Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 19 - Evidence for September 20, 2000
OTTAWA, Wednesday, September 20, 2000
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-24, to amend the Excise Tax Act, a related Act, the Bankruptcy and Insolvency Act, the Budget Implementation Act, 1997, the Budget Implementation Act, 1998, the Budget Implementation Act, 1999, the Canada Pension Plan, the Companies` Creditors Arrangement Act, the Cultural Property Export and Import Act, the Customs Act, the Customs Tariff, the Employment Insurance Act, the Excise Act, the Income Tax Act, the Tax Court of Canada Act and the Unemployment Insurance Act, met this day at 3:50 p.m. to give consideration to the bill.
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: We are holding hearings on Bill C-24, which is the Sales Tax and Excise Tax Amendments Act of 1999. Appearing first will be Mr. Roy Cullen, Member of Parliament and Parliamentary Secretary to the Minister of Finance. Attending with Mr. Cullen are several officials from the Department of Finance.Mr. Cullen, welcome. I will give you the floor to make your opening statement. Following that, if there are any questions, we will pose them.
Mr. Roy Cullen, Parliamentary Secretary to the Minister of Finance: I thank honourable senators for the opportunity to outline the measures in Bill C-24 and to answer questions.
As honourable senators know, the federal tax system affects virtually all Canadians. It affects not only their standard of living as individuals, but also their ability to compete and grow as a nation in the global community.
[Translation]
The government actively tried to ensure that the fiscal regime be fair and that any useless complexity be eliminated. They also want to provide targeted aid to those in need, such as volunteer organizations and the disabled.
[English]
At the same time, the government has consistently pursued the objective of sustaining and enhancing the federal tax system in a manner that promotes federal-provincial cooperation and harmonization. These are the goals and objectives underlying the bill before you today. While Bill C-24 is primarily aimed at improving the operation of the goods and services tax, the GST, and the harmonized sales tax, the HST, it also implements other important measures related to specific taxes on certain products.
In particular, Mr. Chairman, the bill contains measures that deal with the taxation of tobacco products. Honourable senators are certainly aware of the government's commitment to reducing smoking rates, particularly among younger Canadians. The government is also committed to providing leadership on tobacco control, a commitment that is reflected in the national action plan to combat smuggling, which was launched in 1994. The action plan has had a significant impact on contraband, so that, in co-operation with participating provinces, the government was able to increase taxes on tobacco products in 1995, 1996 and 1998. These increases have been monitored closely to ensure that they do not result in renewed smuggling activity.
[Translation]
Bill C-24 increases by 60 cents the federal excise tax on each carton of 200 cigarettes to be sold in Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island, the five provinces which are participating in the government plan against contraband. These same provinces will increase provincial taxes on cigarettes at a comparable level.
[English]
Excise taxes on tobacco sticks will also be increased in Ontario, Quebec, New Brunswick, and Prince Edward Island, re-establishing a uniform national tax rate in all provinces and territories. Furthermore, this bill makes permanent the current 40 per cent surtax on the profits of tobacco manufacturers.
On a related issue, as outlined in the February 1999 budget, Bill C-24 contains measures to implement a reduction in the annual exemption threshold for the tax on exported tobacco products.
This measure is intended to reduce the supply of Canadian-made tobacco products in export markets that could potentially be available to smugglers.
Honourable senators, the proposals in this bill relate to the taxation of tobacco products and reaffirm the government's commitment to reducing tobacco consumption in Canada. At the same time, the government will continue to be vigilant in combating the level of contraband.
An important component of Bill C-24 reflects the government's responsiveness to the health and social needs of Canadians. For example, the government recognizes that many Canadians are providing care for family members, often an elderly parent or a disabled child. Bill C-24 enhances federal support for Canadians who are striving to meet the growing demands of caring for family members with an infirmity or disability.
The government has introduced numerous measures to assist individuals with disabilities in past budgets. Bill C-24 builds on these actions and the significant level of tax assistance that is already available.
Another health care measure includes the continuation of the GST and HST exemption for speech therapy services.
[Translation]
Furthermore, the bill corrects an unfair situation in ensuring that the sales tax should not be discriminatory toward duly qualified psychologists. And, as I indicated earlier, the government undertook to offer a fairer tax system to Canadians. Bill C-24 upholds this undertaking in more ways than one.
[English]
In recognizing the important role of charitable organizations in helping Canadians and enriching their communities, Bill C-24 addresses the special circumstances faced by charities which have as their main purpose the provision of care, employment training, or employment placement services for individuals with disabilities. These charities will now be able to compete on an equal footing when selling goods or services to GST-registered businesses. The rules for the streamlined accounting method for charities are also refined.
Mr. Chairman, a number of amendments clarify and refine the application of the sales tax system. For example, the bill clarifies the sales tax treatment of transactions between natural resource producers and exploration companies. I would like to point out that these, and many other amendments, were developed in response to representations from the tax and business communities.
This reflects the government's ongoing commitment to monitoring the operation of the tax system to ensure it is efficient and as simple as it can be, in order that businesses may comply.
[Translation]
As a result of the collaboration process between the federal government and energy sector companies, this bill simplifies the administration of the GST and the HST in that sector. These changes will ensure that Canadian companies will remain competitive on the international marketplace.
[English]
As honourable senators know, the federal government is well aware of the importance of the travel and tourism industry to Canada's economy. The GST-HST visitors' rebate program is an important tool in promoting tourism, particularly the accommodation and convention measures. This program is one of the ways in which the government has helped to promote Canada as a tourist destination and to support the tourism industry in creating jobs.
Bill C-24 proposes a number of changes to the visitors' rebate program to further promote Canada as a destination for tourists and a place to hold conventions.
[Translation]
I would like to indicate that the federal government will continue to consult with business in order to improve the sales tax system operator. The government will also continue to improve the administration and the compliance of the sales tax system.
[English]
Bill C-24 amends several provisions to update them relative to current administrative practices and to achieve greater harmonization of administrative and enforcement provisions in the various tax and duty statutes. Further, the efficiency and effectiveness of the assessment, appeals and collections provisions are improved.
Mr. Chairman, I mentioned earlier that Bill C-24 contains measures relating to other specific levies on certain products. In accordance with the 1997 decision of the World Trade Organization, this bill repeals the provisions relating to the excise tax on split-run editions of periodicals.
With respect to customs tariffs, the bill increases certain duty and tax exemptions for people returning to Canada after a minimum period abroad. These proposals will make it easier for travellers to clear Canadian Customs and is another example of the steps taken by the government to improve service for visitors and Canadians returning to Canada.
[Translation]
The government remains committed to enhance native self-government and has often reaffirmed its intention to reach tax agreements with those First Nations who want to exercise their own right to taxation.
[English]
Bill C-24 contains technical amendments that will enhance the harmonization of First Nations' sales taxes with the GST and ensure that the definitions are consistent with those in other federal statutes.
In closing, honourable senators, I should like to point out that the measures in Bill C-24 will refine, streamline, and clarify the application of the tax system. At the same time, the bill responds to social issues that are important to Canadians.
[Translation]
At this point, my staff and myself are now ready to answer your questions.
[English]
Senator Tkachuk: There are so many issues, minister, in this bill. Many of these items date back to 1992 and 1997. Was this proposed legislation a priority of the government? Why did it take so long to bring this bill before the House of Commons and the Senate?
Mr. Cullen: Mr. Chairman, we had hoped to deal with Bill C-24 in the last session, but we were not able to get it to the Senate because of the huge load of legislation we left you with before we broke for the summer.
