1992 Legislative Session: 1st Session, 35th Parliament
HANSARD
(Hansard)
THURSDAY, MAY 28, 1992
Afternoon Sitting
Volume 3, Number 19
[ Page 1895 ]
The House met at 2:05 p.m.
J. MacPhail: It gives me pleasure on behalf of the hon. member for Vancouver-Fraserview to introduce 28 grade 6 students who are joining us in the gallery today from Champlain Heights Elementary School. The member wanted me to ask specifically that this greeting and the House both make them feel very welcome.
R. Chisholm: It gives me great pleasure to introduce Rev. Phil Estabrooks, the associate pastor of Victoria's Mustard Seed Food Bank, who is visiting the Legislature today. Rev. Estabrooks is here concerning the crisis situation facing the food banks in this province. Would the House please join me in making him most welcome.
Hon. J. Cashore: In the gallery today are 60 grade 4 and 5 students from Miller Park and Roy Stibbs elementary schools in Coquitlam. We're glad to see them here along with ten chaperons and two teachers, Greg Corry and Lynn Corry. Will the House join me in making them welcome.
F. Randall: I'm pleased to introduce Rose Milner, who is in the visitors' gallery today. Rose is from the constituency of Fort Langley-Aldergrove. I would just like to mention briefly that her husband, Bill Milner, was the business manager of the Tunnel and Rock Workers' Union in this province for approximately 30 years. He passed away a few years ago, and he was recently, on May 4, accepted into the Labour Hall of Fame in Toronto. Rose is here today with my wife, Aileen. Would the House please make them welcome.
W. Hurd: I am pleased to introduce Tom and Ruby Cram, constituents from Surrey-White Rock, who are in the gallery today. I would ask the House to make them welcome.
Hon. G. Clark: It gives me great pleasure to introduce to this House the president of the Saskatchewan New Democratic Party, Bob Long, who also served his province's government as the Minister of Transportation from 1979 to 1982. Bob is visiting Victoria with his daughter Marlyss to attend the University of Victoria convocation this weekend. I ask the House to bid these visiting New Democrats a warm welcome.
NANAIMO COMMONWEALTH
HOLDING SOCIETY
G. Wilson: My question today is to the Minister of Government Services, who has authority over the Society Act, recognizing that this is a new responsibility for this minister. I find it unbelievable that former governments have been so lax about keeping the Society Act administered in a proper system.
The opposition has learned that the acting registrar of companies, Mr. John Powell, has launched an investigation into the affairs of the Nanaimo Commonwealth Holding Society. Could the minister confirm that, indeed, that investigation is taking place? And if so, how will the investigation that is being conducted mesh with the investigation that has been agreed to by the conflict-of-interest commissioner, Ted Hughes, and the Deputy Attorney General?
Hon. L. Boone: Like in so many other things, the Leader of the Opposition has his facts wrong in this situation. The acting registrar is reviewing the facts on this situation and will be bringing a report to me sometime in the next few days as to whether an investigation is actually required or not. There is no official investigation taking place right now.
G. Wilson: He is investigating whether or not to investigate. We could split hairs as to whether that is an investigation or not.
I would argue that in light of the information being reviewed by Mr. Powell.... In light of the fact that there is a direct connection between the Powell River Commonwealth Society and the Nanaimo Commonwealth Holding Society, would the minister confirm as to whether or not the affairs of the Powell River Commonwealth Society will be included in Mr. Powell's review of the societies generally?
Hon. L. Boone: I know of no connection between the Powell River Commonwealth Society and the Nanaimo Commonwealth Society. The acting registrar is reviewing the facts. Hon. member, as you know, you have to have the facts and understand them before you can make a decision as to whether you are going to investigate. Please don't muddy the waters here. They are reviewing the facts, as to whether an investigation is required.
G. Wilson: I'd be happy to sit down with the minister and go through the facts in detail, so that it will become crystal-clear and not muddy at all.
In final supplementary, I wonder, given the fact that the societies generally are being reviewed with respect to the Courtenay Commonwealth Society, which is currently registered at the same address as the hon. member for Comox Valley, whether or not the operations and any connections of the Courtenay Commonwealth Society would also be included in an investigation for Mr. John Powell.
Hon. L. Boone: Hon. Speaker, the facts that the acting registrar is reviewing are with regard to the use of the Nanaimo Commonwealth Society, as it refers to their status as a society. That does not reflect on any of the other societies whatsoever. I might add that if any of the hon. members have any facts that would assist the registrar in coming to a decision -- any facts that he doesn't have right now -- I would urge you to bring them forward.
P. Dueck: My question is to the Minister of Finance. In light of the full-blown scandal that has erupted with respect to the Nanaimo Commonwealth situation and
[ Page 1896 ]
the involvement of the Minister of Finance, there's obviously an odour of suspicion, and I would ask the Minister of Finance, in keeping with parliamentary tradition, to step aside until this whole issue is cleared.
Hon. G. Clark: I take those remarks very seriously from the member. The member should know that Marwood Services Ltd. is a private company that does accounting work for grocery stores, private businesses, and did the accounting work for me and my constituency office. Many other accounting firms do work for other members here. The Society Act governs societies. It is not, by the way, a regulatory statute, but it does have some limited power for investigation. Marwood Services Ltd., the private company, does not come under the purview of my ministry. It is only out of an abundance of caution, frankly, and prudence, that I asked the Premier to remove the societies branch from my direct affiliation in light of the possibility that there might at some future date be some concern about the Nanaimo Commonwealth Society which would spawn an investigation -- and only very indirectly would that impact on Marwood Services Ltd., the private company.
P. Dueck: I speak from experience, and I only have to think back a year and a half or two years to when that same minister was hot and heavy on this issue. If the tables were reversed at this time, he would cry to heaven about the absolutely unreal attitude that we have in regard to this particular issue. I would again ask the minister if, in keeping with the British parliamentary tradition, he would not consider that the proper way -- to go at this time and not hold onto his seat just because it's now reversed and he's in the hot seat.
D. Lovick: Point of Order. I must protest. There was very clearly no question embraced there. It was a statement and should not be allowed.
The Speaker: It does appear to the Chair that the question asked as a supplemental has already been answered by the minister.
[2:15]
F. Gingell: My question today is to the Minister of Government Services, and I'm glad that she's asking for facts. I've spent a very interesting morning reviewing financial statements at the Nanaimo Commonwealth Holding Society and the NCHS Charities Society, as I'm sure she has. In 1985 and 1986, during the previous Social Credit administration, two sets of financial statements for NCHS Charities Society as at December 31, 1985, were filed with the registrar of companies, which is now under her jurisdiction.
The Speaker: Hon. member, could you get to your question, please.
F. Gingell: Hon. Speaker, it is an involved question and a valid one, and I'd like to ask it, please.
The first set showed a surplus of $425, and the second showed a deficit of $711,906. This was caused by charities assuming a $600,000 bank loan of Commonwealth....
The Speaker: Order, order! Would the member please take his seat. I must ask again if the member would immediately state his question.
F. Gingell: Hon. Speaker, if I may, it is impossible for people to ask a question without laying out what the question is. There is a matter of great....
The Speaker: Order. I'm sure the hon. member is not intending to bring into question the point that the Chair has made. The rules governing question period are quite clear, and I would ask the member now to immediately state his question.
F. Gingell: Very well, hon. Speaker. Seeing that the previous Socred administration failed to investigate the possibility of fraud and the improper use of charity funds, will this minister commit to request the RCMP commercial crime division to revisit these strange happenings -- which I wasn't able to explain to you -- that, like the deficit, have been dumped on her government by the previous Social Credit administration?
Hon. L. Boone: If the member was listening earlier, he would have heard me state that the acting registrar is currently reviewing all of these facts. I'm sure they'll take that into consideration when making the decision as to whether or not there should be an investigation under section 85 of the Society Act.
The Speaker: A brief supplemental, hon. member.
F. Gingell: Would this minister please commit to meet with me afterwards so I can explain this particular set of facts to her -- which she is asking for -- so that she may pass those on to the deputy registrar?
Hon. L. Boone: I'd be glad to take the facts you have and pass them on to the registrar. It will be the registrar who will be making a recommendation to me. But I would gladly pass them on on your behalf.
J. Weisgerber: Given the fact that the Premier and the Attorney General have absented themselves from the House today and the fact that members opposite seem in a hurry to rise on points of order on this question, I want to be careful to properly address my question today. My question today is to the Deputy Premier. I would ask her, on behalf of the Premier, to answer some questions regarding this Commonwealth slush fund in Nanaimo.
The Speaker: Your question, hon. member.
J. Weisgerber: Dave Stupich himself admitted that charity funds were misappropriated and used to retire NDP debts.
An Hon. Member: You're kidding.
[ Page 1897 ]
J. Weisgerber: Yes, he did indeed. In fact, he said: "We were dipping into the 25 percent that was supposed to go to charity." Will the Deputy Premier, on behalf of the Premier, instruct the Attorney General to appoint a special prosecutor to investigate all of the issues surrounding this mess? It stinks to high heaven. It's time an independent auditor went in and looked at this issue. I would ask the Premier to have a special prosecutor appointed.
Hon. A. Hagen: I would remind the member who's just posed the question that yesterday the Attorney General did speak to this issue of a criminal investigation. I would also like to remind all hon. members of the course of action that has been taken with respect to these questions so that indeed they may be fully examined. I think that that is the wish of all members of this House.
First of all, the Attorney General has appointed the Gaming Commission, which has since that time appointed the firm of Ernst and Young to look at all past and present practices of the Nanaimo Commonwealth Society. As has been noted in the questions of this afternoon, the minister responsible for the Society Act, the Minister of Government Services, is awaiting a thorough report from the deputy registrar of the Society Act in respect to his recommendation to her. I think all members would wish that that be fully examined and that report come forward.
There are further actions that are taking place in consultation with the House Leaders and the conflict-of-interest commissioner, Mr. Ted Hughes, around matters relating to constituency allowances. Each of these issues has been addressed, and due process is being followed in a way that will enable us to examine all these issues fully.
J. Weisgerber: Clearly, yesterday the Attorney General suggested it was inappropriate to appoint a special prosecutor, because no charges had been laid. Either he expected us to believe that a special prosecutor wouldn't in fact oversee the laying of charges, or he misunderstands the whole purpose of a special prosecutor.
D. Streifel: Point of order.
J. Weisgerber: The mess with the Nanaimo society....
The Speaker: A point of order has been raised by the member for Mission-Kent.
D. Streifel: As an hon. member of this chamber, I am offended at the degradation of standing order 47A. The hon. members persist in speechmaking and degrading the procedure in the chamber, and I ask that they be brought to order.
The Speaker: The point of order has been raised, and I'm sure it will serve as a reminder to all hon. members about the rules of question period. In view of the fact that we've now had two points of order raised during question period, we will extend question period for that amount of time.
Hon. member, please state your supplemental question.
J. Weisgerber: Hon. Speaker, you can always tell how close to the target you are by the number of points of order. Three is a new record, so we know we're bang on the money.
My question again is....
Interjections.
The Speaker: Order, please. Would the House come to order, please.
J. Weisgerber: My question is to the Deputy Premier -- or the continuation of my question that was so rudely interrupted. The fact of the matter is that there is the involvement of lottery or gaming funds, the involvement of at least 15 NDP MLAs and their constituency allowances and the involvement of federal Members of Parliament and, we assume, their constituency allowances.
An Hon. Member: Is there a question there?
J. Weisgerber: Will the Deputy Premier agree that it is totally inappropriate to ask either the Gaming Commission or Mr. Hughes to investigate this web of money that has been used in this NDP slush fund?
