you and many other places in Atlantic Canada. It also focuses on the difference between Nova Scotia and Prince Edward Island, for example. We have heard that the HST will be good for Nova Scotia and bad for P.E.I., and we have heard the opposite argued.
Why will this measure will be good for that restaurant -- for the owners, the employees, the consumers who go there, and the tourists who go there? Why would they go there instead of going to P.E.I.?
Mr. Gillis: I will do my best to reply. First of all, this is theoretical. This restaurant is a little like Brigadoon, because Antigonish is the highland heart of Nova Scotia.
Mr. Chairman, Senator Angus seems to want to mix it up, while I am trying to answer another question, but I will come back to him maybe afterwards.
The Chairman: Now you can understand the difficulty I have had with this cast of characters all week.
Mr. Gillis: I come back to Senator Rompkey. As I said in my opening comments, the cost of setting up the restaurant will be less than before harmonization. All provincial taxes that were paid and all of the various things that you would do to construct the kitchen, to buy the sinks and stoves, and all the things you need to set up a restaurant will be less. There are input tax credits. Your costs of setting up are less. Any costs that you have when you are operating the restaurant -- your telephone, fax, computers, and anything else which you are paying tax on -- will be going from almost 19 per cent down to the harmonized tax rate, and for businesses it will go lower because all of your costs are input tax credits. Actually 11 per cent is the provincial tax.
Even the tax on meals in Nova Scotia will be taxed at 15 per cent, versus 19 per cent before the harmonization. On a $20 meal the cost drops to $23 from $24. If you stayed over to attend the Festival of Antigonish, the local summer theatre, your room would go down, because your tax would not be 19 per cent on your accommodations, but 15 per cent.
More than that, if you are visiting from the United States -- and we have many brothers and sisters and cousins from the United States and others who come from elsewhere in the world -- the money spent on taxes can be refunded by submitting your bills to show what you paid. Any such cost to people from outside Canada is refundable. There is a big advantage for those of us in the harmonized zone versus those who are not, and I think the restaurant and the motel in Antigonish would be ahead of someone out of the zone.
Senator Rompkey: We heard from a number of different groups, particularly seniors and people on low and fixed incomes, that perhaps the HST would be of benefit for those on high incomes who are buying high ticket items, like cars and so on, but not for those on lower and fixed incomes. I am wondering if you can elaborate on the impact of this measure on senior citizens and people on low and fixed incomes.
Mr. Gillis: For persons on low and fixed incomes, it is true that some items will go up. I think 25 per cent, maybe 30 per cent of the items will go up, around 40 per cent will remain even, and 30 per cent will go down. In other words, between staying even and going down, that is the majority of the items. The percentage that goes up is smaller.
I know there are some pretty important items in there, such as home heating fuel and Nova Scotia electricity, which will go up to over 4 per cent, because we have 3-per-cent tax now and that will be cascaded. We have to look also for those low and fixed income people who will benefit from the low-income tax program, which will pay out somewhere in the amount of $25 million. Fewer and fewer people on the lower end of the scale will be paying income tax. If they are paying it, they will get it back, and for those persons who earn a really low income, there is a direct assistance program which will pay out a one-time annual cheque of $90 for an individual or $125 for a family.
I think you have to look at the package and not just at, say, home heating fuel and the worse case scenario. It is a total package, and we think that it will come out pretty well even. If more people work, the economy grows and we get people off the unemployment rolls, we will all be better off.
Senator Rompkey: Aside from the federal system, have you made provision for people on low and fixed incomes in your budget as well?
Mr. Gillis: Yes. We have made two different changes for low-income tax assistance. There are over 200,000 people whose taxes will go down into the lower scale, and many of them will not pay taxes at all, those in the lowest income bracket. However, let us be honest, it is a modest program. Eight million dollars has been provided for 1997.
Senator Rompkey: Housing is always a good barometer. We heard from people yesterday in Newfoundland that there will be difficulties for those consumers in the new housing market. The minister answered that question when he appeared before us. Would you clarify the situation with regard to the housing industry in this province, what the impact will be on that group?
Mr. Gillis: I may call on one of my colleagues to give me a hand on some of the technicalities. It does get pretty technical, but I can say there is a Nova Scotia rebate of 1.5 per cent which amounts to, I think, $2,250 to help offset the changes relating to harmonization.
We do not think the impact of harmonization will be great, because of that rebate. Housing starts in Nova Scotia in 1996 have been quite strong, and so far in 1997. As a matter of fact, as I mentioned in my talk, capital investment in Nova Scotia for this year, according to Statistics Canada, will lead the nation in percentage growth. We are very proud of that.
We think the housing industry will do well. If we increase our GDP by .8 per cent, as we hope we will, and create up to 3,000 new jobs over two to three years, people will be looking for houses, and that will mean more people will be working in the housing industry.
Bob Moody may want to comment on the rebate and how it is not as bad as it is sometimes held out to be.
Mr. Moody, Deputy Minister of Finance, Government of Nova Scotia: Mr. Chairman, senators, what the minister said is exactly right. We have designed our rebate program on the best information we have available. We believe the net effect will be that after harmonization the cost of the home will be approximately the same as pre-harmonization.
As you know, the rebate under the GST will carry forward, and we will be introducing a new rebate program that will be approximately 1.5 per cent of the value of the home up to a maximum value of the home of $150,000. For a home of a value higher than that, the rebate will still apply, but will be capped at 1.5 per cent of the $150,000, and we believe it will have the net effect of remaining approximately neutral, post harmonization.
Senator Rompkey: I want to ask about the tax-in pricing. For example, I just noticed a pen from Lawton's Drug Store. It seems to have had the two prices on the sticker already. This is not a high-end item. It is a pretty low-cost item. That is a local drug store. We have heard from other national chains that this is creating great difficulty for them. I want you to comment on national companies versus local companies as far as tax-in pricing is concerned. Is there an effect on national companies that will not be there for local companies? Is there some concern there?
Mr. Gillis: Mr. Chairman, with the flexibility that was decided upon by the various partners in January, where you can have low pricing or shelf pricing or signage, I do not think it is particularly onerous for a national company versus a local company. I think Lawton's, although they are probably more in the Atlantic than they are anywhere else, is akin to a national company, and if they can show dual pricing, I do not see why Hudson's Bay, Zellers, Wal-Mart or anybody else cannot do it. We think with the flexibility certainly we can overcome the problem.
When we were at the point that it had to be tax-in only, we might well have had a problem, but that is not where we are today. We have the flexibility. I do not think there is any disadvantage for the national companies, and they seem to do pretty well. I feel badly about Eaton's; they are having a tough patch, but the others are doing okay. Somebody mentioned Greenbergs, and I understand they are having difficulty. However, it has nothing to do with harmonization because it has not come into effect yet.
[Translation]
Senator Losier-Cool: Thank you, Mr. Chairman. First, I would like to raise a point of order, quite honestly for the record of the committee. I would like to remind my Acadian colleague, Senator Comeau, that when Mrs. Anne Bertrand appeared before our committee in New Brunswick, she was representing members from the business community and she was not speaking in her own behalf. And I think that, in all fairness and honesty, this should be mentioned specifically in the committee's report.
[English]
You have here some notes that could be very interesting for your consumers, particularly to help them understand what the HST will mean to them, and Minister Dicks told us yesterday that they will be letting the people know. People are insecure when there is confusion, and there is more confusion when they are insecure. Maybe it is a responsibility of your department to let them know what the industry will need to do.
Mr. Gillis: We are doing our best to make things clear. We have produced, over the past several months, a series of brochures relating to groceries, home renovations, gardening, all of the different areas of interest. We have done seniors. We might have up to ten categories on which we have distributed widely through the various organizations. Yesterday we started a series of paid advertisements in newspapers, and I hope we will go to the electronic media as well to explain. I think the one yesterday was on groceries and drugs.
It is just like going into a grocery store, because groceries will continue not to attract tax. The tax on all the incidentals, like soap and paper, will go down. When you in fact go into a grocery store after April 1 with harmonization, and nothing else changes, your bill will go down -- not much, but it will go down. That is a fact. The point is we are trying to get information out so that the consumer is not confused.
Senator Buchanan: Welcome to the committee, minister. Let me talk a minute about tax-included pricing, because I think it is one of the most important aspects of this bill that is very misunderstood. I respect polls. I have been looking at polls for 30 years. I also know this about polls: If you want a desired result from a poll, you can get a desired result. The poll that you were talking about a few moments ago on tax-included pricing, were you aware that included in that poll was a question as to what people knew about HST and tax-included pricing? Forty-seven per cent knew little or nothing and 43 per cent knew something about it; in other words, 90 per cent of the people polled knew little or nothing or just something about it. Ten per cent knew quite a bit about it. That is not a very good poll on which to base the reasoning for tax-included pricing. I have looked at all of the polls that were run, and not once were people told that tax-included pricing would not be throughout the country, and not once was it indicated in the poll that this may increase the cost of consumers goods.
Having said that, primarily every organization of the Retail Council of Canada and many small retailers and franchisees in the three provinces have indicated -- and this was as of February 25 -- that the transitional costs will be approximately $100 million. I have a breakdown here for just Mark's Work Warehouse that proves that out. Of course for 30 per cent of the members of the Retail Council of Canada, those costs of tax-included pricing will have to be absorbed by the retailers or passed onto the consumers. People were not told anything like that in the poll.
The other thing about the tax-included pricing and the effect of the cost is that many -- and we have been told this -- many retail stores are on the margin now. This provision will increase their costs so much that they could close down and jobs would be lost. So the 3,000 jobs that the Government of Nova Scotia is projecting may come to Nova Scotia as a result of the HST, but over 6,000 jobs could be lost as a result of tax-included pricing.
What do you have to say about those figures, given the poll results and the fact that tax-included pricing will segregate our provinces from the rest of the country and mean $100 million in transitional costs and about $80 million to $90 million annually? The figures I just quoted are from the retail council.
Mr. Gillis: I will do my best to respond briefly. In terms of the polling, I do not know what polls you have seen, but over the years you have seen polls that I have not seen, I am sure, and they seemed to work pretty well for you, because you won four elections in a row.
Mr. Chairman, we did see polling where the question was put, "Would you still prefer tax-in pricing even though the cost was higher?", and although the percentage was not quite as high, it is a straight question. It was in the 70's somewhere. It dropped slightly by five points or so, as I recall, when people were asked, "Would you still prefer it if there was a cost involved?" That is my understanding of that situation.
In terms of the cost of the tax-in pricing, I have heard about this number of $100 million, and I have heard other numbers. They remind me of the numbers we heard last fall before the changes were made to the tax-in pricing provisions to give greater flexibility, so I have a hard time believing that it will still cost retailers $100 million, and tens of million dollars on an annual basis once we go to tax-in pricing, because of the greater flexibility, dual pricing, shelf pricing, bin pricing and signage. I just do not believe it is that high.
I think once we get this scheme under way, the consumers will like it and get in and buy. That is what stores are all about, selling products, and they sell more and like it better and make more profits.
Senator Buchanan: The travel agencies in Nova Scotia, New Brunswick and Newfoundland will pay 8 per cent more, which will be passed on to the consumer.
Mr. Gillis: Mr. Chairman, the point raised by Senator Buchanan about more costs is true, but let us just think in terms of tourism, since senators have brought it up. Think of all of the rest of the people flying in here; it will cost them less and they will tend to come to Nova Scotia.
The Chairman: Our next witness, senators, is Dr. John Hamm, the Leader of the Progressive Conservative party in Nova Scotia. Welcome Dr. Hamm.
Dr. John Hamm, Leader of the Progressive Conservative Party, Province of Nova Scotia: Welcome to Nova Scotia. I certainly welcome your participation here today. Sitting with me today is Mrs. Moira McLeod who is a senior staff person in my office.
I am pleased certainly that the committee has decided to come to our province and to allow both those who support and those who oppose this tax an opportunity to appear before you. I, for one, was disappointed that the House of Commons Finance Committee did not demonstrate a similar courtesy and the same good sense when it limited its hearings to Ottawa. As a presenter before that committee, it was obvious to me that the consumer was severely under-represented.
Unfortunately, I believe that since this new tax is due to take effect in some 26 days, many Nova Scotians have simply resigned themselves to the fact that it is a given. Quite frankly, many believe that it would be a waste of time and energy to come here today because they believe that neither the provincial nor the federal government will listen to what they have to say.
For example, after receiving over 80 submissions in our Law Amendments Committee, the bill was immediately returned to the House without proper time for the government to evaluate what they had heard in that committee, and to determine whether in fact they would make changes in the legislation. It fundamentally undermined the credibility of what went on in that place.
I urge you, as the body frequently referred to as the house of sober second thought, to think hard about the many concerns expressed to date and the concerns that will be repeated here today and tomorrow. I urge you to do everything in your power to fight hard to ensure that these concerns are not once again dismissed outright. I urge you to do everything in your power to demonstrate to Nova Scotians that this is not an exercise in futility, but rather that you are here to address the real concerns of Nova Scotia consumers, and indeed many businesses. You must provide proof to Nova Scotians that the consultative process has true meaning for politicians.
Let us make no mistake about the impact of the HST on the consumer. According to the province's own reports, the HST will mean that Nova Scotians will pay at least $84 million more in consumer taxes. Frankly, I believe it will be significantly higher.
I am sure you are all aware of the document that was presented in our legislature in the final days of the spring sitting, "Nova Scotia Tax Reform Economic and Fiscal Analysis." At table 6, page 23, the government has a column that is called "Average Sales Tax Increase," and at every income level, the blended sales tax or the HST increases the tax load. However, any documentation, any calculation that we do, indicates that those increases will be greater than those illustrated in the table, and that is the basis on which the $84 million was calculated. Therefore, I believe the $84 million will be higher than what the information that was provided from government would have us believe.
The HST will mean that Nova Scotians will pay approximately $15 million more in taxes on home heating fuel. It means that Nova Scotians will pay approximately $15 million more in tax on electricity. Here is a real big one -- Nova Scotians will pay $54 million more in taxes on gasoline and diesel fuel at the pumps. These are not discretionary items. These are items that, in many cases, we have no choice but to buy, and these three items alone represent $84 million in new consumer taxes.
The government says, "Let us look at all the items that are going from 18.8 per cent to 15 per cent: Light bulbs, paper towels, dog food, cars, appliances, served alcoholic beverages, and so on. It claims that if you work out the numbers, calculating pass throughs of a 50-per-cent return, mix in a two-point reduction in personal income tax and add the $8-million direct assistance program for low income Nova Scotians, everyone comes out a winner. This is absolutely preposterous. To begin with, the assumption of average pass throughs of 50 per cent is absolutely incorrect. Incredibly enough, the government claims there will be pass throughs of 100 per cent on the construction of new homes, which is equally as preposterous. As a matter of fact, even the Minister of Finance who appeared here a few moments ago, as time went on, after it was indicated that the 50-per-cent pass through was part of the package, started to use lower estimates of the pass through. No one really believes that a 50 per cent pass through will occur.
The government's pass through assumptions are based, not on reliable or solid evidence, but rather on making the numbers fit an agenda. When you take the pass through assumption out of the equation, everyone -- with the possible exception of those who make it a habit to eat out, buy new cars and expensive clothing, the well-to-do -- will lose. Unfortunately in this province we have a lot more families who are struggling to make ends meet than we have well-to-do families.
The bottom line is lower and middle income Nova Scotians who have little or no discretionary income will be gouged by this new tax. They do not have a lot of money left over after heating their homes, gassing up the car or clothing their kids, to eat out or to go to bars or buy a new car. They will have a heck of a lot less after April 1 if the HST is not stopped by this Senate.
Time and time again we hear governments say that if you want to get the economy moving, you will have to reduce taxes. You have got to leave more disposable income in the pockets of the taxpayer. Mr. Chair, I doubt that there is a single member of your committee who would dispute this point, because it makes sense. The more disposable income you have, the more money you have to spend. The more you spend, the more economic activity you generate. The more economic activity that is generated, the more jobs. The more jobs, the more people who pay into the system. The more who pay into the system, the less who draw from it.
I would ask you to consider two basic questions: Do you agree that the HST, which will double the tax on many of the basic necessities of life -- home heating fuel, gasoline, clothing under $94, school supplies -- will have a positive or a negative impact on the amount of discretionary income that most Nova Scotians will have to spend; and the second question, do you agree that if Nova Scotians lose even a modest amount of their discretionary income, it will likely cause a ripple effect that will negatively impact on our already fragile economy. If you answer yes to these two questions, as I believe you must, then the conclusion must be that the HST will not be good for our economy, and it must be stopped.
Let me add, that while I know that businesses will benefit from a reduction in taxes as a result of the HST, no business can survive if the consumer stays home. Let me further add, that the vast majority of business men and women I have spoken with agree that if the consumer is hurt, so too is their business, and so too is our economy. This is sound logic and common sense. It is not hypothetical guess work based on an incomprehensible economic model. It is arguable, despite the input credits extended to business, whether the business community as a whole will be a net winner or loser, given the tax-included pricing requirements of the HST.
I will relate a little anecdote. A little over a week ago I was visiting a fish processing plant in a small town of Nova Scotia with over 50 employees, the largest employer in the town. They export their product out of the country, and in the course of meeting with the owner/manager, I said, "Will the BST help your company?" I expected that he would clearly answer in the affirmative. However, he said, "Yes, there will be a small advantage to my company which exports, but as an individual Nova Scotian it hurts me and it hurts everyone of my employees, the over 50 people who work for me."
Clearly whatever input credits that retailers receive will have to be used to help offset the significant start-up and ongoing operational costs associated with regionally-imposed tax-included pricing; ticketing costs, advertising costs, information system costs, warehousing costs, et cetera. Retailers maintain the costs of their business by including the tax in the price. Some suggest hiding the tax, that this will significantly outweigh the benefits from the input credits. This will mean higher, not lower, retail prices, a double whammy for the consumer. Not only will they not see the 50-per-cent savings the government promises businesses will pass on, they will actually see the cost of many retail goods go up.
There is no question that the retail business is very fragile here in Nova Scotia. It is a $1-billion inclusion yearly into our economy and 40,000 Nova Scotians are involved in retailing in this province. That industry will suffer.
For the life of me, I cannot understand the insistence on tax-included pricing. I do not for a moment believe that consumers are that upset about cash register shock that they are willing to pay more. I believe that government is insisting on tax-included pricing in the misguided and rather naive belief that it lives up to the Red Book promise of scrapping the tax. Of course, hiding the tax makes it a lot easier for government to notch it up from time to time.
The amendments made in an attempt to address the concerns of retailers over the tax-included pricing issue have done little to alleviate the costs and the headaches of implementing tax-included pricing and will only add to the confusion confronting the consumer. Tax-included pricing on a regional basis is a no-brainer from the start; it makes an already bad idea even worse.
Let us address another critical shortcoming in the government's thinking and in the material it is putting forth in support of the HST. Nowhere has the government calculated the impact on legitimate business interests or on government revenues as a result of an expansion of the underground economy resulting from the HST. Surely, common sense will tell you that the underground economy will grow as a result of the increased tax on home renovations and repairs, on legal and other professional services. Surely, common sense would say that a good portion of the population who are already struggling to make ends meet will go underground. Surely, common sense will tell you that any calculations of the pros and the cons of a new blended tax should have factored in the impact of the HST on this underground economy, but this has not been done. This is an inexcusable and startling omission that leaves one with little choice but to question the validity of all the government's projections and/or conclusions with respect to the impact of the harmonized tax.
The government also failed to factor into its thinking and its calculations the indirect impact that the tax will have on residential rent. Landlords will pay more for repairs and renovations, advertising and professional services, snow removal, garbage collection, heat and electricity and a host of other goods and services, yet they are being told that apartment rentals will not be affected. Incredibly though, it concludes there will be a 50-per-cent pass through on business savings and absolutely nothing in terms of pass throughs on increased business costs. It is far more likely that increased costs will be passed on much more readily than increased savings. Again, the government appears to factor in and exaggerate the positive and is apparently prepared to leave out entirely any of the negatives.
I wish to draw your attention to a number of other disturbing influences of the HST. In the last three years Nova Scotians have lost approximately 90 doctors. This shortage is reaching a crisis. Our government is spending hundreds of thousands of dollars trying to recruit new doctors, so far with very little success. The HST will cost individual doctors approximately $1,200 more per year, and several have spoken out publicly indicating the HST is the last straw. As they leave, they leave behind thousands of more Nova Scotians without a family doctor.
Hopefully these people will not need private home care because it too will be taxed at 15 per cent after April 1. It will also cost more to run hospitals, schools, universities. It will cost more to deliver local government, perhaps 10 to $12 million more. Where will the money come from? It might come in the form of higher property taxes or a reduction in local service. Or, here in Nova Scotia, some of it might come in the form of increased power bills by giving municipalities the power to tax Nova Scotia Power property. Whatever way you look at it, the consumer will pay.
I also wish to make mention of the concerns that have been raised by the Nova Scotia Branch of the Canadian Bar Association. The Nova Scotia branch has stated that the HST, without rebate assistance for certain services -- such as criminal and quasi-criminal matters, family law and employment matters, landlord-tenant disputes and social legislation applications -- will mean an unequal access to justice. For a single mother trying to pursue maintenance for her children, the increased cost of the HST will be anywhere from $240 to $800; a cost that many may find prohibitive, especially in light of the fact they will be paying considerably more just to clothe kids, keep them warm and provide them with school supplies.
Let me conclude by saying that the HST will cause significant hardship to the thousands of Nova Scotians already struggling to make ends meet, particularly people with disabilities, seniors and others on fixed incomes; on students, single mothers, the working poor and those of more modest income. By the government's own admission, the HST is a risk and a gamble.
Just a little anecdote, Mr. Chair. At the food bank in Antigonish in the last three years -- and Antigonish is a very prosperous part of our province -- those receiving help over a three-year period have increased by 100 per cent. At Christmas this year 1,600 more metro residents visited the food bank than the Christmas before.
I ask you to consider whether the HST gamble is worth sending even more and more Nova Scotians to the food bank. Is it worth denying Nova Scotians medical or legal service? Is it worth a growing underground economy that will harm legitimate business interests and jeopardize our ability to fund programs and services in the future? I ask you to consider whether the promised but unsubstantiated claim of a 0.8-per-cent increase in the GDP is worth all of this and more.
This afternoon I have touched on just some of the concerns that have been repeatedly raised by Nova Scotians. Time does not allow me to address them all. Many were included in presentations to the House of Commons Finance Committee and to our own Law Amendments Committee. I urge you to examine the presentations and to weigh carefully the views of the individuals and groups who took the time to appear before the committees.
There are a number of very fundamental reasons why this tax should be stopped before April 1, why it should be stopped before it becomes more complicated and costly to unravel. The tax will mean an unbearable hardship for Nova Scotia families. By increasing the tax on many of our basic necessities of life, the HST will take its heaviest toll on those who can least afford it. As we see with the insurance industry, it creates an uneven playing field for service industries within the harmonized zone and threatens, in that industry, existing jobs.
Tax-included pricing will cost retailers thousands of dollars in start-up and ongoing operational costs that will either be passed on to the consumer or cause job loss. Moreover, it effectively creates a separate retail nation within the country that will erode consumer choice and result in further confusion for the consumer. It threatens access to critical services such as physician and legal services. By surrendering our traditional taxing authority to Ottawa, Nova Scotia effectively surrenders much of our control over our own financial destiny. This has serious implications for the future delivery of programs and services.
I trust you will agree that the HST must be stopped now before it becomes law. I ask you to give Nova Scotians time to construct sensible tax reform.
Senator Rompkey: Mr. Chairman, I want to welcome our guest and ask him, first of all, about the net benefit to Nova Scotians. The minister pointed out that although the sales tax will be rising on some consumer items, it will of course be lower on others, and that the lower income tax that the province has instituted will mean a net benefit for the consumer and, therefore, more disposable income in the pockets of consumers.
The Finance Minister in Newfoundland, Mr. Dicks, told us yesterday that in the case of Newfoundland that left $105 million less for the government which he claims will go into spending because Newfoundlanders are spenders and not savers by nature. I do not know if Nova Scotians fall into that same group, but the point -- I think it was made by both ministers -- is that the net benefit, as a result of the higher sales tax on some consumer items and lower income tax, will go to consumers. You do not seem to be agree with that?
Mr. Hamm: A number of things come to mind, senator. You are no doubt familiar with the document that I made reference to earlier. In the table on page 23 is a comparison of six income levels, from 0 to 10,000, up to 80,000 and above, and it compares the average sales tax increase which accompanies the HST versus the average personal income tax decline. Until you reach a family income of $80,000 and above, the savings on the personal income tax do not equate to the increased costs on the harmonized sales tax. In other words, all families with an annual income of under $80,000, even factoring in the savings on the personal income tax, in fact pay more tax. You can refer later to that table.
That really is where it is in terms of a tax package. I truly believe that the estimate on the effect at the various levels of the increase in taxation due to the HST are low-ball figures. It will prove to be a higher level of taxation.
Senator Rompkey: Of course, you would also factor in the special programs, both federal and provincial, that are aimed at lower income people. I understand from Mr. Martin that the province has programs targeted to assist low income people. You would have to factor that into the equation too I suppose?
Mr. Hamm: Yes, and I accept the comment, however, those packages are available to all Canadians. All Canadians are not being hit by the HST.
Senator Rompkey: Your position is that there will not be a net benefit for consumers in the three Atlantic provinces that will have the HST?
Mr. Hamm: Absolutely no benefit.
Senator Rompkey: You mention that there was an increase on certain commodities. Mr. Dicks agreed yesterday that in the case of gasoline, for example, that was certainly true. He also agreed that the net result it would be a net benefit to the consumer. He pointed out that although there will be an increase in taxes on gasoline that will be more than offset by the decrease in the cost of cars, for example, and he pointed out that in our province people buy them fairly regularly, maybe every three or four years. You have noted here that Nova Scotians will pay approximately $54 million in taxes on gasoline, but do you not think that will be more than offset by the decrease in the cost of cars?
Mr. Hamm: We traditionally buy $700 million in gasoline here every year, and if you add the 8 per cent on to that, it is easy to come up with that number. There is no question that those who are fortunate enough to be able to buy a new car will benefit from a tax saving. However, I am talking about the vast majority of Nova Scotians who do not purchase new cars, who will not be able to access that advantage. I find little comfort in the fact that I can offset the increased cost of gasoline by running out and buying a new car. While there is logic in that for some, for many there is not.
Senator Rompkey: Presumably those who have cars buy gasoline, or ski-doos and boats, I understand that.
Mr. Hamm: One question, senator, were you relating to some information you had from Newfoundland?
Senator Rompkey: That was the testimony the minister gave us yesterday.
Mr. Hamm: May I point out that in Newfoundland the impact on the consumer is far less, the reason being that in Newfoundland they have a 12-per-cent sales tax. In other words, their effective rate of taxation is around 19.8. Here in Nova Scotia we have an effective taxation rate of 18.77. We are both going down to 15 per cent. That means there is not the hit on the consumer, the global hit that there is here in Nova Scotia.
Senator Rompkey: I was simply making the contrast that he made yesterday. He used the example that the cost of the increase in gasoline is more than made up for by the lower cost of the car.