Many of the other provisions do relate to initiatives in years past. It is a matter of having the time and the legislative agenda and program of both the House of Commons and the Senate to bring these measures forth.
Perhaps the departmental officials could comment on any other technical reasons for the delays. However, apart from the legislative agenda and the priorities of dealing with a massive amount of legislation, this bill probably just kept falling in the priority list. It is not to say it is not a very important piece of proposed law.
Ms Marlene Legare, Senior Chief, Sales Tax Division, Tax Policy Branch, Department of Finance: Honourable senators, I would add that this bill is the product of an ongoing process of refinement. For the most part, the measures deal with refinements to the GST. As the need for amendments is identified, typically, the process would begin with the issuance of proposed measures and a consultation period with industry prior to the development of more detailed draft legislation, which then undergoes a process of further consultation before the final bill.
At any time, any particular measure may be at a different stage in that process. The department makes a judgment call each year as to when to close the door and say that the measures that are in progress will go into a subsequent bill and anything that is ready to be put forward to Parliament should proceed. It is always a balance between the number of bills that we put before the Parliament and the Senate each year and the length and timeliness of the passage of legislation.
There are measures in this bill that relate to the 1998 budget. At the time that those measures were proposed, this technical bill was in progress in the sense that there were many other technical amendments being developed. Some had already been proposed and were in the public domain for consultation purposes.
We had to make a call as to whether the budget measures should go in a separate bill on a different track rather than rolling them into a larger bill that dealt with many issues relating to the tax. The decision at the time was to roll it into the larger bill. At the time we did not anticipate that the process relating to the other technical measures would be as lengthy as it turned out to be.
Hindsight being what it is, we could probably have made a different call on going forward with the measures that were completed at the time.
The department is concerned about the timeliness of the bill and when it is brought forward. In light of that, we are generally looking to ensuring that budget measures in particular proceed on a separate track if it looks as though a larger, technical bill will take some time to develop, even if it means a relatively small bill. As I said, in hindsight, perhaps the decision might have been different, and we will certainly attempt in future to ensure more timeliness than we have achieved with this.
Senator Tkachuk: It bothers me, because some of the tax laws that are being administered here are four to eight years old. What would the implications be if, for some reason, the bill had been defeated?
Ms Legare: As you know, the protocol has been that the Revenue administrators will administer on a provisional basis. You are right that the members of the tax-paying community are proceeding on the expectation that the measures will be enacted. It would be possible to put them into a position where those measures had not been enacted, but clearly that would not be the easiest thing for businesses to deal with. We appreciate the fact that timeliness and providing taxpayers certainty that legislation will be a certain way is an important objective.
Mr. Cullen: I would add that I share your concern. When I was first briefed on this bill, I was surprised that the measures went back so far. The minister is equally concerned. We just have to do a better job of bringing the measures forward more quickly. I take your point and will attempt to do that.
Senator Tkachuk: Does the visitors' rebate program apply to all purchases made by tourists, or is it just for hotel and convention costs?
Ms Legare: The visitors' rebate program applies to all goods that are purchased in Canada for export, I believe within 60 days, by non-resident persons. The amendments to that program in this bill relate specifically to conventions, foreign conventions in particular, as well as to camping fees. There is an extension of the available rebate for short-term accommodation to camp rental fees that were not previously covered by the program.
Senator Tkachuk: How much do you rebate a year in the present program?
Ms Legare: I do not have that figure with me at the moment, but I can undertake to provide you with it.
Senator Tkachuk: I would like to know the figure you rebate, the cost to administer the rebate program, and how many individuals actually apply.
Mr. Cullen: We will get that information for you through the Chair.
Senator Kenny: Mr. Cullen, my first question is about the surtax that was applied in 1994 at the same time the excise taxes were reduced to deal with smuggling. At the time, the Prime Minister announced that the money generated from the surtax would fund the largest anti-smoking campaign this country had ever seen. It is estimated, and I would be happy if you or the officials corrected me, that this surtax raises between $80 million and $90 million a year; yet we know that Health Canada only has $20 million in its budget for its tobacco control programs. I would like some explanation of this discrepancy.
Mr. Cullen: Perhaps I will begin. Certainly I know of the excellent work of the senator and his interest in this topic. Combating youth smoking is clearly an objective that we all share. As to the programmatic spending in Health, perhaps Mr. Willis has the numbers.
Mr. Brian Willis, Senior Chief, Sales Tax Division, Tax Policy Branch, Department of Finance: The number the senator has given, of $20 million, is the correct number per annum over the next five years.
Mr. Cullen: Perhaps it is not sufficient and needs to be enhanced, but as you know, saying that there should be a one-to-one correlation between the surtax and the amount that goes into such program spending comes back to the issue of dedicated taxes. You are familiar with the minister's views on that. We can always spend more in this area, and I am sure the government is predisposed to giving that reconsideration.
Senator Kenny: Is my estimate that the government realizes $80 million to $90 million a year from this surtax correct?
Mr. Cullen: My understanding is the figure is about $70 million.
Senator Kenny: What happens to the other $50 million, given the Prime Minister's commitment to the tobacco control program?
Senator Meighen: It goes into the surprising surplus.
Senator Kenny: Perhaps we will let the witness answer the question.
Senator Tkachuk: We will give you better answers.
Mr. Cullen: I am not sure exactly what the Prime Minister did say, but I know the Minister of Finance, as you know very well, Senator Kenny, is not very favourably disposed toward dedicated taxes. Perhaps Mr. Willis can comment on that specific question.
Mr. Willis: Mr. Chairman, the senator is correct. The Prime Minister did indicate in 1994 that the funds raised from the surtax would be allocated to anti-smoking programs. In fact, I believe at that time the estimate was around $60 million to $70 million per annum, which would come out to about $200 million over the three-year period to which that announcement pertained. Those funds were in fact allocated to Health Canada for use in those programs. Over the course of the next two years, the department instituted a number of programs. If my memory serves me correctly, they spent approximately $110 million to $120 million on tobacco control programs over about two years.
In the latter stages of that two-year period, we were into program review, and all departments were asked to identify programs where they could reduce expenditures. While I was not party to the particular discussions, I understand that one of the programs identified by the Health department was the tobacco spending program. They made substantial reductions in that program near the end of the second year of the allocation.
Subsequently, the government decided to extend the surtax for an additional three years, but by that time, the link between the funding and the expenditure programs had been broken. It had never been intended from the start to be more than a three-year program. Given the decision in the course of program review that this expenditure program would be reduced -- admittedly a difficult decision but one someone had to make in terms of cost reductions -- the surtax revenues were then allocated to the CRF to fund all programs.
As Mr. Cullen has indicated, certainly our minister strongly prefers not to have specific earmarking of taxes, in order to allow the expenditure system to operate freely and ministers to identify the priorities on each individual program and allocate funding according to relative priorities of overall programs.
I think that is the context in which, over the last few years, the spending on health and tobacco control programs has grown, but you are correct that it is less than it was in the 1994 period.
Senator Tkachuk: May I ask a supplementary? Does the Prime Minister, and the government, apply the same theory of tobacco control and dedicated tax to unemployment insurance? It pays out a lot less than it takes in. Is that a dedicated tax? Does it happen in other areas that a tax is used to supplement government income and not really pay for the programs to which it was dedicated?
The Chairman: Excuse me. I am having trouble seeing how this relates to Bill C-24. You are free to ask anything you want, senator, but I am not sure these are the right people to ask.