Hon. A. Hagen: No, I would not agree. I agree that we would like to have due process in terms of the questions that have been raised. There are appropriate measures with responsible people who have been asked to provide that information. All hon. members should await those results, and I think it is unfortunate that the leader of the third party impugns hon. members while that due process is taking place. That is not an honourable procedure, and he well knows it.
The Speaker: I will allow a final supplemental and then a question from the member for Surrey-White Rock.
J. Weisgerber: Given the information we have now about the Commonwealth slush fund, we know that there is a high probability that fraud at least has been involved. Does the Deputy Premier believe that the Gaming Commission and Mr. Hughes, rather than the RCMP and a special prosecutor, are the appropriate vehicles to investigate these kinds of allegations that are now broadly made?
The Speaker: A brief response, minister.
Hon. A. Hagen: The member asks questions that he would only be able to ask in this House. He would not make those allegations outside this House. We are, as a responsible government, in a process of reviewing through an accounting firm, through the registrar of the Society Act and through a respected conflict-of-interest
[ Page 1898 ]
commissioner, matters relating to these questions. I believe all hon. members are anxious and awaiting the outcome of those deliberations as they proceed.
W. Hurd: My question is to the Minister of Finance and concerns the business activities of Marwood Services Ltd., a registered company in the province of British Columbia, which falls under vote 36 of his ministry operations. Is he aware that the Nanaimo Commonwealth Holding Society has listed on its balance sheet, under "Other Assets" an amount of $562,288 under the name of Marwood Services Ltd.?
Hon. G. Clark: A question worth waiting for indeed. The registrar, including the Company Act and those registries, has been transferred for the purposes of this investigation to the Government Services ministry. However, I wasn't aware of that fact. I'm not sure how significant that fact is, but now that the member's brought it to the attention of the House, I'm sure that it will be referred to the appropriate sources: societies, if there's an investigation; the Gaming Commission, in that investigation; or Mr. Hughes. If it's pertaining to constituency allowances, we look forward to Mr. Hughes reviewing the whole question of the past practice governing constituency allowances, the current situation and recommendations for improvements in the future.
The Speaker: That was the final question, hon. members.
The member for Fort Langley-Aldergrove is rising on what matter?
G. Farrell-Collins: I ask leave of the House to make a change, if I may. I'll explain; it's very simple.
The Speaker: Hon. member, you would have to state within a very few words what that change is before members can be asked to give you leave.
G. Farrell-Collins: I'm asking about question period. I'm begging leave of this House to have a question period tomorrow, so that we may ask the Premier and the Attorney General....
Interjections.
G. Farrell-Collins: We're asking leave to amend standing order 25.
The Speaker: I regret that the Chair does not recognize that as a point of order, or as any recognizable point that I could ask leave of the House for.
G. Farrell-Collins: Point of order. Yesterday in this House we witnessed a breach of the rules, whereby the Premier and the Minister of Finance and the Attorney General were recognized in advance of question period to make a ministerial statement, which is clearly not within the rules. I'm asking leave of this House to make a similar change to the rules of this House for one day only.
The Speaker: I must advise again, hon. member, that that is not a point of order, and would further comment that any arrangements on House business usually take place among the House Leaders.
G. Farrell-Collins: Point of order. To my knowledge, there was absolutely no consultation with the House Leader from the opposition side with regard to the Premier's and the Attorney General's ministerial statement yesterday, so clearly that was not within the rules.
The Speaker: Hon. member, I regret the Chair has no authority over the discussions among House Leaders on House business.
[2:30]
Hon. G. Clark: Point of order. The rules are clear. Ministers can rise at any time on a ministerial statement, and there is no need to give notice in advance. It is a courtesy that was not extended in the past in this House. Since the advent of the new administration, we have been doing the best we can to advise opposition members of ministerial statements. There's certainly no requirement to do that, nor is there a requirement to give notice of when. A ministerial statement can be made at any time. Clearly the matter was of such import -- and would impact on question period -- that the government and the Premier decided to make the statement in advance of question period. Frankly, I thought -- and think -- that those ministerial statements would be welcomed by members of the opposition and not criticized.
The Speaker: The member is quite correct.
NANAIMO COMMONWEALTH
HOLDING SOCIETY
Hon. L. Boone: There were several questions taken on notice yesterday. The first one I think I answered in question period, with regard to the investigation. There were a couple of others here.
One question was whether "the annual reports or financial statements of the Nanaimo Commonwealth Holding Society provide any record of receipted political donations or other political donations to either the New Democratic Party, candidates or sitting MLAs for expenses incurred." The answer from the registrar, after searching the records, is no. The statements filed with the registrar of companies show no indications of such donations.
The other question was: "Does the minister know whether or not Marwood Services Ltd. is responsible for keeping the books of the Nanaimo Commonwealth Holding Society?" And: "Is the minister also aware that Marwood Services Ltd. is listed as an asset of the Nanaimo Commonwealth Holding Society?" The answer is that the records filed in the registrar of companies office do not indicate whether Marwood Services Ltd. performed accounting services for Nanaimo Commonwealth Holding Society. Also, the financial statements filed do not show Marwood Ser-
[ Page 1899 ]
vices Ltd. as an asset of the Nanaimo Commonwealth Holding Society.
Hon. G. Clark: I call second reading of Bill 7.
HOME OWNER GRANT
AMENDMENT ACT, 1992
(continued)
A. Warnke: Just prior to adjournment this morning I made some mention of one particular case that illustrated how Richmond will be hit. I referred to the tax notices provided by the member for Richmond Centre. I will not occupy too much more time -- just a couple of minutes -- to say that when we deal with the lower mainland, it is crystal-clear by now that lower mainland housing is generally hit. But I have to, on behalf of the people who live in Richmond, particularly my constituents -- and those of my colleagues from Richmond.... We find that this kind of legislation will have a tremendous impact. That was well illustrated this morning. It is quite well known. There was some reference this morning to the Vancouver Sun. One of the members opposite referred to the Vancouver Sun as a reliable source on this particular issue. From the Vancouver Sun we too have accumulated stories on the impact of this particular legislation on the people of Richmond.
I have to emphasize as a summary remark on behalf of the people of Richmond, particularly my constituents, that we are subjected to the highest increase. We believe that it is an unnecessary increase, when you compare last year's increase with the differences in residential property tax increases. We dealt with the statistics a little this morning by referring to the case from Richmond Centre. I, too, have examined different cases, and on average there is no question that the people of Richmond are severely affected by this. Just because people decided to settle in Richmond many years ago and their property value has increased, I find it very difficult to justify why they have to be so adversely affected by legislation such as this.
One small item is important, since in his opening remarks the Minister of Finance said that it was a way of promoting this particular legislation. He was promoting it, first of all, by mentioning that there is an increase to seniors and the disabled. On closer examination, there is no question that the increases in taxes far offset any claim of an increase to seniors and the disabled, which we all know is very moderate. I find it interesting that in the Minister of Finance's own neighbourhood, while the median tax increase is $145 -- this, incidentally, is from that reputable source the Vancouver Sun -- seniors have tax increases alone of $159. It is quite obvious when you compare those kinds of figures, even by the minister's own criteria in his own neighbourhood, that the seniors and the disabled are not getting a fair shake.
M. Farnworth: Hon. Speaker, it's a pleasure to rise and speak on Bill 7 and to address some of the comments that have been made by members of the opposition. Time and time again we see in this House that they want to have it both ways. They want us to continue to spend, spend, spend and not accept the consequences of an increasing deficit.
When we did this budget, there were tough decisions to make -- issues that had to be addressed in order to get our finances under control in this province. The opposition talks a lot about stability, and that what this bill does is unstable. Nothing could be further from the truth of the fact that an increasing deficit increases far more the instability of this province and of the individual homeowners of this province than the elimination of what was basically a two-year election gimmick. The supplemental homeowner grant was an election gimmick brought in by the previous administration to buy an election. The opposition is engaging in scare tactics. They very conveniently, almost every time they speak.... They don't like to talk supplemental; they talk the "homeowner grant," and that has led to considerable confusion among many people in this province -- seniors in particular. And the opposition is guilty of fearmongering of the worst kind among the elements of our society who are often the most vulnerable.
We have increased the homeowner grant by $20. That, hon. member, is a fact. We have increased the senior's homeowner grant. That is a fact. Everybody who is eligible for the homeowner grant in British Columbia receives the same $450, regardless of their income or the taxes they pay. They all receive the same amount of money, and that is fairness, because it means more to the person with a lower income than it does to the person with a much higher income. What they are defending is a supplemental homeowner grant that benefits those with higher-assessed-value homes.
It does affect the lower mainland more than any other area of the province. We have heard about $63,000 assessments in Fort Nelson, and $73,000 in Fort St. John. That wouldn't buy a doghouse in the lower mainland. But the assessed values in the lower mainland, that's the area of the province that gets hit the most. I suggest that some of the alternatives, like raising the provincial sales tax, or instituting a restaurant tax, would have had a much greater impact, not only on the lower mainland but in the interior and the far north as well.
In tough economic times you simply cannot justify a program which sees two-thirds of the benefit transferred to one-third of those who are eligible for that benefit, and leave the remaining one-third of the available funds to be spread around the two-thirds who, in fact, need it the most.
Once again we find out who the real friends of the opposition are. They are not those members of society who they like to talk for -- they are those who can most afford. That's who the opposition is sticking up for when they oppose this bill. I cannot go back to my constituents, when they say that what you are doing is costing them $100 or $150, and say, yes, it is, but at the same time you're receiving $100 or $150 on Shaughnessy Street in downtown Port Coquitlam, in Shaughnessy Heights in Vancouver you can receive up to $1,000. That is not fair. That is what the opposition is
[ Page 1900 ]
defending. They are defending those people who would derive maximum benefit at the expense of those who need help the most. At the same time, they are saying: "You're not doing enough to bring the deficit under control." What we have said, time and time again, is that we are going to get the finances of this province under control, and that means that everybody has to carry their fair share of the load.
Quite frankly, I would much rather do away with a program that.... Although it costs some of my constituents that $100 or $150, there aren't those in other areas getting $700 or $1,000 benefits, because that's not fair.
[2:45]
We are dealing with serious financial problems. The opposition doesn't seem to understand that. One of these days maybe they will, but I'm not going to hold my breath waiting for it. What I am going to do and what this government is going to do is work very hard to bring stability to the finances of this province to ensure that when we make decisions to bring the deficit under control, and we look at the choices we have, we make those choices on the basis of what is best for the province as a whole, not for a particular group that is a constituency for us.
They say, "It's going to cost us $100 to $150 -- the elimination of the supplemental grant in my riding," and I say: "Yes, it is, but an increase in the provincial sales tax or in a restaurant tax will cost you far more over the course of the year." A restaurant tax will discourage tourism, hurt small business and hurt those areas of our province that don't have the economy of the lower mainland, which is much more diversified.
They don't seem to realize that, because they're too busy looking out for the interests of their friends who are getting the $1,000 or the $700 benefit at the expense of ordinary British Columbians who are getting $100 or $150. As I said once before -- and it's worth repeating, to try and get this through the heads of the opposition -- in tough economic times when there are tough choices to be made, you cannot justify a program that sees two-thirds of the financial benefit directed towards one-third of those who are eligible for that benefit. You cannot under any circumstances justify a program like that.
An Hon. Member: You're repeating yourself.
M. Farnworth: An hon. member says that I'm repeating myself. I am repeating myself because he obviously doesn't get the message.