Let me ask you about the tax-in pricing. There has been a lot of discussion and we will hear testimony today, as we have in the past, that this will create great difficulty. In fact, just before lunch, in Lawton's here in Halifax, I came across this Bic Classic package of two ball-point pens. They have the two prices listed here on the ticket, $1.29 and $1.48 HST included. Do you think that there is a disadvantage with this change that is not there for the local firms, or do you think this is an across-the-board problem with tax-in pricing?
Mr. Hamm: Tax-included pricing will be a problem because of the regional nature of the taxation. I fully believe that retailers, both regional and national retailers, will indicate, in very well researched presentations, that there will be an increased cost to retailing in Nova Scotia. Goodness knows, retailing is not healthy here in this part of the country. What worries me about all of these pressures that we are putting on our retail business, is that it will result in a higher base cost to our goods. The retailers have indicated very strongly that they are not in the position to absorb the increased cost, so the consumer will. We have 40,000 people working in the retail business. How many jobs will we sacrifice if this drives marginal retailers out of our market?
In other words, nobody is making a killing here in Atlantic Canada retailing and we can discourage those that remain by this particular approach to pricing. I was very pleased that the analysis of what people were asked in the survey was brought before the committee because clearly the information was not on the table when it was taken. The bare question, "Do you like tax-included pricing," should receive strong support from the consumer, but when you add in the job losses and the increased costs I think the consumer would look at it much differently.
Senator Rompkey: In all fairness, just to make the record straight, that question I believe was asked and the percentage who agreed to tax-in pricing if it increased the cost was much lower. It was about 52 per cent I think, which was just slightly over. It was much lower than the 80 per cent who supported tax-in pricing. The question was asked and answered, although a lower percentage agreed with it.
Mr. Hamm: I believe it was 52 per cent of the 70 per cent that answered yes.
Senator Rompkey: Well, we can quibble about figures, but I think that is the reality.
The Chairman: I do not think it was, it was actually 52, 45.
Senator Angus: Dr. Hamm, I would simply like to congratulate you for your well thought out presentation in which you absolutely ripped the proposed legislation into the appropriate little particles and have pointed out the flaws in it. I want you to know, sir, that we hear your call to arms. You may be sure that we will fight to block this piece of legislation so that it will not see the light of day on April 1.
Mr. Hamm: I thank you for that commitment, and I hope that a majority of the committee shares your view.
Senator Buchanan: Mr. Leader, I am very pleased to see you here today, and I congratulate you on the very comprehensive review of the problems and concerns that I know and you know that Nova Scotians have with this HST.
I am really surprised at a few things that Senator Rompkey said when he was questioning you. It is incredible how someone could say there is a net benefit to the consumer from this tax. How could there be a net benefit unless people will buy a new automobile every two years? He thinks everybody will buy a freezer and a big refrigerator every two years; stereos, fur coats, every two years. Well, I have a freezer, and I have had it for 15 years. I do not think I will buy another one for many years.
However, as you said in your brief, every day of the week people will be paying their power bills and home heating bills for oil, and when they drive up to the gas tanks to fill up, rather than paying 58 cents a litre they will be paying about 63 cents a litre. Just think of it.
Senator Rompkey, do you know how ridiculous this is? They will be buying stamps. If you go to P.E.I. after April 1, if this bill goes through, the cost of a book of stamps will be $4.82. In Nova Scotia, if this bill goes through, it will be $5.20. A friend of mine in Harryfield said, "If this bill goes through, I have a friend in P.E.I. and he will send me 50 books of stamps at a time." He uses a lot of stamps, and he will save about $36 on every hundred books. Are you saying that is incorrect?
Senator Rompkey: I am repeating what the minister said today and what the minister for Newfoundland said.
Senator Buchanan: I know you are, and I do not blame you; he is your minister. I am asking the question: Do you seriously believe there is a net benefit to the consumers of Nova Scotia as a result of this tax, particularly senior citizens, low income people, low to middle income people, people who rent?
Mr. Hamm: Absolutely not. You carried on with Senator Rompkey's description of saving money by buying a new car, and when Nova Scotians are presented with that benefit their answer is, "I simply cannot afford the saving."
The stamps situation is interesting because I think the Senate committee should leave here with an understanding of the whole picture. I am sure you have heard the comment before, that after April 1 we will be the only country in the world in which it will cost more to send a letter in one direction than to send it in the other.
Senator Buchanan: The other interesting thing about this BST is this: I believe that this is the first time that a sovereign province in our country -- I am speaking here of Nova Scotia, although there are three provinces -- has given up its constitutional right to taxation. I have never heard of that happening before. We have given it up to Ottawa.
Mr. Hamm: We have given up the tiller to Ottawa, there is no question, our provincial sales tax revenue for the next four years, which is a major part of our income in Nova Scotia. We have a $4 billion annual expenditure and we take in roughly $750 million in provincial sales tax. Essentially we have given up, through the agreement that we have signed with Ottawa, control over that taxation.
I find it repugnant and offensive in the least that over the next four years, if for some reason we find we want to reduce our sales tax, I need the agreement of the other provinces. What I really find offensive is the fact that any day in the next four years, if Newfoundland and New Brunswick decide that they want to put the tax up say to 15.5 per cent, they can go to Ottawa and over our protestation, over our failure to agree, cause our tax to go up. That is the kind of agreement we have signed. That is taxation without representation.
The Chairman: The next witness is Mr. Robert Chisholm, the Leader of the New Democratic Party of Nova Scotia.
Mr. Robert Chisholm, MLA, Leader, Nova Scotia New Democratic Party: Let me say at the outset that I am here to urge you on to take action against the BST. I hope that you will have the same kind of impact on that issue as you have obviously had on the weather, because we have not had this kind of mess all winter long. I hope that you will step up to the plate, as Senator Angus referred to earlier, and take on the challenge to beat back the BST.
Honourable senators, I am pleased to have this opportunity to continue the fight against the Liberal GST, best known in this province as the BST. I do so on behalf of the Nova Scotia New Democratic Party as well as thousands of other Nova Scotians. They cannot be here today but they have signed our anti-BST petition and written or telephoned our office over the last few months to express opposition to this unfair and regressive tax plan. In fact, we began that petition back in October and yesterday we received another petition. They are continuing to come in. We just received one from down the valley, from the Bridgetown area, with 16 names on it. Clearly the BST and opposition to it are on the minds of many Nova Scotians.
Normally we in the New Democratic Party do not put a lot of stock in the Senate, preferring popularly elected bodies. Some of you may have even heard the rumour that New Democrats are in favour of abolishing the upper chamber.
Ironically in recent years some of our popularly elected bodies have been behaving in ways that we would normally associate with non-democratic institutions. The approach that our elected representatives in Ottawa and Halifax have taken to Bill C-70 and its Nova Scotia companion, Bill 48, illustrates this regrettable tendency. The way they have handled that legislation and the whole BST issue has been a denial of democracy. Members of this committee will be familiar with the political gyrations that Prime Minister Chrétien and Deputy Prime Minister Copps have gone through to justify bringing in the Liberal GST after they campaigned against the Tory GST.
The Liberals in Nova Scotia have similarly betrayed the voters on this issue. When the government, once led by the senator from Halifax-Atlantic, suggested harmonizing the provincial sales tax and the GST a few years back the Liberals opposed it. During the 1993 election campaign they continued to oppose it. They said it was unfair and regressive. They said we should have a fair tax commission to look at the whole area of provincial taxation. Low and behold, once in power, it was a different story. Suddenly harmonization was a good idea. Instead of the fair tax commission they promised, the Liberals rammed through the BST. Instead of consultation with Nova Scotians, they gave them propaganda. Instead of taking their BST out to Nova Scotia communities, the Liberals held-up in the legislature and rammed the bill through with the help of 16-hour sittings.
Senators, the Liberals misled and betrayed the people of Nova Scotia. They have no mandate to bring in the BST and there is no support for this tax from ordinary Nova Scotians because, clearly, it is a bad tax. Even economists who support the tax agree that any benefits from the BST will accrue mainly to better-off consumers and businesses that can take full advantage of the input tax credits.
People with incomes, for example, between $20,000 and $40,000 will pay more tax as a result of the BST. This tax works like Robin Hood in reverse. It takes from the poor through higher taxes on daily necessities -- such as home heating fuel, electricity, low-priced clothing and school supplies -- while giving to the rich through lower taxes on big ticket items, such as new cars, expensive suits, restaurant meals and so on. It relieves Nova Scotia business of $200 million or more in sales taxes and shifts the burden to Nova Scotia consumers, mainly low income consumers.
These low income consumers are wondering where they will get the money to pay for this corporate tax break. I had a call just yesterday from a man wondering how he will pay to heat his home if the BST goes through. As he noted to me, home heating fuel has been going up sharply over the past year. He talked about eight cents a litre. On April 1 the BST will increase the tax on these sharply higher oil prices by 114 per cent.
What do we do when the government turns its back on the people and tries to push through such a cruel and unfair tax? Do you wait for the next election, allow the voters to throw the rascals out and then undo their ill-conceived handiwork? Certainly we in the NDP are prepared to do that. We have said from the beginning of this BST debate that after the next election, if we are in the position to do it, we will opt out of this deal. During the 18-month notice period we will set up the Fair Tax Commission that the Liberals should have set up. The commission will look at ways of making our overall tax system more fair and reducing our reliance on consumption taxes. That is one alternative that we hope will be open to us down the road.
The immediate alternative is to use every means available to block the tax before it comes into effect. Our caucus has put in long hours in the House of Assembly here in Nova Scotia to try and block this tax. We have circulated our petition through mail, fax and door to door. We have appeared before the House of Commons Finance Committee. The Liberals, here and in Ottawa, have not listened. This committee is the last hope to block this legislation, and that brings me back to why I am here today.
Given the high-handed and deceitful way in which the elected Liberal politicians have tried to impose this tax, I say to you, the non-elected Senate, that you would be doing a service to democracy by blocking it. I therefore urge you, senators, and your colleagues, to make sure that this legislation is tied up until after the Nova Scotia provincial election, which must take place within 14 months.
There is no rush for this legislation. Ordinary Nova Scotians have said loud and clear they do not want it. Many businesses, especially small businesses, have said that they do not want it. Even larger businesses and business organizations that support the BST have called for a delay to sort out the issue of tax-in pricing. About the only people who seem to be in a rush for this legislation are Premiers Savage, McKenna, Tobin and their ministers of finance.
I urge this committee to kill Bill C-70. This would give the people of Nova Scotia the opportunity to pass judgment on the BST in the appropriate way, through the ballot box.
Senator Oliver: One of the things that we have learned from hearing from witnesses in New Brunswick, Newfoundland and soon I think from Nova Scotia, is that the worst part of this whole tax is the TIP, the tax-included pricing. One of the things that retailers, people who own stores and must put on new pricing, is that their ticketing costs, advertising costs, information system costs, warehousing costs will all go up. Some people say that for one store it could be as much as $30,000 a year, and that will impact on their bottom line. We have learned from the province of New Brunswick that the TIP is severable from the other harmonized part of this bill. The Minister of Finance in Newfoundland has said the same. Yet, when the question was put to the minister from Nova Scotia, first of all, he would not concede that it is severable and, second, he would not concede that if it were and if we did not need to have the tax-included pricing that it would do an awful lot to help people who are poor, on low fixed incomes and seniors. What do you say about that?
Mr. Chisholm: We found the province of Nova Scotia quite resistant to any such change. I know that at the same time we were having this debate in the House of Assembly, a committee of the metro chamber of commerce was meeting with Minister Martin and his officials to talk about the whole issue of tax-in pricing, and they came back with a clear message that the minister was not prepared to do anything about it.
It seems to us that the Government of Nova Scotia is trying to sell this measure on two principles: one, that it will create all kinds of jobs -- we have not figured out how that will happen -- and two, that consumers want tax-in pricing. I think they are caught in that position because, if they back off on either one of those, they lose some of the argument for why in fact they are pushing this through.
Senator Oliver: Would you agree that if we could get rid of tax-included pricing it would do an awful lot to protect seniors and the poor?
Mr. Chisholm: I do not see how in fact that will happen.
Senator Oliver: I gave you an example at the beginning of the cost with retailers.
Mr. Chisholm: That would certainly be the case, if there are any extra costs above and beyond the costs that seniors and other low and middle income Nova Scotians must pay as a result of increases in those essential items. If there is any chance of reducing those costs then certainly that would be better. However, in no way does that limit whatsoever our opposition to this tax which we believe is inherently unfair.
Senator Oliver: Minister Gillis told us that in an effort to educate Nova Scotians, he has prepared a series of brochures and sent them out to various groups.They explain the way that the tax will impact on them, and one such group is seniors. I have read the seniors brochure, and it says that rents will not go up. You also know that with this harmonized tax and TIP, a landlord must pay tax on repairs and renovations, advertising, professional services, snow removal, garbage collection and the like, and that likely means that there will be a rent increase. Would you agree?
Mr. Chisholm: Yes, in fact we made a statement on that particular pamphlet that went out to seniors.
Senator Oliver: Do you think that pamphlet was accurate?
Mr. Chisholm: We thought it was terribly misleading, inaccurate and on the edge of being simply deceitful. We have talked to seniors groups and they feel the same way.
That is part of the problem. One of the senators asked the minister earlier about why he was not working harder to make clear the impact of this measure. The government has been so intent on trying to sell something that is not sellable that they have been giving people a line that just does not carry, and people have seen through it.
Senator Oliver: The APEC report warns of three major problems if this tax goes through. The third one that they talk about is the fact that businesses will need to borrow money to finance the tax. What do you say about that? Is that fair?
Mr. Chisholm: Absolutely not. It is an additional cost of doing business, and many small and medium-sized businesses simply cannot afford the extra cost. People are still hanging on by their fingernails from the effects of when the GST was imposed, and the last thing they need is additional costs at this particular point in time, in spite of the promise that down the road they may enjoy further savings.
Senator Losier-Cool: I must admit that your position on the Canadian institution known as the Senate really boosts my morale on a day like today. I do not know if I should thank you for it but it certainly was very clear.
I would like to know now your position on the harmonized tax as compared to the one of Bloc Quebecois. The Bloc Quebecois says that it hides the tax from the people that it is not telling the truth to people, even though Quebecers have a harmonized tax.
Mr. Chisholm: I am unfortunately, senator, not all that familiar with the Bloc's position on the HST. I certainly would be interested in knowing more.
Senator Losier-Cool: Maybe you could read The Globe and Mail of this morning where they mention the Bloc Quebecois' position.
On the bottom of page 1 of your brief you talk about the people with low incomes. You provide a breakdown of the average annual savings for families, those that are between $20,000 and $40,000. Are you aware of what that benefit will give to those families? Statistics Canada has commented on savings, and I know people in the $10,000 to $20,000 bracket will get over $100 annually. However, in the bracket of $20,000 to $30,000 there are savings also.
Mr. Chisholm: I referred specifically to the $20,000 to $40,000 range, not to say that people in lower incomes with less disposable income will have it any easier because they will not. The benefit to low income Nova Scotians of $8 million represents to those people about $1 a week. Those people will be equally if not more so disadvantaged. I used the $20,000 to $40,000 as an example because after APEC's final report was presented back at the end of January, I believe, the headlines in the local newspaper said that overall this tax will be a benefit to the economy of Atlantic Canada. An individual then went out and talked to APEC, to economists, to his accountant and to other people and came up with some figures for people between $20,000 and $40,000 indicating that those people will end up paying more. He came up with some specific examples. That is increasingly what we are hearing and what we are finding, that people on a fixed income or very little disposable income are concerned.They know their expenses and what they must pay day in and day out, and they do not see that, even if they do have the money to buy a new car, a fur coat or something like that, there is any real advantage for them.
The APEC study, for example, suggests that overall this scheme will be a benefit to the consumer. It is like the old saying there will be winners and losers. In this case, you combine the HST or the BST with the income tax reduction and you find that the people who will benefit are higher income Nova Scotians and the people who will pay more are lower income Nova Scotians.
Senator Losier-Cool: These are all facts and figures that we can have and that we have also in the committee.
Following on what Senator Oliver asked you about the TIP, tell me precisely your position. You do not favour HST or GST, no taxation in any way or a review of the whole. What is the position of your party on this matter?
Mr. Chisholm: We are opposed to this form of taxation, we are opposed to this harmonization. We believe the GST has nearly crippled the economy of Atlantic Canada. The evidence is clear, in APEC studies and others, that approximately $3 billion in additional moneys has been sucked out of Atlantic Canada directly as a result of the GST. Many businesses have fallen and many more are teetering as a result of the GST. What we are suggesting is that the HST will, number one, make that worse, and number two, constitutes a shift of tax from larger businesses, from a specific sector, mainly exporters and manufacturers, to consumers generally. We do not believe, at a time when the economy of Atlantic Canada is so fragile, that we should make that kind of change.
The last thing that I want to say is that not only will consumers be paying this tax, but the province of Nova Scotia will be short $100 million annually just from the HST. There is no evidence in the world to confirm that we will somehow see that money come back after the $250 million package, sometimes called a bribe, is paid out.
There is no evidence that any economic activity that may be generated from the HST will pay out that $100 million. All of a sudden the Government of Nova Scotia will be another $100 million short to pay for health care, education, roads and the public services that it delivers. Even APEC says if jobs are created as a result of the HST it will be well into the future, and there is no evidence to suggest that these 3,000 jobs will materialize.
The Chairman: Senators, our next group of witnesses represent five different business organizations. From Sears Canada we have Mr. Al Schiappa, from Mark's Work Warehouse we have Mr. Jim Killin, from Saan's we have Daniel Langevin, from Canadian Tire we have Carol Weickert, and from the Independent Television Industry of Atlantic Canada we have Greg Mudry and Rick Friesen.
Mr. Daniel Langevin, Vice-President Marketing and Communications, Saan Stores Ltd.: Saan Stores Ltd. is an affiliate of Gendis Inc., a publicly traded company. Saan Stores has extensive operations in Atlantic Canada, operating under the Saan and Red Apple banners. Previously these stores were operating as Met, Met Mart, Metropolitan, Greenberg and Red Apple. We presently have 26 outlets in the Atlantic provinces, employing 512 people with an annual payroll of over $2.8 million.
As you must be aware, we are vitally concerned about the harm the federal government's harmonized tax program will have upon our company and our employees. Saan Stores believes the proposed legislation on tax harmonization will have a catastrophic effect on our company and the consumers it represents.
This plan will slap an additional 8-per-cent tax on shoes and apparel selling for less than $100. These two categories of merchandise account for more than 60 per cent of Saan Store sales. Our stores serve the lower to middle income consumer in rural Canada, and we are the last major national retailer to serve consumers in rural Canada.
We are not a purveyor of luxury goods. This additional 8-per-cent tax on moderately priced essentials will place yet another burden on the shoulders of those Canadians who can least afford to bear it. These items, including jeans, casual slacks, windbreakers, running shoes, winter boots, socks, underwear and sleepwear, all account for a significant proportion of household expenses and are usually budgeted by these consumers.
The proposed 8-per-cent increase in tax on these commodities will have a major negative effect on demand. Consumers will cut back their purchases of these products, reducing sales not only for our stores, but for all general merchandise retailers, including small, local independents. Canadian manufacturers and importers of these goods, who are operating in a vulnerable industry as it is, will be further weakened. This tax will, no, let me say, this tax is jeopardizing jobs.
People tend to forget that the connection between increased sales and job creation is virtually instantaneous, especially in the retail trade. So too is the connection between lower sales and job losses.
The retail industry in Canada is in a tenuous position. One only needs to look at the headlines and listen to the principals of major corporations; the retail industry is in serious difficulty. The major headache which will result in increased costs is a direct consequence of the federal government's demand that retailers be required to bury this new higher harmonized tax rate in the retail selling price of all commodities and services which fall subject to this tax, called tax-in pricing.
Neither the federal government nor any provincial government to date, has been able to demonstrate any economic benefit to the consumer resulting from the requirement to include the tax in the retail price. To the contrary, it has been clearly demonstrated to all governments involved that there are huge costs associated with forcing retailers to comply with this requirement; huge costs that must be ultimately borne by consumers in Atlantic Canada.
During our discussions today we will endeavour to educate, in order for you to better understand why costs will increase due to tax-in ticketing. Logistical costs, higher packaging costs, cost increases due to inter-regional transferring, advertising expenses, costs associated with point of sale hardware and software modifications, which must come about because of tax-in pricing, impacts on management information and accounting systems, et cetera, to a total of well over $2 million for our corporation alone.
At a meeting here in Halifax on September 3, 1996, members of the Nova Scotia Department of Finance admitted that they could see no direct economic benefit to the consumer from forcing retailers to provide tax-in ticketing. It is our opinion the only possible winners in this process would be the federal government, if they are successful in creating the illusion that they have eliminated the hated GST by forcing retailers to bury the HST in the price the consumer sees on the shelf. In fact, consumers in Atlantic Canada will end up the losers as prices must rise as a consequence of this policy.
Honourable senators, you know that costs of this magnitude cannot be absorbed by retailers who are already reeling under the weight of staggering losses. Tax-in pricing will translate into price increases, lost sales, decreased manufacturing output and, ultimately, lost jobs.
Our job is recommending that you withdraw the clause requiring retailers to provide for tax-in pricing. Harmonization is a worthy goal, but not at the cost of the damage to the economy that the existing proposal would precipitate.
I am at your disposal to respond to questions.
Mr. Jim Killin, General Manager, Mark's Work Warehouse, Eastern Canada: Mr. Chairman, I will keep my presentation short. You have the brief and you also have the numbers that back that brief. I will read excerpts and throw a few questions at the committee that will come back to us.
Chaos, confusion, lack of understanding, unawareness, interpretation speaks highly of the attitude toward Bill C-70, the bill that deals with harmonized sales tax. I have had the opportunity to be in Saint John and have heard what has been going on in Newfoundland and we have been following these Senate hearings very carefully.
We are a national chain, trading within Canada with 143 stores, 14 stores within the Atlantic region. The overall cost of harmonization to our company is estimated at $500,000 per year. That translates to an additional $30,000 to $35,000 bottom-line cost to our franchise operators and our corporate store operators.
The cost ramifications, the advertising and media cost ramifications, the decrease in sales revenue will affect our ability to carry on a profitable business in Atlantic Canada. It is ironic to note that in the meetings in Newfoundland and New Brunswick both ministers of finance made the statement that they would look at tax-in pricing and the advertising issue, the holdout being the province of Nova Scotia. All three provinces must make changes together, and Nova Scotia is holding out on this specific proposal.
Also to clarify for the record, the Atlantic Provinces Economic Council has talked about the fact that retailers will see a boon in sales. When Senator Oliver in New Brunswick put the question to the presenter, the presenter suggested that the retail sales sector would see increases in luxury items such as cars, televisions, VCRs. When further pushed he made the statement that probably the clothing area would see a $4.2 million decrease in sales, and when pushed further about footwear, he said $2 to $4 million on that. I am not clear whether that added up to $8 million for each area or a combined $8 million figure. The figures presented by APEC are definitely in question.
In New Brunswick the Committee for Economic Development suggested, from an advertising point of view, that retailers today can simply use a computer to input a price change on a flier and that that cost is minimal. The last time I was involved in advertising, and I still am, the types of retailers sitting at this table normally use a web press that, for example, will run approximately two days to print 1.5 million copies. In this system such a change requires plate changes, and those plate change costs are in the brief. We do not print from a Canon Inkjet Computer Desk Top, we print from a Webb Press.
There are other issues involving advertising in media. The specialty channels which our company utilizes are not permitted under CRTC regulation to change their national feeds to regionalize them for Atlantic Canada. We as a company will be faced with a 15-per-cent up charge on national buys to regionally change the CTV and CBC feeds coming into these provinces.
Separate fliers will have to be made as a result of the uneven playing field for Prince Edward Island. They will definitely have a tax and sales advantage.
Special agreements, we understand, are being made with Avon because of its 1-800 number. We all know that Avon relies on door-to-door sales. They, I understand, have received special dispensation not to do a tax-in pricing issue.
Mr. Chairman, it is up to you and your committee. We have outlined, for senators and the press, how tax-in pricing will cause confusion to the consumer.
In conclusion, I am proud that two of our franchise operators have made presentations to you, and I think you will hear from one other walk-on later today. We are not politicians, we are retailers charged with the responsibility to produce a viable profit.
Listening the various TV reports over the past few days many people on talk shows, and the common citizen of New Brunswick, Nova Scotia and Newfoundland, are saying that this inquiry is a typical whitewash, and I quote one in Saint John, who said this committee is:
...a $200,000 road show to pacify the people, they will not make a difference.
I must say I do not join the sceptics. I have spoken with most of you. I think we have a real problem within these three provinces. I have used the words "distinct society" in this brief and, definitely, these three provinces are being segregated from the rest of Canada through this tax-in pricing issue and the advertising issue. The consumer is being hit with an additional 8 per cent on essential services, which will cause a decline in our retail sales volume.
My request to the Senate is that it look at, if not all of the bill, at least the tax-in pricing issue.
The Chairman: Next, Mr. Carlo Weickert from the Canadian Tire Dealers Association of Nova Scotia.
Mr. Carlo Weickert, Canadian Tire Dealers Association: Mr. Chairman, I too will try to keep my remarks brief. I am not sure how many of your people have actually seen what dual pricing looks like. I brought some examples along for you to have a look at. This is a standard tag that we use in front of our peg hooks that we sell products on, and this is a standard shelf label that we clip onto our shelves, the same label slides in a track along the front. Likewise I brought some samples of signage, and I will pass these around for you to look at. This is a normal sign that we put on a sale item. The way the two items I am passing around are set up is, the regular is up here, and the new and suggested is down here; likewise, I have one here with the labels, and I will pass that around also.
I would like you to just have a look. This here is pollution. The shower stall has a regular price without tax of $299, and with tax-in it is $344, but it says save $50, which is actually $44. If you take the tax-included price at $344, the regular tax-in price is $402, which means a saving of $57. The only way you get the $50 is if you take the tax-out price and the regular tax-out price. You have six prices on there, and I ask you to try and understand it. I will pass these around, if you want to have a look at them while I am talking.
We in the Maritimes represent approximately 10 per cent of the retail trade dollars spent in Canada. The government is asking us to spend mega dollars for 10 per cent of the revenues that are available out there. In our particular company alone, the software will cost us $8.8 million, and will take up 56 man years of work to put together the software changes required in all of our systems.
In-store, the average store is looking at approximately $20,000 in cost to relabel for repricing. Then, there is the ongoing cost of repricing merchandise that is coming in, and all the rest of it. It is a dramatic cost that we in Canadian Tire cannot absorb.
Canadian Tire sets our pricing in Toronto. We, as the local representatives, cannot increase our prices to accommodate the increased cost to us, and as my friend next-door here has said, the retail trade business in Canada these days is in a very tenuous condition. You can see it at Sears, Consumers Distributing. Look at the bottom line of most retail companies. Frankly, we cannot afford these costs. Companies that can pass the expenses on will pass them on. In the case of those that cannot, like ourselves, we have to look at ways of trying to absorb those costs.