Senator Tkachuk: He raised the issue of the dedicated tax.
The Chairman: I do not see how it relates to his question either.
Senator Kenny: I did not raise the issue of dedicated tax; the witnesses did.
Senator Tkachuk: The Parliamentary Secretary of Finance did.
Mr. Cullen: I would argue against your premise that EI premiums are a tax. It is an insurance program, where the revenues go into consolidated revenue and are used to finance government programs. At one time, the EI program was in a deficit situation. The government, and taxpayers generally, financed that deficit, and we are back to the same argument with which we are all quite familiar.
I would argue against your premise that the EI premium is a tax; I would argue that definitely it is not. It is an insurance premium.
Senator Kenny: How do you feel about levies on blank tapes? The amendments to the copyright legislation provided for a levy on blank tapes and all of the funds seem to go to a single source. Does that fit with the concerns you had, Mr. Willis?
Mr. Willis: My level of expertise on that legislation is quite limited. It was not Finance legislation, but was brought forward by the Industry minister. My understanding is that there was a decision taken that that the amount charged was not a tax, that it was something different.
Senator Kenny: Was it referred to as a levy?
Mr. Willis: In the minds of most, there is a fine distinction between a tax and a levy. Certainly most Canadians who have called in about that particular levy view it as a tax. Other than mentioning the decision that the charge was not a tax, was not imposed through a ways and means motion, and was not introduced as tax legislation, I have no knowledge or expertise in that area because the decision was taken by another department and another minister.
Senator Kenny: Bill C-24 deals with the 3 per cent exemption on tobacco exports. I have corresponded with the department at some length on this. I met with Mr. Drummond when he was still an official in the department. Why are you keeping this exemption at all? Two budgets ago, you reduced it by half a per cent. Now you are proposing to reduce it by another per cent. Why not get rid of it all together?
Mr. Cullen: From the discussions I have had on this matter, I know that it may appear somewhat arbitrary. However, a figure is set to allow some legitimate exports that companies would normally make in the course of marketing their products. It is an expedient way of allowing a certain amount to fit within that percentage.
Mr. Willis: If I may, I would just clarify one point. This bill reduces the exemption threshold from 3 to 2.5. There is a subsequent proposal in the most recent budget that is not contained in this bill -- the bill was already too far advanced at that stage -- which proposes to reduce it from 2.5 to 1.5. We are dealing with a proposal in this bill to go from 3 to 2.5, as per the budget of February 1999.
The answer to your question, senator, is that there is a legitimate market for Canadian products outside Canada, particularly in the U.S. There is also a view that if all exports were taxed, if we did not allow any exports from Canada without the $8 export tax, the companies would likely be forced to start producing those products outside Canada to meet that legitimate demand. They would most likely be reluctant to lose even that small market, since it has the potential to encourage Canadians to start smoking other brands.
We have an export tax in place which is designed to try to limit the quantities of tobacco products that are available outside of Canada to the contraband market, while not being so severe that it restricts the manufacturers' ability to meet the legitimate demand for their products.
Senator Kenny: Given that police organizations tell us that 85 to 95 per cent of the products smuggled back into Canada were originally manufactured here, why not tax the outgoing product at the full rate? Then if the manufacturer can demonstrate he has paid the tax in some other jurisdiction, you can give him a refund. That way, you would take away the economic incentive for the smuggler.
Mr. Willis: If I may, there are two points on this. The 85 to 95 per cent is a little out of date at this point. The most recent information we have from various sources, including both internal analysis and the enforcement agencies, is that the level of contraband returning to Canada has fallen to a low level.
The national action plan of 1994 has progressively reduced the quantities. With the reductions in the export tax that were proposed in the 1999 and 2000 budgets, the quantities of Canadian-made cigarettes being exported from Canada are very low.
At this point, the best information we have is that the contraband market is at a low level, and the percentage of Canadian product versus non-Canadian product is going down from the numbers that the senator just quoted. It is impossible to obtain a precise number, but the view is that the figure is no longer 85 or 90 per cent.
Excuse me, senator, what was your second question?
Senator Kenny: My second point was that if you export the product fully taxed, and a legitimate sale is made somewhere else, presumably there is a receipt, cancelled cheque, or something to that effect. Then you can refund the amount. The objective would be to take the economic incentive away from the smugglers.
Mr. Cullen: In principle, that is being pursued quite actively. In addition, as Mr. Willis points out -- and he will expand on it -- it is already partially reflected in the current legislation.
Mr. Willis: The export taxes imposed under the Excise Tax Act do contain provisions exactly as you have described, senator. When a manufacturer exceeds the export threshold, then he has to pay the tax, demonstrate that tax has been paid in a foreign jurisdiction, and receive a refund.
That particular structure was not put in place right from the first export because of the cash-flow impacts of a very substantial tax, and the difficulty that exporters frequently have in getting appropriate documentation on the entry of products into foreign economies.
The CCRA has told us for a number of years that for heavily taxed products such as beer, spirits and tobacco, they do require proof of export before providing exemption from domestic taxes on exported products. However, there are continual difficulties, either with the documentation not being available, and hence with their assessments against Canadian manufacturers even in respect of legitimate exports, or the manufacturer, because of the amount of money involved, is forced to come up with documentation that really has been put together after the fact.
One of the things needed to make the proposal work is to have in place a more formal structure with foreign governments for the necessary documentation, so that there would be a mechanism to verify that products actually were exported to a foreign economy. That is difficult to do, but as Mr. Cullen indicated, we are reviewing the options.
The minister has already proposed some tightening of the export tax, and he has certainly asked us to look at any other options that might achieve the kinds of objectives that you have proposed.
Senator Stratton: The EI surplus that we speak about as not being a tax produces somewhere around $34 billion, I believe. Would Mr. Cullen mind checking with the Minister of Finance? I believe that when the government reduces EI premiums, he calls it a tax reduction. I think you need to do some checking there.
Senator Tkachuk: It is a tax cut in all his budget documents.
Senator Stratton: When we have items in this bill that date back as far as 1992, do you take definitive steps to expedite them? If so, could you expand on what those are? Surely today, with business moving so quickly in the field, the government would not move so slowly.
Mr. Cullen: I certainly hear what the senator is saying. It is being reviewed with the department right now, with the intention of trying to expedite budget measures on a separate track so we can bring them forward on a more timely basis. I will certainly take that message back to the minister.
Senator Stratton: What will it be reduced from? Seven years to two? We have something that has been hanging around since 1992 or 1995, or whatever the year was. Do you have a specific time-frame objective in mind?
Ms Legare: Senator, it is very difficult to say in the abstract how much time there must be between when a measure is proposed and when it is brought before Parliament by way of legislation. This is primarily because the tax measures that we deal with, being highly technical pieces of legislation, necessitate a good deal of consultation, not only from a policy standpoint to ensure that we are covering the aspects of the issue that are intended to be covered, but also from the need to consult on exact wording when developing it to the stage of detailed legislation. How long any given measure will take depends on its complexity.
Having said that, I think that the main problem that has resulted in an especially long delay in this case is a timing decision. Once a particular set of measures has gone through that process and is ready to be put forward, should it then be put into a smaller bill, meaning Parliament would deal with more bills in a particular session, or should it be held aside to be included in a larger bill? We are developing a technical tax bill on an ongoing basis. Until now, the choice has probably been more in favour of combining measures so as to put forward fewer bills. I think the lesson that we learned from this experience is that it may be preferable to change the balance somewhat. That may mean putting forward smaller bills which would contain measures that would be enacted on a more timely basis. As I said, it is a trade-off between how many bills enter onto the agenda, and their size and timeliness. I think that certainly for budget measures, we are moving in the direction of smaller bills and ensuring more timely enactment.