We've listened to the opposition talk about people who live in homes that have increased in assessed value, and there are areas that this affects. There are programs in place to ensure that individuals who may face difficulty through increased property taxes have recourse. They can defer their taxes onto their estates. I think a very important point to make is that there are small pockets.... We're saying that if your municipal taxes are going up, there are programs in place to ensure that you are either cushioned or not affected. But they don't wish to let people know that. Instead they want to expand on rhetoric; they want to fearmonger; they want to scaremonger. That's irresponsible, hon. Speaker.
We have a situation in this province that requires tough choices. This government has made tough choices that benefit the whole province, and at the same time ensure that there are programs in place to ensure that people who are over 65 and live in those small areas are not disadvantaged or hurt. I've heard numerous comments from the opposition, and they don't seem to understand that what we are doing is a responsible act to ensure the sound fiscal footing of this province.
In the case of the opposition over there, one day 60 years from now they may understand; in the case of the third party, I doubt if they'll ever understand. But this side of the House understands exactly what needs to be done. Tough choices, fair choices. That's what we've done, and that's what we're going to continue to do.
L. Fox: I rise to speak against Bill 7 on behalf of all the homeowners in British Columbia. This is indeed something which will impact all the homeowners, whether directly or indirectly. For the member for Port Coquitlam, I'll explain at some length how he, as a homeowner, will be impacted by the negativity of this bill.
An Hon. Member: Don't take too long.
L. Fox: It will take awhile, because there is a significant amount of impact. For the Forest minister's information, I will make it extremely explicit, simple and understandable.
Let me just say that when the supplementary homeowner grant came into being, it came into being because of the change in school financing. It came into being through the local financing government study that was jointly commissioned by the UBCM and the provincial government -- specifically Municipal Affairs at that time -- to look at how it might restructure local government taxation, with respect to educational costs, to soften the blow on the municipal taxpayers. That's what prompted the supplementary homeowner's grant. The UBCM, even when it brought it forward through this committee, suggested that the supplementary homeowner's grant was not the perfect solution. However, it was a step in the right direction.
I am extremely concerned with what the off-loading and the removal of this supplementary homeowner's grant has done on municipalities -- to the tune of $100 million in 1992, nothing very small. It's going to reduce the opportunity of municipalities to share in a lot of needs out there within those municipalities. This government has asked for -- and I believe would have received -- the support of municipalities in the housing issues, in attempting to lessen the lack of housing in a lot of communities where socially disadvantaged and handicapped individuals have an extremely difficult time finding adequate housing. This off-loading has limited the opportunity for municipalities to play a role in that initiative. We have heard the Minister of Municipal Affairs, Recreation and Housing also suggest that, as well, municipalities could play an extended role
[ Page 1901 ]
in providing recreational facilities and in dealing with environmental issues -- issues that are of a significant magnitude in many areas of this province. This down-loading is going to substantially limit that participation.
Under revenue-sharing for infrastructure development, municipalities presently have to come up with 75 percent of capital costs; the province comes up with only 25 percent. This particular action has once again dipped into the pockets of municipalities.
If we go back a little to the 1983, 1984 and 1985 era, I invite all members of the House to look at the credibility of the financial structures of municipalities during those years. They foresaw the impacts and the fact that the economies were going to be lower. Most of them voluntarily downsized by as much as 25 percent so they could protect their taxpayers during downturns in the economy.
Some of them had started to build up reserves for infrastructure replacement. Some of them had started to set aside dollars in each year's budget in order to meet the requirements that they knew were going to come with respect to housing, social issues and infrastructure needs. This action is going to limit that from continuing.
The member for Port Coquitlam suggests that we on this side of the House don't understand the magnitude or complexities of provincial finance. At one point he suggested that we want to have it both ways. In his presentation of this bill, the Finance minister tried to soft-sell what the impacts would be by using averages and numbers in a way that shows a very limited effect. I suggest to you, hon. Speaker, that if anybody was trying to fearmonger the populace by statements in this House.... That minister was not trying to give the true facts about the impacts; he was trying to hide them in those averages.
I'm extremely concerned. There were choices and this government made them. I have spoken about those choices before. This government decided to increase the size of the bureaucratic network. It has decided that fair wages and the fixed-wage policy are a better alternative than allowing homeowners to pay less of the school tax burden.
I also want to respond with respect to the homeowner's grant increase. I acknowledge the fact that this budget does increase the homeowner's grant -- very minimally, however -- by $20. That certainly helps some senior citizens, and I appreciate that aspect of the bill. But there are many individuals out there for whom the $20 won't even be a small blot on the page.
Through this action we are not taxing those who necessarily have the ability to pay. All the studies that I've been privy to during my years in municipal government point out the limitations and the difficulties in taxing homes based on the ability to pay. There have been many studies pointing out that home value is not really an indicator of the ability to pay. There have been arguments placed before this House throughout the discussion of this bill that there are many seniors who have appreciated homes where the assessments have increased substantially, but they're on fixed incomes and really have difficulty paying the municipal taxes.
I know that I speak essentially to an empty House. I know as well that no matter how much argument we've put forward in previous bills and through the estimates to show that this government has made errors in terms of this legislation, they really go onto deaf ears. This government is not willing to listen to constructive criticism, nor is it willing to listen, period, because it has its agenda, and it plans to put it forward irrespective of what argument we can put forward and show that it's in fact not in the best interests of the province.
[3:00]
I want to point out as well, as some of the other members have done, some of the impacts on taxpayers within the district of Vanderhoof. The tax notices have just gone out, and the impact this year is the removal of the supplementary homeowner's grant. I also want to point out to the members that this impact reflects an actual decrease in the overall taxation; that community actually decreased their taxes. However, a home with an assessed value of $71,000 will pay, because of this particular act, an increase of $162.23 this year. Another home with an assessed value of $83,900 will pay an increased tax bill of $235.22. Neither of these are considered to be the elite West Vancouver-style homes as the minister stated initially when he brought this forth in his budget. These homes are very average, owned by the average working person with an average income.
[E. Barnes in the chair.]
There's another home here that is perhaps one of the better-valued homes in our community. Its assessed value is $131,000. He has a net tax payable, after the homeowner's grant, of $1,948 this year; the same house last year was taxed at $1,446 -- $502 extra this year because of the removal of the supplementary homeowner's grant.
Here we have a senior citizen whose assessed property value is $107,000. Even though the increase in the homeowner grant was to seniors, this particular senior will pay an increase of $233.04 this year. She is on a fixed income and a government pension.
Those are the kinds of impacts this act has. They're real; they're honest. They're not on the wealthy, as some individuals might point out. In fact, they're on the average British Columbian. The impact of the removal of the supplementary homeowner grant will hit 465,000 homeowners within the population of three million. I submit to you that indeed that is not the elite in terms of our population. They're not all rich, and they don't all have the ability to pay.
What will happen, as I pointed out earlier, is that that will lessen the opportunities of the municipalities to meet the demands they are going to be seeing over the next several years. The real bother, which I referred to earlier in my discussion this afternoon, is the off-loading that this government is doing onto municipalities. It's simply not fair for any higher level of government to pass on their so-called fiscal problems onto the backs of local government.
It's not fair, but it's done with increasing frequency. We've seen it in many aspects throughout this sitting. In
[ Page 1902 ]
virtually every bill that has come forward we have put more demands on the backs of the taxpayers. We could have chosen to decrease the size of government and to decrease the costs of this House. We could have chosen to downsize some of our bureaucracy and lessen the impact on the taxpayer.
If we were truly committed, as a government, to dealing with the deficit, we wouldn't have brought in the highest deficit ever tabled in this House. That's something that government members fail to recognize. If we were really concerned about the deficit, this government would not have waited five months to call the Legislature in order to deal with what it knew were decreasing revenues in 1991.
Those are the facts. This government has not dealt with any degree of fiscal responsibility. It has increased the size of this government and the costs to the taxpayers. Every one of the backbenchers has stood up -- I'm sure their speeches and their presentations have been written by the Finance minister -- and said: "We've got to grab hold of this deficit."
Well, I find that rather amusing. You use the projections of a Peat Marwick manifesto to say that if action isn't taken, here's where the deficit's going to be. But in fact, he didn't react to that; he still tabled the largest deficit ever tabled in this assembly. Those are the facts, hon. member.
I looked with some amazement at the provincial budget and the statements made in it about the feds off-loading on the province. It's surprising to me that not a lot of recognition has been given to the fact that the off-loading virtually equalled last year's deficit: $1.4 billion. So this government criticized the feds for off-loading. Yet what does it do? It immediately off-loads onto the municipalities. I tell you, this budget and this off-loading are going to cause a lot of problems for a long time to come within municipal governments. They are going to lessen their opportunities to plan for the future and to be fiscally responsible.
I have to tell the members and remind them that there have been studies made, and municipalities have proven to be one of the most accountable forms of government by a high percentage. There's no question in my mind that they will deal with this, but they will deal with it in a way that will lessen the services of their municipalities, because they won't and can't go into a deficit in order to supply the same service that they did last year. That's how they will be dealing with the off-loading. This off-loading will have a direct negative effect on the services provided by the municipal government to its taxpayers.
Off-loading has been referred to by government members, when referring to federal off-loading, as dirty pool. I concur, and I use that statement with respect to this off-loading by this government. It is indeed dirty pool and is something that I am really concerned with, because the local taxpayers have been snookered.
Interjection.
L. Fox: The member for Kamloops is chiming in, and I'm really pleased that he is, because when you get back to your constituency the tax notices will have all gone out. I hope that you go into the municipal office when the taxpayers are coming in to complain, and share with the local administration the blame that they will be faced with. That's the ironic part. It will be the local administrations that really feel the brunt of this particular action. I know that when I was on council for eight years, any increase in school taxes or any increase at all that was negative towards the taxpayers meant that I, as the mayor, got it right in the neck.
I'm concerned as well that this government fails to understand how this is going to impact on the social economics of those municipalities. It fails to understand how badly we as municipalities need the opportunity today to invest in our future, how badly we need dollars in order to develop secondary industry and how badly we need dollars to diversify our economies. This action limits all those opportunities and takes away the flexibility of municipalities.
The member for Peace River North spoke very passionately about the extra costs that northern municipalities and people living in the north feel and face on a day-to-day basis in their ordinary life costs. This is going to erode the quality of life of those individuals. I say that very compassionately. When you start to take $200, $300 or $400 out of the average family's income to pay municipal taxes, that erodes their opportunities to enjoy some of the lifestyles that we in the north do enjoy and which are part of the reason we live in the north.
If I had one recommendation to make to this House, it would be that this government should finally identify the costs of the fixed-wage policy, do away with that policy and put the money back into the municipal structure where it will be a good investment for the future. It will create opportunities that this government will not be able to create through its fixed-wage policy.
I will vote against this bill, because it certainly is not in the interest of any homeowner irrespective of whether he feels the impact directly or not. He will feel the impact, because he will get less service and less opportunities within his municipality. In the long term, municipal taxes will go up, and these individuals will feel them if they don't feel them today.
F. Gingell: I think that it is important first of all to recognize that Bill 7 deals with education costs rather than municipal costs. The focus of what I wish to say today is that the abdication of responsibility of this government, although I look around the House and kind of wonder if the government has abdicated in fact.... But we do know that they've abdicated their responsibility as far as education funding is concerned.
For many years and on innumerable occasions the NDP said that they believed the funding of education should be removed from property taxation and paid out of the general revenues of this province. I was a school trustee for ten years, from 1964 to 1975. During that time I was on various committees that looked at the appropriate method for funding education in this province in a manner that gives school boards responsibility for making decisions and gives them the authority to tax to pay for the decisions that they may make. But at all times the New Democratic Party said the cost of education should be removed from property; it is an
[ Page 1903 ]
inappropriate tax to tax property for services to people. That was a very clear message that this government gave prior to the October 17 election.