The biggest cost we have is staff. If need be, we will have to cut back our staff, waive dollars, which will affect the customer service and increase theft. It is a major, major cost to us. It is a cost that we cannot handle, that we do not need to handle, and definitely I feel it is just a whitewash by the federal government to try to make it sound like the GST is being done away with by incorporating it.
In talking to several of my friends around the country, basically they do not feel any of the other provinces will go in this direction. We will be an orphan out here forever with a cost that we have to bear, and frankly we cannot afford it.
Mr. Al Schiappa, National Director of Tax & Corporate Analysis, Sears Canada, Inc.: The memorandum of understanding promised a much simpler tax system for both consumers and business. In fact after a year of study, we find that the tax-inclusive pricing in a partially harmonized system will produce exactly the opposite effect for us as national retailers, an increase in cost and in more complex systems.
Just to give you an example, there was a national catalogue exemption in the draft-amended legislation. Sears does not meet the requirements and are not able to use that exemption. Sears will distribute 52 million catalogues this year alone in the ten provinces and two territories. If we are not a national catalogue distributor, I do not know who is. This illustrates that the government did not consult with businesses on how to work together on this harmonization and tax-in pricing.
Another area which the government never took into consideration is national television, radio and print advertising. Campaigns will no longer be practical where prices are included in the advertisements. That means we have to go to regional advertising campaigns for the Atlantic provinces. That is an additional cost.
No one understands the retail computer-system business at all. We have point-of-sale inventory, EDI invoicing and E systems, all of which form a complex web, and to change one has a domino effect right down to the terminal and the cash register.
Another area that the government never really took into consideration is ticketing. How is this product marketed and ticketed to the customer? It is a common practice for suppliers to provide ticketing for merchandise at source.
Tax-excluded pricing allowed that for us. We were able to move those costs from ticketing in-house to the supplier. Now we are either going to have to bring them back in-house at an additional cost or try to get suppliers to come on board on this.
It is a common practice for most national retailers to transfer goods from one province to another province. If I ticket something tax-in for the Atlantic region, to redistribute that item to another province, I will have to spend money to put on a new ticket, on transportation costs, and on new advertising. Most of the money will be labour costs.
For national retailers, a totally harmonized system is a very worthwhile goal, and we at Sears support that, but until you get your act together with the other provinces, you are going to have confusion on ticketing, advertising and catalogues.
Mr. Greg Mudry, General Manager and Vice-President of ATV/ASN and Independent Television Industry of Atlantic Canada: My name is Greg Mudry and I am the Vice-President and General Manager of the CTV affiliated television system ATV, which covers the Maritimes, and of the Atlantic Satellite Network which serves all of Atlantic Canada. With me is Rick Friesen, General Manager of MITV, part of the Canwest Global System, also serving the Maritime Provinces, and immediately behind us are Barry Saunders, General Sales Manager of MITV and our advisor, Frank Mader.
We would like to make one point clear. As employers and as partners in the Nova Scotia economy, we endorse the HST. We believe that the introduction of the HST will bring real economic benefit to Atlantic Canada. We are concerned, though, that our industry and its suppliers will be negatively affected from a revenue standpoint by the tax-included advertising provisions that may result from the HST introduction.
It is our intent, through this dialogue, to work with the Nova Scotia government, along with the federal government and other Atlantic provincial governments, to find common solutions in order that maximum benefits be derived from the HST, and that negative possibilities be minimized.
Mr. Rick Friesen, Vice-President and General Manager, ATV/ASN: Broadcasters in this region have not had an easy time of it over the past five years. Atlantic Canadian television broadcasters have secured only 4.3 per cent of total Canadian advertising expenditures. In the last five years, total advertising expenditures directed to Atlantic radio and television stations have declined by $11 million, a decrease of 8 per cent.
Atlantic television broadcasters are the least profitable in the country. Pre-tax losses for 1995 were 3.2 per cent of sales. We have been told that tax-in pricing may be required on all television price-point advertising that is directed to residents of Atlantic Canada. National advertisers are informing us that it is not economically feasible to produce separate commercials for the Atlantic region.
Specialty services such as Much Music or TSN cannot and are not allowed to split their signal by region. Therefore, they run everything identically across the country. CBC and CTV network spots also run nationally. All these commercials will flow into Atlantic Canada with price-point advertising that is net of taxes.
This approach will destroy the level playing field that now exists between local, regional, and national advertisers. This competitive equity must be maintained, so that our local Maritime advertisers can continue to flourish. As Rob Johnson of Wacky Wheatley's states:
...by allowing national advertisers -- such as Future Shop, the Bay, Sears, et cetera -- to advertise on National channels such as TSN and Much Music commercials that are net of BST, our prices will have the appearance of being 15 per cent out of line... this would prove to be a disaster for us because of a tremendous "perceived" lower price advantage to our competitors...
As a result of the foregoing, advertisers will stop using television as a price point vehicle. Advertisers' access to the medium for this important part of the marketing mix is therefore impaired by results that Wendy's restaurants put very succinctly in an interview with the New Brunswick Telegraph-Journal:
As it stands, the extra expense will force Wendy's to cut back by nearly half on its advertising budget, which is expected to cause a 10-per-cent drop in business...
Television is the most efficient and effective advertising medium for most of our Maritime advertisers. It creates demand, informs consumers, and promotes consumer spending. There is no doubt that reduced advertising will lead to reduced business across the board. Fully 10 to 15 per cent of ATV/ASN's and MITV's revenues are derived from price point advertising. Therefore at risk is some $4.5 million to $7 million in revenue. The CBC and Newfoundland broadcasters would add substantially to that figure. Even if only half of that risk is realized, the revenue erosion would be substantial enough that there would be serious negative economic impact, especially in Nova Scotia.
Mr. Mudry: It has been suggested that Atlantic television stations could simply tag all national commercials that arrive at the station. This is completely unworkable. National advertising agencies and their clients would never allow us to alter their creative products unilaterally by adding tags or covering them to eliminate price points. Almost all of the price point advertising is integrated right into the creative product. It would be impossible to alter at our stage in the process.
If tax-in advertising is not required at the national level, the simpler solution would be for agencies to buy around the local Atlantic stations and allow the net price advertising to flow into the region from national carriers, such as the networks, TSN, Much Music, et cetera. Money would simply not be spent here to support price point advertising.
Net price advertising is the only solution that satisfies the needs of broadcasters, advertisers, and consumers alike. Price confusion resulting from spill into non-participating provinces is eliminated. A disclaimer stating "tax not included" could be instituted nationally for all price point advertising. This would ensure that all advertising reaching the Atlantic consumers, whether from the networks, specialty services, or local stations, would show the same price points with a common denominator of the net of tax price.
Competitive equity between Atlantic regional advertisers and their national competitors would be maintained. Price point comparisons would be fair. We support the recommendation of the House of Commons Standing Committee of Finance for tax-out pricing plus a disclaimer for all advertising.
Atlantic broadcasters need this provision in the legislation to maintain already weakened revenues. Atlantic region advertisers need this provision to maintain competitive equity, and avoid confusing their customers. The public needs this provision in order to have a level playing field of pricing in order to make informed buying decisions. Net price advertising with a disclaimer does not confuse the consumer. It does not impair the in-store buying decision.
Senator Cochrane: I must, first of all, introduce myself. I am a senator from Newfoundland and Labrador, and yesterday we did hear from those people, and I want to tell you about some of them. We heard from the Newfoundland and Labrador hospitality, we heard from the St. John's Board of Trade, from the Craft Development Association, from the Builders Association, from the Real Estate Association, from the Chamber of Commerce, and every single one of these people said the same thing that you have said here today. Surely to goodness the provinces of Nova Scotia, Newfoundland and New Brunswick cannot all be lying.
My question is to the gentleman from Sears. You did that the government had no consultation with you before anything like this was ever even thought out; am I correct?
Mr. Schiappa: That is correct.
Senator Cochrane: What consultation was done in Nova Scotia with the businesses and the consumers before this deal went through?
Mr. Killin: To our knowledge, the retail council was represented, but there was no direct Nova Scotia/New Brunswick involvement or consultation whatsoever.
Mr. Langevin: There was consultation on our behalf. The president of our former corporation, MMG Group had met with the Finance Minister of Nova Scotia. What was put was very clear, that regardless of the numbers and figures put before him, the HST would move forward, as would tax-in pricing. Everything would be taken under consultation, but to date obviously we have not seen any movement on those issues.
Senator Cochrane: We only have a few weeks left. This tax is supposed to be brought in on April 1.
Mr. Killin: All questions to ministries, deputies, and MPs have fallen on deaf ears. There is a closed shop.
Senator Cochrane: Closed, meaning closed within those three provinces and Ottawa?
Mr. Killin: That is correct. There is no discussion on the subject.
Mr. Langevin: When the chief executives of major national retailers met with the Honourable Paul Martin on July 10, he said that they would move forward with the intention to pursue harmonization across the country. He also suggested that the government would create no less than four additional price zones because you could not have a harmonized tax rate across the country. That proposal would add additional costs to retailers' expenses. Printing catalogues for companies like Sears and flyers for companies like Mark's Work Warehouse and Saan would have to be done by zones. Already we have to look at zone pricing and zone printing based on the bilingual policy.
[Translation]
We always have to serve the New Brunswick Acadians and Quebeckers in French, those who speak another language in our country.
[English]
In order to do that, in Nova Scotia and New Brunswick you have to print up not only English flyers but French flyers. Now, you have to do price changes on French flyers and English flyers. Because of the enormous number of zones, this creates massive additional costs which people outside the industry do not seem to understand.
Senator Cochrane: In Newfoundland yesterday, we heard from the Alliance, let me just rephrase what he did say. They were in support of this HST, and he said something to the effect, "We three Atlantic provinces want to set an example for the rest of Canada. We think that this is going to be great. We are going to lead the way, and the other provinces of Canada will come on board after they see the advantages that we are going to have." How do you respond to that?
Mr. Killin: I think you will see tomorrow morning -- and we have been talking with Stanfields and Nova Scotia Textiles who are two major suppliers of Mark's Work Warehouse in this province. They will present to this committee their feelings on HST, and what is in jeopardy for them, why they cannot price goods for us without incurring additional costs, and their fear from a manufacturing point of view, that if we end up with six or seven price zones across this country, under the guise of harmonization, a certain amount of this product will go offshore where definitely pricing can be done in overseas factories at negligible costs.
Stanfields and Nova Scotia Textiles cannot pull off the line for 14 stores of about 143 and reticket without it costing four to five cents per garment. Currently, it is done as it comes down their line. You will hear that tomorrow from the representatives of those two industries who can speak more from the manufacturing point of view. I think, senators, if you ask that question to both representatives, they will be more than prepared to answer it for you.
Mr. Weickert: I might add to that, too, that we are not against the HST. We are against the tax-in pricing on the HST. It is primarily the tax-in pricing that will kill us.
Senator Cochrane: Do you see businesses closing as a result of that provision?
Mr. Weickert: Yes, I do. I am afraid I do.
Senator Cochrane: You do, here in Nova Scotia?
Mr. Weickert: Yes.
Senator Oliver: The tax-in pricing is severable from the rest; is that right?
Mr. Weickert: Yes. I do not personally nor do the rest of my group have a problem with the rest of the HST. It is the tax-in pricing.
Senator Oliver: But it is severable?
Mr. Weickert: Yes.
Senator Cochrane: We heard the exact same words from Newfoundland yesterday.
Senator Rompkey: To be clear, all four of you in the retail industry basically support the HST, but you are against tax-in pricing?
Mr. Weickert: That is correct.
Senator Rompkey: That is the only part of the legislation that you oppose; is that right?
Mr. Killin: Senator, in my brief, I went a bit further than tax-in pricing. That is the minimum. I think we have to understand as retailers that there are benefits to manufacturing on the HST, as other parts of it, but I think the consumer is about to have a wake-up call with an 8-per-cent tax hike in this province and the province of New Brunswick on goods that are over $100. They are presently taxed at the rate of 7-per-cent GST. Effective April 1, they will be hit with an 8-per-cent additional tax on clothing and on luxury items, and in a lot of cases it will create a decrease and a decline in sales.
Tax-in pricing will at least, if that is removed from the bill, will at least remove the expense. We are still going to see a sales decrease. We saw that in Quebec when harmonization went through. The clothing sector dropped about 15 per cent to 20 per cent over a two-year period on retail sales.
Hard line sales did increase slightly, but if we look at the aftermath today, it also is the province with the highest amount of personal bankruptcies. The retail industry will take a hit on both sides, but at a minimum, this committee can definitely return the bill with the tax-in pricing eliminated.
Senator Rompkey: Without the tax-in pricing, you could live with the bill. You are telling me that there will be some decrease in sales, some increase in taxes on some consumer items. Of course, that could be balanced by increased sales and lower taxes on other consumer items, and there could be a net effect. I understand what you are saying.
Let me be clear, the four of you -- perhaps Marks Work Warehouse with some reservation -- support the HST, but oppose tax-in pricing. Is that right?
Mr. Langevin: I think we have to say the four retailers, yes, with Mark's Work Warehouse and Saan stores having some reservation. In our brief, we make note of the 8 per cent sales tax increase and the effect on the consumer, but it is not only the retailer sitting at this panel. David Emerode of the Atlantic Provinces Economic Council stated that breaking down the harmonized sales tax impact clearly shows the new tax's gouging effect on low income consumers, with many of the expected price hikes affecting basic necessities. It is not only this retail group that is making that statement.
Mr. Killin: If I may add, senator, that is testimony we heard the other day.
Mr. Schiappa: Let me add to that fact from Sears Canada. We do agree that total harmonization will achieve business cost savings with the input tax credit in the long run. The economics prove that; however, a partially harmonized way of getting there is going to cause systems problems, consumer problems, ticketing problems that add extra costs that do not necessarily have to be there. It is not just the tax-in pricing; it is the fact that you are going at it piecemeal.
In the long run if you do achieve full tax harmonization across Canada and can promise one rate, one base of goods, yes, the economics will be there. If you cannot deliver that, you will end up with five pricing zones with five different tax rates. I have to hold five different inventories and five separate tax-in prices.
The Chairman: Could I just ask a question of clarification. At the present moment you have ten taxing systems basically, in the sense that you have the GST in ten provinces and you have nine provinces, I guess you can count zero for Alberta. I am trying to understand why, if three of the provinces are identical, which is what you get with the harmonized tax it creates a problem. I am not talking about tax-in pricing. I understand that argument, although I intend to ask you about that too because your brief is somewhat ambiguous as to your complaint and whether it is with tax-in pricing. However, I do not understand why the mere fact of three provinces having the same combined tax rate is a problem for you, since that reduces you from ten zones to seven.
Mr. Schiappa: We only have one zone now, and tax-out pricing is where the argument comes from. Tax-out pricing is the issue.
Mr. Killin: We have a national sales price across the country.
Mr. Weickert: Senator, I think you are confusing price zones with tax zones. There is quite a difference.
Mr. Langevin: We have had no issue in Quebec and that province has been harmonized since the beginning.
The Chairman: Therefore your problem is tax-in pricing?
Mr. Langevin: That is correct.
The Chairman: I understand exactly where Mr. Schiappa is coming from now. In his presentation he kept using "harmonization," but I think the sentence in the brief actually means tax-in pricing. That is all I was trying to understand.
Mr. Weickert: I would like to address the other senator's point for just a moment. In my business, currently for just about everything that we sell as a hard good the customer is paying about 18.7 per cent with the GST and PST together, whereas now he or she will be paying 15 per cent. In fact, the consumer will be saving in our particular stores a fair bit of tax on that side of it, but it is the additional cost of the advertising, the dual pricing and the rest of it that we are very concerned about and that we cannot absorb. That is why we are in favour of the HST.
Senator Rompkey: The consumer generally in your store will be better off.
Mr. Weickert: The consumer in my store will be better off. I do not share the same concern as these gentlemen, who are in the soft goods industry. I am in the hard goods industry.
Senator Rompkey: I wanted to ask the independent television industry about the amendment for net price advertising and the disclaimer. This amendment has already been introduced in the House of Commons. Is that right?
Mr. Mudry: Our understanding is that the House of Commons Standing Committee on Finance has included that in their recommendation with regard to the legislation.
Senator Rompkey: That would satisfy your concerns.
Mr. Mudry: Absolutely. That is the essence of what we are attempting to obtain, one pricing regime in advertising, and the only one that can work nationally is tax-excluded pricing.
The Deputy Chairman (Senator Angus in Chair): Our next group of witnesses is Mr. Rick Pratt from Winsby's Shoes; Sharon Calder, Vice-President from Charm Diamond Centres; Terry O'Leary from Salon Owners' Association; and you have Ian Mark with you; Jamie Hartling from Leather Smith Design.
Mr. Jamie Hartling, Owner/Manager, Leather Smith Design: I am here regarding unfair competition legislation in which the government is involved. I am referring to the $30,000-sales requirement to collect the blended sales tax. Please make the legislation fair by having a zero-dollar sales threshold for collecting the BST.
I retail my leather products at craft shows throughout the Maritime provinces. Because I do this as a living, my sales are above $30,000, and therefore I have to collect the sales tax. Probably half the crafts people at the shows are in my situation. However, probably the other half of the crafts people at the shows have sales under $30,000 and do not have to collect the sales tax. In many cases their sales are lower because they have another full time job or retirement income and only do craft shows to earn extra money or out of interest.
The situation of confusion and unfair competition arises when consumers compare prices of vendors who have to collect the extra sales tax to those who do not have to collect it. Those who do not have to collect the extra sales tax can always undercut those who have to collect it. Besides the negative impact on the profit for the full-time crafts people, this undercutting stunts the growth of the full-time crafts people who would like to expand and create more jobs. Please see the charts on the next page regarding how profit is grossly different between tax collecting businesses and non-tax collecting businesses. The non-tax collecting business can always make a 15-per-cent higher profit than the tax collecting business if goods are sold at the same total cost to the consumer; therefore, the non-tax collecting business has the potential to always undercut the tax collecting business.
If you turn to page 2, on the top of the page I have listed three examples of sole proprietorships with different expense levels. Example 1C is the most labour-intensive. In this non-tax collecting business, 1C will make a profit of $14,250 for the labour done; however, a similar business in example 2C that has to charge the BST would only earn $12,391 for the same labour.
Please do away with the unfair competition that this $30,000 sales threshold legislation creates for businesses. Do not have a $30,000 sales threshold for those who have to collect BST and for those who do not. Please make the threshold zero dollars so that anyone who is in business to sell their product has to collect the BST. Make the playing field fair in the business world so that the Maritime economy can grow and create jobs.
I would like to point out some false arguments in favour of the threshold compared to the truth for doing away with this threshold. One false claim is that it is more a benefit to charge BST so that you can get the BST back on expenses, and therefore be more profitable. This is true if you are wholesaling because the retailer buying the products wants to get back your BST costs. However, this is not true with retail businesses, as can be seen by the previous calculations. The business selling without a BST charge can always make a greater profit because there is no final BST charge to the consumer.
Another false claim is the threshold gives smaller businesses a tax break so they can grow into larger businesses and create more jobs. The truth is many of the small businesses at craft shows are run by people who have another full-time job or who have retirement income and are just in business for the extra income. They will not expand their business because they already have a comfortable income from another source. Therefore, job creation will only come from full-time crafts people, most of whom are over the threshold.
Another false claim, the threshold allows small businesses to start with a tax break and is therefore good for the economy. The truth is businesses over the threshold who are already collecting the tax are held back by exempt businesses that are able to cut their prices because they do not have the BST burden. Therefore, the government loses out on the BST from the exempt business, the government also loses BST on sales lost by the full-time business to the part-time business under the threshold.
Another false claim, the BST threshold would encourage businesses to get out of the underground economy because it is more beneficial to charge BST and claim it back on expenses. This would create more income tax for the government by lessening the underground economy. The truth is, by having a threshold, the underground economy is encouraged. Smaller retail and service businesses under the threshold can be even more competitive than businesses over the threshold that have to charge the BST, as can be seen from my calculation examples. Therefore, it is not to their benefit to declare sales under $30,000, if at all. Thus, the underground economy is encouraged by this threshold, and the government loses more income tax due to the underground economy and due to lost sales from legitimate businesses over the threshold.
You might ask, is it realistic for part-time businesses to charge BST? Their answer is yes because they all have been registered with the provincial government and have been charging provincial sales tax for years. If the government maintains this $30,000 sales threshold, the message is, do not create a full-time business of self-employment because the government has insured you will not be able to compete with those doing the exact same thing on a part-time basis.
However, if the government enacts fair competition legislation by having a zero dollar sales threshold so that if you are in business you must charge the BST, then and only then will there be economic growth and encouragement for full-time self-employment.
Mr. Rick Pratt, President, Winsby's Shoes: Winsby's Shoes has been in existence for 35 years. We have a staff of 12 and consider ourselves to be one of the premier shoe stores in the country. Winsby's has won recognition from several suppliers and was nominated for The Footwear Forum's Retailer of the Year this past August.
Our customer mix is similar to that of many retailers in Nova Scotia. Approximately 25 per cent of our annual sales are derived from visitors to the area. The proposed tax-in pricing puts this volume in serious jeopardy. These customers are not expecting to see a higher price that includes tax. The purchase decision is made the moment the customer sees the price and relates that price to the perceived value of an item. Unfortunately many of these visitors to Nova Scotia will perceive our prices to be higher than back home and will not spend their money here. Retailers like myself will suffer declines in volume and the province will lose tax revenue.
I have heard the argument that consumers want to see exactly what they pay. I would suggest to you that this is much more relevant with high ticket items than with day-to-day purchases. I have never seen customers change their mind at my cash register because the tax was prohibitive. I have, however, seen them put products back because they perceived our prices to be higher than those in other stores.
Why was this? Well, Winsby's was one of the few retailers to include GST in the price. I made a habit of questioning customers who were putting product back and I learned that despite our abundant signage and clearly marked price tags indicating that GST was included, consumers could not readily compare prices so they would go to the store with the lowest ticket price.
Based on this consumer feedback, I removed the GST from our price and saw an immediate 10-per-cent increase in volume. The lesson I learned was that consumers baulk at pricing that appears to be out of the ordinary. If all our customers were from the HST zone, tax-in pricing would appear to be normal. However, retailers count on visitors to the area for a portion of their revenue. These people will not understand our apparently high prices and will spend less money here as a result.
The second area I would like to address is that of retail price points. Perception is very important to consumers. For example, if I sell a pair of shoes at $99, I will sell 12 to 15 per cent more than if I sell them for $105. Manufacturers target specific price points, and tax-in prices will consistently force these products over these price points, resulting in losses for both retailers and the province.
An item with a $99 price excluding tax will generate $14.85 in taxes. With tax-included pricing many consumers will still look for a $99 item; however, this item will in fact have a value of $86.09 with $12.91 tax included. Purchasing this $99 tax-included item instead of a $99 item plus tax will result in a revenue loss of $12.91 to the retailer and $1.94 to the tax man.
For most consumers sales tax is a necessary evil that is added on at the cash. For purchases other than high ticket items, most people do not factor tax-in when making the buying decision. By including tax in the price, you are introducing an additional cost for the consumer to consider. Unfortunately, some customers will decide that the item is too expensive. They will either trade down to a less expensive item or not purchase at all. Either way the retailer and the tax man both lose revenue.
The retail environment in Nova Scotia is not enjoying the apparent improvement that other areas have seen recently. While we try to put on a positive face, quite frankly things are extremely tough out there. Consumers fear layoffs and are very cautious with their money. The average person on the street feels that the HST will save him money on high ticket, infrequently purchased items but will make day-to-day purchases more expensive. Combine this perception with high sticker prices and you have a recipe for disaster.
When the HST was first discussed, references were made to retail flow through dollars resulting in lower prices. Tax-in pricing will negate any benefits that would have resulted because, true or not, the consumer will perceive that prices have increased. This can result in nothing but a slowing of consumer spending. Strange that what could have been a benefit to retail sales, suddenly becomes a liability simply by including tax in the sticker price. There is an old adage in retail, "show the consumer the lowest price you can." Tax-included pricing will not allow retailers to do this.
The HST zone represents less than one per cent of North America. What that means to retailers here is that consumers will see the same products priced cheaper in stores across 99 per cent of the country.
We constantly hear about the global economy. Consumers are exposed to pricing information from a myriad of sources ranging from the Internet to satellite television. These areas cannot be controlled by legislators yet consumers are influenced by advertising seen on them. We simply cannot afford to appear to be more expensive than other places and expect to compete.
In many ways the Senate is the conscience of Canada. I would ask you to put partisan politics and personal agendas aside and recommend the removal of regulations that would force retailers like myself to risk our livelihood and the livelihood of our employees for something that just does not make sense. There are times to lead and times to follow. This is an instance where we would be wise to wait until the rest of the country harmonizes their tax systems and adopts tax-in pricing. Metrification was instituted simultaneously across the country. Tax-in pricing should follow the same path.
Ms Sharon Calder, Vice President, Charm Diamond Centres: The brief that you have is longer than my five minutes that I have. Do not worry about it when you see it. I just wanted to give you more detail.
Charm Diamond Centres and Crescent Gold and Diamonds combined, are a 44 store retail jewellery chain based in Dartmouth, Nova Scotia, that employs 350 employees throughout Atlantic Canada and Ontario. Although we support sales tax harmonization per se, we strongly oppose the tax-inclusive pricing requirement of the current legislation.
We have sent letters to Prime Minister Chrétien, the Honourable Paul Martin, members of Parliament in Nova Scotia, New Brunswick, Newfoundland, and to provincial ministers throughout these provinces. In these letters we have explained in detail how tax-inclusive pricing will force us to duplicate and/or substantially modify many of our current systems and procedures, such as price ticketing, inventory control, shipping, receiving, advertising and accounting, resulting in enormous costs to our company, costs that far outweigh any benefits our company will receive in tax rebates in making our system less efficient.
In response, these honourable members of government have ensured us that the tax-inclusive pricing requirement will be a significant benefit to consumers, while being flexible enough to accommodate retailers. Below, I will explain why the tax-inclusive pricing requirement is neither a benefit to consumers nor flexible enough to accommodate retailers.
In my discussion I focus on problems specific to Charm Diamond Centres and Crescent Gold and Diamonds since we know our business best. However, I believe most of these problems and expenses will be shared by all retailers in HST provinces.
Advertising and marketing: Some of the most substantial costs and probably problems caused by the tax-inclusive pricing pertain to advertising and marketing. For us, these problems include $60,000 to $70,000 to replace current store signs, an annual increase in our advertising budget of 25 per cent. The inability to market-price our products to entice customers to buy, and consumer confusion regarding pricing and percentage discounts.
Software and ticketing problems: Tax-inclusive pricing will require substantial changes to inventory control and price ticketing systems. We will be forced to make costly changes or to duplicate more than 7,000 product items in order to create tax-inclusive pricing tickets for HST provinces.
Initially we will have to produce 238,000 new tickets and pay out enormous labour costs to reticket every item in an HST store. In addition we will be burdened with the ongoing expense of maintaining separate prices for every item in our system.
Warehousing and distribution: The tax-inclusive pricing requirement will force us to duplicate our present shipping, storage and receiving systems. Essentially we will require two warehouses. Not only will dual warehousing be costly, it will decrease our present level of inventory control and reduce our efficiency. Tax-in pricing will also make re-distribution of goods between an HST and non-HST store costly and cumbersome. That is, they will have to be sent back to the central distribution centre for re-ticketing.