Mr. Cullen: I take the point, senator, and we will be discussing it with the minister and department and seeing where we go from here.
Senator Stratton: It seems rather amazing that it takes that long to do something, especially now when we have that much pressure to move more quickly.
I would like to talk about the GST on fuel. As you are well aware, this has become a hot topic of debate with the rising prices of gasoline, natural gas, and heating oil. Can you give us an estimate of the increased government revenues as a result of the escalating fuel prices?
This issue is really "hot." I think Canadians should know what the increased revenues are to the government for gasoline, heating fuel, and natural gas. We should know those items, and Canadians should know them as well, because they are struggling to meet their bills. If you talk to farmers, you will hear that their farm fuel prices have sky-rocketed out of sight, and they are right in the middle of harvesting. The government is doing nothing. Could you please give me those numbers? If you do not have them today, I would be delighted to have them shortly -- but not a month from now, please.
The Chairman: I would make a suggestion. I understand the importance of the question. I do not belittle it. I am wondering if these are the right people to ask to get you that information.
Mr. Cullen: I have that information, but I am not sure that it is relevant to this bill.
Senator Stratton: I understand. I think it is moot to the bill. You are talking about the GST and harmonization. If I do not raise this issue with you today, then I am derelict in my duty. I must ask the question. Why would I not? I have you here.
Mr. Cullen: Mr. Chairman, this has become very topical as of late, and of course the increased cost of energy and fuel is a serious matter for all Canadians. For example, some truckers are getting very anxious about diesel. In fact our diesel fuel excise tax is about 4 cents a litre. The provincial taxes on diesel range from 9 cents to 16.5 cents. Ontario is about 14.3 cents. When we talk about the GST on diesel, I would point out that most truckers, for example, benefit from the input tax credits.
We are really talking here about a phenomenon. Oil prices are really driving the dilemma. Fuel taxes in Canada are a much lower burden than in Europe. The price of gasoline at the pump in Canada is of course much lower than it is in Europe. It has become quite comparable with many of the U.S. states.
We have here a very serious situation. The Minister of Finance has made it quite clear that if the provinces are prepared to participate in a coordinated effort, he is prepared to discuss it with them. In order to produce any significant relief, the provinces would need to work in concert with the federal government. The excise taxes on gasoline at the provincial level range from 9 cents to 16.5 cents, while at the federal level it is 10 cents.
Of course there is GST on gasoline, but this government is not really intending to benefit from the rising price at the pumps. In fact the excise taxes, as you probably well know, are on a per-litre basis. The only one that varies with the price, of course, is the GST. There are some additional revenues, fairly minor, that the government realizes on a per-litre basis because of the escalating price of petroleum products over the last months.
The government is looking closely at this issue. Some provinces have indicated that they would be prepared to work in concert with the federal government, and some have indicated they would not. Considering that the excise tax is a federal tax, it would have to be done on a national basis. For it to have any meaningful impact, the provinces would need to participate. The problem is that if you do anything, it has to be significant. You want to ensure it is passed on to consumers. How do you ensure that if you simply reduce the excise tax? What kind of meaningful system could you put in place to ensure that that relief is passed on to consumers?
We are sympathetic and are looking at it. The minister has indicated to the provinces that he is prepared to do something in co-operation with them.
Senator Stratton: As a closing comment, this is another example of something that should be dealt with quickly, but I can see it dragging out. This hurts the farmers very much now.
[Translation]
Senator Hervieux-Payette: I have just one question, but a technical one. If I look at the text of Bill C-24, in the margin beside certain clauses, you find the dates 1990, 1991, 1994, 1995, 1996, 1997 and 1998. All that is missing is 1999. And I must say that there are a large number of subclauses with the sections 1990 date.
Does this mean that the clean up you have done applied to the period 1990 to 2000 and that we will no longer be presented with another bill which contains some 100 to 150 clauses and refers to the same years? Has everything been covered or is this just a part that remains in abeyance and hasn't been dealt with over the past 10 years of budgets? Is this simply a piece of the pie or the whole pie?
Mr. Cullen: Senator Hervieux-Payette, the notes in the margins indicate the last time changes were made to that particular clause of the bill. It doesn't explain recent measures or this year's measures.
[English]
We have talked about the some of the measures going back a few years, but not back to 1990. That relates only to the last time that particular clause was changed or amended, as I understand it.
[Translation]
Senator Hervieux-Payette: Have you dealt with all of the backlog or is this just part of it? Will we get another bill within the next six months? That is my question.
[English]
Mr. Cullen: There are other bills in the pipeline. I can assure of you that. As Ms Legare indicated --
[Translation]
We always hold consultations with all the Canadians and stakeholders. There are always changes made to bills. Another bill will be introduced us the House of Commons today. This one contains technical amendments to excise taxes and other measures. There are always bills which are at different stages of the process in the House of Commons and the Senate.
[English]
Perhaps Ms Legare has some knowledge of other things in process.
Ms Legare: As Mr. Cullen indicated, it is --
[Translation]
Senator Hervieux-Payette: Do you speak French?
Ms Legare: When dealing with technical matters, I prefer to speak English.
[English]
As Mr. Cullen indicated, monitoring the operation of the tax system is always ongoing. I will give you an example. Very frequently, when the Canada Customs and Revenue Agency is in the midst of an audit, an issue will arise that has not been brought to our attention previously. Sometimes there is a question of interpretation of the legislation, for example, and it becomes clear for the first time that there is a possible alternative interpretation. That is one example of where we might want to amend the legislation retroactively to make the effect clear. In most cases, those retroactive amendments are made to clarify the law in the interests of all concerned, both administrators and taxpayers. That is one reason. Something could be discovered today that relates to legislation that was initially implemented in 1991, and we would make the amendment retroactive so there would be no uncertainty as to how the provision applied throughout that period.
Another example where it might be necessary to amend legislation retroactively is if a recent court decision were to shed doubt on the interpretation of a provision. Again, in the interests of providing taxpayers certainty and so forth, we would amend retroactively. As I said, that is an ongoing process.
Senator Hervieux-Payette: Retroactive legislation is frightening.
I have one last comment and question. This summer, I was in charge of a non-profit corporation. Including both GST and TPS, the governments owed us half a million dollars. We had to borrow the money at prime rate plus 1. We survived and will not go bankrupt, but I am thinking of small businesses. How long does it take to get the money? In this case, it was Quebec, but we signed the agreement. You should supervise how it is being implemented. We have reimbursements owing from February.
I am also wondering if there is a double standard. Do you pay fair market interest when money is owing, or is it just a small amount that does not cover the expenses being incurred by the organization?
Mr. Cullen: As you know, administration of the Income Tax Act, and all tax acts, falls within the purview of the Revenue Agency. We certainly will pass that message on. You are concerned with the timeliness of the refunds and the interest rate that applies.
Senator Hervieux-Payette: Yes. This is a very delicate question for smaller businesses because as it has a direct impact on their cash flow. The mandate of our committee is to ensure that legislation does not in fact discriminate and create unnecessary burdens on small businesses. It is nice to talk about loans, but the fact that we needed a bank loan because the government does not reimburse in a timely fashion creates a problem.