[3:15]
One of the first acts that they have done since becoming government is to bring in Bill 7 to cancel the previous arrangements on supplementary homeowner grants. To my understanding, supplementary homeowner grants had nothing to do with taxation for municipal purposes; it was only a grant against school taxes. The amount of the grant was not calculated on what your municipal taxes were; it was a grant that was calculated on what your school taxes were. So the very first action this government has taken is to completely reverse the field once again and go running down the field in the wrong direction like Wrong-Way Corrigan. They made a commitment to the people of this province that if you elected them as government, they would bring a new rationale to the funding of education. There was a clear understanding that it was going to be removed -- whether we agreed with it or not -- from property taxation. This bill, hon. Speaker, does exactly the opposite. So it really is a disappointment.
I was looking forward -- when I discovered that I had, surprisingly, been elected on election night -- to an interesting and worthwhile discussion on the way education should be funded. If we keep school boards, as I trust we will, it is very important that they not only have the ability to make decisions about the delivery of education services within their school districts, but that they also have the ability to tax. If you're going to have authority, you have to have responsibility. If you have the right to determine what happens in your school district, how much that will cost and how much the local taxpayers will pay annually for their school taxes, then the electors and the voters have real issues to deal with at election time. I ask that the government -- if we can find them -- take this question very seriously. There is clearly a real need for some form of an all-party committee to put our heads together to try to come up with better solutions about the funding of education.
This action is simply not satisfactory and is causing a very great burden on homeowners, whether they live in expensive homes or lower-priced homes, whether they're in Vancouver or Kelowna, or, as we heard, in the north, or in my constituency of Delta South. I offer my sympathies to them all. They have again been delivered a blow from out of left field, which they were not expecting.
G. Wilson: I also rise to speak on this bill and express grave concern. I would like primarily to address one aspect of the bill. I don't intend to speak long on it, because I think the matters that have been raised by members of my caucus can only be underscored by the comments that I would make.
Bill 7, hon. Speaker, is a bill that is going to severely affect people in rural parts of British Columbia. In terms of the overall administration of taxation in the rural areas, and those covered by regional districts in particular, this Bill 7 is indeed an unjust blow to people who, generally speaking, do not have the kind of revenues that would allow them to be able to absorb the increased cost that Bill 7 is going to place upon them.
Let me say that this government needs more revenue, and for the reasons that this government needs more revenue, the members of this party, the Liberal opposition, are sympathetic to the fact that all governments do require it. I don't think that any of us believe that we are going to be able to deliver the kind of government services that we require in the province of British Columbia without putting in place a proposition where taxation can provide the kind of revenue that is needed.
I would say -- if we were to be very honest on this side of the House -- that we recognize that the Minister of Finance found himself in a very difficult position when he took over the reins of government, insofar as there was a financial problem that he had to try and deal with.
There is no good budget or bad budget, and there is no good bill or bad bill, per se; there are just choices that we make in order to try and justify the kind of taxation measures that government needs to do its business. In Bill 7, what the government is undertaking to do is to embark upon a bad choice. They had an opportunity to start to implement comprehensive tax reform that would remove the burden from homeowners -- the taxation levy that they have currently against them -- and put in place the recommendations from the UBCM to deal with the questions of taxation revenue in a much more fairly applied manner.
In my view, and in the view of the members of the Liberal opposition, Bill 7 is a regressive measure and a poor choice. With respect to rural taxpayers in the province of British Columbia, we see that the increases this will create -- with respect to the removal of the supplementary grant and the increased demand that we are going to start to see in tax notices that they will be receiving in the weeks to come -- will underscore just how bad a choice this Bill 7 was. It will indicate to all people that this government has made a rather punitive decision with respect to homeowners.
We have to recognize that if we are going to be more progressive in the way that we do business with respect to government, then we must also be more progressive in the way that we generate revenue. To simply look at homeowners as people who are somehow in the elite class.... I think that we often see in the debates in this House that our discussions boil down to this kind of notion of class struggle. People who have worked hard, who have invested, who own their own homes and who live on their own property should not be the subject of increased taxation as a result of the somewhat insatiable demand by government that constantly has its hand out trying to gain greater and greater revenues from the public.
We would argue that instead of coming down and saying we are going to put in place Bill 7, what the government should have done is put in place a package of comprehensive tax reforms that recognizes that the initial investment in property does not necessarily mean that because of the increased value through assessment of property, the ability to pay is going to be any greater in any given tax year than the individual's
[ Page 1904 ]
ability to pay based on income. We would hope and advocate that they consider this prior to the passage of this bill and prior to the increased demand that is going to be placed on the people of British Columbia in a subsequent year, given that tax notices are already sent out and the people of B.C. already are going to be facing this burden.
We have to recognize that people who have invested in their homes and have worked hard all their lives now find themselves in a situation where they in fact can live -- and especially senior citizens, who can retire with a certain dignity and independence where there's not a burden on the social system of the province.... They have worked hard and managed and invested their money properly, and they are living in a small retirement community, often in rural or coastal British Columbia. They have a limited capacity and ability to pay expanded property tax, and because they may have invested in their properties, as in my own riding, for example, where properties that were purchased in the Sunshine Coast, in Pender Harbour and Halfmoon Bay, Sechelt, Davis Bay, Gibsons and those areas.... They bought those properties possibly in the fifties or sixties or early seventies, and those properties may have been on a waterfront development that had unlimited amounts of services and service supply. Given the increased growth and the development in that community, they may now be living in an area in which the assessment on property has gone up substantially.
Therefore, when we see the implementation of Bill 7, which assumes that because property values have increased, because the individuals who now reside in those areas essentially are living in investments that have a rather substantial value, somehow ability to pay in terms of their increased taxation is going to be greater -- well, that is absolute nonsense, hon. Speaker. Their ability to pay isn't going to be greater. Often you'll find that these people are now on fixed incomes and have limited ability to pay, and in fact their ability to pick up the tax burden that Bill 7 is going to place upon them is less, not greater. When we see the demand that this bill is going to place upon the people of British Columbia, it would appear fairly evident that this government has no understanding or concept of exactly what that means. Hon. Speaker, we in the Liberal opposition are greatly concerned about that, because what it means is that we're not going to reform taxation; it simply means we're going to ever increase the demand we place upon the citizens of British Columbia.
Let me just come back to one other point as I conclude my remarks today. Quite clearly we see that not only is this demand going to be difficult for the property owners in the province of British Columbia, but imagine what that does to the budgeting process. I think the hon. member for Vancouver-Quilchena talked about this, and talked about it eloquently: the demand that is placed upon the people involved in the delivery of local government, the people in the taxing authority within the regional districts, and especially in the rural areas where taxation assessments and authorities alter and change. This government introduced in the eleventh hour a proposition that put an enormous burden upon those people in local government, recognizing full well that what really had been done was simply an off-loading to the municipal governments, to the regional districts, to be able to pick up the demand as a result of the implementation of Bill 7.
Well, hon. Speaker, the outcry -- we heard it, we raised it in question period, we talked about it fairly extensively -- from municipal officials was substantial. The outcry of people involved in having to revise budgets, and try and put those revised budgets into a form that the people of their region could understand, was substantial. That the outcry from those involved in municipal administration has been fairly significant is quite clear. This government is only just about to hear the outcry from the citizens of British Columbia as they receive their tax notices and understand more fully exactly what the implications of Bill 7 will be with respect to the amount of money that they are going to have to pay.
We have seen a government that has come in with a series of taxation bills that demonstrates one thing and one thing only: that this government had no economic plan. It had no economic strategy. In all the years it sat, as we sit today, in opposition, and in all the years it debated legislation from members opposite in former governments, this opposition did nothing to decide what they would do differently. When they got in, what would they do to relieve the tax burden on the people of British Columbia? And in particular what they would do to work with people involved in municipal governments and organizations such as the UBCM, the AVIM and others which made great recommendations with respect to amendments to property taxation. They had no strategy or plan. As opposition, this government was far too content in personalizing their attack on members of the government opposite and in involving themselves in partisan political activity within their ridings to try and seize the reins of power, rather than trying to develop an economic strategy that would deliver the province from the kinds of bills that we see them now introducing in the House.
We recognize the need for the government to tax people, because we know that government has to have money. Anybody who is sensible, anybody who is listening and anybody who has any understanding whatsoever about how government works knows that government requires money to provide services for the people, whether for health care, education or social services. But the choices we make on how we get that money must reflect the current modern day. We say that putting the burden on the homeowner in the manner that Bill 7 puts it on them is unjust, unfair and unwarranted, and it is not sensible economic strategy.
[3:30]
When we hear the comment from members opposite -- and it's a rather callous one, in my judgment.... When we said that there will be people, especially seniors, who will be unable to pay this, the concept of deferment came forward from members opposite. They said there is a provision for seniors who are now retired and living in their homes to defer their taxes, to owe them if they can't pay them. Is it fair that an individual or a couple who have worked all their lives, have retired debt-free and are no longer a burden on their families
[ Page 1905 ]
or society in any way and who simply wish to live their final years in dignity and peace and with a certain amount of accumulated wealth, should now be asked to go into debt because this government doesn't have a vision that would provide the needed revenue and not put that kind of burden upon these people? We're suggesting that is not the way they should proceed at all and that that is not a suitable answer.
If we talk about deferment at all, then let's talk about the deferment of this bill until such time as we have the Union of B.C. Municipalities come forward with their recommendations, in full consultation with all members of this Legislature, and until we sort out what is the best and fairest for us to assess taxation on property, so that all British Columbians can have the comfort and a certain amount of knowledge that we are going to be a government and an opposition that will listen to the people; not simply one, as we have witnessed opposite, that will dream up a concept on Bill 7 that is going to perhaps provide needed revenue but in a manner that really is not the way to go, in our judgment.
We offer to work with this government on such an undertaking. In opposing Bill 7, we say to members of the government that we welcome the opportunity to work with them, the UBCM, the AVIM, interior municipal organizations and ratepayers -- people all over the province involved in property taxation reform -- and come up with a better, more sensible and sounder method of providing needed revenue to government without putting in place this kind of bill. We hope that the offer is taken up in a manner that is as genuine as the manner in which it is offered. We hope that the government will receive our offer, will take us up on it and, in exchange for working this through together, will recognize that this bill should not proceed. They should essentially withhold this bill until such time as consultation provides us the needed direction, and all British Columbians can have confidence that the level of taxation that is being demanded of them is reflective of their ability to pay and the province's ability to take revenue.
We oppose this bill and make that offer. I hope that the government will take us up on both.
J. Weisgerber: I rise to speak on second reading of Bill 7 -- the intent of this legislation. Clearly the intent of Bill 7, the Home Owner Grant Amendment Act, 1992 -- the act that removes the supplemental homeowner grant from taxpayers -- is to redistribute the tax burden in British Columbia as it relates to the funding of our education system.
The government has decided that it wants to revert, to go back in time, and put a greater burden on homeowners for education tax. That is regressive. It's regressive thinking; it's narrow thinking; it's short-term thinking.
You will recall that in 1989 Mel Couvelier, the then Minister of Finance, Rita Johnston, who was Minister of Municipal Affairs, along with Marilyn Baker, who was the president of the Union of B.C. Municipalities, and Mr. Adams, who represented a taxpayer association, travelled around British Columbia and talked to British Columbians about ways that we could modify the tax system to ease the burden of taxation on homeowners. The Leader of the Opposition talks about the need for consultation. The fact of the matter was that we already had the consultation. We had the consultation in 1989. We heard clearly from the taxpayers of British Columbia that they wanted less education taxes on property.