Loss of product lines: Manufacturers will incur many of the same warehousing price ticketing and computer software problems and expenses that I have noted above. In many cases these manufacturers will not be willing to modify or duplicate their systems for such a small market. We have heard rumours within our industry to that effect. I suggest that this problem will not be peculiar to our business, but that retailers throughout the HST provinces will be forced to face the loss of many popular lines manufactured in Central and Western Canada.
National Retailers may pull out: We have heard rumours that national retailers like the Bay, Canadian Tire, Shopper's Drug Mart will close out their locations in HST provinces rather than incur the expenses of tax-included pricing. At the very least, they will likely close their marginal locations. If national retailers pull out of the HST provinces, shopping malls in this region where most retailers are located would lose their anchors which would decrease mall traffic significantly and create an unfavourable retail climate. Consumers would not have the variety of product, services and competitive prices that are now offered by these large retailers.
Barriers to expansion and growth: A retail company that thrives in an HST province would have to incur substantial expense, the creation of separate inventory, price ticketing, advertising and accounting systems, in order to expand outside of HST provinces. In addition, it would be unprofitable for companies not currently operating in this region to expand to an HST province. That is, consumers will lose the opportunity of purchasing goods from innovative, competitive retailers based in other regions of Canada.
In summary, the tax-inclusive pricing requirement of the impending harmonized sales tax will be disastrous to retailers in Nova Scotia, New Brunswick and Newfoundland, which have already weakened economies, and of no benefit to consumers. In addition, there is no material benefit to the federal or provincial governments except to high taxes. The only fair and reasonable tax-inclusive pricing legislation would be on a national basis.
Mr. Terry O'Leary, President, Totally Yours, Canadian Association of Salon Owners: As a salon owner and on behalf of the Canadian Association of Salon Owners, I would like to thank you for listening to our concerns regarding the proposed legislation, and we trust that you will make the changes necessary to create a fair and equal opportunity for all concerned.
As salon owners, we are retailers in very labour intensive businesses. I want to make this presentation on four fronts. First, the impact on the Canadian Association of Salon Owners. We only recently formed the Salon Owners Association, and I am here representing 23 shops. Appendix I will indicate to you the direct results the GST will have on these 23 shops in Atlantic Canada.
Appendix 1 will show you the sales for the 23 shops in 1996, which represent about $12 million. Of that $12 million, we collected $791,000 in GST and we remitted $435,000 in GST. When harmonization takes place next year, we will increase those remitted taxes to $819,000. That represents an actual consumer price increase of between six and seven per cent.
This is very important when you realize that our income as it is now on the bottom line hovers around seven to 10 per cent. Once we have to collect another six to seven per cent, there is absolutely no room for increasing prices, and it will be really tough to remain in business, let alone exist in the way we are doing it at the present time.
The growth of the underground economy: We heard about that here today from many points of view. I do not think there is another industry that is affected by the underground economy as much as the salons across the country.
Based on the industry statistics and consulting experience in both Atlantic Canada and the province of Ontario, we estimate the average annual pre-tax income of a stylist in the province of Nova Scotia at $11,000. Of course, you have got to look at that as being an average and take it in that context. Under the proposed legislation, the sales revenue required to generate this particular $11,000 income to an individual stylist represents about $22,914, and in that particular of $23,000, we are required to collect $3,400 in taxes to keep that one person working, that being 15 per cent of the $22,000.
At this income level, in a cash business, given a choice between feeding my family and remitting the taxes, you know what the choice will be, to go underground.
In the province of Nova Scotia and throughout Canada, the underground economy in our industry is enormous. We estimate the uncollected and unreported GST to be $5 million to $6 million, and we are very close to the industry. That is a very conservative estimate, that you, as a government, is not collecting $5 to $6 million in GST because of the underground in our industry, and this will increase to $11 million after the HST is put into effect.
Of course, this is of great concern to our operators who operate on a legal basis. We are not part of the underground, and as a result of this, this is going to affect our business a great deal.
The Deputy Chairman: Can you elaborate a little. Not that we have sort of a perverse interest in the underground economy, but how does it work? Are these salon operators who do it in their own homes?
Mr. O'Leary: Precisely. What happens is -- I have been in business for 15 years now, and I have had stylists who will leave me because they do not want to pay the personal income taxes and they do not want to pay the GST. They can go and rent a chair, and for every second haircut they do, they put the money in their pocket. That is a given. That is what you are not collecting money on. When GST was put in place in 1992, it increased the underworld economy to a great extent, and when the HST goes into effect, it will increase it that much more.
The biggest concern that we have as a group of salon owners, and another gentleman addressed this, is the government is actually creating a competitive disadvantage for non-compliance. You, the government, by putting in this $30,000 exemption, are telling the stylist not to comply with the law, to just be a small operator. As a result, you will lose out on not only $11 million, but that will now go up to $20 million in one year in Nova Scotia. That is the impact that the $30,000 exemption will have on our industry.
We, as legitimate operators, cannot compete with those people. It is as simple as that. I am losing employees as a result of it. They are leaving and they are able to convince the government agencies and auditors that they are making less than $30,000 a year. As a result, they do not even have to register for GST, to remit it or collect it, and I am not even talking about income tax here.
Appendix I, II, and III will clarify all of the items that I have raised today. I would like to sum up by making some recommendations. Salon owners would like to eliminate the exemption and broaden the tax base. We would like to have the $30,000 threshold eliminated completely and the tax rate on hair styling and related services lowered to 10 per cent so as to provide a more palatable and economically viable industry. We want to draft legislation to force hairdressers to obtain licenses, to either become registered and carry a registration number issued by the training centre or alternatively by a registered salon in which they have worked. We would grant an initial period of amnesty to allow those presently operating outside the law to comply without penalty. Finally, we would investigate and fine heavily anyone caught circumventing the law.
Mr. Ian Marc, Ian Marc's Hairstyling & Aesthetics: I basically can say ditto to everything Mr. O'Leary has spoken about.
The Deputy Chairman: You own your own salon, I believe?
Mr. Marc: That is correct, and I have been in the industry for 22 years. The legislation and the way that salons can be registered presents a problem. I have in my salon employees who are developing and are well below that $30,000 GST exemption, but with the standing of my salon, I must remit the GST that we collect from their customers on an equal basis. If I independently registered those employees, the government would get zero HST. It is important to note that this non-compliance and the competitive edge that the government is creating with the $30,000 exemption have serious ramifications that, obviously, will compound themselves. That is not to say that we are against tax. We think paying tax is a good thing, however, we must look a little bit deeper into the way it is being done.
Senator Losier-Cool: From what I can see, all of you, Mr. Hartling and the hairdressers, are in about the same position as the craft people in Newfoundland whom we heard yesterday.
First, a question of clarification for the hairdressers. You belong to a Canadian association of hairdressers, and you also have the Nova Scotia association. How are prices regulated? In other words, why in Ottawa do I pay twice the price than I do when I am in Halifax or somewhere in New Brunswick?
Mr. O'Leary: It is strictly by supply and demand. There is no regulation on price.
Senator Losier-Cool: Mr. Pratt, I have been in your store. It is a nice store, and I will still go, whatever happens.
The retail council constantly argues that if tax-included pricing were truly wanted by consumers, individual retailers would be providing it already. You have already tried tax-included pricing with the GST, and you found that it was not to your advantage because the others were not doing it. If the legislation were to require tax-included pricing of all retailers -- because we must remember that according to the research a majority of customers want tax-included pricing -- and we changed it, would that be of any advantage to you, or do you feel that it would not serve consumers' interests if they know that it is the same everywhere.
Mr. Pratt: If the price were the same across the country, and maybe it is about time he started talking about Canada as a country, that would be fine. Unfortunately, my customers come from Vancouver, Winnipeg, Calgary, Ottawa, and they will not understand this pricing, they will not see the signs we put up. I lived that experience with the GST. I had signs all over the place. My price tags had "GST included" were very visible and still the consumer did not understand. Customers coming in from Winnipeg, Calgary, and so on will pick up the item, will immediately decide that it is too expensive and cheaper back home and put it down. That is the major problem.
Senator Losier-Cool: They will come to Nova Scotia because of the lower prices in hotels and restaurants, and then they will go to your stores and buy shoes, just as we do when we go to Alberta, where we do not pay the PST.
Mr. Pratt: We have lived a unique situation this year. Perhaps in Ottawa you had more snow than we did, but basically this is the first snowfall we have had. Although my customers did not buy boots, they did not buy more shoes because of the money they did not spend on boots. Do you understand my meaning? If a person pays less for a hotel room, that does not mean he or she will buy shoes. There is no correlation between the two.
Senator Losier-Cool: They will buy your shoes because of the good quality.
Senator Comeau: I think sometimes it is good that senators who spend too much time in Ottawa come to our region and meet with people from this area. In this case, I think we are seeing some of the results of not returning to this region to do a little bit more sounding out before introducing this legislation.
A number of issues have been raised with this legislation. A number of seniors, people on fixed incomes, lower and middle income Canadians, will feel the impact of this legislation. You have raised the question of the underground economy, and it is a serious matter as well. Witnesses have raised the problem caused by input financing, especially people from the farming community who must purchase goods with the knowledge that eventually they will get the input tax credit down the road somewhere. In the meantime, as long as you must pay the 15 per cent up front, even though in a few months you may get it back through the input tax credit, it will affect the cost of working capital. It has been pointed out by APEC that it will cost the Atlantic economy something like $130 million to operate this way. That issue has not been discussed too much.
I raise these items because of what the Minister of Finance of this province said this morning. He basically said that restaurants in his region would benefit because tourists will be able to come into his restaurant and feel that they are getting a deal. I did not quite understand what he meant by that.
However, what we did get from the minister was that government seems to know best, government will educate the retail people on how beneficial this is. All we need to do is take a public opinion poll and if the public says this is what we want the government imposes it on you.
I have never been one to support the concept of turning public opinion polls into government policy. Would it not have been to the government's advantage over the past number of months to actually sit down and discuss this with you, rather than just saying, "Trust us, it will all work out?"
Mr. Marc: That has not been done.
Senator Comeau: That is the impression we seem to be getting. That is why I listed some of the other issues that have been brought before us. For some reason they have not been raised here today. Most of the testimony today has been on tax-included pricing.
Mr. O'Leary: You do have an opportunity to put a stop to this.
Senator Comeau: Yes, and that is why we have our colleagues across the way here, who I think are starting to understand.
Mr. O'Leary: Can we be assured that you will vote against this legislation?
Senator Comeau: I think you will get my vote against this legislation, if it is to go through as is. Absolutely, I will vote against this.
Mr. Pratt: I have had the experience of making presentations to the Minister of Finance, in Ottawa and also to the hearings here in Halifax. They all listened listened but they did not hear. They did not wish to hear; their minds were made up and they marched boldly ahead. I do not think this proposal has anything to do with common sense. I saw a Red Book flying around before, and I think it has everything to do with the Red Book. I think that is shameful and I think it is your job to put a stop to that.
Senator Comeau: Something that has come up in the past two or three days is that we got what seemed to be a definite position from New Brunswick that they would not insist on having tax-in pricing. Very definitely in Newfoundland there was no insistence on having pricing tax-in pricing. I can not speak for Minister Martin, but the impression that we seemed to get from him in Ottawa was that it was the provinces that wanted this. What it boils down to then is that there is one last holdout, one province, insisting or requesting the tax-in pricing. When will you bring the cannons out or take off the gloves and go after these people, go after them as well? You have been too nice.
Mr. Pratt: How do we do that? We are business people, we are not politicians and do not pretend to be politicians. I agree with you, we have a premier here that seems to be very set in his ways -- a lone holdout, and we may all pay the price.
Senator Comeau: This is our province. In Newfoundland yesterday, we asked the manufacturers, for example, who basically have no axe to grind with tax-in pricing, why Atlantic Canada is going with this thing -- why Atlantic Canada with something like seven, eight or nine per cent of the population of Canada? Why is Ontario not coming in? Why is the west not coming in? Are they so much brighter than we are, are they better equipped, do they have better economists?
The response was, "Oh yes, we in Atlantic Canada must be that much smarter." Definitely we in Atlantic Canada are smart, but I am not sure if our economists are so much better when they put us in the position that eight per cent of the population of Canada knows better than everybody else, and now we are down to Nova Scotia.
Mr. Marc: In our salon over the last several weeks, since we began our salon owners' association and began discussion, we have been putting this question out to every person that we have touched, and that includes all of you at the table. We are a very good representation of how people in our industry feel when it comes to how they view the HST, how it will affect them and their families. I would sure like to think that my business, which I have been in for the last seven years, on April 1, would see a 15-per-cent increase in the bottom line, as opposed to, all of a sudden, seeing the consumers paying 15 per cent on their hair services.
We have a petition our 23 salon owners have been circulating in their salons, and there is absolutely no doubt in my mind that it is a great cross-section of the way people really feel. If we have an opportunity to do this, this is the time to do it, to sit back and think as to why Atlantic Canada has decided to come on board with this thing versus the rest of Canada. I am not quite sure of those reasons and whether or not we should take off the gloves and start fighting. I damn well think it is time that we should, but generally we are relatively complacent people, and I think we like to think that we all need leadership. We are looking to you people to show us the way, because apathy sure is in effect right now.
Senator Buchanan: First of all, I want to make it very clear as a politician, that I am not opposed to a harmonized tax. I think harmonization throughout this country would be a good thing. What bothers me most about this particular bill is the way we have been segregated, 2 million people versus 28 million people, to create a so-called national harmonized tax. It cannot be national when only eight per cent, as Senator Comeau said, of the people are involved.
Second, you are aware that the tax-included pricing has really nothing to do with the harmonized tax. It was an add-on. I know why it was added on but I will not say why, as I think you know the reason as. It could be severed from this bill. I want to tell you that the people who sit on this side, not because of politics at all but because of being rational and reasonable, believe that this tax-included part of the bill should be cut off right away and written off, and then deal with the actual HST/BST itself.
I do not know the traits of consumers but I do know that if someone went into your store, for instance, saw a pair of shoes advertised for $56.50 and said, "Oh, these are the same as the ones my sister told me I could get in P.E.I. for $49," he or she would not discuss it with you, but walk right out. The same is true for Charm Jewellers.
Am I right or wrong?
Ms Calder: You are absolutely right.
Mr. Hartling: You were not here for part of the presentation when we were talking about this $30,000 sales threshold for the BST. My question to your committee would be: If you were having a deck built onto your house and someone came along and said, "We will charge you the BST on the materials but I will not charge it on the labour," and another company came along and said, "We must charge it on labour and the materials because our sales are over $30,000," which one would you pick?
Mr. O'Leary: I would like to ask one question. What is the number of Liberals versus Conservatives in the Senate?
Senator Oliver: It is 51 to 50.
Mr. O'Leary: So we can bet that this will be passed?
Senator Buchanan: There are some reasonable ones over there.
The Chairman: Senators, our next group of witnesses are Graham Wells, the manager of Blessings Christian Marketplace; Gerald Rodgers, who is an economist and small business owner; and Stephen Taylor, who is the president of Enviro Waste.
Mr. Graham Wells, Manager, Blessings Christian Marketplace: I appear today on behalf of Blessings Christian Marketplace, which is an Alberta-based small chain retailer operating five stores throughout the country; in Alberta, B.C., Ontario and Nova Scotia. The company is aggressively pursuing an expansion plan which foresees the establishment of ten stores nation wide within the next year and a half. My remarks today will address the impact of the proposed legislation on a small chain retailer which faces the demands of accommodating a taxation regime driven purely by pre-election political considerations.
We have three objections to the implementation of the HST. One, the adoption of this tax regime within such a small harmonized zone constitutes an implementation nightmare. The business community in an area serving only 7 per cent of the Canadian population finds itself driven to exasperation by the onslaught of HST requirements. In particular, suppliers outside the harmonized zone demonstrate an acute lack of preparedness. Indeed, in the religious publishing market, several suppliers will likely conclude that the volume of sales within the harmonized zone does not warrant the resources required to implement HST and, therefore, decide to walk away from a small segment of their overall volume. Such a conclusion imposes reduced supply, thereby offering consumers, the supposed beneficiaries of HST, less choice. A reduced rate of tax in return for unavailability seems a very poor trade-off.
If it makes sense for Canadian suppliers to walk away from sales emanating from within the HST zone, this logic compels U.S. supply sources to disregard this market, which could at best constitute less than one per cent of their market. Again, the issue is barriers to doing business which far outweigh the benefits, a classic example of foolishly attempting to teach the tail to wag the dog.
A second area of concern: Operating system adjustments necessitated by the HST place an onerous financial and administrative burden on retailers, complicating the operating environment in that duplicate systems are required to adhere to the proposed legislation. For all retailers, large or small, increased costs and demands on staff in implementing HST in such a small part of the country stand as huge disincentives to doing business in Atlantic Canada, an area already notoriously difficult to retail.
The rationale for removing the hidden manufacturers' sales tax was fundamentally sound. That the GST was not adored by Canadians can in large part be explained by its visibility. In our view, visibility engenders accountability. It is therefore imperative that consumers see products in terms of price and in terms of taxation. This attempt to bury the tax in the price is legislatively self-serving.
The systems adjustments imposed by HST will add thousands of dollars in costs for us to adapt a single store to the legislation proposed. While those costs may eventually be recovered as input tax credits, there is insufficient rationale to force the country to adapt to two consumption tax regimes. Our message is simply do it comprehensively and do it well if it must be done.
Our third area of concern: For a national chain retailer the most obstreperous aspect of the proposed HST concerns its restrictive, damaging impact with regard to advertising. Specifically, I refer to the treatment of sale flyers. Currently we distribute six pieces per year to our customers. For us, this advertising will be effectively precluded under the proposed legislation since it stipulates that national chains selling into the harmonized zone must adopt tax-inclusive pricing, discount no more than 50 per cent of the products featured and hold prices in effect for more than 60 days.
In effect, the legislation dictates our method of advertising and the extent of our discount and pricing policies. It will not be feasible to produce separate flyers for the one store within the harmonized zone. The cost, already significant, will become prohibitive. Regrettably, the legislation as it now stands, comes close to allowing national distribution exclusions, but the 60-day plus pricing requirement constitutes economic suicide for the types of promotional events on which we rely.
It is both unreasonable and intrusive for our governments to inflict these kinds of operating constraints on businesses seeking to generate and sustain long-term viable operations. Our appeal to this committee is that you actively, urgently intervene to redress the national inequities fomented by this legislation. If you are able to effect only one change, let it be directed to revising the impact on national advertising, specifically with regard to the 60-day plus restriction on pricing. While we can understand the distinction as a means of forcing tax-inclusive pricing, it is an intolerable one. We cannot work around it. Our problem would be resolved by virtue of a small chain exemption from the 60-day plus restriction. Surely this is very little to cede in return for our deference on the matters raised above, as unpalatable as they may be.
Failure to remove this restriction will ensure that a key part of our competitive advantage, mainly our promotional programs, will be lost in the harmonized zone. Loss of competitive advantage would place the continued existence of our store in jeopardy and preclude further expansion in Atlantic Canada. You must assess the realities of these impacts.
Mr. Gerald Rodgers, Economist, Small Business Owner: I ask you simply: Why this blended sales tax and why now? From what perverted sense of justice do all these aggressive taxes arise, I refer to the GST and PST, and all the other taxes not based on income. Surely this new misery is being imposed for a better reason than just to keep a campaign promise made in the heat of an election campaign. What higher social purpose is served by this undeclared war against small business, the working class and the middle classes.
There are still more than 2 million people unemployed in Canada. Nova Scotia has areas where unemployment ranges up to 26 per cent or more of the workforce. These people are unemployed by the direct effect of government policies and by the desire of our governments for total control of the Canadian economy.
This blended sales tax will tax the previously untaxed necessary requirements of families. What social purpose is achieved by adding to the tax on children's clothing, on education material, on home heating fuel, on electricity and on auto fuel? The GST was a disaster for small business, and small business will be further hurt by the blended sales tax. In all fairness, the blending of the taxes is not nearly as damaging as the broadening of the base of the tax.
The governments of Canada have created desperate times for over half of our society. The continued taxation of the poor to subsidize the rich must stop. Our governments are responsible for many of the suicides, family break-ups and rising level of violence and civil unrest in our land, and I refer to no one government in particular, but to all in general. Most small business is beset by interference and regulation from all levels of government. The federal government has downloaded on the provincial governments, the provincial governments have in turn downloaded on municipal governments, municipal governments have in turn downloaded on the municipal taxpayer and, to add insult to injury, the local government has increased the small business share of the local municipal tax load by up to four times the residential tax.
It is not just taxes but all forms of government regulations, restrictions and uncontrolled big business that have made small business a place to avoid, a warrant for poverty and family strife. Government has allowed and encouraged discrimination against small business by all sectors of our economy.
You have ordered small business to act as your tax collection agents. You have forced small business to prepay the taxes we collect from our customers, and thus you are causing small business to act as bankers for the government, in effect to finance the government's wild spending and give-away plans that benefit those causes near and dear to the government class.
You may not know it but you are waging a class war. Make no mistake, this is a war between the workers and the government. Again, I refer to all governments; I do not emphasize the federal government any more than any other government in this country. These record levels of taxation have changed thousands of previously law-abiding Canadians into criminals. There are thousands of them, do not misunderstand that.
The underground economy is a logical and predictable outcome of excessive taxation, taxation which has not been accepted by the people. Taxes over 50 per cent of income brought down ancient Rome. Unaccepted taxes caused the Afghan Civil War, which led to a bloodbath there. It also caused the American War of Independence. The taxes from Britain were not accepted by the people. I can assure you that the BST and the GST are still not accepted by most Canadians.
Quebec wants to separate. I believe that has as much to do with excessive taxation as it does with nationalism. It is a hatred for government. In Quebec they have channelled it towards the federal government, but the federal government is not nearly as much at fault as the provincial government in Quebec.
I ask the committee to listen to this warning carefully: Continued abuse of Atlantic Canada's workers and taxpayers may soon give you another separatist movement. You may indeed be facing another separatist movement in Atlantic Canada if we continue to be abused. The Government of Canada alone has gathered to itself nearly 80,000 troops in the various battalions and divisions of Revenue Canada. That is more personnel than the entire army, navy and air force combined; unless I am mistaken on the numbers. In addition to these federal troops, they have enlisted the troops of the RCMP, provincial finance departments, plus whatever municipal and provincial police forces they require to enforce its agenda against Canadian small business and other workers.
Revenue Canada is at this moment creating a network of Canadians willing to spy and inform on other Canadians. Small business in Canada today is required to keep records on everything, and report almost everything to one level of government or another. The single small business person must spend his or her valuable time doing government's work without pay. That time, which used to keep the bloated government bureaucracy happy, should instead be used in building, selling, manufacturing and supplying the services that Canada needs to survive, not in doing government's laundry for no pay. Sorry if you find that hard.
For all of recorded history small business has only needed to buy low and sell high, put the profit in its pocket and go home at the end of the day. For 6,000 years of small business this plan worked well. It is only in the last 50 years or so that government has taken it upon itself to control small business. It is only in the last 20 years or so that government has wanted to control every aspect of the conduct of small business. Do you want taxes or jobs from small business? You must choose. You cannot have both taxes and employment from small business, we cannot do both.
We in small business know how to create jobs and, if left alone, we can do it very well. Small businesses are not finance companies or collection agencies. We are not banks, and asking us to act as the government's financiers is a job we have no skill and capital depth to accomplish. This dictatorial invasion of the rights of man must not continue, and in truth, we will not allow it to continue.
This dictatorship of Canadians by government for government's sake alone must end. Let this BST be the straw that broke the camel's back, let this blended or harmonized tax mark the place where we common, everyday Nova Scotians and Canadians say no more. This is a hill worth dying on. Any day that you have to fight for democracy and freedom is a good day to die. They shall not pass.
Mr. Stephen Taylor, President, Enviro Waste Limited: I congratulate honourable senators for coming to the East. One of the reasons I am here today is, when it first came out in the newspaper, I was flabbergasted, saddened and hurt when I saw that the hearings were to be in Ottawa. I, like many Nova Scotians, was disgusted.
I am speaking because many people in this province and the businesses I represent are not here today. I am not speaking only for me, I am speaking for the people of my family and my children and my future.
I only hope that my concerns and those of the rest of us are taken back to the Senate and taken into consideration when you make your recommendations. I would hope that these hearings you are conducting are not just a way to appease the taxpayer because giving us an opportunity to speak is worthless unless what we have to say is actually listened to. With approximately 144 changes to the GST, how can I as a small business person expect to operate a business not having had the full opportunity to understand its impact.
The event is 24 days away. This does not make for a healthy business climate. This tax is so bad our own provincial government tried to pay people to say something good about it. One of the reasons I am here is for that simple fact. I can find nobody who likes it. Reword and re-ask the question that the senator asked a gentleman earlier about why 50 per cent people want tax-in pricing and I think you would have a different response, sir.
One of the most frightening reasons that brings me here today is the growing underground economy. It is becoming a major business competitor, but that issue has been well discussed, and I will leave at that, sir. To turn a blind eye is ignoring one's responsibility.
It is not reasonable or fair to expect a small business to remit a tax this large that the business has not fully collected. This only adds to cash flow problems and more borrowing cost. I have a chartered accountant, and it took three months for me to convince him that I am right and he is wrong.
Again, small business is being disadvantaged. If we employ 90 per cent of the workforce, why are we being put at the disadvantage? Not to listen and not to adhere to our wishes on this issue, is to leave the business community, the municipal governments, the social agencies and individuals feeling helpless, and that is how we feel. This is the last kick at the can, and I appreciate you being here, if some of you are willing to listen.
It is time elected officials listened, took direction and became the messengers of the public. You people are paid to be the messengers. We are the people who put you there; do what we ask you to do. If it is pain and suffering you want we will take it. We must pay the fiddler.
The BST takes away Nova Scotia's tax autonomy. In my few minutes I do not have enough time to discuss all that, but if our economy becomes strong and we have good representation -- the gas helps as well -- we can water down our transfer payments. If Newfoundland and New Brunswick do not do well do I pay more tax anyway? I suspect so, sir.
If you really want to make a difference, then you must listen to all the people and not just those who want to hide the promise to eliminate the GST. Ladies and gentlemen, I challenge you to turn the public's lost confidence. That is what it is all about, lost confidence, and I challenge you to turn this into an opportunity to show real leadership and to prove to Canada that the tide is turning and the public is again in control of its own future.
I am just summing up now, Mr. Chairman, and I will leave you with this: From all that I have ever been taught about our Canadian system of government, the Senate's role is to look out for the best interests of the provinces. Therefore, I ask you to consider whether or not this new tax is indeed in the best interests of the residents of Nova Scotia. If it is so good why do I not want it? How many others like myself on the streets of Nova Scotia feel the same? I defy you to find me ten per cent of the population who want this legislation.
Senator Buchanan: I want to talk to Graham Wells about his stores. I know your store, as my daughter is one of your customers. She is a theological student.