Mr. Willis: If I may, I will attempt to respond. This act contemplates charging interest where there is a late payment, and a penalty, if there is a late payment, and there is wrongdoing. However, it also contemplates paying interest when a refund is owing. The provisions vary. They are not all identical, but the concept behind many of them is that once taxpayers have indicated to the government, through the Canada Customs and Revenue Agency, that they are entitled to reimbursement of a particular amount or refund of an overpayment, then if the government cannot pay that amount within a particular time period, interest at the same rate as charged -- basically the Treasury Bill rate, but it varies with the act -- and is credited to the taxpayer from the time at which that amount should have been paid.
Your point is well taken. It is not universal. There are different rules in different acts. Work is currently being done to try to harmonize those various provisions, but the basic principle is that if a taxpayer is late, there will be an interest amount and a penalty for the wrongdoing, for not filing on time and not paying on time. If a taxpayer is entitled to recover an amount, then the concept is that taxpayer should be held whole in respect of the interest costs and the value of the money he or she has not received. The Revenue Agency is allowed a certain amount of time to administer these programs, because clearly they cannot turn a cheque around overnight. Does that respond to your question?
Senator Hervieux-Payette: I am still concerned that if we reimburse at the interest rate that the government usually pays on its bills, prime plus 1, there is still a discrepancy and small companies are still penalized. I know this issue has been raised by international businesses, and it is important that fair-play policy see that they are fully reimbursed for what they have had to pay, because they do not necessarily receive the same rate on loans as the Government of Canada.
Mr. Cullen: Yes, in other words, the amount of interest on a refund does not really approximate the cost of capital. It is certainly a point we can pass on to the Revenue Agency and the minister responsible.
Senator Wiebe: I wish to follow up on the questions about the GST on gas and diesel fuel. This is certainly quite a concern, coming into the winter, with natural gas, heating fuel and oil. I was shocked when I turned on the news and learned that the oil companies in Quebec will be raising the price of fuel by 6 cents a litre effective today. Had the government acted quickly and taken the GST completely off gasoline, the consumer in Quebec would still be paying 2 cents a litre more today than he was before -- 7 per cent on 80 cents a gallon is 5.6 cents a litre. If you knock that off, and the oil companies come along and hit you with a 6-cent increase, where is the saving to the taxpayer?
I hope that looking at some other program to cushion the effects of what the oil companies are doing to the consumers of this country is a step in a better direction than trying to play around with a 7 per cent sales tax.
Mr. Cullen: This is a serious and important issue. One needs to recognize that if the oil companies or producing nations realize that if they jack up the prices or play around with supply, and the consuming nations simply absorb those price increases through their tax systems, that may not be the ultimate outcome we would like to achieve.
We are looking at this issue very carefully -- the minister and the department -- and there are different instruments for trying to provide some relief to Canadians. For example, if there were a measure taken today with respect to the excise tax, what do we do in the winter when, if there is a supply problem or supply constraints on heating oil and prices go up, low and middle income Canadians are suddenly in a very difficult spot? Any measure that we might have taken on the excise tax is long forgotten, or the oil companies have simply absorbed that. We have scarce resources. While we are blessed with some good services these days, nonetheless these resources must be managed in the best interests of all taxpayers, keeping in mind what is fair and equitable.
It would also be useful if the provinces could be encouraged to play a more meaningful role, because provincial excise taxes are typically higher than the federal taxes. We are working on that continuously. Hopefully, we will come up with a response that is in the best interests of all Canadians.
Senator Stratton: We estimate you will obtain increased GST revenue from these increased costs for fuel of $100 million for natural gas for households -- not for apartments, because that gets refunded to the owners -- $25 million to $50 million for heating oil, and $200 million for automobiles and trucks: in other words, the sale of gasoline. Those are our numbers. I need to know if those are anywhere near the ballpark. That is a significant sum of money. I am concerned about the delay on this, with farmers having such a tough time.
On the other hand, if you have this tax windfall -- and I continue to hear that the government is cutting taxes, yet we see in this bill areas where they are actually increasing taxes and revenues to the government -- why not cut taxes on books? Cut the GST on books and educational materials. How much would it cost to do that?
Mr. Cullen: The increased revenues that the government is experiencing now are as a result of the pace of the economy. The economy is growing at an incredible pace, as it is worldwide. In Canada we are receiving our share, or better. Many jurisdictions have had challenges in terms of forecasting surpluses. You say that revenues are a result of increased taxes; with respect, senator, it is exactly the opposite.
Many of the measures introduced in the 2000 budget became effective in July. Those who take the first quarter surpluses and extrapolate them for the entire year have perhaps not fully contemplated those measures, nor the uncertain world in which we live.
We could do a range of things as a government, I suppose. You spoke about the farmers. One point we should keep in mind is that a farmer, like a trucker, can apply for the input tax credit. To the extent that farmers use diesel, our federal excise tax on diesel is the lowest in the developed world, at 4 cents a litre. I cannot say that for the provinces.
Revenue from GST on books is quite large, in the order of $300 million. We can get the precise figures. Increased GST revenue as a result of increased gas prices going back a year -- I have not got it broken down that way, but the number I have, in total, is close to that. However, it relates to about 1.3 cents a litre. Prices these days are moving around about 5 cents in the course of a week. Not to say it is not significant, because it is, but certainly it is not this government's intent to profit from the increased price of petroleum products. If we can respond in a meaningful way to Canadians, the minister will review it.
Your numbers are roughly in the ballpark.
Senator Stratton: When our party was in government, we estimated revenue from GST at around $19 billion in a good economy. The estimates for GST are now at $23 billion, $4 billion above our estimate. Surely to goodness you could find $300 million for books out of that $4 billion. I know you have pressures, but you promised that you would cut the GST on books. Live up to your promise. Thank you.
Mr. Cullen: You are right, senator. There is a queue lined up for GST relief. If you look at books, periodicals, et cetera, there is a cascade of things.
Our government has taken the position that we are playing hardball on GST relief. Books is an area where we are sympathetic, but it sets in motion a precedent that becomes difficult to manage properly and that starts to significantly erode the government's revenue base.
Senator Kenny: Mr. Cullen, some people on the committee are interested in tax cuts and others are interested in tax increases. My question is, why has there been no increase on roll-your-own tobacco products since 1996, when Quebec managed to introduce an increase on roll-your-own tobacco in 1999? Why is there a differential between the tax treatment of roll-your-own tobacco sticks and cigarettes? Why not give them all the same treatment?
Mr. Willis: My recollection is that Quebec had a very low tax rate on roll-your-own. I believe one of the reasons why Quebec increased its roll-your-own more recently is because, historically, it was very low. It has moved up somewhat, but it is still very much lower than every other province. The most recent number I have for Quebec is $4.30 per 200 grams, versus British Columbia at $22 for 200 grams. That is an enormous range. Federally, our total excise tax and duty on roll-your-own is in the range of $5.80. Even at this point, we are higher than the Quebec levy, Mr. Chairman.
The Chairman: I can testify that 56 years ago, I lived with a very parsimonious grandfather who rolled his own and it was very inexpensive.
Senator Kenny: That is not out of my time, I hope.
Senator Tkachuk: You only had one question.
Senator Kenny: The second part of the question is, why is there a different tax treatment?