For the most part, British Columbians have no argument with taxes on property that go to serve the property -- for example, municipal taxes. Most British Columbians accept the notion that the services which are delivered to a property should be funded by taxes on the property. British Columbians are much less comfortable with the notion that something like education funding should be property-based. They believe, and I think rightfully so, that education is available to everyone, and that taxation should be based on the ability to pay rather than on whether or not you own a home, how large a home you own, what the value of your home is and what the tax capacity of your school district is. In British Columbia school taxes are based on the needs of the school district, and the assessment then goes to the taxpayers, whether they be homeowners or industrial taxpayers.
So you find anomalies around British Columbia: you find school districts that have a large industrial base where residential property taxes are relatively low; and you find other school districts that have almost no industrial or commercial tax base and where homeowners pay almost all of the school costs. A good example is the Clearwater area. They have very little industrial base, so a homeowner pays a huge tax relative to the value of their home.
We had a tax notice sent to us a couple of months ago from a homeowner in the Clearwater area. The value of his property and land was less than $80,000. The increase in his property taxes as a result of Bill 7 would be in excess of $500. We heard recently of a homeowner in Fort St. John with a reasonably modest home who will be paying $700 more in property tax as the result of this particular piece of legislation.
Hon. A. Charbonneau: A modest-priced home?
J. Weisgerber: A modest-priced home, exactly. The member for Kamloops suggests that it somehow isn't a modest-priced home. He knows absolutely nothing about it, but he feels the obligation to make a comment in any event.
Clearly a progressive direction with taxation for education would be to move away from property-based taxes, and particularly from residential taxation. After considerable consultation in 1989, the previous government started in that direction. After a great deal of public debate, bureaucratic consideration and debate in cabinet, the supplemental homeowner grant was the model that the previous government decided was a way of not eliminating but of reducing as fairly as we could the burden on homeowners for funding property education taxes. The supplemental homeowner grant did, in some areas, have a significant effect.
The Minister of Finance would have us believe that it is only fat cats -- in his words -- in West Vancouver who are affected by this legislation. He said that when
[ Page 1906 ]
he introduced his budget, and he said it when he introduced this bill. I'm sure that the letters and the tax notices that he, the Premier, the Minister of Education and the Minister of Municipal Affairs have received over the last few months have made them understand that it is British Columbians in every corner of this province and in homes from as low a value as $50,000 who are adversely affected by this legislation and the removal of the supplemental homeowner grant. I think that the Minister of Finance and the other ministers also understand that homeowners are madder than hornets about the elimination of the supplemental homeowner grant.
Clearly the value of a home is not a fair measure of a taxpayer's ability to pay. In some cases, people with very modest incomes have homes of relatively high appraised value. Sometimes the appraised value is because of the value of the property, not the home. I'm sure we can all think of examples in Vancouver where senior citizens have lived in a home for 30, 40 or 50 years. The home is very small and very modest, but because it happens to be in a particular district or looks over the water or is on the water, that property can have an immense value. It pays huge amounts of taxes.
I suppose that the answer we would get from the government is that they should sell their houses; if they can't afford the taxes, they should move out. They should go and live somewhere else. They should move away in their retirement years from their neighbours, their friends, their family and the people they grew up with. This government believes that if you live in a house with a significant appraised value, you are a fat cat. They have no understanding -- or apparently have chosen not to understand, I think, is probably more accurate -- of the circumstances that find people in homes with large assessments and high property taxes.
They also seem to ignore or want to ignore the fact that some school districts have very low industrial tax bases, and therefore homeowners are forced to bear most of the education costs.
Wouldn't it be far more equitable to look to the income tax system or some other similar system to fund education? That's the direction we should be going. We should be moving away from property-based taxes. We should be moving to taxes that truly recognize the ability to pay. If you do that, then you provide the opportunity....
Interjection.
J. Weisgerber: The Minister of Highways asks why we didn't do it. He clearly hears only what he wants to hear. In 1989 the government consulted, moved and brought in legislation to provide a supplemental homeowner grant to do exactly what I just said -- to move away. This enlightened government, this pompous, pumped-up bunch over there came in and instead brought in during its first term in government, in its first budget, in its first of three -- and, if it's really lucky, four -- years in government, legislation to go back to the old system of two years ago. It's not moving forward and is showing absolutely no imagination at all when it comes to issues around taxation and education funding.
[3:45]
Clearly the more enlightened approach would be to provide a method of taxation based on the taxpayer's ability to pay and to focus some attention in this province, as the previous government did, on wealth generation and economic growth that allows the government to increase its revenues without increasing the tax rate. That clearly is the preferred approach and was the approach that the previous government was successful with. In 1989 and '90, when it brought in the supplemental homeowner grant, which gave a $90 million or so tax break to homeowners in British Columbia, the government was able to do it without increasing taxes.
Under the Social Credit government the economy was growing. Wealth was being generated. There were new revenues coming in because the economy was strong. That is the approach that we'd like to see. Instead this government has gone back to the old tax regimes, and then they say: "What could we do? If we didn't increase taxes, we'd have to close schools and shut down hospitals." It's the standard NDP answer.
The Minister of Finance asks what I would suggest. I'm glad he asked, and I sort of led him into it, as a matter of fact, because I wanted to once again in this House raise the issue of the so-called fair wage policy -- the fixed-wage policy -- that's going to cost the taxpayers of British Columbia twice as much as this tax measure will raise. It will cost taxpayers not $90 million but more than twice that. And for what reason? It's to pay off the Premier's pals in the labour movement and to move jobs from the independent non-union sector to the union sector.
British Columbians are supposed to feel good about this. They're supposed to feel happy that this government took another $90 million out of their pockets to pay off their pals in the union movement, in the construction union environment. That's what the government wants us to believe. Clearly that's not acceptable, and clearly we have said a number of times that that is one measure we would much rather have seen abandoned in order to remove the requirement to bring in this tax -- because it's bad news.
It's bad news for homeowners, it's bad news for taxpayers, and the minister would have us believe that the $20 increase in the homeowner grant -- you know what 20 bucks buys these days -- somehow is going to make up for the $700 extra that the lady in Fort St. John is going to have to pay on her house, or the $500 more that the gentleman in Clearwater and his wife and family are going to have to pay on their taxes. The minister stands up and says: "But most people are better off. They're getting $20 extra on their homeowner grant." It's such a patent bit of nonsense that if it weren't so sad, it would be laughable.
If the minister wanted to deal with this issue, he would have looked for a more equitable tax measure. The intent of this bill is to shift more responsibility to homeowners. That's the reason that I and, I expect, every member of the opposition will vote against this bill. I hope that a few of the members....
[ Page 1907 ]
We haven't yet had a government member with the fortitude, the guts, to vote against a bill in this House. There are opportunities. This is a great opportunity for an MLA who represents a constituency where the homeowners are being gored by this tax to show that there is some independence, that they didn't elect 51 sheep to this Legislature who stand up in unison and sit down in unison, and that some of them have minds of their own and thoughts of their own and some courage. We'll count, when we vote on this bill, and see whether any of them are here today.
There are members of this government who should vote against this bill. If they're on the back bench, they can't get any further back than that. You can move back in the line a little bit. Your movement in the cabinet may be delayed a little bit. You know, the Premier just might look. At least you would be somebody that he would recognize. He just might say: "Who was that fellow? Maybe he's got what it takes to make a cabinet minister." Maybe if you really want to move up, this is the time to do it and show some courage at the same time. Hon. Speaker, I can't invite you, but I would invite members opposite, even in the cabinet, to take a chance and vote against a piece of legislation that deserves to be voted against.
D. Schreck: Hon. Speaker, it gives me particular pleasure to follow in the order of debate both the leader of the official opposition and the very well-spoken leader of the third party. I found that the leader of the third party, in making his remarks, actually touched on some points on which we agree. It's unfortunate, however, that in making those remarks, the essence of this bill, and the substantial point of our disagreement, is overlooked.
The general principles of taxation, which have been discussed, and the desire of all members to lessen, to the extent possible, the burden of school taxation on homeowners is not what we are debating here today. What we're debating is Bill 7, which, among other things, eliminates the supplementary homeowner's grant.
One of the problems we have is the public's confusion between the homeowner's grant and the supplementary homeowner's grant. The relief provided by the former government through the supplementary homeowner's grant was an unfair method of taxation. It gave some individuals relief up to $1,000 and gave most of the people in my constituency the opportunity to pay for it. The confusion with the supplementary homeowner's grant and the basic homeowner's grant is the difference between whether all property taxpayers qualify for the same basic grant, versus a supplementary grant which increased with the value of the property. There was a great deal of confusion in reports on the elimination of the supplementary homeowner's grant. By simply reading case examples in the media -- with no intent to criticize the media -- it's impossible to understand precisely what is being discussed. A great deal of clarity is added by simply going back to the original act and looking at the section which is eliminated by amendment through Bill 7.
The original act provided, as the supplementary homeowner's grant, that it would be, and I quote: "for each current tax year after 1990, in an amount equal to the lesser of (i) 50 percent of the difference between that amount of school tax and that maximum basic grant amount, or (ii) $1,000." In other words, the more valuable your property, the more school taxes you paid and the bigger grant you would get in relief, up to a $1,000 grant. Now 65 percent of the constituents in my riding are tenants. They did not qualify for this relief at all, nor did their landlords.
We have to ask: where did the money come from? People like myself got a grant of $300 or $400, or people in some other parts of the North Shore got grants up to $1,000. The money didn't fall from heaven; it had to come from somewhere. When government offers some form of tax expenditure, by offering this type of relief, it comes by having to raise taxes in other areas. The 65 percent of my constituents who are tenants were paying higher taxes in all other forms of government taxes so that a few people with more expensive homes could get grants of up to $1,000. It strikes me that that is the most perverse form of reverse income transfer -- that my constituents, who cannot afford to buy a home, should be more heavily taxed so that some other individuals who own a more expensive home can receive $1,000 in tax relief. That is simply wrong.
A much fairer way of going about property tax relief -- if there is going to be property tax relief -- and there is no disagreement here on the principle that it is clearly desirable to shift the school tax burden elsewhere and not have it primarily dependent on property.... The issue is: if we are going to have to raise school taxes from a property tax base, what is the equitable way of doing that? It is not equitable to have a system where, in effect, you pay a greater proportion the lower the value of the property that you own, which is what the supplementary tax did. The more valuable your property, the more relief. Therefore the net school tax that you actually paid increased as a proportion of your property as the value of your property went down. That is an incorrect, bad principle of taxation.
What my government is doing is removing that subsidy which took money from modest-income taxpayers and from renters and gave it to those who got $500 or $1,000 and lived in homes which my constituents could not afford to buy. My government has removed that bad form of subsidy and replaced it with an increase across the board. My friend opposite, the leader of the third party, says: "Well, so what? So what if a lot of people get a small increase, and a few people who were fortunate enough to have more expensive property end up...? It's unfair to them that they lose their $500 or $1,000 grant." I say that is precisely what makes this fairer.
We can always say: "Let's take a few dollars from the hundreds of thousands in the broad population and give it to one or two lucky stiffs and make them multimillionaires." Is it any less fair that the people who are providing those larger grants to the lucky few have only a little taken out of their pockets? It is not fair. It is fair to have the property tax relief go on a basis that is at the very least proportionate, that ideally helps
[ Page 1908 ]
those who need the help the most. Providing a flat grant and increasing the grant, as Bill 7 does, not only reverses what was essentially unfair taxation; it reverses a scheme that took money from the broad mass of taxpayers, from tenants and from people who got no benefit, and transferred it to a few people, such as myself, who benefited from a $300 or $400 supplementary homeowner grant.