Are you saying that if the tax-included pricing part of the HST is implemented, it will, I think you used the term, preclude you from advertising in the harmonized zone at all? Perhaps "preclude" is not the right word, but it will be very costly for you to do your advertising in flyers, et cetera.
Mr. Wells: The legislation, as it is written and as we understand it, requires us as retailers to comply with the tax-included pricing in our advertising. The focus of our advertising is in about six printed pieces per year. That is where our dollars are best invested as we have come to understand from a decade in the marketplace. Under the legislation as it is proposed, we would need to circulate national pieces with disclaimers. We would be able to get around the tax-in pricing by the nature of the pieces that we do. What we come up against is a roadblock because the legislation, in exempting you from tax-in pricing and allowing you to circumvent that requirement because of your participation in a nationally distributed piece, requires you to hold your prices in effect for 60 days. If your advertising is directed and geared towards promotional events which are shorter term in nature, you are effectively precluded under the legislation as it is now proposed.
Senator Buchanan: I have been involved for many years in the political arena and in fact seven, eight, nine years ago I was involved in the discussions when harmonized taxation was commenced. I am not opposed to harmonized taxation. I think it would be much better than the system we have but it must be Canada-wide to be a national harmonized system. What I find incredible about this bill is the add-on of tax-inclusive pricing, the advertising restrictions and other things that everybody has talked about here.
Mr. Chairman, I have a letter here from Norman Wade Company Limited, and that is a company that a lot of people might think would not be affected by this legislation. It has been circulated to the committee. Norman Wade Company Limited is involved in a variety of ventures, such as drafting supplies, hardware, software, surveying, and services including blueprinting, et cetera. I would never have thought that they would be as involved in the negative side of this legislation as they are. King Flood, the vice-president of Norman Wade, told me something interesting with regard to the poll that was conducted by the government. That poll said that 73 per cent of the people polled were in favour of tax-inclusive pricing and all the restrictions that go with it. Mr. Flood told me that when 100 per cent of Norman Wade's customers and 100 per cent of the people they deal with found out what this was all about, they were all opposed to it. It was a ridiculous situation.
I simply ask you if the tax-included pricing on this bill were severed, would that be a big help to your store?
Mr. Wells: Clearly the problem we have with tax-included pricing is the fact that it is being applied to a small segment of the country, it is distorting the national marketplace. That is our great objection. If the agreement were such that the whole country was buying into the concept, we probably would not have any problem with tax-included pricing.
If I can touch on the famous 73 per cent, or 78 per cent, of Canadians who are clambering for tax-included pricing, I think in one respect it is a sad reflection on our national education system that we would have 25 million Canadians who cannot simply roughly calculate an additional fifth of the cost of goods they buy. Having said that, the reality is that people want to be able to know what is coming out of their pocket, and that is a legitimate concern. That problem can be easily responded to if the whole country were to adopt the proposal. We have no problem with putting a dual price point label on a piece of goods in our store. Philosophically, we do believe that the distinction must be made between the price of the goods and amount of the transaction that goes to Ottawa or to Halifax.
Senator Buchanan: I am glad to hear you refer to the aspect that it is just a small part of the country, 8 per cent of people as Mr. Rodgers said. We talk about separation, and here we are even doing it down here with the help of the national government, segregating and separating three little provinces from the rest of the country.
Senator Rompkey: Mr. Rodgers, in his presentation, draws the relationship between high taxes and social dislocation. I point out to him that Newfoundland has the highest taxes, and at the same time, we have the lowest suicide rate, the lowest divorce rate, the lowest crime rate and people in our province give twice the national average to charities, so I am sure there is a correlation between high taxes and social dislocation.
My question was for Mr. Wells, who at the bottom of the first page in his presentation, in paragraph 2, section 2, talks about burying the tax in the price. My understanding is that the tax can be shown in the price and at the same time separately. There is a law for tax-in pricing, but as I understand it the law says the tax can be shown separately at the same time?
Mr. Wells: I guess my sense would be that probably that is some response to the initial response to the legislation, when it quickly became apparent that tax-inclusive pricing as the only route to go would not be saleable period. I would suggest to you that that is probably a re-definition of the original intent. We can live with that and we can work with that. For us as an operating business the real problem relates to our ability to implement promotional programs that we currently have in place.
Mr. Rodgers: I would like to respond to Senator Rompkey's challenge there. I happen to be half Newfoundlander so I understand where you are coming from. Newfoundlanders do not go out and blow their brains out, they get in a car and they drive to the ferry and they go elsewhere in the country, as they have for years. There is no less misery involved in leaving your roots behind; leaving your family, your village, your whole history, and going to some other part of the country to make a living because there are no opportunities where you live.
In other jurisdictions we pay people to stay put and live on welfare and argue about it and become more and more miserable. At least in Newfoundland a Newfoundlander has enough guts to get up and find a job, no matter that it may be halfway across the country. I am afraid that we will have more out migration from this region as the tax load increases.
There is a solution whereby you could solve some of the problems of small business if you would be willing listen to it. We collect taxes for you, with this blended sales tax we will be paying the tax up front and we will also be paying the tax that we are supposed to be collecting from our customers, in many cases a month or two before we ever collect it from our customers, which means we have a lot more working capital. It is not only that, it is all of the other things that we do. Earlier I referred to the bookkeeping; there is no reason for a one- or two-man firm to have any bookkeeping whatsoever except for government. They want the income tax, they want Workmen's Compensation, all of which means bookkeeping. How about treating us with a little respect and giving us some commission on the tax we collect? We would not do your laundry for free or go out and pick cabs out of the ditch for free, so why should we have to collect taxes for free?
The Chairman: I have one last question for Mr. Taylor. Is there anything unique about the impact of the HST on companies like yours, that are in the environmental business? I understood your comments, which I think in fairness dealt generically with the problems of small business. I am curious as to whether there is anything unique about companies in the environment business.
Mr. Taylor: We were left off the picture. When the government brought this legislation forth they totally forgot us. For our industry, 70 cents on every dollar now goes to taxes because of the provincial laws that started in the federal green plan. It has been a nightmare for our business. We have had many bankruptcies in the last while.
Just to quickly sum up on that point, sir; it is phenomenal what is happening in our industry on the supply side. We are a demand business and in the apartment industry you cannot get this money back. You lose three per cent off the bottom line. That is a direct hit, and when you have a minister of the Crown make the statement that you cannot raise rents because your tenants cannot bear that cost, you as a small business person are faced with that expense.
The direct impact on our business is that we are now required, because of the federal law, to tax taxes. Our industry pays municipal government taxes to the tune of $18 million. Because of this tax, we must charge an added 15 per cent, 7 per cent of which is remitted to Ottawa, and we are not charged that. I was audited by the federal government. They went back five years, and they did not learn the answer. Can you imagine me charging you GST for services that I have not invoiced you on. It was a direct hit. There are millions of dollars leaving the Nova Scotia economy even though nothing was produced, or there was no end use, and Ottawa picks that up directly.
Yes, we are being taxed on taxes, and that is one of the flaws in our industry and why we should be upset. On the apartment building side of small business they cannot even get that back.
Mr. Wells: I would like to make one short comment if I might, Senator Kirby. The fundamental aspect of the issue here is credibility. Do legislators listen. Clearly, as never before, we are in need of sober second thought on this legislation.
The Chairman: Senators, our next witnesses include Charles Burchell, from the Canadian Book Sellers Association, who is also the president of The Book Room; from Woozles Bookstore, Liz Crocker, I will say the best children's bookstore in the country; Reuben Cluett from Betty's Card and Gift Shop; and Suzan Hanrahan from the Nova Scotia Designer Craft Council. Philip Doucet, the President of the Craft Council I believe is also here.
Mr. Reuben Cluett, Representative, Betty's Card and Gift Shop: I will not comment on the BST in general, I am here to comment on tax-included pricing.
My wife and I own Betty's Card and Gift Shop Limited. My wife operates the business. We started the business in 1989 and employ 14 people; 2 full time and 12 part time. We have two stores; Clayton Park Shopping Centre and Spring Garden Road, and our business is basically greeting cards and gifts. Over 75 per cent of the stock is received from outside the harmonized zone and is pre-priced. The business is seasonal, therefore, large amounts of stock are received on an ongoing basis. There are thousands of items received pre-priced, especially during Christmas, Easter and Valentines Day. There are approximately 60,000 greeting cards alone in the stores on a given day and, with the turnover in stock, it would be an ongoing exercise to price cards and other merchandise. It would cost thousands of dollars for extra staff, supplies and programming of the cash registers.
It would be a full-time job for all 14 employees to change prices. We could not absorb this cost. It was suggested that displaying signs showing the prices may be considered. In our situation we have approximately 50 different prices for greeting cards alone and they cannot be arranged so that signs can be placed at the bottom of each row.
A great deal of emphasis has been placed on small business as a contributor to economic stability. We have a small family business in a very competitive market. When we started we had to build the business. To do this we hired enough employees to provide excellent service. We had various training seminars for our staff and we started our employees with more than a minimum wage. We did not ask for, nor did we want, government grants or assistance.
We pay annual fees to the registry of joint stock companies -- business tax, business improvement tax, income tax, Workers' Compensation, employment insurance tax. Employees who are exempt from employment insurance tax can apply for a rebate, but the employer cannot. We make Canada Pension Plan payments, and pay provincial sales tax and the GST, and we will, if necessary, collect the BST for provincial and federal governments. All we ask is that you allow us to stand behind the cash register and collect the taxes without incurring enormous costs.
We, the owners, are responsible for the expenses associated with a business. However, I am shocked when governments can be intrusive to the extent that businesses can be ordered not only to collect the taxes, but to collect them in spite of huge costs to businesses. We have neither the resources nor the staff to carry out this task. To comply means it is highly unlikely that a small business like ours can continue to operate. If we do not comply, a fine of $5,000 or gaol would put us out of business in short order. There is no incentive for a small business under these conditions.
Mr. Chairman, it appears to me that to be effective tax-included pricing must apply across Canada. A newspaper article this week indicated that 85 per cent of the Canadian market would be using tax-out pricing, making retail articles more expensive here. Different regional tax rates could leave Canadian retailers with no national prices. I recommend to this committee that the Atlantic provinces participating in the BST be exempt tax-included pricing until all of Canada becomes a participant, at which time a better understanding of the effects of tax-included pricing would be known.
All I ask is to let us operate the business without interference, and we will collect the taxes and submit them to all the various governments. For a better understanding of the situation I invite you to visit our stores to see for yourself the effects of this legislation.
Mr. Charles Burchell, President and Manager, The Book Room, and Representative, Canadian Book Sellers Association: Senators, thank you for coming to Halifax. I think that was a very important move and I appreciate it sincerely. I also appreciate the opportunity to appear here today on behalf of the Canadian Book Sellers Association.
I have spent 30 years in the book industry managing The Book Room. I have also served 13 of those years as a director of the Canadian Book Sellers Association.
First, I must thank the governments involved for not adding the 8-per-cent PST to books under this new harmonized sales tax. This is certainly a very important step, that governments realize how important books are to the life and well-being of Canadians in these three affected provinces. However, that is just a start. The industry is hopeful that, in the near future, there will be no tax on books in Canada.
I would like to give you a few facts about the book industry as it relates to the proposed harmonized sales tax. It is a retail business but unique from any other retail industry. The publisher sets the retail price of each and every book, not the book seller. The publisher advertises its retail price in magazines, journals, newspaper, radio, TV. The selling price is the same in Toronto, Victoria, Halifax and the public who come to buy know the retail price. I do not know of any other industry where this occurs. Therefore, we cannot sell for more, as the public knows what the price should be. The publisher sells us the book at the retail price less a discount. This varies from 10 per cent to 40 per cent depending on the quantity that we buy, 40 per cent being the average.
Most of the books are pre-priced -- "In Canada 7.99," for example. This pre-pricing is often on the front cover, the spine and the back cover. It is impossible for us to cover this up, because unsold books are returned to the publisher, who sells them to other bookstores who have a demand for that title. Therefore, all price stickers must be removable, leaving the books undamaged.
Those are the hard cold facts. The industry is opposed to the tax-in pricing and some of the reasons are as follows: One, "Bookmanager" is an inventory system and sales program unique to our industry, especially written and used by approximately 350 bookstores across Canada. There is a considerable cost to re-writing the program for the few of us who use it in these provinces. They must customize it for we few and pass the cost along to us.
Two, we must re-price every book in our store, of which there are about 25,000 to 30,000. Yes, we have been given four months to do this, but this is a very large task in a bookstore where every item is priced. It is unlike supermarkets, automotive and warehouse stores where a single shelf price covers 1 to 50 items behind it.
Three, during this re-pricing customers will become very confused as to what prices they are looking at as they pick up each book. Yes, we will have signs posted to try and simplify the issue, but I am sure there will still be lots of confusion, and sometimes confused customers do not come back to shop again. Re-pricing will also require extra staff time, which is a cost that does not generate revenue.
Four, please remember that books are pre-priced and nationally advertised, so we cannot pass along the slightly higher prices on the books. We must absorb the cost 100 per cent. You are cutting into my profits, and the book industry, if at all, sometimes is only marginally profitable.
Five, books are one of the most price sensitive items on the market today. You will sell 28 to 30 per cent more books at $19.99 than at $21.34, tax-in price. This is true to prices of $9.95, $19.95, $24.95 and $29.95. For centuries retailers have priced their goods in this manner, and now government is asking us to do away with these important price points by showing strange prices like $10.68, $16.04, $21.38, $26.74, and $32.09. This is retailing at its worst, and it does not show what the item really costs. We will appear uncompetitive to customers outside these provinces, which will hamper our ability to do business there. Seven, most of our books come pre-priced, as I am sure you are aware; printed clearly on the book in as many as three places, "In Canada $7.99." We cannot hide these three prices so we put our HST sticker on saying "$8.54 HST." What does that convey to our customer or to a tourist. "Hey Bill, I thought Nova Scotia was part of Canada. Apparently not, John, because the price on this book is higher here than the Canadian price shown on the book. But Bill, what country is this if it is not Canada?"
Well, honourable senators, where is our Canadian unity, where is our Canadian identity? We need solutions. One, why not let book retailers continue to price their books as they currently do, add the tax at the cash desk as they currently do, and allow them to place conversion charts throughout the store. Two, then address the 7-per-cent tax on books on a Canada-wide basis and encourage Canadian publishers to incorporate the seven per cent into the price of the book Canada wide. If encouragement were tied into the grants that many of them received to help their Canadian publishing program, you would be pleasantly surprised at how quickly they would respond. Three, this proposal would save us a tremendous re-pricing cost, public confusion during four months of re-pricing, tourist confusion over higher prices on our labels than the printed-in-Canada price. Prices would, once again, be the same across Canada and as advertised in every magazine, newspaper, journal and TV program that reviews books. Four is even better yet, zero rate the tax on books across Canada. In the name of literacy, books in Canada do not deserve to be taxed at all.
Ms Liz Crocker, President, Woozles Bookstore: As have my predecessors who have spoken, I would like to thank this committee for coming to the East. Many of us here felt offended by the House of Commons Committee not coming here, and we appreciate your doing so.
I suspect that you have had people railing about this tax, but with Charles' submission, I think you will realize that we at least have a sense of humour and some constructive suggestions.
I could say nothing because I agree with the presentations that I have heard in the short time I have been in this room. However, I do have the chance to speak and I will. I want to raise three key points. I guess really they all relate to the issue of tax-included pricing.
First, the application of this tax and the requirement for tax-included pricing I believe creates a new differentiation between the rest of Canada and the three provinces involved. We hear a lot in the media about national unity, and many Canadians feel very strongly about the issue. At a time like this, to create a differentiation over something like a tax seems really at cross purposes.
Second, still on the national unity issue, this tax, with the requirement of tax-included pricing, will put us at a disadvantage, both as consumers and as retailers. In terms of consumers I cite as my example the two-page insert in the most recent Lee Valley Tools catalogue, and if you have not had a chance to read it, I would like you to do so. The statement is passionate and eloquent, and basically Lee Valley has said it will not sell to people in the designated areas. I have a copy which I would be happy to hand over to you.
It will put at a disadvantage those of us who are trying to do retail business. This leads to my second main point, competitiveness. I believe our competitiveness as retailers will be diminished because of tax-in pricing. I find it strange that two government policies are strictly at odds with one another. One policy is that there shall be this tax, and it shall be tax-included. This policy is at odds with the policies that encourage Canadians to try to export. We should try to increase trade. We should try to be internationally competitive.
In my businesses, we sell not only to people who come into our store, but across the country. We sell throughout North America, and because both of my businesses have web sites, we sell to the world. I thought this is what we were supposed to do, in the interests of contributing to a strong Canadian economy. This policy of tax-included pricing will make me appear to be more competitive than my colleagues in similar retail businesses from other parts of the country. I find it unfair, and as I said puts us at cross purposes.
I have a catalogue. I think that is a good thing as a business, but now technically speaking I have to include the tax-included prices, if I were to be designated a national catalogue. I am told that I am not because I am just from Nova Scotia. However, even if I were, I could put in net tax prices, or net of tax prices as long as on every second page I designated 1/32 of the space to say, "these prices do not include tax". In a 32-page catalogue that is half a page. I wonder frankly if the federal government would like to pay for that advertisement because basically as a retailer every inch of my catalogue either sells something or creates an atmosphere. To create an atmosphere around tax will not really help my business.
I am told that the regulations that will apply to regional catalogues -- which is apparently how we are being designated -- have not yet been set, in spite of the fact that it is March 6 and April 1 is coming soon. I would hope, at the very least, that the regulations will allow me to continue to print my catalogue without tax-included pricing and to use a single-page insert listing the tax-included prices. When I mail this catalogue to somebody in Nova Scotia and New Brunswick or Prince Edward Island, I would dutifully and gladly insert that page.
My third point relates to the cost of implementation, and Charles has touched on this as have others. To implement this tax will cost us time -- it is labour intensive -- and money, as we will need new labels and possibly new software. We will probably lose business time because our little noses will be down with our calculators trying to calculate these bizarre prices that Charles has told you about, and we will not be talking to the customers.
We will also have a loss of sales because of this move, which will position us as less competitive. I am desperately sorry that there is no attempt to compensate us for these costs. There is no recognition of the fact that we are doing the government's work to collect this tax, and to add insult to injury, we will lose the albeit minimal commission that we currently get from the provincial government.
I hope you will pose questions that will allow me to say all the other things I would like to say, but my last point relates to a question that you put to somebody from the environmental industry earlier.
I talked earlier about government policies being at cross purposes. I know that the government's Red Book states that economic and environmental signals should point in the same direction, because if we believe in sustainable development, that has to happen.
It is interesting to me that one of the things that will happen, with the swipe of a pen, is that the cost of cars will go down. At the same time, Minister Marchi is standing up in Ontario, and rightfully so, raising the red flag of concern about deterioration to the atmosphere. Did anybody think about whether or not this tax communicates the true policy measures that we want it to communicate.
Mr. Philip R. Doucette, President, Nova Scotia Designer Craft Council: I am pleased to be sitting at a table with three representatives of an industry of which my colleague, Susan Hanrahan, and I have been avid consumers. Nonetheless, I am here today to speak on behalf of the crafts industry in Nova Scotia and in particular on behalf of the members of the Nova Scotia Designer Crafts Council which is the official representative of the crafts community within the province of Nova Scotia.
The NSDCC represents the interests of crafts people to municipal, provincial and federal governments, and it also offers programs and services to assist crafts people working at all levels within our province -- hobbyists, production craftspeople and one-of-a kind artisans.
Considering the volume of communication we received from our membership, the issue of the $30,000 registration point seems to be one of the most controversial within the proposed HST legislation, particularly with those of our members who are production crafts people operating full-time businesses. Members have done their arithmetic and at the moment it appears that even when input tax credits are taken into account, the business which does not have to collect the HST will make almost a 15-per-cent higher profit than a business which collects the tax, if goods are sold at the same cost to the consumer.
Many of these production crafts businesses not only employ the individuals who own the businesses and design and make the product, but also full- and part-time staff on a seasonal or year-round basis, and they are concerned that charging and collecting the tax will negatively affect their businesses. These members are urging a zero dollar registration point.
While the NSDCC sympathizes with their position, we cannot endorse it entirely because we also represent craftspeople who currently fall under the $30,000 registration point, who do not wish to see a zero dollar threshold. These members include hobbyists who practice their craft for the love of it, and who may sell occasionally and informally, as well as small craft businesses, usually one-person operations, that do not have to register for the HST until they have grown. The NSDCC would like to see a mechanism set in place that will encourage the creation and growth of new craft businesses, and at the same time, will not penalize existing, successful businesses.
Many of our production craft members also wholesale their work, offer catalogue shopping to their retail customers, and/or operate a retail shop where they sell their own work along with the work of fellow crafts people. The implementation of tax-inclusive pricing will mean that businesses will have to replace their store inventories, redesign their in-store advertising, and redesign and redistribute their present catalogues. The extra costs associated with these changes will not only place an additional burden on these crafts people affected, but may also reduce their sales directly to the public due to the public sticker shock.
Another problem has recently surfaced regarding tax-inclusive pricing: A major woodworking supply company has said that it will not publish its catalogue nor accept telephone orders from within the harmonized region as it will be too expensive to deal with the separate pricing policy and additional administrative burden. This will make it much more difficult for our woodworkers to obtain the tools and supplies they need in order to operate their business.
In another example, a Canadian textile company is currently considering not servicing customers in the harmonized region, as they consider the size of the regional market too small to offset the additional administrative burden of setting up a second accounting policy to deal with the HST. This situation gives a glimpse of the possibility that many of our regional crafts people may be cut off from their sources of raw materials or driven to American suppliers by the HST.
A great many of our members wholesale their work to shops in non-participating provinces. At the moment, the shop which receives the goods is expected to claim a rebate on the provincial portion of the HST. This extra step now required by the purchasing store may well prove to be a disincentive for many retailers for whom cash flow is an ongoing concern. These retailers may well decide that they can obtain a similar product from a non-participating province and therefore spare themselves the paper work and time lag required to obtain the refund of the provincial portion of the tax.
Many crafts businesses, including those on both sides of the $30,000 threshold, are in a chronic state of poor cash flow. Under the present system, many of the manufacturing costs incurred by a crafts business bear no PST. For small businesses that do not have to register for the HST, their cost of doing business will increase as materials and supplies will be taxed at a higher rate, and they will not be able to reclaim any of those increased costs through input tax credits.
For businesses over the $30,000 threshold, the new system will result in businesses spending considerably more money up front, and then waiting for a rebate or input tax credit. This will not only negatively affect cash flow, but will also increase the administrative burden of the business, potentially offsetting some of the positive effects of the input tax credit itself.
Now, the NSDCC has an annual operating budget of approximately $230,000. At the moment 40 per cent of our overall budget is raised through a single event, our Christmas retail craft market. We charge an admission fee to this event which includes the 7-per-cent GST. As a non-profit, charitable organization, we apply for and have been granted an exemption from collecting the provincial amusement tax. If under the proposed HST legislation we are to include the 15 per cent HST in our ticket prices, our admission prices will have to rise which could mean that fewer people will attend the event, reducing our income. If we maintain our current admission prices, a larger portion of our admissions revenues will be remitted to the government, again reducing the total amount of income to the organization.
Because of the nature of the craft sector within Nova Scotia, there are an infinite variety to the numbers and the types of structures of crafts businesses operating here. However, the concerns that I have raised are common to a large number of craft producers within Nova Scotia and the other provinces which form the harmonized region.
Crafts have long been a part of this provincial scene, but have only recently begun to receive the attention due them, not only as an integral part of Nova Scotia's cultural heritage, but as an important part of Nova Scotia's economy. The Nova Scotia crafts business employs people, attracts tourists and generates millions of dollars annually in sales.
We would ask that you consider our concerns and those of our members, and that you weigh them appropriately when considering how the HST legislation will ultimately affect the crafts community here in Nova Scotia.
[Translation]
Senator Losier-Cool: Good afternoon and welcome. I am a book consumer. I buy a lot of books. And most books I buy are French, so I pay them almost double. You know that Bill C-70 provides for the GST to be reimbursed on books bought by institutions like schools, universities, colleges and charitable organizations as well as for certain periodicals and magazines. This initiative will translate into a $25-million dollar in GST refunds. Do you think books should be exempt from the GST? You should say yes, because we like books. Should CD-ROMs also be exempt from GST? Yes, because they are educational. Should periodicals, magazines and educational television also be exempt? It is hard to know what one should exempt. Why? Which is most educational? We should exempt this or exempt that.
So now for my two small questions. First, Mr. Burchell, in the "Book Room", on page 3, did you discuss the four solutions you are suggesting with the authorities? I would opt for the fourth.
[English]
Mr. Burchell: I have discussed option No. 2 with one of the senior policy advisors to the provincial finance department here. I certainly have taken it to step No. 3, and yes, we did mention at one time that step No. 4 would be the ultimate. We have discussed in detail item No. 2.
Senator Losier-Cool: How did they respond to the discussions?
Mr. Burchell: They said that it should be a recommendation from the provinces to the federal Finance Minister to deal with it on a Canada-wide financial basis, because the incentives would be coming from federal grants for publishers, and they are controlled by the federal bureaucrats. That is where he suggested that the starting point might be most successfully under taken.
Senator Losier-Cool: Magazines and greeting cards, Mr. Cluett, the Department of Finance has contacted the Greeting Cards and Gifts Association of Canada, and they are ready to put up conversion charts. Are you aware of that?
Mr. Cluett: I am aware that it was discussed. It was raised many times as a possibility. However, I believe, in spite of the hearings in Nova Scotia and before the Finance Committee in Ottawa, the act was presented with no changes. I am aware of what you are saying; however, as mentioned in my presentation, it is not convenient to have signs posted over a 1,900 square foot store that would show 50 different conversions for cards alone, not counting the other merchandise. It would be an obstacle and distract from what we are trying to do.
Senator Losier-Cool: Of the four options available, is there any one preference, any one that would make your task easier?
Mr. Cluett: This has been going on for so long, and many new things come up all the time. I ran across this particular this newspaper article that I showed at the very end, which I picked up this week. I had not thought about it before, but it is a very important piece of information. Canada has a number of national companies that produce goods to be distributed to the rest of the country, be they franchises whatever, on a pre-price basis. This article is saying that if the Atlantic region, for example, has tax-inclusive pricing, and other regions of the country have three or four different prices, it will be impossible for a national company to do pre-pricing on a national basis.
Senator Losier-Cool: Are you saying you would not get that service from the national company?
Mr. Cluett: I am saying that it would be an impossibility for the national companies to produce five different prices prices for five different regions. I am sure that there is a cost attached that would have to be really considered.
The whole issue is with regard to tax-included pricing. We represent, according to this article, 15 per cent of the country. Why do we have to go to tax-included pricing at this time, as opposed to waiting until a later date when we can see the total effect of tax-included pricing across Canada. If you start and then decide at a later date that this is not what you want, then you have to go back and reverse the situation. It is a very costly situation.
Senator Angus: Two of you I gather are in the book business, Mrs. Crocker and Mr. Burchell. Do you belong to the reading coalition? Our first witness in these hearings in Ottawa on February 25 was Mr. Roy McSkimming from the Don't Tax Reading Coalition. Are you members of that coalition?