Mr. Willis: In fairness to the senator, I have not yet responded to the second half of the question. Historically, there has been a different tax treatment of both roll-your-own and a newer product that came on the market in the late 1980s, which was tobacco sticks. For those not familiar with that product, it looks very much like a cigarette, but it has a porous paper and cannot be smoked without putting it into a filter tube so that the air draws through the end rather than around it.
The government has changed the differential tax rates between cigarettes and tobacco sticks over a period of years. There were very substantial increases through the latter part of the 1980s. The reductions in 1994 altered the track that we were on in terms of the relative rates. The focus in 1994 was on the contraband problem and regaining control of the situation that existed at that time.
Since that time, there have been increases in the rates on tobacco sticks and fine cut products. We are now back to a national rate on those products with the changes in this bill to tobacco stick rates.
The differentials still exist for several reasons. They have provided, or appear to have provided, an outlet for people who might otherwise have turned to contraband. They might also provide an early indication of rising pressures on the tax system in terms of the prices and tax rates on cigarettes. To date, we have been using those as an early warning signal of when we might have to take other action to avoid losing control of the situation.
Going forward, there is much sympathy for the point of view you are expressing, senator, on why should we continue to maintain these, and should the gap be narrowed or eliminated. Some provinces have already eliminated it; others have considered it. Still others have decided that they do not wish to eliminate it for a variety of policy reasons.
We are looking at that too as we move forward on tobacco tax changes.
Senator Tkachuk: How much money does the federal government take in on tobacco taxes? What did they take in last fiscal year?
Mr. Willis: It was slightly over $2.2 billion in excise taxes and duties.
Senator Tkachuk: The federal government, not the provinces.
Mr. Willis: That is correct. I will get you the precise figures.
Senator Tkachuk: That is close enough. I would like the precise numbers, but since the chairman has mentioned getting out of here quickly, I am pushing on because I have more than one question.
Mr. Willis: Roughly $2.23 billion is as close as I can get.
Senator Tkachuk: What did the federal government take in the year before, and the year before that?
Mr. Willis: In 1998-99, it was $2.23 billion. These are the numbers from the public accounts. In 1997-98, it was $2.48 billion, again from the public accounts. I regret that I do not have the number for 1996-97, but it would have been in the range of about $2 billion to slightly under $2 billion. That would have been excise taxes and excise duties.
Senator Kenny: Does that include GST?
Mr. Willis: GST is extra, as the senator indicated.
Senator Tkachuk: I agree with Senator Kenny's proposal that the government should be spending money on making it socially unacceptable for young people to smoke rather than simply increasing taxes, because it seems to me that you are making more money every year, and you are increasing your taxes, when you should be making less money because fewer people would be smoking.
Theoretically, that is why you do this, is it not? Theoretically, the reason you have these taxes on cigarettes is so that people will not smoke. However, you are taking in more money every year. So is the object of the game to increase revenue by not spending that $80 million -- which I think it is, because I am cynical that way. My guess is that you are making more money every year, so it cannot possibly be cutting down the number of cigarettes being consumed.
Mr. Willis: Mr. Chairman, it is true that revenues have been rising in the last few years as we have been increasing taxes. That is partly because we have been bringing contraband under control, and partly because we have been raising the rates.
There are impacts on consumption. Consumption continues to decline, but the decline has not been as great as the increase in tax rates.
Going back a few years, to 1991-92, total federal revenues from the excise duty and excise taxes on tobacco were almost $3.5 billion -- $3.45 billion. Thus present revenues are down significantly from what they were in the early 1990s. They declined through 1992-93 to under $3 billion, and then to the $2.5 billion level as contraband took hold.
Senator Tkachuk: Did you not reduce taxes in 1994 because of the smuggling?
Mr. Willis: They were reduced in 1994, but by that point we had already lost over $1 billion to the contraband market. The revenues had been declining due to contraband. We were at $3.45 billion in 1991-92. The revenues were declining without any reduction in taxes.
Senator Tkachuk: Revenues declined, but as you got rid of the contraband, the revenues went up. Basically, the same number of people smoked.
Mr. Willis: There has been some decline. You will be hearing from witnesses who will be better able to respond to your question than I, but there have been changes in smoking rates and in the quantity smoked. My point is that there has been a decline in revenues.
The other point I should make is that you are correct that tobacco taxes today are used as a policy tool to decrease consumption of cigarettes and to reduce smoking. However, taxes on cigarettes have existed for many years, long before there was any concern about the health issue. It was a key source of revenue for the government and is one of those sources of revenue that is used to fund a large number of programs the government provides.
Senator Tkachuk: I see alcohol and gambling as our big revenue producers.
Mr. Cullen: More recently, we have added fuel to the list of things that raise very large excise revenues.
Senator Tkachuk: The point is that alcohol consumption has deceased dramatically over the last 10 or 15 years, including beer, hard liquor and wine consumption. Yet there has not been a big effort tax-wise. It has been built around groups like MADD, advertising programs, and the social unacceptability of people being drunk on the road or drinking too much alcohol. Social unacceptability rather than tax policy has been driving that.
I am supporting Senator Kenny. Spend the money and you will see a reduction in consumption, but you might also see a reduction in the amount of cash you take in. I want to make sure that is not what is holding it up.
The Chairman: Thank you for attending, gentlemen.
Senators, we have two more groups of witnesses, and then I would ask you to please stay for about 15 minutes. We have one more thing to discuss. Our next group of witnesses is from the Canadian Cancer Society. Do you have an opening statement?
Mr. Ken Kyle, Director of Public Issues, Canadian Cancer Society: Yes. I am director of public issues with the national office of the Canadian Cancer Society. I have with me our senior policy analyst, Mr. Rob Cunningham.
I think you all know the Canadian Cancer Society. We are the largest health charitable organization in the country. We thank you for the opportunity to testify on this bill today. I will hand the floor over to Rob Cunningham, who has been looking at this issue. It is an important one for the Canadian Cancer Society, since one-third of all cancer deaths are caused by tobacco industry products.
[Translation]
Mr. Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society: Mr. Chairman, our presentation on this bill deals with three aspects: an increase in cigarette taxes and tobacco products, a surtax on the profits of tobacco manufacturers, and the export tax.
[English]
Turning to the first point, we support the provisions in the bill that increase the tax rate on cigarettes and on tobacco sticks. The higher the tax, the higher the price, the lower the rate of smoking, and that turns into subsequent public health benefits that are very important. At the same time, while we support a 60-cent federal tobacco tax increase, matched by certain provinces for total increase of $1.20, we feel there is a tremendous opportunity for a larger increase.
Senators will have received this tax map from committee staff. It demonstrates the current wide discrepancy in the price of a carton of cigarettes on the Canadian and American sides of the border. It is about $32 per carton in Ontario and Quebec, whereas it is over $50 in Michigan and New York, the neighbouring states. During the period of high contraband, the reverse was true and Canadian cigarette prices were much higher than in the United States. The room to move and the concerns about contraband simply are not present the way they were in the past.
The United States has had high cigarette prices for some two years, since November 1998, when there was an out-of-court settlement between tobacco manufacturers and state governments. They have been able to demonstrate on a sustained basis that they can have high prices without contraband entering the country in any material amount. We believe Canada can do the same thing, especially when our market is only one-tenth the size, with one-tenth the potential economic benefit for smugglers.