I say that it is better that the constituents in my riding who want to buy a home get the relief, rather than the people, such as myself, who enjoy the privilege of owning a home. I hope that all homeowners can get property tax relief, and that we can review school taxation to remove the burden of school taxation. But that is not what we are debating. What we are debating is this particularly perverse form of providing relief in increasing proportion to those who have the most valuable property. That is wrong, and that is stopped under this bill.
W. Hurd: I'm pleased to rise on second reading of Bill 7. I certainly listened to the explanations from the hon. member for North Vancouver-Lonsdale with a great deal of interest, and I hope that he has his facts straight when his constituents come calling when they get their tax notices in a few weeks. I hope that they accept the kind of explanations he's offering, because I can tell you the members of the Liberal opposition will be offering a considerably different explanation to their constituents when they call regarding the elimination of the supplementary homeowner's grant under this bill.
[4:00]
It's significant to note that some municipalities in this province are issuing disclaimers with the tax notices that have gone out. They're explaining how it is the tax bills for their citizens have gone up in the vicinity of 15, 20, even 25 percent. They're going to point out that what we have here is an effort by a cynical government to download on another level of government -- download on the municipalities. I think it's significant to note that over the years the members of the New Democratic Party had a lot to say about the homeowner's grant when they were in opposition. In preparation for debating second reading of Bill 7, I pulled a few out of Hansard just to let the House and the people of the province know exactly what the government had to say about the supplementary homeowner's grant when it was in opposition.
I quote from the hon. Minister of Finance on April 18, 1989:
"Many of my colleagues have discussed alternative approaches, and I think there are obviously many, the most important of which -- in my view -- is going back to annual assessments which could deal with the rapid increase in values.
"Secondly the homeowner grant could be increased."
Imagine that, increased!
"It is increased somewhat, and that deals partly with the problem."
And the hon. Premier, on April 18, 1989, speaking in reference to the Residential Property Tax Increase Limitation Act, 1989, that what we're dealing with is a symptom of too much growth in the lower mainland and not enough in the rest of the province. And speaking to the Premier of the day, he said: "You could have increased the homeowner grant."
All I can say is what a difference six feet makes. I join my colleagues in speaking against this bill, and I would remind the hon. member for North Vancouver-Lonsdale that it isn't fat cats who live in expensive homes in the lower mainland anymore. Many of them are seniors who have lived in their homes for 30 years and, through no fault of their own, have seen the value of their property increase tenfold over what it was only a few years ago.
It's also significant to point out that the government has another program on the books which allows seniors to defer their property taxes. The question that I addressed to the Minister of Municipal Affairs during estimates was: does he have any information on what impact the reduction in the homeowner grant will have on the number of seniors who are going to now defer their taxes and present a bill to the Municipal Affairs ministry at the other end of the equation?
Naturally, that question was not answered by the Minister of Municipal Affairs in estimates, because I doubt that he has considered it. But I can assure you that as a result of the tax notices coming out in the mail in the next few months, many more seniors in this province will have no choice but to avail themselves of this particular program that the government has for seniors. It's debatable whether this government will generate any new revenues at all by downloading on the municipal governments throughout this province.
This particular cynical bill was brought forward by this government with no consultation with the municipalities. I've had opportunities to talk to mayors and regional district representatives who knew nothing about this bill before it came down or about the decision of the government to eliminate the supplementary homeowner grant. It's just another effort by this government to download, to shift responsibility and to hope that somehow the municipalities and the municipal governments will catch the flak.
It's a sad day in this House when we have to stand and ask members of the government back benches to vote against a bill that is clearly not in the best interests of their constituents. But not one has risen -- and I doubt that they will rise after the tax notices come out in a month -- to question the government and the strategy and direction of the Minister of Finance in cancelling the supplementary homeowner grant.
They haven't done their homework; they haven't thought it through, and they haven't even lived up to the spirit of the kinds of things they talked about when they were in opposition on the other side of the House. This is openness and honesty in government. I can tell you it's appalling, and I have no hesitation in recommending to every member of this House, in addition to members of the third party, that they oppose this bill and send it back to committee and to the ministry to have another look at it. I can tell you, in two weeks' time, when the notices hit the streets and people start to realize the kind of tax increases they are facing, they are going to come looking for an explanation.
[ Page 1909 ]
I note the hon. member for North Vancouver-Lonsdale has left the House, and all I can say is that I hope he has a better explanation than the one he offered in this House today.
H. De Jong: Hon. Speaker, I am pleased to rise to speak against Bill 7, the Home Owner Grant Amendment Act, 1992. I am speaking against this bill for a number of reasons. It's very evident, I believe, that the government itself is not very interested in this debate, because there are only four members in the House out of 51, which is a very poor showing on their part.
Perhaps these members know already why the homeowner grant was initiated many years ago. It was initiated by a Social Credit administration, and it was maintained by subsequent administrations through many years. The purpose of the homeowner grant has been to cushion the increasing costs of education on homeowners. That was the basic purpose of the grant. It's not surprising in a country where inflation has been evident that the costs of education, like many other costs, do increase. In addition, we have smaller class sizes, higher administrative costs and, of course, very fast growth in some areas all adding to a higher cost for education. But thanks to previous Social Credit administrations, they have kept on revising the figures. The initial homeowner grant, I believe, started at $29. It sounds like a pretty small beginning, but it was a valuable beginning, and it has kept pace all these years with the cost of education and the taxation of property owners. This is also the reason why there has been a greater homeowner grant allocated to seniors, many of them being on fixed incomes that are based on salaries paid during the thirties, forties, fifties and sixties. They were much lower than those who are going onto fixed incomes today.
In respect to the initiative of the homeowner grant taken by this government to increase it by $20, I suppose I have to give them some credit for that. I'm sure the people in the province will acknowledge the $20 increase. However, we must keep in mind that $20 certainly does not keep pace with the increasing costs. The $20 falls short of reality by a long shot. I believe the government has admitted this in its own Education ministry budget. Many school districts' costs were increased. The cost of government involvement to those school districts increased by a greater amount than the percentage of the $20 is on the basic homeowner grant. For instance, the $20 increase means only about a 3 percent increase for the average homeowner and 5 percent for the seniors. These are very small increases -- 3 and 5 percent -- yet we talk about a 9 to 10 percent increase in the cost of education, particularly in the lower mainland and other fast-growing communities. This government has not kept pace with the increase of the basic homeowner grant.
The taking away of the supplemental homeowner grant is very serious indeed. The supplementary grant introduced last year -- perhaps it should have been introduced at a much earlier date -- was another means to even out the costs of education among the people of this province. The reason I say this is that the cost of advanced education in all fields -- be it at colleges, universities or technical institutes -- is borne out of general government revenue.
The purpose of the supplementary homeowner's grant was primarily to level the costs for all homeowners. Instead of taking away the supplementary, which was a first step towards eliminating the cost of education from direct taxation against property.... I firmly believe that the cost of education should not be applied against property but should be paid like any other level of education: out of general revenue. We cannot ignore the cost; the cost would be the same. But this government wishes to do it from both sides. They know that in order to fulfil the desires of all of the special interest groups, they cannot afford to tackle taxation for education in a fair and equitable manner.
This tax grab takes another $90 million out of the British Columbia economy. More seriously, it is another $90 million of unfair taxation against the people of this province. It is one thing to pay more taxes, but it is quite another thing to pay more unfair taxes.
In conclusion, this tax measure is regressive. It is unfair. Moreover, it is against what the people in all areas of this province have already spoken about during the review of taxation. They will speak again. I'm sure they will act when the next writ is dropped.
Hon. D. Miller: I ask leave to make an introduction.
Leave granted.
Hon. D. Miller: I would ask the members of the House to give a special welcome to some students from my constituency, from the community known as sunny Port Edward -- remarking on the weather here today. Division 1 of the Port Edward school -- grades 5, 6 and 7 -- are here, accompanied by their teachers Ms. Sharon Edin, Ms. Marlene Clifton and Mr. James Carr. I have to advise you that when I talked to the students in the foyer, one of them asked me whether I ever exaggerated in debate.
Hon. Member: I hope you said yes.
Hon. D. Miller: Of course, I said no. But, like all members, I occasionally lapse into hyperbole. Please give the students a warm welcome, hon. members.
L. Hanson: I thought for a moment there that the Minister of Forests was going to give us his opinion on Bill 7.
When the Minister of Finance first introduced the budget, he said that the budget was intended to tax those people in the higher income bracket, that the average citizen of British Columbia had been left alone, if you will, and that the whole process and principle behind the increases he was announcing would put a larger burden on those people who are considered to be in the higher income bracket. When we look at this Home Owner Grant Amendment Act, which repeals the supplementary homeowner grant, I really have difficulty understanding that statement. Somewhere in there is the inference that average British Columbian
[ Page 1910 ]
who are of the higher income bracket are the only people who own residences in the province. If the Finance minister were to do an analysis of that, he would find that there is a large percentage of our population who are the average taxpayer, below the income level that was suggested should have the surtax. So I think that was very misleading.
[4:15]
I listened with interest to the member for North Vancouver-Lonsdale and his suggestion that the removal of the supplementary homeowner grant was in fact an attempt to provide fairness in the school taxation system. Well, I am not an economist, nor am I an accountant, but when you remove something that gives $90 million revenue to the provincial coffers, and then you turn around and say we're going to give you back $20, which amounts to $20 million, somehow I lose the fairness of that in the translation. It's obvious that if the Finance minister and this government truly intended to be more fair in the taxation, they would take the $90 million that they are getting via the removal of the supplementary homeowner grant and either reduce the mill rate applied to homes for education funding of $90 million, or increase the homeowner grant by a like amount, if that is what the member suggests is the only fair way of doing it.
It is obviously an attempt and a need that the Finance minister has expressed for the extra $70 million that they have taken as a result of this. If you take the effect of the supplementary homeowner grant; if you take the effect of this government taking away the municipalities' access to the revenue-sharing program, which is in fact the municipalities' own money; if you take into account the effect of the ICBC taxation; if you take into account the taxation on legal fees and all of those things, how can the Finance minister expect anyone in British Columbia to possibly believe that the average taxpayer, or the average income-earner, is not affected by this NDP government tax grab?
I have had some experience.... This morning we talked at some length about the confusion of statistics. I would like to place before the House another confusing statistic: 40 percent of the voters elected two-thirds of the members who sit in this House.
I support some of the comments made this morning about the confusion of statistics, but I don't think that the people of British Columbia are very confused when they see $90 million more coming out of their pockets to pay taxation for school purposes. It was clearly the intent of that study, and clearly the recommendation of that study, that residential property should not bear the burden of school taxation, and we were moving in that direction with the supplementary homeowner grant.
I know that a number of times the UBCM have expressed their concern that, no matter how often this government says that it is consultative and approachable, and that it does nothing before it goes through that process.... The UBCM are astounded by this measure, which has put a terrible burden on the average taxpayer in British Columbia.
I don't know what the intent of this legislation is, other than a tax grab. I hope it is not along the lines that the Attorney General said at one time. I quote from Hansard some time ago: "Maybe we have to say that land can no longer be owned privately. No one ever suggested that air should be owned privately." Maybe this is a move to put the ownership of land and the individual's ownership of his home out of his or her financial ability to afford it.
Interjections.
L. Hanson: Hon. Speaker, I hear the remarks of members on the other side -- particularly the Minister of Highways. I've heard this a number of times before. The government has asked: "If we don't get the funding through this source, where are we going to get the funding?"
Again I will say, hon. Speaker, that the fixed-wage policy would put $200 million back into the coffers if it were discontinued. I suspect that if the Minister of Highways wanted to put in a fixed-wage policy as far as highway construction was concerned, it probably wouldn't make a whole bunch of difference, because there isn't any highway construction in British Columbia this year. There's no question that there is funding available. There is funding that could be diverted to the programs this government says it needs to find taxes to support, if it looked carefully at some of the other policies that it has in place.