Ms Crocker: We have been involved with it, I think, from the very beginning of the introduction of the GST, which was the first time a tax had been placed on books in this country.
Senator Angus: Does that apply to you as well, Mr. Burchell?
Mr. Burchell: Yes, it does.
Senator Angus: Are you not exempt under the New Brunswick, Newfoundland and Labrador and Nova Scotia bills? Has there not been an agreement?
Ms Crocker: Yes, on PST.
Senator Angus: If you were to get an exemption from the federal portion as well, would all of your problems be solved, because tax-in pricing would not apply to you?
Mr. Burchell: That is right, yes. That is correct.
Senator Angus: Both of you agree with that?
Ms Crocker: It would correct the book part of my concern, but in our stores we sell things other than books, and it would still apply to everything else.
Senator Angus: In terms of books, the wonderful children's books to which the Chairman referred -- and Mr. Burchell, the former premier here has been telling me about your wonderful stores -- I want to be sure that I have it right. If this committee were to recommend in Part I of Bill C-70 an adjustment to the GST, as the party represented by Senators Kirby, Rompkey and Losier-Cool so actively tried to have done back in 1990, and as Senator Di Nino of our party is trying to have done with Bill S-11 -- and it might or might not make it, but if it did, would that please you?
Mr. Burchell: It would me, sir, yes. It would be like a Christmas present.
Ms Crocker: Absolutely, I think you would hear a chorus from coast to coast amongst people who care about literacy, education and good literature.
Senator Angus: If unfortunately the majority were such that we were not able to marshal sufficient support to have the federal portion of the tax removed, and therefore have an early Christmas for you, I gather that the next important thing in the order of priorities would be tax-in pricing. If we were able to get rid of tax-in pricing and leave to retailers how they want to show that aspect of retailing, whether by tax-in, tax out or how much, would you be happy?
Mr. Burchell: I certainly would find that a great step forward, not to have to deal with tax-in pricing and to leave the status quo. Perhaps down the road, on a much larger scale, a push might be made to eliminate the tax entirely, but certainly not to have tax-in pricing would be a great step forward for many in the three provinces that are affected.
Ms Crocker: I would feel happy, I would feel heard, I would feel respected, I would feel that politicians understood the kind of work we try to do for the economy of this country.
Senator Angus: We have been all over these Atlantic Provinces the last couple of days, and it is very hard to find anybody who supports tax-in pricing. Being in the book business and so intellectual and everything, can you think of any rationalization for why the government would be trying to impose that kind of administrative nightmare on you?
Ms Crocker: I can think of two. One, I believe there is a desire to create an appearance that the GST has disappeared. Frankly, I think Canadians are smarter than that. The other motivation, as I understand it, is that some public opinion polls say, strangely enough, that the public wants to know that the price that they see is the price that they pay.
I would not dispute the people who do the public opinion polling. They are scientists in their own craft. However, if you were to weigh the wish of citizens who want tax-included pricing against all the other concerns -- particularly those from my point of view, the issue of national and international competitiveness -- you might find that you are cutting off your nose to spite your face. I think people in the participating regions might not realize that to get something that they wanted they have ended up with something that they did not want, and it might be a greater problem than they realize.
Frankly, and I said this to the Law Amendments Committee of the Province of Nova Scotia, we work closely with our customers, and there are lots of conversation. We do not sit passively at the cash register and wait for them to come up and say, "Oh, my goodness, look at the tax." Often there is chatter along the way where people would say, "What would this cost with tax?" And we explain whether it is one tax or two, give them a rough idea. It is not that there is really a surprise. Usually by the time they get to the cash register, they know. Plus, we have had training for a number of years. We know that in this province you add roughly 19 per cent. Those are the two reasons.
Senator Angus: Do you, sir, concur with those comments?
Mr. Burchell: Yes, I certainly would concur with that.
Senator Angus: I want to congratulate you, madam, for the candour of your remarks, because a certain gentleman on my right here has indicated to me you are not only one of the canniest but also one of the craftiest liberals in this province, and you still made your statement to us. I thank you very much.
Mr. Burchell: If you people are able to take back anything that really makes a change, that really helps us, God bless you. You are fabulous for coming here, and if you are able to do something, we would all be most grateful to you.
The Chairman: Our next witness is Dr. Barry Gorman, the Chairman of the Department of Accounting at Saint Mary's University. He is here today as a member of the National Tax Committee of the Financial Executives Institute.
Dr. F. Barry Gorman, Associate Professor, Chairman, Department of Accounting, Saint Mary's University, and member, National Tax Committee, Financial Executives Institute: Mr. Chairman, given the time, I would actually prefer to summarize my comments, and it will give me a chance to make a couple of other comments as well.
The Financial Executives Institute has wholeheartedly supported the concept of harmonization since before the harmonization announcement approximately two years ago. Harmonization itself is simply good tax policy, and the benefits of harmonization far outweigh the problems that occur for certain taxpayers in certain segments of the community.
We also have actively supported publicly the rolling out of the harmonization as a pragmatic matter on a province-by-province basis across the country. Harmonization, like any other change to the tax system, costs businesses money. The implementation of harmonization will cost all businesses in this country not just in the harmonized zone, but across the country, a certain amount of additional dollars. We believe the implementation costs are bearable, and that consumers will eventually be satisfied with that small cost.
However, like many other witnesses since I have been here, the Financial Executives Institute is quite concerned about the question of tax-inclusive pricing.
Ladies and gentlemen, we could have harmonization with or without tax-inclusive pricing -- quite frankly we could have tax-inclusive pricing with or without harmonization. The two issues are mutually exclusive. There is no necessary connection between the two. Our members in the retail sector have concluded, on the basis of some of their studies, that the cost of implementing tax-inclusive pricing in this region will be $45 million. The cost of implementing tax-inclusive pricing across the country will be approximately $100 million. That disproportionate amount of money will bear onerously on the consumers of this region, to say nothing of the companies.
Many of the companies and businesses in this province -- I will step aside from the FEI group for a minute -- are very small. These kinds of costs will be extremely onerous for these businesses. However, as I said, $45 million is our estimate of the costs of implementing tax-inclusive pricing on a regional basis. This is, as several other individuals have mentioned, a relatively small percentage of the economy. It is a relatively small percentage of the population. This region will bear an extraordinary percentage of that $45 million cost.
Therefore, we believe that, if we have to have tax-inclusive pricing, it should be postponed until the harmonization is rolled right across the country, then the implementation costs of harmonization and the implementation costs of tax-in pricing can be more rationally and more efficiently implemented into the economy.
We do not believe the present methods of instituting tax-inclusive pricing meet the objectives of tax-inclusive pricing. We are well aware that consumers want to know the price of the good when they go to the retail or the service counter. However, if you take a look at the implementation methods that are now proposed, this will be far more confusing and bewildering for consumers than the present state. Not only that, it will be more expensive to them. Not only that, it will eliminate most of the benefits of harmonization, certainly to businesses in this region.
We think consumers will be more confused after tax-inclusive pricing than they are now, and the sticker shock that people had several years ago will be replaced by far more confusion and far more disbelief. Consumers will believe that they will know what the price is, but the present options for tax-inclusive pricing, quite frankly, do not tell the consumer that. If you have to go into a retail store and look on the wall for a conversion chart, that is not helping the consumer of this country.
Therefore, to sum up, it is our suggestion, indeed our recommendation, that if we have to have tax-in pricing, for heaven's sake, let it be when this tax is rolled right across the country.
Senator Comeau: My question is on the estimates. I just want to make sure I understand how you arrived at your cost to the harmonizing provinces.
Mr. Gorman: The Financial Executives Institute represents companies right across the country, and I am on their National Tax Committee. However, the costs of harmonization will be borne by the taxpayers and businesses across the country, because, for example, of the need for a retailer in Alberta, to become aware of the costs coming here and whatnot, the costs of national catalogues, et cetera, et cetera. The $45 million is because of the tax-inclusive pricing in only our three provinces. If you compare that to our estimate of $100 million with tax-inclusive pricing right across the country, the distortion is quite obvious.
Senator Comeau: Would that be $45 million per year?
Mr. Gorman: Annually, yes, because, of course, catalogues and flyers have to be reproduced every year.
Senator Comeau: The Atlantic Provinces Economic Council study lists as one of the irritants, a need to increase working capital. That would be businesses which have to purchase inputs that go into whatever they produce. Eventually, they get it back through the input tax credit. However, they have to pay the 15 per cent up front, and there would be an annual carrying cost of about $130 million, according to the Atlantic Provinces Economic Council study. Have you looked at that angle at all?
Mr. Gorman: We have not looked at that angle specifically. We are well aware of it, at course, because there will be for every business an upfront cost of harmonization. That is separate from the tax-inclusive pricing. Yes, there will be an upfront cost to every business which will be washed out after the normal business cycle.
Senator Comeau: This was listed in a kind of haphazard way as one of the irritants of the harmonization. I feel that $130 million is quite an irritant to Atlantic Canadian business, and that is only one irritant.
Mr. Gorman: I am not aware of the specific amounts. You can assume that every input acquired for the first time is going to bear that 15 per cent. That will be a one-shot cost.
Senator Comeau: Being with the Financial Executives Group, are you aware whether there has been any grandiose study taking all the irritants into account and putting one mega dollar cost on tax-in pricing?
Mr. Gorman: I am not personally aware of such a study. I am well aware of many studies of that nature, but they are all individual to specific industry groups.
Senator Comeau: I do not think this committee has tried to put it together.
The Chairman: Our next witnesses are Jeanne Cruikshank, Vice-President from the Canadian Council of Grocery Distributors, Atlantic Region, and accompanied by Glen Hynes, Vice President, Control and Administrator, Sobey's; and Michael Whittaker, President, Grinner's Good Systems Ltd., from the Canadian Restaurant and Food Association of Atlantic Canada, accompanied by Luc Erjavecv, Government Affairs Manager, Canadian Restaurant and Food Association, Atlantic Region Representative.
Ms Jeanne Cruikshank, Vice-President, Canadian Council of Grocery Distributors, Atlantic Region: I am pleased to be here. I will address the main elements of our presentation, in the interests of time, which are on pages 4 and 5 of your document. I appreciate the opportunity to appear before the Senate Banking Committee to share with you the perspectives of the Atlantic grocery industry on the harmonized sales tax.
The Canadian Council of Grocery Distributors includes Atlantic Wholesalers, Bolands IGA, Coop Atlantic, Sobey's, and Coleman's in Newfoundland. Our members believe that one of the key success factors to a national sales tax is having the best possible implementation in the three initial provinces.
CCGD has long been a supporter of sales tax harmonization. We believe it can bring important cost savings for business and consumers by making the tax system more efficient.
Harmonizing provincial sales taxes with the GST makes sense for several reasons. The current sales tax regime is a duplication of tax collection effort. The HST will be less confusing for consumers and less onerous for businesses to collect. Currently businesses need to administer both provincial and federal sales taxes separately. Firms who have business interests in Nova Scotia, New Brunswick and/or Newfoundland will benefit from the harmonized tax base since each provincial sales tax currently has its own exemptions, rules and other quirks. The HST will remove a barrier to interprovincial trade within the region.
The supermarket industry is motivated to implement HST properly because we will be on the front line absorbing criticism, consumer confusion, and ill-feelings if it is not applied clearly, consistently and smoothly. Consumers on average visit their supermarkets twice a week. In summary, we support the HST and also support efforts by the harmonizing governments to ensure that the consumer is not adversely affected.
We also endorse the concept of tax-inclusive pricing. With approximately 70 per cent of our current sales not taxed, we feel that reflecting the remaining 30 per cent on a tax-in basis will be beneficial to our customers as the price they see will be the price they pay for all items. We are, however, concerned with the dilution that seems to be creeping into the tax-in proposals; dual pricing, that is, reflecting both tax-in and tax-out pricing could be very confusing to the consumer, given the limited space that exists for bin and shelf price labels. We have brought a few examples for you today.
Therefore, it is our recommendation that we have a four to five-month deferral to comply with tax-included pricing policy. The only component of the proposed HST which should be deferred is the proposal for tax-in pricing since the current deadline of April 7 is too short for our industry to meet, given that the regulations setting out the requirements are not yet publicly available.
Assuming regulations are released in March, an August or September, 1997, implementation will permit businesses the additional time necessary to adjust their systems, attempt dual pricing arrangements with various relevant suppliers, and test strategies to require advertising, in-store signage, and pricing changes.
In a joint release on January 17, the Governments of Canada, Nova Scotia and New Brunswick, and Newfoundland and Labrador indicated that the tax-in provisions will be effective on April 7, 1997, with full monitoring of compliance starting on August 1. We feel that the April 7 date should be abandoned entirely, and that a firm and enforced implementation date that is in the range of four to five months after the regulations should be set. As earlier mentioned, we would prefer a more rigid tax-in policy than what is proposed.
I would ask my colleague representing Sobey's, as a member, to make some comments as well. He will share with you, additionally, some signage and in fact the product to which it refers.
Mr. R. Glen Hynes, Vice President, Control & Administration, Sobey's: I have passed out a typical price label that would be seen in a Sobey's store, in fact in any of our competitor's stores. It highlights the confusion that our customers may see when they have an item that is priced both on a tax-in and a tax-out basis. This particular item is on sale. You can see there is a myriad of numbers on this price label. The challenge within a grocery store is utilization of a very limited amount of space. Without getting into detail, I think if you looked at it, you as a customer would be rather confused as to the price.
The other issue is that we often show the price per unit, whether it is price per kilogram or whatever. Often times when sales are on, you will have an item in a bigger box that might be more cost effective on a per-kilogram basis. People will look at the price per metric unit, for example. On this label, I do not think we are able to put both. You can see a very small $1.47 per hundred millilitres. We are quite concerned what something like this will do for consumer confusion.
As earlier witnesses have mentioned, we too want to see the implementation of harmonization go smoothly, and we think that the proposed dual pricing could be very confusing. We would rather see a rigid tax-in model versus both tax-in and tax-out pricing.
You will see similar confusion in our flyers perhaps, but we will work to make it as clear as possible to our customers. We are quite concerned about the impact this proposal will have on customers.
Mr. Michael R. Whittaker, Member of Board of Directors, President Grinner's Food Systems, Ltd.: I would like to begin by thanking you for taking the time today to hear our concerns about Bill C-70. I am president of Grinner's Food Systems Ltd. which operates 57 Greco Pizza Restaurants in Atlantic Canada. We employ about 1,000 Atlantic Canadians. We are owned and operated by Atlantic Canadians.
I am also on the Board of Directors of the Canadian Restaurant and Foodservices Association. With me is Luc Erjavecv of the CRFA, Government Affairs Manager for Atlantic Canada. You heard from the CRFA during the Ottawa hearings, and I believe you have that brief from Ottawa, which outlines the position of the national association. However, I am here to support the CRFA's position from the perspective of a regional operator, on behalf of CRFA'S 1,000 members in Atlantic Canada.
I have canvassed many of my peers in the regions, both small and large, and I also sit on CRFA's Taxation Committee, and have discussed this issue with many of the national and regional restaurant chains.
Our concerns with Bill C-70 centre around the tax-included pricing provisions of the bill. We recognize and appreciate that there will be a net decrease in the cost consumers pay for our meals by as much as 5 per cent. For this region, this is important, and the HST will be a very positive step forward. However, we believe that the significant benefits of the HST are seriously compromised by the heavy-handed attempt to force businesses to include the tax in the price of the goods and services. We are concerned that this unprecedented intervention in the marketplace to control price could have a damaging effect on our industry.
In particular, I would like to highlight the following concerns: Tax-included pricing will (a) further exacerbate the inequalities that are now present in the GST; (b) decrease the advertising dollar spent in this region; (c) make many national and regional advertising campaigns unworkable; (d) lead to unnecessary confusion in the marketplace, to which I believe my friends on the left have made some reference.
We are also concerned with the seeming unwillingness of the provinces of Newfoundland and Nova Scotia to explain how they intend to deal with the harmonized tax on beverage and alcohol. You are well aware, from the CRFA's Ottawa appearance, of the drastic impact the GST has had on our industry, an 11-per-cent drop in sales. I can tell you from first-hand experience that the GST has had a devastating impact on the restaurants in my company. We have closed stores, our same-store sales have dropped, and my company's growth has become stagnant.
Since 1991 we have had to contend with the inequalities that this tax has created. Our closest competitor prepares meals that are available in food and convenience stores, and they have remained tax exempt, while meals that we serve are taxed. This has led to a dramatic erosion of our market share and we have not yet recovered. The customer who buys a frozen pizza from the grocery store is the exact same customer who buys our pizza.
Tax-inclusive pricing would see our competitors advertised prices stay the same and ours go up by 15 per cent overnight. Of course, grocery stores would support tax-inclusive pricing to gain market share. They are good business people; we would do the same thing in their situation, I am sure.
Our first concern is that tax-included pricing will further amplify in the minds of consumers the difference between prepared meals that are tax-free and those that we can provide. Our advertised prices will have to go up by 15 per cent, while the price of a similar meal bill in a grocery store will remain the same.
Price and price points are key to our industry. Value pricing is the engine that drives our sales. You will all be familiar with the key prices from our sector including the $3.99 meal deal, and the $9.99 pizza special. Forcing the industry to change these price points because they must now include tax will dramatically destabilize the marketplace, add huge new costs to our marketing efforts and make many national and regional advertising campaigns unworkable. One company in our industry has estimated that they will be forced to trim their advertising budgets for Atlantic Canada by as much as 40 per cent, because of the new costs associated with producing separate advertisements for the Atlantic region. It is extremely important that you realize that the entire nature of my chain of business is built on price point advertising. Now that very foundation of my business is to change, and quite frankly, we are nervous.
Your committee should also be aware that the tax-included pricing plans will have a distorting effect on the advertising market. Many specialty TV channels, including Newsworld, TSN, YTV and the Discovery Channel do not have the ability to do regional breaks for Atlantic Canada. Some national magazines and other publications face the same problem. Our industry's response to this fact will be that many of our large advertisers will simply stop advertising in these media if they are forced to highlight the tax-included pricing for Atlantic Canada.
Rather than dilute the investment that they have made in price points in the rest of the country, they will simply shift their advertising strategy to the media that can segment the Atlantic region.
If you saw my company's ad budget for this year, you would see that we have not budgeted any money for television advertising because we cannot, with the situation in Prince Edward Island. Is this healthy for a business to dramatically shift its media strategy in this way? It throws things up in the air. We do not know what the effect could be.
Not just the national chains will be affected by tax-inclusive pricing. Fortunately, local operators will have to go to tax-included pricing, which will also affect the local market, mostly because of the difficulty in forcing regulation. I have spoken with many local and regional operators who all tell me the same thing. This is a well-intentioned and beneficial tax whose benefits are severely compromised by tax-inclusive pricing.
Price points are a key tool for many in attracting customers to their door, and even if one operator on a local market continued to advertise on a tax-out basis, it could have a dramatic effect on the marketplace. Faced with a prolonged period in which the local market was distorted by a non-compliance store, the law-abiding restaurateur would be forced into the unenviable position of breaking the law to compete or closing down. Yet the government has not indicated that they intend to provide any additional resources for enforcement.
Let me give an example of the type of thing that can happen. Everyone is familiar with the ads that are run in the newspaper that say, "No GST or PST." We are not certain. Will we be able to do this? Will we not be able to do this? Will it create an uneven playing field in our industry? However, there is probably good reason why the government has not indicated that they intend to increase resources for enforcement because they will need an advertising policeman on every street corner to do it. It is simply unenforceable.
Finally, our industry is troubled by the continued silence in the provinces of Newfoundland and Nova Scotia with respect to how they plan to deal with beverage/alcohol pricing under HST. The province of New Brunswick has indicated that it intends to pass on the savings from a reduced tax rate to both consumers and operators. The other two provinces have yet to lay out their plans, despite regular representations from our industry.
In conclusion, Mr. Chairman, our industry is very concerned about the tax-included pricing provisions that form part of this government's initiative under the HST. The very real decrease in the overall tax rate that consumers will be forced to pay in these provinces is a step forward, absolutely. However, the tax-included pricing plan seriously compromises this legislation and the real economic benefits of the HST.
We are aware of a compromise position that I believe would substantially address our concerns. This compromise would maintain tax-included pricing for in-store sales and advertising and exempt all out-of-store advertising. The compromise, first raised at the committee deliberations in the other place, has the advantage of resolving the problems with national advertisers while keeping a level playing field for all of the industry in the region. I am sure you are aware that the committee from the other place released the recommendations, which include this compromise as well as an urging to provincial governments to take a second look at the way they are treating beverage/alcohol under harmonization.
If I may I would like to read these into the record. Section 4(b) recommendation for further action states that participating governments should consider the proposals presented by witnesses for reforming the tax regime related to alcoholic beverages and tobacco products. In section 5(d), under compromises put forward, that committee suggested the possibility of tax-out pricing plus a disclaimer for all advertising, including catalogues, brochures, flyers, and media. We fully support these recommendations.
The Chairman: You argue for a rigid tax-in regime to avoid confusion. If your only option were that versus no tax-in pricing at all, which would you prefer?
Mr. Hynes: I will try to tackle that.
As an industry we think tax-inclusive pricing makes sense, given the choice of going with dual pricing in the short term and then moving to tax-inclusive pricing. We would be ambitious to hope that there could be full, rigid tax-in pricing at some point. Dual pricing, if implemented in April or August, would eliminate that opportunity. In other words, when we start with dual pricing it will stay that way, and we would probably prefer to leave it as it is for a period of time.
The Chairman: As in no tax-inclusive pricing?
Mr. Hynes: In other words tax-out pricing. When all the criteria, whatever they be, are met, then maybe we could go to full tax-in pricing. We are concerned about the confusion to our customers in the short term. In fact, the customers may dictate what happens. If they revolt on dual pricing we will go one of two ways; tax-out or tax-in. Our concern is that probably tax-out pricing will likely be what happens. We think in our business, where 70 per cent of our sales are on tax-out items anyway -- basic groceries if you will -- that tax-in pricing makes sense. If given a choice, and if we were confident that there might be rigid tax-in pricing in the foreseeable future, we would probably prefer to wait. I do not think we have a formal position as an organization but I think that would be a fair-minded comment.
Ms Cruikshank: I would just add one thing. I would give strong emphasis to the rigid element. Whatever you ask of the grocery sector, it certainly must be the same for all because we have non-grocery retailers who sell similar products. I think the time frame that we are looking for is also realistic, to allow not only industry to accept it but consumers and to allow for the very important education process so consumers will know that when they see the price it is the final price they will be paying. Education is important to that time frame as well as business getting ready, and a level playing field.
Senator Oliver: We have been hearing for four days now, in New Brunswick, Newfoundland and Nova Scotia, overwhelming evidence against the TIP, and the arguments that we have heard are so strong that we have pretty well decided what we must recommend, so there is no need to pursue that issue with you any longer.
One of the things I would like to get on the record is your description of the various pricings and what happens in that regard.
Mr. Hynes: The price label that was tabled is for Oil of Olay Moisturising Body Wash. The price, tax-in, was $5.16; the price, tax-out, was $4.49. However, the item was on sale. Its regular price on a tax-in basis was $7.07 and there was a saving of $1.91 on that tax-in price. The tax-out price was regularly $6.15, with a saving of $1.66, bringing it down to the $4.49 tax-out price. There is also some metric equivalent on that, the unit price per hundred millilitres was $1.47.
Senator Oliver: Incredibly complicated.
Mr. Hynes: Yes, given that in a typical grocery store there is anywhere from 30,000 to 40,000 items, it could be very challenging to our customers. We respect the intelligence and ability of our customers but we think this would be very difficult for them to handle.
Senator Losier-Cool: I have a question for Madam Cruikshank about the recommendations at the bottom of page 4 of your brief. Have you had any response to that recommendation, especially to the question of deferral, having a longer time frame? Did you discuss that with any authorities?
Ms Cruikshank: The Canadian Council of Grocery Distributors made a presentation in Ottawa as well, and we have had discussion on that issue. We are hopeful that it will be involved in the discussion and the recommendations that will go forward. We really have not had a definitive answer on that point. A deferral for that time frame is I think very important both for our industry and for the customers we serve. Our customers are your constituents.
Mr. Hynes: The big challenge is this April 7 date. The reason it is April 7 is that it is a day or so after the Easter long weekend and it allows stores the ability to get ready, but with no regulations issued on March 6, that date really should be taken off the table and attention should be turned to what will happen on the day that implementation is required. We, for example, in the grocery business are in a very competitive business. On the first day of the first week when the first flyers go out, if a Sobey's flyer is done on a dual-price basis to comply with the law and one of our competitors issues a flyer that does not comply, then that can swing market share, that can swing our business and it could be very detrimental.
We are working on these issues on a non-competitive basis, we will honour those dates but there must be rigid enforcement on whatever date is chosen. So if the written word today is that April 7 is the date but that we will look the other way until August 1, that concerns us because maybe some will not do it on August 1, maybe it will be August 15 or September 1.
Our recommendation is that if we are going forward with tax-in pricing, pick a date and enforce it rigidly, so that it is a fair and even playing field.
Senator Buchanan: Would you be satisfied if the tax-in pricing aspect of this bill was severed from the bill?
Mr. Hynes: Let me say this: As an industry we think tax-in pricing is good but only tax-in pricing where the price on the label is one price, the price on the flyer is one price, and the price on the cash register slip is one price. Given the choice of the status quo and this dual-priced option, which can be very confusing, I expect as an industry we would prefer to alleviate our customers of that confusion and leave it as is until perhaps a more rigid solution could be found.
Senator Buchanan: Or until it was Canadian wide and a real Canadian situation. I have been looking at this and I will not get you to explain the whole thing because it is so confusing. This would be enough to drive people across the link to P.E.I. to shop.
Senator Comeau: Just wait until you see it bilingual.
Mr. Whittaker: Bilingualism is a very good point. We have some unilingual French markets in Northern New Brunswick and some bilingual markets and most of our marketing is done in very small printed flyers and coupons. It is virtually impossible for us to get all the information and properly represent the French price points.
The Chairman: Senators, our next witness is Dr. Cynthia Forbes, the president of the Medical Society of Nova Scotia.
Dr. Cynthia Forbes, President, Medical Society of Nova Scotia: I do have a prepared brief and we did bring copies for you to read. You have heard from the Canadian Medical Association, and New Brunswick and Newfoundland as well, and our issues are the same. I represent all the practising physicians in Nova Scotia.
For us, the issue of the GST and the HST is one of equity and fairness. This is a tax that has been applied to our group in a way that is not applied to other businesses. There is no way for physicians to recoup the tax through tax-input credits and, given the increasing costs of practising, along with the decreasing funding for health care and physician services, it is certainly an added burden for physicians of the province.
There is another aspect to it as well, and I believe that was brought up in New Brunswick, the issue of recruitment and retention of physicians in the province. It will affect Atlantic Canada, an area where we are attempting to recruit physicians to many different areas, rural areas and the different specialities, putting us at a competitive disadvantage by adding to the costs.
We have recently heard from our Minister of Health. He has also recognized this as unfair treatment of doctors. The minister has indicated that he has made representations to the Provincial Department of Finance and will also be making representations to his federal counterpart to have the way physicians are treated under the GST and HST reviewed.