Questions were raised earlier about the tax rate on roll-your-own tobacco and tobacco sticks being lower than on cigarettes. In our submission, it would be very desirable to close this loophole. There is some progress with respect to tobacco sticks in this bill, but not with roll-your-own tobacco. Tobacco manufacturers have exploited this loophole in recent years, with their ever-innovative strategies, by expanding the tobacco, making less of it necessary to make one cigarette. Thus, in Quebec, a carton of cigarettes costs $32. Last week, I purchased enough roll-your-own tobacco to make 200 cigarettes for only $11. Not only is there a lower tax rate, but they changed the product to make the effective unit tax even less. That is an opportunity for correction that could help both public health and government revenue objectives.
In May, the media reported that federal Finance Minister Paul Martin had proposed a joint increase of $15 per carton to the provinces, especially to those where there was a joint reduction in 1994. We endorse that recommendation.
Turning to the second category of testimony that we would like to present, with respect to the surtax, we also very much support the provisions in this bill that make the surtax on tobacco manufacturers permanent. We congratulate the government on that initiative. At the same time, we are disappointed that the initial allocation of the revenue from the surtax to tobacco control has not been maintained. The current $20 million per year by Health Canada to tobacco control is very inadequate in comparison to the existing needs, the pressing public health priority, and to what an increasing number of U.S. state governments are doing on a per capita basis. We are not even close to what they are spending.
I know that senators have done a lot of work on Bill S-20, the Tobacco Youth Protection Act. That addresses some of these issues, and we commend senators for their work in that regard.
The government announced a reduction in corporate income taxes in its most recent budget. It is interesting that, as those corporate income taxes go down in the years ahead, the revenue from the surtax will also go down. We would support an option for the government to increase the surtax rate to ensure that the effective income tax rate for tobacco manufacturers does not decrease along with that for other industries in Canada.
Turning to the export tax, we agree with, and support the provisions in the bill that narrow the exemptions to the export tax, but we think it can go further, such that there would be no exemptions that would allow cigarettes to be exported to where they could potentially flow to non-legitimate markets. In particular, if there were no exemptions, or if there were no duty-free products travelling between Canada and the rest of North America, that would be a tremendous outcome. We know that duty-free tobacco sales are no longer possible in the European Union, and that is a future course that we strongly endorse for Canada.
Those are our opening submissions, and we would be pleased to respond to any questions.
Senator Stratton: Thank you for attending. You have Senator Kenny to thank for that bill.
When the cost of cigarettes or tobacco went up in the U.S., did consumption drop?
Mr. Cunningham: Yes.
Senator Stratton: By how much?
Mr. Cunningham: Part of that was in 1997, and much more in 1998. I think over the two years there was a decrease in sales of about 12 per cent. It would be slightly more on a per-capita basis. That is the approximate decrease. When you translate that into health terms, it is a wonderful impact.
Senator Stratton: So increasing the cost works. Do the Canadian numbers include GST on the tobacco?
Mr. Cunningham: Yes, they do.
Senator Stratton: These are on an equivalent basis?
Mr. Cunningham: They include provincial sales tax, GST, and state sales tax, all in Canadian dollars.
Senator Stratton: We have room across the country to make some substantial increases. You say the government talked about $18 originally?
Mr. Cunningham: I understood from media reports the figure was $15 per carton.
Senator Kenny: Mr. Cunningham, or Mr. Kyle, could you advise the committee at what age 80 or 85 per cent of smokers begin to smoke?
Mr. Cunningham: The overwhelming majority of smokers begin before the age of 18.
Senator Kenny: What is your view of the impact of taxes on younger people? Does it affect them the same, more, or less than adults?
Mr. Cunningham: The evidence, supported not only by Department of Finance studies in Canada, but other studies around the world, is that adolescents are even more sensitive to price increases than adults.
Senator Kenny: If you wanted to achieve more of an impact on young people, you would increase taxes?
Mr. Cunningham: Absolutely.
Senator Kenny: If you can prevent them from smoking before the age of 18, what is the likelihood of them starting at a later age?
Mr. Cunningham: There is very little likelihood that people will begin smoking after they become adults.
Senator Kenny: If you look at jurisdictions like California or Massachusetts, how would you compare the rate of smoking there to the rate of smoking we see in Canada amongst young people?
Mr. Kyle: I looked at the Web site for the California State Department of Health last week; it was one-third in California of what it is in Canada.
Senator Kenny: Could you give us the percentages, please?
Mr. Cunningham: We will have to get back to you with the exact numbers.
Mr. Kyle: It was around 7 or 8 per cent in California, or 6 per cent. It was very low.
Senator Kenny: That is as compared to?
Mr. Cunningham: The most recent 1999 data from Health Canada for 15- to 19-year-olds was 28 per cent.
Senator Finnerty: Some senators were asking about the stick. How is it produced? What does it look like?
Mr. Cunningham: I have some examples here of tobacco stick product. The ever-innovative tobacco manufacturers, in exploiting the loophole that allows a lower rate of taxation on tobacco sticks, have come up with a more recent product that is very similar to a cigarette. It looks like a cigarette.
Senator Finnerty: What happens to the outside?
Mr. Cunningham: The only thing missing is this little piece of paper, the filter over-wrap. The consumer just needs to put this piece of paper on the end. According to the interpretation of the Canada Customs and Revenue Agency, this is not a cigarette and receives a lower rate of taxation. It is simply an exploitation of the loophole.
This product has about 3 per cent market share in Canada, more in Quebec -- about 6 per cent. However, those figures have been growing in past years.
Senator Oliver: What does it sell for?
Mr. Cunningham: It varies by province, but last week when I was looking at a number of retail stores in Quebec, it was about a $7 difference. It was about $25 for 200 sticks versus $32 for cigarettes, although that would vary from store to store.
Senator Kenny: The filter does not work without applying something to it.
Mr. Cunningham: What is missing -- I will pass these around as well -- is just the filter over-wrap, the piece that goes on the end.
Senator Kenny: If you sucked on that, you would not get anything through it without putting on that over-wrap. Therefore it is not a cigarette according to the people who set taxes.
Senator Fitzpatrick: Do I understand correctly that you buy two packages, one of filter tips and one of sticks?
Mr. Cunningham: That is correct. Other manufacturers are also exploiting this. There is evidence from focus group research in Ontario that teenagers have purchased and consumed these tobacco stick products.
The Chairman: Have you made these submissions to the Department of Finance?
Mr. Cunningham: Yes, we have.
The Chairman: Thank you for appearing here today.
Senators, our last group of witnesses is from the Canadian Psychoanalytic Society. Welcome, gentlemen.
Dr. Roger A. Dufresne, Chairman, Committee on the GST, Canadian Psychoanalytic Society: Honourable senators, thank you for inviting us to appear before your committee, reading our submission, and setting aside some time to listen to our problem.
I will briefly summarize our submission with a short presentation on our profession, a statement of the problem, and some possible solutions.
First, I shall speak about our profession. What is psychoanalysis? It is a method discovered by Sigmund Freud for the investigation and the uncovering of deeply repressed, unconscious infantile traumas that remain active and cause painful emotional conflict responsible for anxiety, depression, suicide, delinquency, behaviour disorders, psychoses, and psychosomatic problems.
The psychoanalytic treatment is difficult, time consuming and costly, as it requires a few sessions per week over several years. It is, without doubt, a general health care service. How does one become a psychoanalyst in the Canadian Psychoanalytic Society? Applicants must have a graduate degree, mainly a doctorate, in medicine, psychology, or other clinical professions or humanities, have undertaken a personal psychoanalysis of a few years' duration in order to become aware of their own blind spots, and undergo a serious evaluation of their personalities.