Hon. Speaker, there is no question that the members on this side of the House are opposed to the principle of this legislation, because it is against the interests of the average homeowner in British Columbia. It is a poor taxation method in the application of education taxes to the average homeowner. That was the intention of this legislation: to give relief to the average homeowner where it is most needed.
Therefore, it is my advice to the government of the day that they should certainly reconsider their position. I know that, as the tax notices come out around British Columbia, they are going to get that message loud and clear. With that, I take my place and very definitely oppose the application of Bill 7.
Deputy Speaker: The hon. Minister of Finance should be returning soon to close debate. I believe he is in the corridor and will be coming in momentarily.
The hon. Minister of Finance closes debate on second reading of Bill 7.
Hon. G. Clark: Hon. Speaker, I want to thank the members of the House for giving me the courtesy of wrapping up debate. I won't be long.
As in all tax measures, no government takes any pleasure at all in these kinds of questions. In fact, I certainly would rather not have done this.
Interjection.
Hon. G. Clark: It's not one to smile about, hon. member, obviously.
However, when you're faced with a difficult fiscal situation and the enormous deficit that we inherited from the previous Social Credit government, we had some difficult choices to make. We wanted to preserve
[ Page 1911 ]
the ability to increase spending on health and education. As all members know, we have the highest increase in education spending, in health care spending and in social service spending in the country. Of course, by doing that, we had to restrain spending in other areas, and we also had to look for ways in which we could have tax revenue in order to keep the deficit down. We cut the size of the deficit by $1.1 billion. Unfortunately, in order to do that, we had to make some tough decisions, and the elimination of the supplemental homeowner grant was one of those.
The supplemental homeowner grant is a difficult one for my constituents -- not one that I relish removing. However, for my constituents it's about $10 a month. For wealthier individuals it can go up to $1,000 a year. Individuals like the Law Clerk here who live in expensive homes will of course pay disproportionately more, hon. Speaker. The majority of households in British Columbia are better off -- or at least no worse off -- as a result of these changes, but for some affluent households there is a significant increase, and for some moderate-income households there is an increase. I certainly don't enjoy that, but on balance I think it's fair.
I might say as well that when you look the taxes, we tried to deal with our fiscal situation and protect health and education spending. Of the revenue we're raising this year, only 12 percent is a result of this measure. The vast majority is a result of higher-income individuals and corporations.
Again, we take no pleasure in this, but if you'll view the package of initiatives in the budget, it's a fair approach to deal with our fiscal situation while protecting spending on health and education. I ask all members, in spite of the fact that it is difficult, to look at the array of options available to government, like raising medical premiums, which is regressive; raising the sales tax; extending the sales tax to restaurant meals; or those kinds of questions. I think most people would realize that while this is difficult for some people it is a fair approach. I ask all members to support it.
[4:30]
Motion approved on the following division:
| YEAS -- 30 | ||
|
Boone |
Edwards |
Cashore |
|
Barlee |
Charbonneau |
Jackson |
|
Pement |
Beattie |
Schreck |
|
Lortie |
Lali |
Conroy |
|
Hagen |
Clark |
Barnes |
|
Pullinger |
Lovick |
Ramsey |
|
Hammell |
Farnworth |
Evans |
Doyle |
Hartley |
Streifel |
Lord |
Krog |
Garden |
Kasper |
Simpson |
Janssen |
| NAYS -- 17 | ||
Farrell-Collins |
Reid |
Cowie |
Gingell |
Warnke |
Stephens |
Hanson |
Dueck |
De Jong |
Fox |
Anderson |
Symons |
K. Jones |
Chisholm |
Jarvis |
Hurd |
Tanner |
|
Bill 7, Home Owner Grant Amendment Act, 1992, read a second time and referred to a Committee of the Whole House for consideration at the next sitting of the House after today.
The House in committee on Bill 6; E. Barnes in the chair.
On section 1.
Hon. G. Clark: I move the amendment standing in my name on the order paper. [See appendix.]
Amendment approved.
Section 1 as amended approved.
Section 2 approved.
On section 3.
F. Gingell: The provisions of section 3 not only increase the liability for this corporate capital tax on a bank from 2 percent to 3 percent -- which I would like to inform the hon. Minister of Finance is an increase of 50 percent, not an increase of 1 percent -- but also make a dramatic change in the amount of tax that banks will pay in this province due to the question of creditability.
As I understand it, prior to this time, the amount of corporate income taxes that banks paid under the calculation of their corporate income taxes in their federal returns and then allocated to the province.... The amount of corporate tax that they paid to British Columbia was allowed as a credit against the corporate capital tax they were paying, so that they would not be subject to double taxation. My understanding is that not only has the tax rate been increased by 50 percent, but the creditability provisions have been withdrawn, so there is going to be a dramatic increase in the cost to the chartered banks for their operations in British Columbia.
As we all know, most businesses, particularly banks, find different ways of passing the increase in their costs on to customers and consumers. I believe that there is a real problem with this particular provision, in that I have been advised by banks that the increase in their cost of money will rise anywhere between an average of 35 points.... One particular bank's costs will increase by slightly in excess of 60 points. That is a dramatic cost increase, and I am concerned about the problems of job creation and economic growth in the province if these costs are passed on to British Columbia consumers.
I would be most interested in what the minister has to comment.
Hon. G. Clark: I expected criticism of this act, but I didn't expect criticism on the increased tax to the banks, to be quite candid. Banks have made excessive profits in the last year. You should know that they are subject to the capital tax in other provinces, and to my knowledge there is no difference in interest rates across
[ Page 1912 ]
the country. The fee structure is relatively the same across the country. Major commercial borrowing is adjudicated at head office. We're still competitive, but the tax is fairly steep on those big banks. They will be paying significantly more. Of all the corporations in British Columbia that can afford it, I would say it's the major chartered banks. Even the previous government, when it eliminated the capital tax, did not eliminate it on the banks. They did that because it was quite clear to everybody, including the Social Credit Party, surprisingly, that they weren't paying enough tax on their profits. So the capital tax was retained.
It is deductible from corporate income tax. There was not double taxation before, and there isn't double taxation today. So I don't think that's a valid criticism.
I agree with you that it is a big tax increase. It is 50 percent. It went from 2 percent to 3 percent. That's one point higher, but if you want to use percentage terms, that's correct. But it is on a sector of society that can afford it, that should be paying more and that has not, in my view, paid enough.
F. Gingell: I did not appreciate that corporate income taxes will remain creditable. Could you tell me where that is in the act?
Hon. G. Clark: I'm sorry. I don't want to mislead you. It's not creditable against provincial income tax. It's not a credit any longer. That's correct; it was removed. I think the judgment of the day by the Social Credit Party was that they could afford to pay it because they weren't paying enough income tax, and I frankly share that view. As a total, it is still deductible from income tax, but you can't credit it against your provincial income tax.
F. Gingell: During the course of second reading of the bill, I made the remark that this corporate tax -- not necessarily against banks; I was talking about the other corporations -- would not be deductible for Canadian corporate income tax purposes. I understand that the original threat by the federal government to remove deductibility of the tax in calculating, not taxes payable, but taxable income, has now been withdrawn on the understanding that the provinces don't go above certain reasonably agreed levels.
But am I right, Mr. Minister -- and I'd like you to confirm -- that prior to the introduction of Bill 6, corporation income taxes paid by banks were deductible from the amount of taxes payable under the old Corporation Capital Tax Act?
Hon. G. Clark: I'm advised that that is correct. I would like to say in response to your specific question that the federal government did threaten not to allow this as a deduction, and they have backed off from that. It is fair to say that that threat is not an idle one. They could at some point move in the future. My view would be that Ontario and Quebec -- and some other provinces -- both have payroll and capital taxes, and large ones. Even if they were to limit the deductibility, certainly my argument would be that they should not treat British Columbia companies differently from Alberta, Ontario or Quebec. My sense is that we would have a very strong argument. If they moved to limit deductibility, they would limit it at the level of Ontario and Quebec, and of course they are so much more highly taxed than we are that it wouldn't have any effect on the deductibility here. That's a political argument, and it could be made at some point. The federal government could move at any time on these questions.
I think we have a good case for another reason, and that is the federal off-loading. They've been cutting back so dramatically on the province of B.C., to the tune of $1.4 billion annually now, that it's only fair that they would allow the continued deductibility of these taxes from their income tax structure.
[4:45]
F. Gingell: I can't allow section 3 to pass without once more saying -- and I'm sorry to repeat myself -- that clearly there are circumstances when corporations, even though they make investments that are subject to tax holidays, become taxable for corporation capital tax purposes because they made the investment.
Let's say that a corporation with calculated corporate capital -- the way it's defined -- of $900,000 makes an investment in an environmental capital asset. It borrows money from the bank and thereby moves that calculation up to $1.4 million. Even though they have a deduction of $500,000 for one or two years, depending on the year that it is made, I understand that they will still be subject to the tax on the $900,000. I suggest to you that that's a pity.
Hon. G. Clark: That is correct, and I understand the argument. But obviously when you have a tax law you have to make those rules fairly clear in order to avoid tax avoidance and a few other things. In this particular case, you are correct. I understand the point you're making.
R. Chisholm: My problem with this is with farming, the incorporated family farm. One million dollars does not go very far. You are proposing to put a tax of $3,000 on each $1 million invested. The problem I have with this is that it's a disincentive for young people to get into farming, with the abnormally high cost of barns, equipment, land and quotas, at a time when our farming industry is on a decline and being threatened by outside agencies, such as south of the border. I would like to ask if the minister could take another look at this area and maybe consult with the BCFA, or some group like that, to see what their thoughts are on this.
Hon. G. Clark: Let me be very clear. This is a large bill and a complex bill, and we're making some amendments. I am prepared to review that question over the next year, because we're concerned.... Even though it's a restoration of an existing tax, there are always amendments to these things. There are a variety of things which I would like to review over the coming year, and this is one of them.
[ Page 1913 ]
I'm not prepared to consider it for this year. We have to deal with our fiscal situation and bring in this tax and establish a regime around it. But I want to give you some assurance that we will be reviewing all of these questions, and implementation questions, over the coming year. I know that people have been drawing, and will continue to draw, certain concerns and anomalies to the attention of me and my staff. I anticipate that we'll have some changes next year as well to try to deal with those.
I want to be candid with you that I am concerned about some of these impacts, and we will be reviewing it. But at this point, in order to keep our fiscal target and the like.... I've made some limited exemptions by way of amendments, which we'll see later on, but I'm not prepared to consider any further at this time.
R. Chisholm: Is the minister saying that he will commit to discussing this with the BCFA at a further date this year?
Hon. G. Clark: Yes, I certainly have no hesitation in doing that.
L. Fox: I'd like to seek clarification with respect to this section. Could you tell me whether or not this section would cover vehicle inventory that essentially is on a floor plan for a car dealership? It may show up on the capital side, but in fact it is not really the property of the dealership. The other question with respect to that is: what about a leasing company that operates as a holding company for these dealerships, where they show assets, but in fact they're in-and-out assets and there's really no profit or anything else with respect to that company?
Hon. G. Clark: Mr. Chairman, I knew that a Social Credit member would stand up and ask about car dealers.
Seriously, there is an exemption for current accounts payable. That's defined in the act later on as 120 days. For car dealers who are taking cars in and then selling them, a large part of it should be exempt from the tax. I recognize this anomaly, but the idea is to tax their capital assets. If that's part of their ongoing business concerns, they would be exempt. I suppose if there are enough cars that aren't sold in that 120-day period, then there could be some very large dealerships that might be subject to the tax. I'm not quite sure exactly how....