A document released by the Department of Health on January 31 of this year called "Good Medicine, Securing Doctor Services for Nova Scotians," states in part:
...the GST -- and starting in April, the new HST -- had a unique effect on the medical profession because doctors are the only business group unable either to be exempted from the tax or to pass it on to consumers.
This is contained in the section of the discussion document entitled "Creating a Competitive and Sustainable Environment."
The solutions to the problem have been proposed by both ourselves and the CMA. The CMA has suggested to your committee that the health care be zero rated. When I addressed the province's Law Amendments Committee in December of last year, I presented a proposal from the medical society. That proposal would see us designated under the HST legislation as being eligible for a rebate for the HST that we pay in providing medical services.
Regardless of the mechanism proposed, I feel it is urgent that action be taken to address the inequitable treatment of physicians under the GST and the HST. We are not asking for special treatment; we are asking that we be placed on the same footing as all other small businesses, self-employed Nova Scotians and other health care providers.
I have just finished a series of meetings with physicians around the province, and I want to assure you that the physicians of this province feel very strongly about this issue. Changing the legislation governing the HST will assist with eliminating some of the inequities of the current tax system and will help redress the costs of the GST that physicians have incurred since 1991.
I would be pleased to answer any questions.
Senator Buchanan: We have heard individual doctors, the Canadian Medical Association, including its branches in Newfoundland and New Brunswick, and we have heard from your predecessor in office, now the president of the CMA, Dr. Kazimirski from Windsor. The theme is the same; doctors really have not been treated fairly under this tax legislation. One of the arguments put up in Ottawa was that doctors are permitted a deduction for those expenses in their income tax. That is true. However, all businesses, small or otherwise, are permitted that same deduction. You are the only profession or business where you must absorb the full costs of this tax, because you cannot pass them on.
Dr. Forbes: There is absolutely no way for us to pass it on.
Senator Buchanan: The law forbids it. The same governments that are attempting to pass this legislation and passed the earlier legislation, whether they be Tory or Liberal, are preventing you from passing on this tax?
Dr. Forbes: That is right.
Senator Buchanan: That is not very fair, is it?
Dr. Forbes: No. It is this issue of fairness that produces visceral responses in physicians. It is an issue that we feel very strongly about, and we are just asking that we be treated like other small businesses.
Senator Buchanan: Doctors I personally have known for years have told me that it may not affect them, but many other doctors, particularly some of the younger doctors, may regard this proposal as the straw that breaks the camel's back and decide to leave.
Dr. Forbes: We have had already one specialist in Halifax announce that he was leaving, and he was gone shortly after the proposal was announced. There are many other physicians who feel that not only will the handling of it be financially difficult for them, but are upset at the suggestion that their concerns do not really matter. That is a major part of this whole issue around the tax, that physicians' concerns are not really that serious.
Senator Buchanan: In my opinion, your request is fair and reasonable, and we certainly will do what we can to help the situation because we do not want to lose any more doctors in Nova Scotia.
Ms Rhonda DeCoste, Senior Manager, Sales and Local Tax, KPMG: With respect to the 83-per-cent rebate for which hospitals in Nova Scotia are eligible, as public institutions most of their goods and services, no matter whom they are for, are exempt. In effect, doctors can save money by having their offices in hospitals, which basically drives the physicians into the institution, which is in direct opposition to the current health policies of most of the provinces.
There is another issue with respect to equity in health care costs from province to province as a result of the HST. The hospitals in New Brunswick pay the tax and get it all back. The hospitals in Nova Scotia pay the tax, and they get an 83-per-cent rebate. The hospitals in Newfoundland pay the tax, and they do not get any rebate. Not only is this proposal in opposition to health policy and driving physicians into the hospital, it is creating an inequity with respect to the cost of health care in Atlantic Canada.
Senator Rompkey: The only response I would make, Mr. Chairman, is the same one that I made before, that if doctors are being treated unfairly, presumably that unfair treatment goes back to 1991 when the GST was introduced, as you received no exemption then. Presumably you made the same points in 1991 as you are making now, and presumably you had the opportunity to change that then, as you do now.
The problem is of course that this started in 1991. The funds have been collected since then. The question is how would you make up the shortfall in the money that would be lost if there was an exemption and how far would the exemption go? What should be exempt?
We all think that this is an issue that we must respond to, but it would be a lot simpler if the exemption had been made when the legislation was brought down in 1991. How do you feel about that?
Dr. Forbes: I agree with what you are saying. The Canadian Medical Association lobbied very hard to bring this issue forward in 1991 and brought it to the attention of the federal government, but no exemption was made at that time. If health care had been zero rated or if there had been a provision to allow physicians to have input credits, we would not have the problem that we have now. The HST is an additional exaggeration of that inequity, which inequity will hit Atlantic Canada as opposed to any other places, likely resulting in some recruitment problems. Yes, the GST itself was unfair and now you add the HST to it and it is doubly unfair.
Mr. Paul Childs, Senior Analyst, Medical Society of Nova Scotia: In 1991 the discussion revolved around the issue of medical services and health services being exempt. The understanding of the profession at the time was that that would occur, physicians would be exempted through a rebate mechanism similar to the mechanism for the MUSH sector, municipalities, universities, schools, and hospitals. That never occurred for whatever reason. We are trying to redress that inequity, recoup some element of that cost and avoid having the same thing occur with the HST.
Senator Oliver: Are there any other people, apart from physicians, in the health care service who should be included on our deliberations about the problems that you have discussed? Second, would it be an answer to your problem for you to approach -- we are representing the federal government -- the provincial government and have them raise the tariff on fees and get the money that way? Would that be a solution?
Dr. Forbes: We have made representations to the Minister of Finance who has suggested that we should take up this issue in our negotiations with the Department of Health. We have recently had correspondence from a member of the Department of Health saying that he felt that this was a federal issue. It is getting rather frustrating because there seems to be buck passing.
Ms DeCoste: Nursing homes form another group, because they must pay the tax unless they are publicly funded or are a qualifying non-profit organization and eligible for the 50-per-cent rebate. Otherwise they are not entitled to any amount of tax back. With the demographics being the way they are, I foresee that situation as quite inequitable for the vulnerable of our society.
Senator Angus: Dr. Forbes, we have had some conflicting numbers about the average overhead of a practitioner's office. We have heard amounts of $3900 and $1200, which was a number mentioned this morning. What is the right number?
Dr. Forbes: Are you referring to the increased cost?
Senator Angus: I assume that it is the increased cost to a physician that they cannot recover.
Dr. Forbes: From the GST, we estimate it would be over $1,000 per physician per year, and for the HST roughly $1,100, for a total of $2,100 per physician per year. That is based on the study done by KPMG.
In other estimates, Nova Scotia physicians have paid at least an extra $10 million since 1991 due to the GST, which equates to $360 million for all of Canada, the CMA estimates. That is a large amount of money paid by Canadian physicians since 1991, and this proposal would just add to that.
Senator Angus: If the government were to give a full rebate to physicians, what would it cost per year?
Senator Oliver: One point six million a year.
Dr. Forbes: That is correct, $1.6 million per year.
Senator Angus: That is all?
Ms DeCoste: That is right.
The Chairman: Senators, our next group of witnesses are Dr. Owen Carrigan, the first vice-president of the Halifax Regional Homeowner's Association; Ann Janega, executive officer of the Nova Scotia Home Builders Association; Doug Dixon, executive officer of the Nova Scotia Real Estate Association; and Gary Paul, a member of the tax committee of the Manufacturers Housing Association.
Mr. Owen Carrigan, First Vice-President, Halifax Regional Homeowner's Association: Mr. Chairman, our concern is primarily with the extension of the tax to so many of the bread-and-butter items. You have heard a lot of presentations over the past few days from people who are collecting the taxes. We represent the people who must pay the taxes.
Very quickly, I would like to put the problem in context. Homeowner's and consumers generally in very recent years have experienced a lot of increases in major bread-and-butter items. Many people, for example, elderly people who are trying to maintain themselves in their homes, are stuck on fixed incomes, and of course, their incomes have dropped drastically because of the lower-interest rates in recent years. The cost of electricity has gone up, the cost of cable has gone up, property taxes have gone up, the cost of fuel oil has gone up. That is the context in which we are looking at this increase in tax.
The blended tax will mean an additional increase over and above these increases in the cost of living. For example, to the average householder, the impact of the BST on the cost of fuel oil alone, just one item, will mean an increase of $150 to $170 a year.
The municipality will experience an increase in the cost of its goods and services that is estimated in the range of $5 million to $6 million. That cost will obviously be downloaded on to the shoulders of the municipal taxpayer. That is another portion of the increase in this increased cost that we will be facing.
Our costs for light and power, gas, kids' clothing, haircuts, et cetera will go up. It may be argued that there will be items in this blended sales tax which will actually be lower and we do not argue that. However, I would like to point out that for the average consumer to offset just part of the increase in the range of consumer items that will be subjected to the additional tax, he must make luxury purchases in the amount of $10,000.
Senator Oliver: How have you calculated that?
Mr. Carrigan: If you take big ticket, luxury items, for example, the purchase of an automobile, where the impact of the BST will be slightly lower, you would need to make purchases in the vicinity of about $10,000 before you would save enough in taxes to offset about $300 in increased cost for goods and services in other areas.
I do not think I need to tell this committee that the average citizen is not about to be buying in the course of the average year luxury items in the amount of $10,000. For many people in our society today, that would represent over half of their total take-home pay for a year. The impact of extending these taxes to the goods and services that were not formerly taxed is significant, and that is what we are primarily concerned about.
We as an organization then are strongly opposed to the extension of this blended services tax to the range of bread-and-butter items. It will create a very real hardship for many people, and is, in fact, tantamount to a tax grab.
One last comment; we were subjected to a charade on this issue by our own provincial government not too long ago. It was quite obvious that the people who were around the table, at least on the government side, had very little if any interest whatsoever in listening to our concerns. I simply express the hope, on behalf our constituency, that your committee is here with an open mind and with the intent of doing a sincere job on taking into consideration the problems that this tax will create for the average consumer.
Ms Ann Janega, Executive Officer, Nova Scotia Home Builders Association: You will be glad to know that I will not be talking about tax-in pricing this afternoon. That may be a concern of ours in the home building industry but it is not for today. The good news in terms of this new harmonized sales tax is that it has created an unprecedented flurry of housing activity in Nova Scotia. All of our builders and renovators are very busy, and that is one of the reasons they are not here with me today. I should add that this activity is quite artificial, and we do not know what will happen after April 1.
You have heard from our affiliated agencies, the Canadian Home Builders Associations in Newfoundland and New Brunswick, and I think it is fair to say that our presentations are fairly similar in terms of the research that we have done. In addition to a common report, we have done work individually within our own provinces, and all of the research supports our presentation that the cost of new housing and renovations will increase on April 1 by at least 4.5 per cent.
You may have heard about the much publicized rebate on the provincial portion of new housing costs in Nova Scotia. I would like to draw to your attention that while this is perceived as being a good start for our industry, it is not adequate and it will not address the increased cost of new housing. That is a real serious concern for the thousands of people in Nova Scotia involved in this industry.
In addition, I would like to raise the very practical problems of renovations and renovators who are also faced with this increase.They have no rebate whatsoever to assist them. Of course, the folks who will be paying that added cost will not be the industry participants; it will be the homeowners and all of us in the province and in this part of country. That is a real concern to us. The main points I would like to leave with you today though relate to a point that was raised in New Brunswick, that being the threshold whereby firms can avoid paying the harmonized sales tax. We see that as a serious loophole in the legislation, and based on our experience with the GST a number years ago, we feel that it will fuel the underground economy. Not only will it potentially create unsafely built and unsafely renovated homes, it will also damage the employment levels of legitimate operators and, of course, reduce the level of taxes raised by the federal and provincial governments.
We have a concern about consultation generally on federal side of the administration. We want to know what will happen after April 1 as well as right now, particularly with regard to the transition issues. Our builders have been unable to get important questions answered, and we feel that they are exposing themselves to legal liability through the contracts they are entering into simply because there is not enough information there to answer their questions.
Finally, I would like to raise the obvious point, which is that shelter, whether you rent, own or are renovating, is a basic human need. It is not the same as increasing the cost of a nice restaurant or a tube of toothpaste. We are talking about shelter, and people cannot avoid paying these costs, which are substantial. The members of the Nova Scotia Home Builders Association urge you and committee members to continue in your search for a fairer alternative.
Mr. Doug Dixon, Executive Officer, Nova Scotia Real Estate Association: The HST will affect the real estate industry in many ways. It will be of some benefit to brokerages and independent contractors through input tax credits. Being able to show the tax separately, as agreed to in the technical paper, should relieve the pressure on realtors to absorb the tax in their day-to-day business. However, it will affect the cost of all real estate purchases and sales through increased taxes in many areas. Those include appraisers, home inspections, commissions, surveys, legal fees.
The most significant increases will be felt in new construction, unless the new housing rebate under the GST is extended to cover the full 15 per cent of the HST. Without the extended rebate consumers of new housing could pay on average an additional $3,374.
The Nova Scotia, New Brunswick, Newfoundland and Canadian Real Estate Associations have studied the effect of the HST on new construction and have found, through using available common statistics, that the HST on average, after adjusting for input tax credits, will affect pricing by 3.3 per cent. The Nova Scotia government has put forward a 1.5 per cent rebate on provincial tax, but it will still mean a net increase of 1.8 per cent.
The Nova Scotia Home Builders Association has studied several recent construction projects in detail and has found that the net increase may be closer to three per cent, which is almost double our figure. They have shared this information with the provincial government.
The fact that Nova Scotia, New Brunswick and Newfoundland have all taken approaches as to how to deal with the HST on new construction should be of serious concern to the federal government. Different policies, different provinces, one harmonized sales tax. I am confused. An even graver concern is the effect that the increased cost of new construction could have on the Canadian economy.
I would like to read you a quote from Maclean's Magazine by a representative of Scotiabank on the part new construction plays in the overall economy. This was in the December 23 Maclean's.
Home building has been providing a significant lift to Canadian economic activity. Residential construction has fuelled nearly half the growth in real GDP since the beginning of the year, though it accounts for only about five per cent of economic output.
The federal government should make an effort to ensure the HST is applied consistently, and price neutrality in housing should be the goal. When the GST came into being five or six years ago the goal was that it be price neutral on housing and shelter, and the HST is a far cry from that. Again I emphasize, not only is it not price neutral, it is a different policy depending on which province you live in. We are talking about a federal harmonized sales tax. Our economy has just emerged from a persistent slow period. Increasing the costs of new construction jeopardizes the current optimism and a promising recovery.
In summary, Mr. Chairman, we recommend that a new housing rebate be provided in all harmonizing provinces to ensure that after April 1, 1997, the cost of new housing does not increase.
Mr. Gary Paul, Member of Tax Committee, Manufactured Housing Association: While the new tax system may very well be revenue neutral when applied over entire business sectors, it is anticipated that some sectors will enjoy lower costs, that the majority will remain the same and that some will experience an increase. The housing industry will experience an increase in prices.
As have two speakers before me, the Manufacturers Housing Association, has hired Price Waterhouse to do our report, and the number that they are showing us is a 4.5 per cent price increase. Manufactured housing prices will increase by 3.2 per cent, even after taking into account the proposed 1.5 per cent rebate and assuming a hundred per cent flow-through in PST on direct costs. There is not that much flow through in the manufacturing of a house. Our manufacturers, the three factories in Atlantic Canada, have determined it would be a little over $100 dollars per home and the sub-trades that do the foundations, the electrical, plumbing, et cetera, would amount to about $600 per home.
The purchase of a home for most taxpayers is the single largest purchase they will make in their lifetime. In recognition of this, federal and provincial governments have existing legislative policy that advocates the concept of affordable housing for all Canadians. The manufactured housing industry is the most prominent supplier of affordable housing for Canadians, specifically through the supply of mini-homes, mobile homes and manufactured modular homes.
The fact that the new tax is not price neutral could be softened by allowing us to offer the 1.5-per-cent HST rebate as down payment. This has been done in the past with the PST rebates. We are now experiencing very low interest rates which could be a big advantage to our industry. However, we also have unstable employment conditions and negative inflation rates. These conditions, combined with a price increase and lack of rebate incentive as down payment, will adversely affect our industry. The dream of homeownership will become a distant one for many Atlantic Canadians.
Senator Cochrane: What effect will contracting out have on the real estate industry?
Mr. Dixon: I am not sure what you mean.
Senator Cochrane: For instance, one person takes a large contract and since he cannot do all that work, he will contract out. Could he not contract out to a person who does not pay any GST, to the underground economy people? Have you looked at that situation?
Ms Janega: That is pretty well the reality right now of the industry. Virtually all home builders use many sub-trades and I think it is fair to say that some of those are operating above ground and some, or many, are operating below ground. The benefit of the new harmonized sales tax is that with the input tax credits there is now an incentive for these firms to come above ground to try to reclaim some of their costs. Our concern of course is that a large part of the building industry is labour, and, as I understand it, there is no recapture on the input tax side of the labour charges. This is why we feel that the $30,000 loophole, or threshold as it is called, will help the underground economy to flourish.
Senator Cochrane: We heard the same thing in Newfoundland yesterday, and they are really concerned about that possibility.
Do you have any figures as to the loss of revenue to the province as a result of this underground economy? How much does the province lose?
Ms Janega: I do not have those figures but I know there are two sides. There is the income tax side and the corporate tax side. If anyone could put a figure on this underground economy number we would probably get much better attention than we are getting so far.
Senator Cochrane: Have you had any consultations with your provincial government, for example, the minister, to express your concerns?
Ms Janega: The Home Builders Association has been involved from the day of the announcement in consultations with the provincial government. We in fact opened our books and offered to work with the government to come up with something that would work well because, even at that early stage, we anticipated there would be a drastic increase in the cost of housing. As late as last Friday, our association met with the Minister of Finance, the Minister of Housing and Municipal Affairs, and others as well.
Senator Cochrane: What was their response?
Ms Janega: Well, I guess we are still working on it.
Senator Comeau: Take the gloves off.
Mr. Paul: We have been meeting with the provincial Department of Finance as well. We have had four meetings with them now. I do not know where the misunderstanding lies, but as an example of what they have done, on March 3, this past Monday, a fax arrived on my desk stating that if we did not have people pre-approved for this $3,000 rebate to be used as a down payment by February 27 at midnight, none of the consumers for whom we are building homes right now would get that $3,000 down payment. I do not know how you send something out that is retroactive.
Putting aside my responsibility for the association, as a builder I have three homes that are on their foundations. They will close before March 31. All of a sudden, they did not have an approved mortgage because they were short $3,000 on their down payment. That is the kind of confusion we are going through as builders right now. I am selling homes now that will be delivered in April. My manufacturer of homes cannot deliver any homes that I could complete before March 31. I do not know what system of tax to use, how I am to calculate it or what the rebates are, and I do not know what I am selling.
Senator Rompkey: So I understand, there are no embedded taxes, of course, on labour but you can claim the other flow through costs of building a house; is that right?
Ms Janega: On materials and supplies, that is correct. However, there is no corresponding input tax credit for land, which is a major portion of any new home and that is one of the reasons that the increased cost will be 4.5 per cent.
Senator Rompkey: The embedded taxes do not really come to that much in terms of house construction?
Ms Janega: That is correct. Developers have a serious concern in terms of being unable to capture their development costs on infrastructure -- sewage pipe installation and so on -- for the land, work that has already been done. These lots will be sold subsequently, and there is no mechanism for them to recapture that significant cost.
Senator Rompkey: As you have already testified, you feel the federal housing rebate and the rebate here in Nova Scotia are not adequate to make up the difference of the increase in cost that will come to you?
Ms Janega: There is consensus on that point in our association.
Mr. Dixon: There has been a huge amount of information shared with the provincial government on this issue and, essentially, when you talk to the in the departments involved, they agree with our figures. When we sit and discuss it in working meetings, they cannot deny the fact that costs will increase in the range that we are talking about.
The home builders went to enormous efforts to provide factual information on actual projects from last summer, right from the ground up, so that nobody could twist the numbers around.We simply said, "Here is all the receipts and here is all the information on how this was put together." Unofficially, nobody denies that the cost to consumers will go up somewhere in that 3-per-cent to 5-per-cent range. We are talking about 1.5 per cent in Nova Scotia, zero per cent in Newfoundland and 3.5 per cent in New Brunswick.
Let us be practical about this. There are two different problems: There is the differences between the provinces. I would think that you as federal representatives would have serious concerns that there are three separate deals being struck here. The other is the difference in the rebates. Some people think that if housing will go up by only $1,000 nobody should get too excited. However, we are not talking about $1,000, we are talking on average about a $2,500- to $4,000-increase after the inputs. If you want the gloves off, there it is.
Senator Comeau: I think we hear you.
Senator Buchanan: We have heard from real estate associations, home builders associations, manufactured home associations, in New Brunswick, Newfoundland and now here. Basically you all are saying the same thing. That is incredible when you think of it, that three associations would have basically the same philosophy and the same goal. Can your problem be solved with rebates, more rebates of different percentages?
Mr. Paul: I believe that they could. If we were looking at a true blended sales tax, in my estimation that 15 per cent would show on the bottom line of the invoice, and the rebate would be a percentage of that 15 per cent. Where it is not a true blended sales tax, I still must calculate 7 per cent of the bottom line of the invoice and take 36 per cent of that to get the GST portion of the rebate, and then I must calculate what 1.5 per cent of the purchase price is to get the rebate under the HST.
I do not know where these forms will come from or where these rebates will be collected from. I do not know if they are assignable as down payment, I do not know if they are assignable to the builder to reduce the purchase price. We are far from a true blended sales tax.
Ms Janega: The other point I would make relates to the aspect of a level playing field and the concept of the underground economy. The fact is that as long as that $30,000 threshold exists it will be possible for people to legally avoid all of the taxes which the professional operators are paying and will willingly pay, as long as it is shared across the board.
Senator Buchanan: We have heard today, primarily from the minister, that this whole HST is what he called consumer neutral. In other words, it will not really have that big an effect on consumers because the reduction in the price of many goods will pretty well equal the increase in the price of other goods. How does that affect people who own homes or people who rent?
Mr. Carrigan: I do not think the statement is accurate to start with.
Senator Buchanan: Not my statement by the way, he made the statement.
Mr. Carrigan: I recognize that, but I would challenge the accurateness of it because I do not think it has anything to with whether you own a home or you do not own a home. Certainly homeowners will be stuck with some of the very big ticket items, like fuel oil and power. As I pointed out in my arithmetic, you have to compare the items on which the cost will be reduced to the items on which the cost will increase. The increase is spread over a whole range of bread-and-butter items, which will represent a very big cost to the consumer. I think you are looking at an average increase in the cost to the consumer for these items of $500 to $600 a year.
In order to offset that, the average consumer must, as I pointed out earlier, purchase luxury items. For some of the bread-and-butter items, the tax saving is pennies, whereas the tax output on other bread-and-butter items is in the hundreds of dollars. There is no off-setting, and it is fiction for anybody who has any knowledge of mathematics to suggest that it is neutral. It is not neutral.
The Chairman: Senators, our last two witnesses before we finish with our walk-ons are the president and the executive officer of the Students' Union of Nova Scotia, Jennifer Smiley and Colleen Cash.
Ms Jennifer Smiley, President, Students' Union of Nova Scotia: Mr. Chairman, I am a student in my fourth year at University of King's College here in Halifax. I am studying Canadian history and contemporary studies.
We are here today because we are afraid, as students in Nova Scotia, that the harmonized sales tax will have negative effects for students because of our purchasing patterns. We would like to offer a couple of suggestions and we look forward to any questions or comments that you might have.
Items that will increase costs for students under the harmonized sales tax are listed on the first page: books, school supplies, not textbooks but school supplies, clothing under $93, photocopying, personal services, a possible rent increase for those whose utilities are included in rental costs, electricity, gasoline for students who commute, and for those students who travel by bus there is a threat of an increased cost of bus fares due to the municipalities adjusting to the new tax.
Students believe that because of their particular purchasing patterns they will be detrimentally affected by the tax.
I forgot to point out in my introduction that the Students' Union of Nova Scotia is a federation of students which represents about 20,000 students at 11 universities in this province. We have been dealing with issues of accessibility to education since 1978.
In the document "Nova Scotia Tax Reform and Economic and Fiscal Analysis," it states that the impact of the HST on individual consumers will depend on the mix of goods and services purchased before the harmonization and how the consumer adjusts to the patterns of spending as a result of the harmonization. Present student purchasing patterns show that our costs will increase. Currently Nova Scotia has the highest tuition in Canada, and the estimated cost for one year of university for those living away from home is about $10,300.
Two significant areas face increases in costs. One is school supplies for students, which faces an 8-per-cent increase in cost. Currently when we identify ourselves as students at the cash the provincial sales tax is taken off those items and we do not pay any tax on those items at all. As well, there is a program in Nova Scotia where students who are purchasing a computer while they are in university are eligible to receive the tax back. Both these programs will be detrimentally affected by the HST and will result in an increase in cost of between 8 per cent and 11 per cent for those items.
We are concerned about the fact that of the 30,000 students here in Nova Scotia 10,000 students are from out of province. One of the alternatives that has been offered to us is that student loan limits be increased from $700 for books and supplies to accommodate the increased costs. We are concerned that perhaps students studying in Nova Scotia from other provinces will not have the benefit of that increase and thus will be detrimentally affected by the tax.
As well, we point out that borrowing money and increasing student indebtedness is not an adequate method of dealing with the tax that will affect us in various ways.
There are two alternatives that we feel should be offered to students to compensate for the increase in costs after the harmonized sales tax is brought in. One alternative is to offer a tax rebate, applicable to items such as school supplies and computers Currently we do not pay tax on such items and a rebate would negate the cost of those two items which form, pretty much, the most noticeable increase.
As well, currently the Government of Nova Scotia has an $8 million relief fund for low income individuals. Currently students are excluded from that fund, and we think that since the income amount for that period is $9,500, students fall into that category. If the government feels that there will be an impact on low income individuals, students are members of that income bracket and they too will be affected by the tax. We encourage both levels of government to look into the idea of tax relief for students.
We would like to conclude by asking the Senate to consider delaying or rejecting the HST legislation until the government can offset the difficulties imposed on certain sectors of society by the new tax.
Senator Comeau: Has the government approached your association, which is a very active association, I might note. I have met with your representative in Ottawa before.
Ms Smiley: Actually that was me. I had different colour hair then.
Senator Comeau: I do mean that sincerely. You have been a very, very active group, and I think a force to be reckoned with. Have you met with the provincial finance people?
Ms Smiley: Yes.
Senator Comeau: What kind of response has there been?
Ms Smiley: The response that we received for not being included in the relief fund was that student loans are subsidized by the Nova Scotian taxpayers, so in that way we are already receiving aid from the government. That is why we were not included in the $8 million fund.
In regard to changing the program to exempt school supplies from the tax, that was not really approached, but I do believe that Minister Gillis and Bob Moody are going to be looking into changing it, and I hope they will come up with a new program for the computer rebate that exists.