Those admitted must follow from four to six years of additional training, including lectures, seminars, and treatment of patients under the weekly supervision of senior training analysts. The training is the same for all students, medical or non-medical.
How is our profession regulated? While the other health care professions are usually regulated nationally or provincially, to our knowledge, ours is the only one where training and membership standards are regulated internationally. Founded by Freud in 1910, the International Psychoanalytic Association has established very strict requirements and high standards for the training of future analysts, the qualifications of members, the appointment of training analysts, and the accreditation of component societies. It now consists of over 10,000 members in over 30 countries.
The Canadian society was recognized as a component society of the international body in 1957. It now consists of over 400 members; has training centres in Montreal, Toronto, and Ottawa; and is responsible for implementing the international requirements in Canada.
Now the problem: In 1990, when the GST was introduced, we heard with satisfaction that health care services would be exempt. However, we soon learned that our profession had been omitted from the list. Fortunately, after our submission to the Ways and Means Committee of the House of Commons, and the meeting with the then minister of Finance, the Honourable Michael Wilson, the Parliament agreed to add a fourth criterion, section 12, to exempt all the patients of all of the members of the Canadian Psychoanalytic Society.
In 1996, however, we were given notice that this section 12 would be abrogated, with the consequence that those of our members who were not physicians, psychologists or occupational therapists, but nurses or social workers, and who did not meet the other criteria would no longer be considered as health care professionals, and would be required to collect the tax from their patients as of January 1, 1998.
We sent a submission to the Ministry of Finance and met with officials of its sales tax division. We explained that it was regressive to treat a health care service as an arbitrary consumption and not consider the same highly specialized health services on the basis of the nature of the services themselves, but rather on the professional backgrounds of the providers. Is it a tax on services or on the income of the users or some of the providers?
In spite of our representations, the amendment abrogating section 12 was adopted and resulted in two classes of psychoanalytic patients and two classes of psychoanalysts, the GST-paying or collecting ones, and those who are tax exempt -- a clearly inequitable situation.
Of course we understand the need for rules, regulations and criteria, but the new ones adopted in 1997 leave out some members of a health care profession mainly because they do not meet too simple and hence arbitrary criteria, as we are regulated internationally rather than provincially, for historical reasons. Moreover, with only 425 psychoanalysts in Canada, mainly in Quebec, Ontario, and British Columbia, it is very unlikely that provincial legislatures in five provinces would pass laws to handle an inequity experienced by the patients of only 13 per cent of the analysts involved, that is, 57 members in the country.
Furthermore, we are extremely worried when we consider that the 1997 amendment excludes from the exemption more of the services dealing with mental illnesses and emotional problems than it does with physical disabilities.
Possible solutions: We are neither attorneys nor legislators, and need your help in finding an appropriate solution to the inequity caused to 13.4 per cent of our members and their patients. Let us suggest that if the act were interpreted as addressing the nature of the service rather than the professional background of the providers, then all the services provided by all our members would be similarly exempted from the GST.
Let us review the criteria, at least one of which must be met by a health care service to be exempt. First, if the service is covered by a plan in a given province, it is exempt in that province. Second, if the service is covered by a plan in two or more provinces, it is intended that it will be exempt in all provinces. Psychoanalysis is a service covered by a provincial health insurance plan when practised by a physician in Ontario and Alberta and in Quebec in designated hospitals. Third, if a service is not covered by a provincial health insurance plan but is rendered in the practice of a profession regulated as a health care profession in five or more provinces, it is intended to be exempt in all provinces.
Psychoanalysis is a service rendered in the practice of two regulated health care professions in five or more provinces -- psychiatry and psychology. In the act, in all the three criteria just mentioned, it is the service that is intended to be tax exempt rather than the original profession or the background of the provider. Therefore, we feel that the service of psychoanalysis by all the members of the Canadian Psychoanalytic Society should be viewed as meeting the criteria for exemption.
We ask you to confirm on our behalf that, for the purpose of the act, all the members of our society meet the criteria for exemption from the GST.
In 1990, section 12, as mentioned before, added a fourth criterion to exempt the psychoanalytic service provided by the person who had received the same training as a physician, was a member in good standing of the professional society which sets the same standards of training and practice for all its members, and consists of at least 300 members, of which at least two-thirds are medical practitioners. We greatly deplore that this criterion was removed, and we hope to find with you a more lasting solution for the patients of a small minority of our members.
In conclusion, it would go beyond our field of competence to recommend one solution or another, and we ask for your help and support. We ask you to bear in mind that the 1997 abrogation of section 12 resulted, in practice, in imposing a tax on a genuine health care service, thus adding to the already heavy financial burden on patients, and causing a serious inequity between two groups of patients and two groups of psychoanalysts. We trust that you will take our request into consideration and help repair a very painful situation that involves a rather small number of practitioners in Canada -- 57 at this time -- and has a negligible impact on the finances of our country.
As a final remark, let us mention that very serious Canadian, American, German, and other studies on the cost-effectiveness of psychoanalysis have clearly demonstrated that patients who undertake psychoanalytic treatment require less other care and save money for the government-supported medical, psychiatric and social facilities which, as we all know, are overloaded.
Senator Stratton: I have a very simple question. Why? You had convinced the Department of Finance to exclude you. Why, then, did it change its mind?
Dr. Dufresne: It was excluded in 1990. It was exempt from the tax for six years. We met with people from the Ministry of Finance in January, 1997. They told us it was a slippery road. Other groups had tried to use our specific situation as a precedent, and they wanted to simplify the criteria.
I agree that we need criteria. The problem is that it leaves out certain groups, namely relatively small groups of health professionals. You cannot start a new group. Ours is not that new, but it is not that big, as you can see, with only 425 members in Canada. How can we expect five legislatures in five provinces to have a college of specialists? We have a large number in some provinces, such as Quebec and Ontario, and we are starting to grow into British Columbia and a little in Alberta. There is no one in the Maritimes. It is impossible to meet criteria there. I cannot tell you what the Ministry of Finance had in mind. We were told that this amendment or criterion had been removed.
Mr. Charles M.T. Hanly, Member, Committee on the GST, Canadian Psychoanalytic Society: The startling thing is that the legislation refers to services in every instance, not professions that are exempt. The third criteria is met relative to certain professions, but if you look closely, it is services. If any of the criteria are met, that service -- psychoanalysis -- is exempt. I practise psychoanalysis, as do Dr. Dufresne and Dr. Leonoff. We are not all medical doctors, but we are fully and thoroughly trained. We teach medical doctors how to practice psychoanalysis, yet our services are not exempt. The meaning of those criteria, it seems to me, implies they should be, but that meaning has not been carried out administratively.
The Chairman: I have spoken to the officials, and they have undertaken to look at it. I do not know what will be the result, but I am more than willing to advocate on your behalf.
Mr. Hanly: An important element of our discussions with Mr. Wilson was that he did not want to create a loophole. That is why section 12 is drafted the way it is, because it describes one, and only one, professional group. No other professional group in Canada could ever possibly, even by deliberately trying, qualify under that criterion.
I was actually the person who, in discussion with Mr. Wilson, came up with that criterion. I would be happy to consult with any of you about how such a criterion could be appropriately and effectively formulated.
It is not our wish to compromise the GST. It is only our wish that we be equitably treated within the provisions of the tax.
The Chairman: Thank you for attending, gentlemen. We will make representations. I do not know what will happen, but I will see to it that the matter is given a fair hearing.
We will now proceed to future business.
The Committee continued in camera.