Senator Comeau: One of the previous witnesses indicated that we seem to be heading into a situation where the three provinces will act independently on various items. For example, I believe the housing market is going to be rebated different amounts. We may be heading into a non-harmonized blended system. We will probably get some testimony on this tomorrow as well from life insurance companies. I understand there is a deal being worked out in New Brunswick. Housing is to be worked out differently. Students are to be done independently.
The harmonization of the tax system does not seem to have much harmony. As students, are you worried that we may be heading into an even worse system than you can even imagine? In other words, it might be better to go to a different university in a different province based on what the provincial government decides to do.
Ms Smiley: I think that is a possibility. One of the things that concerns student leaders in Nova Scotia is the fact that we do have the highest tuition and one of the lowest minimum wages. Any increase of cost here will detrimentally affect students from Nova Scotia and from outside the province who want to study here.
Senator Comeau: Last weekend I heard on the radio that a potato plant or some kind of cotton plant was being planned for Prince Edward Island, but because that company did not get government subsidized loans, they decided to go to New Brunswick, which said they would give them a low-interest loan.
Are we heading into a situation where we are kind of eating off one another in the three Atlantic provinces?
Ms Smiley: Judging from your comments I would have to say yes. Unfortunately, I do not have much more information to go on than what you said.
Ms Coleen Cash, Students' Union of Nova Scotia: With regard to education, we are also looking at the fact that some provinces are looking into charging differential fees. In addition to taxes, we are looking at different costs of education across the country. Although it may not be the largest costs that students will incur, it is still an extra cost. When you are financing your education through debt, it is something to be concerned about, if you have the option to travel back and forth.
Senator Cochrane: As a result of this harmonized sales tax, do you anticipate an increase in tuition fees?
Ms Smiley: Tuition fees will not be directly affected by the tax, and residence fees will not be affected directly by the tax. However, I would like to point out that only 20 per cent of students live in residence.
Senator Cochrane: We were told in Newfoundland yesterday that tuition fees will rise as a result of a three-quarters-of-a-million dollar loss to the university because of increased heating costs. That is every year. They anticipate that as a result there will be a decrease in enrolment, and therefore the students will be at a disadvantage. Are you seeing that here?
Ms Smiley: That is something that we have not considered. From every indication that we have had from Minister Gillis, the universities will not be adversely affected by the tax, and for that reason nor will students. There will not be a trickle down effect because the universities will not be incurring more costs. I would like to also point out that we do have about a 10-per-cent increase of tuition each year, regardless of what happens with the tax. Our tuition will keep going up by about 6 per cent to 12 per cent for the next five years, ten years.
Senator Cochrane: Every year?
Ms Smiley: Every year, and it is compounded of course.
Senator Cochrane: About how much will it cost a student to finish a four-year graduate course?
Ms Smiley: To graduate with a four-year bachelor's degree, about $40,000, and for the average student, that is about $20,000.
Senator Losier-Cool: I must admit you are very supportive of one another. I remember the last time I heard your association was on post-secondary education, and I was impressed by the quality of your brief.
Yesterday students in Newfoundland also mentioned that those who live in far-away regions receive some kind of a rebate when they come to university. Is it the same in Nova Scotia?
Ms Cash: I think there exists something under the Student Loan Program that accounts for travelling back and forth to school. Do you mean under the tax system?
Senator Losier-Cool: That is something I can check. I would like to hear your comments on the Student Assistance Program, which you mention on page six of your brief, and the Youth Program that the Minister of Human Resources came out with on internship and job training.What does your association prefer, jobs, any kind of jobs, or training for jobs? Would you comment on that program?
Ms Smiley: Any kind of job training or experience that students can acquire throughout the university years or directly after their studies will obviously be of benefit to them. There are problems with coop situations or internships and how they affect students who are on student loans. For example, if you are working for a period, you are not eligible for your loan, but you may be forced to travel, assume a rent in Halifax, and as well pay in Cape Breton. That kind of problem exists. I am not sure if I am answering your question.
Senator Losier-Cool: You said that 20 per cent of students are in residence?
Ms Smiley: Approximately, yes.
Senator Losier-Cool: More than would go to the cafeteria?
Ms Smiley: People have the option of purchasing a meal plan on campus. I would say that on average -- and this is a general observation -- most students eat at one of the Harvey's, the Second Cups or the Tim Horton's on campus. That is probably where most students would be eating, and also food banks, unfortunately.
Senator Losier-Cool: I am surprised to hear that.
The Chairman: We have six walk-on witnesses to finish off.
Ms Evelyn Olsen, Woodlawn Enrichment Day Care: I would like to thank you for allowing me to speak. I am the owner of Woodlawn Enrichment Day Care in Dartmouth. I am licensed for 99 children, and I run at a capacity of about 75 per cent, due to the unstable employment situations.
The HST will really affect my costs. For my fixed costs, I will be paying approximately $1,000 a month, and I have no way of recovering this. It could mean the end of my business, and I am really concerned about how I will be able to recover these costs.
The Chairman: You are not eligible for the input credits or the recovery type programs that exist?
Ms Olsen: No, I am not. I do not collect any tax from the parents, because daycare is exempt, and I am not eligible for any.
Mr. Gary Greene: Thank you for hearing me. I have been sitting here all day, and if someone had told me a year ago that I would be attending a Senate hearing, I would have told them that they were crazy.
All day I have heard retail groups and consumer groups, and about the impact of the HST on the people they represent. Well, I am one of the people they are talking about. I do not represent any other groups, only myself. I know first hand how this tax will affect me.
Let me tell you something about myself. I do not mind saying that my income is in the mid $40,000 range, which is a very reasonable income. I have three children, two in university, one in high school. I have a house, electrically heated, because we were told we were going to live better electrically.
I know my budget, and to say that this tax is revenue neutral is absolutely ridiculous. This tax will increase my electricity, my gasoline, clothing my kids, the parking I pay when I go to work, and it will totally devastate what is left of my budget. Wages in the private and public sector have been frozen for the past five or six years. Most average Nova Scotians and Canadians are living from pay cheque to pay cheque. There is absolutely no room to pay this additional tax.
Minister Gillis said there is a tax break for Nova Scotians for the first time in history, and he often talks about this. Let me tell you what the tax break is. I just did my tax return for 1996. I will get back $183 under the tax break, but my other costs will go up by, I figure, around $700. That is taking into account stuff like shampoos and soaps and other items that we do buy.
As far as going out and buying new cars and fridges and stoves, I am not about to do that. When they lump all this altogether, to me, they are talking apples and oranges. The basic necessities of life are going up by 5 per cent and 8 per cent, and they end up saying, "Yes, but the price of a car is going down, and the price of this is going down." That is two separate issues all together.
Sure, maybe in a couple of years I might benefit, if I do buy a new car or a major ticket item; but in the meantime, what has it done to my cash flow? I consider the running of my home a small business in a way. I need cash flow to operate, and this tax will devastate my cash flow.
I am not aligned to any party. As a matter of fact, I intend to vote Liberal both federal and provincially, and this tax is wrong. This tax will hurt the average Nova Scotian. I am not in the low income group, so I will not get any special tax reductions. I am not in the high income group, so I cannot absorb this added cost.
That is all I have to say. This tax is wrong, wrong, wrong, and I hope that you look at it impartially and do something about it.
Ms Lorretta J. Smith: Thank you for taking the trouble to listen to our very real concerns, the concerns of those who will be most affected by the implementation of this unjust tax. We have been totally ignored by our elected representatives, both federally and provincially. Mr. Chrétien is not a political neophyte. This tax is not about finances per se. It is simply a political manoeuvre to ease the pressure on the federal government to honour its pledge to get rid of the GST. It is significant that only Nova Scotia, New Brunswick, and Newfoundland, which all have majority Liberal governments, are being forced into this nefarious scheme. Mr. Chrétien is not a political neophyte and knew or ought to have known the full ramifications of removing an established tax. He served as Finance Minister in a previous government.
If this pledge were in fact an honest mistake, the honourable solution would be to admit the error and let it lie. Instead he has come at it with the Premiers and Finance Ministers of these three provinces which have majority Liberal governments to put on a show of party solidarity and make it appear that he is keeping his promise to the people.
Various ministers have stood up and declared that the people want this tax, and that is a blatant lie. It is evidenced by the strong public protest; letters to the editors of the various newspapers, innumerable letters to MLAs and MPs -- which are being totally ignored -- and the representations to the Law Amendments Committee of the Province of Nova Scotia.
Based on my previous expenses, for fuel, lights and gasoline, I will be forced to spend an additional $346.74. This does not include the extra 8-per-cent tax on various other items which are not now taxed provincially.
The added burden of this tax will be greater for families with children who now must pay only the 7 per cent on less expensive clothing and footwear. The cost of a stamp will increase from 48 cents to 52 cents, but only in the Atlantic Provinces. Funeral expenses will also increase by 8 per cent. We do not yet know the full details of this blended tax, and in fact neither do the MLAs who signed it.
This diabolical tax grab has been so hastily contrived that the details were not worked out prior to the agreement being signed with the provinces. This tax is neither fair nor just, and it is most certainly not democratic. The brunt of this tax will affect most seriously those who are the least able to afford it, seniors, people working for minimum wages, and other disadvantaged groups.
In the meantime, the affluent, who can afford luxury items such as new cars, furniture, restaurant meals, and sundry forms of entertainment will enjoy a 3.8-per-cent decrease. Just as important is the fact that we in Nova Scotia will be surrendering the right which we have enjoyed since 1848 to determine our own taxation policies. We shall not be only at the mercy of the federal government, but also the governments of the other two signatories.
I suggest to you that no government outside of fascist, communist, nazi countries has the right to take such a momentous step without the full consent of the electorate. This they do not have.
If as he has stated, Mr. Chrétien cannot honour his pledge to replace the GST, the only sensible course is to let it lie as it is. There is no point in making a bad situation worse and inflicting a greater burden on the people of this region.
Ms Sonja Meisner, Investment Property Owners Association of Nova Scotia: Honourable senators, I would like to thank you for allowing us the opportunity to present to your committee our views regarding the harmonized sales tax and its affect on our industry.
The Investment Property Owners Association of Nova Scotia is a non-profit organization established in 1978 to represent the interests of owners and operators investing in the multi-housing industry. Our membership is made up of small, medium and large owners. Eighty-five per cent of our membership consists of small investors in this province.
Landlords of apartment buildings providing long-term residential accommodation to people in Nova Scotia will not recover the HST they pay on business expenses. The resulting increase in costs is directly attributable to the provincial portion of the HST. Landlords will have no choice but to compensate for this cost increase by reducing discretionary spending on items like repair and maintenance. This will result in a decrease in quality and lower standards of accommodation for tenants.
The Investment Property Owners Association of Nova Scotia asks the Government of Nova Scotia to consider a provincial rebate for landlords. Such a rebate would compensate for the cost increase caused by the HST, and would allow landlords to continue to provide the same quality to tenants while not suffering financially. However, the government of Nova Scotia has not agreed to our request.
We believe that a rebate to landlords of a flat amount per residential rental unit once a year would resolve our problem. For example, an amount of $75 per unit times the 100,000 rental units in Nova Scotia, we believe, would be a fair investment in our industry to offset the financial burden being placed on it by the HST. Such a rebate would be in keeping with the government's commitment to strengthen small business. Already the landlord of an apartment building must pay the GST on many of the costs of doing business. With harmonization, the HST of 15 per cent will have to be paid on most of these business costs. In many cases, an increase in rent to offset the additional cost is not practical. The result will be decreased discretionary expenditures and a lower standard of living for tenants who will still be paying the same amount for their shelter costs.
While the expenses in the rental marketplace continue to rise and no increase in rent is practical in that marketplace, the landlords return on investment, already small, will become even smaller. This will discourage potential investors in the rental industry and prevent the continuous building of new rental housing.
Where landlords are concerned, the 8-per-cent increase in taxes on items formerly not subject to the provincial sales tax is considerably higher than the 3.77-per-cent decrease in taxes on other items, where the two taxes now apply. This is because items like fuel oil, electricity and property management fees are major components of the cost of operating an apartment building, and the cost of these items will go up 8 per cent when the HST comes into effect next month.
For example, the net loss to the landlord due to harmonization will be $20,000 per year on a 200-unit building, and those calculations have been demonstrated in a formal submission that I believe you have received. Landlords are business people, and they have to recover their costs by passing it on to their customers, the tenants. However, as noted a few moments ago, in most situations, increasing rent is just not possible given vacancy rates and competitive pressure. This means that the landlord will have to absorb the cost of the tax increase which could cause situations that force landlords into insolvency. At the very least, the HST will mean a lower rate of return on dollars invested.
According to Statistics Canada, information presented in the "Canadian Small Business Financial Performance Survey," 1995 edition, the return on capital employed in the accommodation services sector in Canada is 2.7 per cent lower than an individual could get investing the same money in a term deposit. The HST makes the purchase of an apartment building as an investment even less attractive.
For a landlord considering selling a building, it means an even lower price for that building, a lower net income caused by the HST for reasons noted. It will also adversely affect the amount of financing available to a landlord on a specific building and will have negative effects on refinancing existing buildings.
In addition, low return on investment results in lower property assessments which will result in fewer tax dollars being collected by government. The HST will have considerable negative implications for tenants as well as landlords. In situations where landlords can increase the rent, the tenants will be faced with a rental increase. Rental increases have social consequences. Tenants compensate by decreasing spending in the other areas. This reduces consumption and discretionary spending. In some situations, however, people cannot afford any cost increases and will be forced to cheaper rental accommodations. This means they will get lower quality for the same rent they are currently paying.
It is unfortunate that because of this tax, the cost of one of the basic necessities of life, shelter, will increase. Many policies support and encourage small businesses, yet harmonization will do the exact opposite in the rental accommodation sector, by adding to costs and hurting small business landlords who are not well equipped to shoulder these expenses.
We would appreciate serious consideration by the federal and provincial governments of steps to alleviate the negative consequences that the HST will have on Nova Scotia tenants and landlords, and we have made a suggestion in this regard.
I would like to add to an earlier comment by the Honourable Senator Buchanan. Although we are a different group from the physicians, the principles still apply. We are another group that cannot pass on the increase. We feel that the said expenses can be recovered as an income tax reduction, but this is different. It is the same as any other business in Nova Scotia, so in a practical sense, they just cannot pass that along. We ask for fairness. That is all we ask, and hope that you will give us another consideration.
Ms Carol White: I would like to fill you in on how I came about trying to get into this meeting. I was in Church on Sunday morning. I heard my minister preaching and she was desperately saying that our benevolent fund is at its limit, that she has never seen in all her years as a minister so many people in such drastic ways, needing money for food and clothing, single mothers needing money for heat and food for their babies. Being a concerned person, I approached my church representative after the service and mentioned, "Did you know that the Senate was coming down to hold hearings about the HST?" I prefer to call it the BST, but anyway, he said, "No, she had not heard." I mentioned that I saw it in the Halifax Chronicle Herald that they were coming in March, and she said that she certainly would like any information I could get on this. So I said that I would look into it.
On Monday, I started phoning around, realized from the Chronicle Herald that it was coming this Thursday, which was very unfortunate because, as you know, to get all the churches together in the metro area, discuss an issue and draw up a brief is very difficult. I just want to fill you in briefly. I called my MP's office and was treated very rudely, was lied to, even though it was mentioned definitely in the paper, as to the time and place and so on. I phoned my MLA who had no information either. Finally I called the Senate's 1-800 number in Ottawa and was transferred to your Banking Committee. Finally I received some information.
Then I proceeded to call back everybody I had called before, and they all said, "Oh, wonderful tell us what you found out because we know no more than you do." I also called the Chronicle Herald editor, and he had no information. He said, "I can send a reporter there, but I do not know the time, place or anything either." Therefore, I am sure you will forgive me if I gained the impression that this was political posturing on your part. I hope that is not the case. I hope you are concerned and interested in what we have to say.
I am speaking not only on behalf of the poor, but as a citizen of this province who is extremely concerned and who will definitely be affected by this tax.
The government's downloading is causing a strain on all ad agencies right now. This tax will exacerbate an already desperate problem, adding more cost to clothes, heat, gas, electricity, social services.
I am a substitute teacher. Since moving here I have been unable to find a permanent job. I was in a school the other day, and one of the teachers mentioned that the social therapist was saying that people are separating, they need help for their children. This tax will add to that situation. Help. This is ridiculous. There is not enough help out there for children today in the educational system, and here we are adding more problems.
The government's suggestion that we will save is ridiculous. My washer and dryer were bought in 1970. They are still going strong. I hope they last for another 20 years. Needless to say, I buy clothes all the time, I heat my house with electricity, which, as you know, is extremely expensive. I need gas to get to the schools where I teach out in the country, wherever. This will definitely affect my life as well as the lives of all of the poor people out there.
One other thing, I heard the housing group representative tonight. My husband and I really enjoy Nova Scotia, have loved it here since we moved here three years ago from Ottawa, and feel that we would like to settle here. This past week we looked into buying a lot and building a house. We were told it will be $3,000 more for our lot after April 1, and another $3,000 to $4,000 added on to the cost of building our house.
I am formerly from Prince Edward Island. Believe me, as the gentleman over there said earlier, that link across the way is looking more inviting all the time.
I also talked to a teacher who said she was looking into airfare to fly out for March break to somewhere. She said, that is an added cost. Perhaps people will drive to P.E.I. and take the flight from Charlottetown. Certainly it will make an awful difference in all of our lives, and unlike many of the people here who have suggested they would like a change, I do not want a change to this tax. I do not want this tax at all. I want it stopped.
Ms Linda Triff: My husband and I separated in 1995. At first I moved out and I left my children with him as I did not want to bring them up in poverty. My children were begging me to come back home so I did. I got a part-time job at Tim Horton's and my husband must pay child support. I calculated that although we may need to give up some luxuries we might be okay. I have been keeping my head above water for the past year and a half.
What does the HST mean to me? It means less income and more expenses. Why less income you may ask? A medium coffee at Tim Horton's now costs $1.05. Some people give us $1.25 and the $.20 is a tip. After HST the medium coffee will cost $1.13, and only $.12 will be tip. A medium coffee and a donut now costs $1.69. Some people give us $2 and $.31 is tip. After the HST it will cost $1.82 for a medium coffee and a donut, and only $.18 will be tip. Automatically my income goes down.
Also, if coffee sales drop due to the price increase there will be fewer hours to work. If it is not busy, as with the storm today, workers are sent home early. I lost an hour and a half today because of the storm. I only worked four hours instead of five and a half hours. This tax will not increase sales and therefore will not increase the number of jobs at Tim Horton's.
There will be more expenses. I have two boys, ages 13 and 14. Their shoes and clothes will cost more, my oil, gas and power will cost more, personal care will cost more. A meal in a restaurant will cost less but I cannot afford that now. They are eating me out of house and home, and I certainly will not take them to a restaurant.
A new car will cost less but I will not be getting one of those either. Mine is a 1985. Also, I am worried that this tax will only be in three provinces. Let us wait until all of Canada is on board. If it costs more for national companies to print catalogues for our region who will pay that added cost? Of course it will be passed on to the consumers.
I cannot cut much further. I do not smoke and I do not drink. I have both boys in hockey, as I prefer to have them there than on the streets, and I do not want to have to give that up. The one thing I could perhaps cut is my entertainment, which is volunteer work with Blind Sport Nova Scotia, but who will that hurt.
Please consider what this tax will do to people in my circumstances. I do not need the government to force me further into poverty. Also, what about women who are in an abusive situation? They may be further discouraged from leaving as the costs of their basic necessities increase. Please consider all possible consequences of this tax before imposing it on us.
The Chairman: Senators, our final witness today is Mr. DiGiacinto.
Mr. Igino DiGiacinto: Mr. Chairman, senators, my name is Igino DiGiacinto. I would like to begin with a little history and an apology to the late President Abraham Lincoln. Zero-point-three-score years ago our federal government brought forth in this country a new tax, the GST; conceived in dictatorship and dedicated to the proposition that all Canadians shall pay, not according to their will but by the will of the dictators.
Now we are engaged in another confrontation, the HST; testing whether the present government or any government so dedicated should suppress the will of the people. We are met on a small portion of that vast Canadian territory. You have come to listen to those who here will give their majority opinion, that that tax shall be abolished. It is all together fitting and proper that we should do this.
In a large sense at present, we, as the people of Nova Scotia, cannot prevent the HST from becoming law. However, those like yourselves can prevent this from happening, far above our power now to add or detract. Canadians will little note nor long remember what we say here but they will never forget what you were able to do here. It is for you to be dedicated here to that task which Canadians have fought thus far. It is proper and fitting for you to be here dedicated to that great task; that from your hearings you take increased devotion to that cause for which Canadians desire, that you here highly resolve that the wishes of Canadians shall not die in vain; that Canadians under God shall see their desires adhered to and that government of the people, by the people, for the people, shall remain supreme. Will it be democracy or, as Duncan Fraser calls it, elected dictatorship?
By whatever designation you call it, BST, HST, the tax remains a GST. It is a goods and services tax. The tax is also known as a value-added tax and a consumption tax. Now, in all honesty, the GST as a consumption tax is extremely effective. In the 1993 federal election it consumed the Conservative government.
We are told that the HST will boost and help the underground economy. That is true. I cannot argue against that statement. The HST will benefit the economy; the underground economy. Prior to 1991 I often read in the literature about the underground economy, but always related it to Europe and those countries that have a similar GST. Of course, in Canada, there was and there always will be some tax evasion, but since the introduction of the GST, Canadians have discovered a way of life which they now practice and yet would prefer to avoid. With apologies to Alexander Keith's Ale, those who like the underground economy like it a lot.
Perhaps I am a naive person. Years ago when I first heard that a tax would be applied to food and services it was mind-boggling. Who would do such a stupid thing? Well, in 1985 the Conservative government in Nova Scotia did it with a tax on services -- check the records of Senator Buchanan -- and in 1991 the Conservative Government of Canada did it. Perhaps this trait to tax food and services is in the genes of all Conservatives and somewhere along the line they impregnated the Liberals. I really do not know.
However, I see a sign of repentance from a former minister who was part of that Nova Scotia government who brought in a GST in 1985. In the closing minutes of the debate on the HST here in the Nova Scotia Legislature, Halifax Citadel MLA, Terry Donahoe, said:
I would ask this government to reconsider what may be the stupidest thing it has ever done.
For years I have asked myself, "Why do people, governments, keep repeating and doing stupid things?" There are alternatives. I refuse to believe that fairer taxation cannot be achieved. Then, on October 5, 1996, after all these years, I found the answer to my question. The President of the Czech Republic, Vaclav Havel, was asked to identify his biggest fear. His answer:
"What do I fear? I fear human stupidity, which is indestructible."
I thought bribery and accepting a bribe was illegal, but I suppose that does not apply between the federal and provincial governments. The spin doctors will say that the HST agreement is a normal business deal. It is amazing what can transpire to serve political careers and promises. I can just visualize the following scenario after the three wise men from the east signed the HST deal and received their gold, frankincense and myrrh, $1 billion gifts:
Finance Minister Paul Martin goes to see Prime Minister Jean Chrétien. As they meet in the Prime Minister's office they greet each other with a big smile and give each other the high five. Prime Minister John Chrétien says, "Congratulations, Paul, you did it." Finance Minister Paul Martin responds, "Yes, Jean, it was very easy. What P.T. Barnum said in the 1800s still applies in the 1900s, "There is a sucker born every minute."
Former Nova Scotia Finance Minister Bernie Boudreau requested that Nova Scotians judge for themselves the merits of the HST. That was commendable. Nova Scotians responded and the majority opinion was against the HST. The Nova Scotia government knows it. In fact, our present Finance Minister Bill Gillis and his team of spin doctors were caught with their hands in the bias propaganda jar. Also, the province concedes that we Nova Scotians will be paying $83 million more in taxes. This is reality. The province tells us that harmonization will create jobs and lower the price of goods because business expenses will be lowered. This is only a hope and a dream. I am reluctant to put my financial future on the dreams of politicians knowing their track record.
However, I must admire the cleverness of how the HST is applied. Most items will go down in price. Fewer items will increase. Many of the items that decrease are those which are purchased once over a long period of time, and they will drop by 3.77 per cent. The items that increase are basic essentials purchased on an ongoing basis and will rise by 8 per cent. However, for an automobile, which is a high-priced item, the HST will be 15 per cent, and the Nova Scotia government will add a 2-per-cent surtax in 1997, which will drop to 1 per cent in 1998 and disappear in 1999. If you purchase an automobile, I suggest you leave it in the garage or driveway. As you continually purchase the gasoline to run it, you eventually end up paying more taxes than you saved. If you buy a stove, refrigerator or other appliance, I suggest you do not plug it in and use it, because as you use it you end up paying more taxes.
To avoid these higher taxes I suggest the following tax avoidance ideas: One, do not die; two, let your hair grow; three, cover the holes in your shoes with wood; four, do not dry clean, just tell people that your stained clothes are the new fashion; five, do not call your children; six, study accounting, law and any other service you may require; seven, freeze during the winter; eight, use candles and eat canned food; nine, buy a bicycle or walk; and ten, do not brush your teeth.
Senators, I am trying to demonstrate how stupid this GST has turned out to be. Now, for a few moments let us look at the effect of the GST on the careers and reputations of politicians. Former Prime Minister Brian Mulroney; the GST was the flagship of the fleet of causes that led to his resignation and tarnished reputation. The GST senators -- I think there are some here today -- this unpleasant characterization they must live with. Solicitor General Herb Gray; his spin on the elimination of the GST is pathetic for a senior statesman.
Deputy Prime Minister Sheila Copps; the former rat and wonder woman of Canadian politics turns out to be the wicked witch. Her manipulation of her resignation lost her credibility. Finance Minister Paul Martin; a few weeks ago at a business meeting he made humour of the fact that he apologized for not abolishing the GST. This could come back to haunt him. Prime Minister Jean Chrétien; the Lone Ranger in the battle to abolish the evil GST turns out to be the Joker. He never lied; we, the public, we are confused and misunderstood his statements. Perhaps somebody will give him a new French-English dictionary. He even had the audacity to try subtly to convince us that an act of God prevented him from abolishing the GST.
MP John Nunziata; another former rat, but this one became a martyr for honesty in government. He has set the ideal standards which Canadians expect their politicians to meet. His political career is not over yet but his future in politics is no doubt clouded at this time.
I did not make a presentation to the Law Amendments Committee of the Nova Scotia Legislature when the HST was being passed. I felt that it was useless to talk to the dummies, I wanted to talk to the ventriloquists. I hope I have found them today.
Senators, I urge you to consider when making your decision, all of the ramifications of the HST and the wishes of Nova Scotians. Your decision must not be based on politics. It is not about a broken promise but about character and integrity. It is not about past performance but a public trust. It is not about accepting a new policy but putting into effect the will of the people. It is not about forgiveness but justice served. It is not about punishment but a deterrent to present and future politicians.
The Liberal Red Book states:
Canada needs a change in direction....Canadians are fed up with the way Ottawa works.
The Chairman: On behalf of the committee, a number of people I see have been here for the whole session, and we thank you very much for coming. It has been a long seven hours.
Senators, we are adjourned until nine o'clock tomorrow morning.
The committee adjourned.