I know the members opposite are very familiar with car dealers and how they operate; the leader of the third party is. I'm not as familiar with that; I'll be candid with you. The idea is not to tax inventory that's flowing through the system.
L. Fox: What about the second part of the question? Some dealerships have holding companies to which they funnel vehicles for leasing purposes. There are really no hard assets in that, other than the fact that the vehicles out there are in joint names with respect to the leaseholder and the lessor. Are those considered taxable assets?
Hon. G. Clark: These are complex questions, and my staff will be delighted to be candid and talk to you later. If it's a capital lease where, for all intents and purposes, the vehicle is a capital asset of the company and is being leased as part of the use of that capital, I think it probably would be taxed. That's my sense of it. If it's a different kind of lease arrangement where it's meant to be the capital asset of the lessor, that may be different.
Again, any detailed questions around that, my staff.... By the way, Al Carver and Andy Robinson are staff here, and I know they would assist you in a detailed explanation of these.
L. Fox: I will try to acquire that information without being in conflict.
Another question and a concern I have is how this is applicable to the logging industry and its rolling stock in terms of its equipment and so on. How does that fit into this corporation tax?
Hon. G. Clark: That would presumably be taxed, obviously, if it's in excess of $1 million. It's not inventory; it's part of their working capital.
L. Fox: I have one further question with respect to the banking. It seems to me that, as I've watched and utilized the banks over the years, any impact with respect to their fixed costs of operation gets turned back to the consumer. I'm concerned that this particular increase to the banking institution is going to be paid by the consumer through increases in service costs and in various ways -- perhaps not through interest, as I think they may find that difficult, but obviously through other services within the bank. Could the minister perhaps tell me whether or not, in his view, that is a possibility?
Hon. G. Clark: Maybe this will allay the member's concerns. If you look at the budget document at the back under corporation capital tax and financial corporations, in Alberta, it's 2 percent; Saskatchewan, 3 percent; Manitoba, 3 percent; New Brunswick, 3 percent; Nova Scotia, 3 percent; P.E.I., 3 percent; Newfoundland, 3 percent. Our tax moves to 3 percent, basically the same as every other province except for Alberta, Ontario and Quebec, but again, Ontario and Quebec have other payroll and similar taxes on top of that. So we are not out of line at all, and we shouldn't anticipate an impact on the banking sector for consumers, in the sense that we are already all treated roughly the same across the country, and we anticipate that that won't change.
I've said this before, and I don't say this lightly: on any of these tax questions, particularly when we're doing a new tax like this -- well, this isn't particularly new, but capital tax generally -- we will be monitoring it very closely for impacts, and adjusting it accordingly down the road.
L. Fox: A final question. Seeing that you've done the comparisons with respect to the tax load on the banking institutions across Canada, have you at the same time
[ Page 1914 ]
explored to see whether or not, with respect to the service costs to the patrons of that particular facility, there is a relative change there?
Hon. G. Clark: We haven't done that. I don't think there is any difference in service costs across the country. I recall that in the past the federal finance committee, I believe, reviewed what some viewed as exorbitant fees by the banks, and my recollection is that there was no difference across the country. But that is just recollection. We have not done that. It might be an interesting exercise.
F. Gingell: There was one further question that I had intended to ask, on the creditability of corporate income taxes against corporate capital taxes. Can you advise the House of the situation in the other provinces of Canada -- whether or not British Columbia will be different?
Hon. G. Clark: No, there is no creditability anywhere else in the country, so we are exactly the same as every other province.
F. Garden: I am very pleased with the remarks to your previous speaker on a review of the agricultural question and the farmers. I would also ask the minister to consider a review of the fact that this is pretty all-encompassing. It's dealing with the banks, and I'm a little surprised to hear the dialogue from the opposition about their concern for the banks. I don't think it's high....
Interjections.
F. Garden: I think it's something that should be reviewed. I don't know how you could separate them out, but we're talking about the customers here, and major banks across the country are bailing out defunct corporations in a tremendous magnitude. These costs are going to be passed on to customers. What we are doing is peanuts compared to that, based on what they are able to recover through their legal documents. I still feel that the banks are undertaxed.
For many years the people of this province and this country used to be able to depend on long-term mortgages for their houses. That avenue has been totally destabilized over the last 15 years. People have got to the point that they have been having to give up houses, walk away from them, because of some of the responses by major financial institutions, including banks.
My question to the minister is: will he take a good look at this banking situation and not have the people of British Columbia subsidizing bad loans that they are making to people like O&Y, and these other things that we've heard about that are collapsing? They come back to us, and at the same time that they come back to us in costs, we still.... It has happened in my family that people have gone to the bank -- the assessments have gone up -- and the bank will say to a working man or middle-class people.... They've been taken right out of their home because of charges made by banks. So I think a further review is needed on financial institutions as to whether we are taxing them enough.
[5:00]
Hon. G. Clark: Let me say that it's a little bit beyond the scope of this section, but you've raised some excellent points. Unfortunately, financial institutions -- chartered banks -- are governed by the federal statutes and that makes it a bit beyond our purview. However, I think you're absolutely right. In fact, there were some interesting sidelights to that. Just so members might know, in the last year the federal banks wrote off significant loans to foreign countries. They made bad loans to Third World countries, and the federal government allowed them to accelerate their write-off. That acceleration actually cost British Columbia taxpayers over a million dollars. In fact, because we have a provincial income tax system that is tied to the federal income tax to allow those write-offs, we actually pay a portion of them as well. There's lots of interesting areas there, and the banks clearly have had a pretty good deal in this country. This doesn't go a ways to fixing that, but it is a fairly large increase, as the members opposite have indicated. But when we're dealing with a difficult fiscal situation, I can't think of a group that's more able to pay than the large chartered banks.
Section 3 approved.
On section 4.
Hon. G. Clark: I move the amendment to section 4 standing in my name on the order paper. [See appendix.]
If I might speak to it for the members, this amendment exempts the B.C. Central Credit Union from the corporation capital tax. B.C. Central Credit Union's capital is provided by and taxed in the hands of their member credit unions. This is one as a result of consultation -- which is very legitimate -- in order to avoid double taxation. So this is an amendment that exempts B.C. Central.
Amendment approved.
On section 4 as amended.
F. Gingell: I would like to inquire if they have made any decisions about which Crown corporation shall be designated by regulation under subsection (2) of this section.
Hon. G. Clark: I have just been discussing this with my staff, and the following Crown corporations are to be subject to the capital tax: B.C. Hydro, B.C. Ferries and B.C. Railway.
Again, the arguments, of course -- just so members know -- are that there are.... We could tax B.C. Transit, but because they have a $200 million subsidy from the general taxpayers we had to make some judgments about commercial Crowns versus fully-subsidized or taxpayer-supported Crowns. Our intent was to tax commercial Crowns and to treat commercial Crowns
[ Page 1915 ]
the same way we do private companies when it comes to tax purposes. That's generally good public policy. The private sector likes that, because then they know that there isn't some hidden subsidy to a Crown corporation. When it comes to non-commercial Crowns that are fully taxpayer-subsidized, there's no real need to tax something like that. It's simply a flow through back to the taxpayer, and they have to pay out.
F. Gingell: I can understand that the minister has some sympathy for the problems of B.C. Transit. They are losing a lot of money. I can understand why they would be exempted for that reason alone. What concerns me is that corporations in British Columbia that are also losing money, particularly those in cyclical industries, do not get an exemption. They will be taxed. The taxes will add to the losses in B.C. It will cause greater job losses in those corporations. Companies like Cominco in Trail are already suffering, and the workforces of those corporations are suffering with them. I appreciate that this has all been said during second reading. I do believe that it needed to be said again.
I will also repeat something else that I said in second reading, because I think it bears repeating. I really was discouraged by the fact that the Minister of Labour, who is responsible for the Insurance Corporation of British Columbia, didn't know that the Insurance Corporation of British Columbia was exempted under this act and answered a question in this House incorrectly on that matter. I feel that the great number of amendments that are being brought forward today are just further proof that many members of cabinet don't understand what this bill is all about or its consequences. Had they done so, we would not be dealing with this matter now.
With those remarks, which I don't know if you wish to answer....
Hon. G. Clark: Let me, just in a philosophical sense, say that you can't design tax policy on the basis of one or two companies, or even ten companies or individuals; you have to design tax policies that apply everywhere. To do otherwise.... If you want to design tax policy for marginal industries or marginal companies all the time, then you'd always have a very low rate. What you do is try to design a tax policy that is fair and generally applied. Companies that have difficulty have to come to government or to various programs to try to deal with those problems. They work with their employees. They work, in this case, with the job protection commissioner. They work with other people.
If the government, in its wisdom, decides on behalf of the people of British Columbia to provide a subsidy to a particular industry or company, then it's open and upfront. Everybody can debate it, and they can see it. In other words, where possible you don't use the tax system to provide hidden subsidies to people, nor do you design a tax system to deal with all the consequences to every different industry or company; you try to design taxes that are consistent across the board or targeted to specific industries. Generally you try to do that. Then you deal with problems that arise on the basis of open, public debate in places like this. Generally speaking, that's better public policy.
We do have a lot of what we call tax expenditures: hidden subsidies to business, hidden subsidies to industry, tax breaks and the like. My preference is not to have tax breaks, not to have tax expenditures where possible, but to have taxes across the board and then deal specifically and upfront, in a public way, as to whether or not you want to confer a special benefit on one sector of the system. I guess that's my answer. There are mechanisms in place for the government to deal with specific companies. Obviously, if you designed a tax that everybody had difficulty with, that's a problem. No one should do that. That's not good public policy. In general, you design broad taxes and then you deal with problem companies through other programs in government. As you know, there are many at the federal and provincial levels. We now have the job protection commissioner to go in and try to deal with specific problems. I think, generally speaking, that's a better public policy approach.
L. Fox: I just want to clarify so that I'm sure I understood you correctly. Are you suggesting that B.C. Hydro, B.C. Rail and B.C. Ferries are being excluded or included?
Hon. G. Clark: Included.
L. Fox: I have some real concerns about that, particularly in terms of B.C. Hydro. I see that a lot of the hydro used, specifically by homeowners, is used more in the northern parts of the province. The dependency on hydro for their everyday life and welfare is a lot larger than it is in the southern part of the province. While you talked earlier about designing a fair taxation policy, I can see that the increases that will come in B.C. Hydro rates will be more and larger on the northern residents of the province than they will be in the southern part of the province. I am extremely concerned.
The minister also made reference to the fact that he designs a tax system that is fair. I suggest that this particular system is certainly not fair. It bears no resemblance at all to the ability to pay. I know that this comes in other parts of this bill, but with respect to the mining industry that you mentioned and the previous opposition member mentioned, this is certainly going to be detrimental to the northern part of the province. If I were designing a system -- if I had the reins of the Finance ministry -- I would design a system that was reflective of an industry's ability to pay, I would design a system that was reflective of an individual's ability to pay, not a tax that is a fixed tax and bears no resemblance to the ability to pay.
I am concerned both with respect to B.C. Hydro and B.C. Rail. As we heard during the estimates, B.C. Rail will face, I believe it was, a $3 million increase in taxation. The minister also informed us that that would be taken out. It wouldn't be a direct tax. It wouldn't be faced by the consumers. It would come out of the dividends back to the province. I suggest that, indirectly, if the rail company doesn't have the amount of
[ Page 1916 ]
dividends that this province wants next year, it's going to be directly related back to the taxpayer and to the individuals who receive services from that particular corporation.
Hon. G. Clark: I'd like to make a point for members opposite, and particularly the member who spoke, so that you know the principle. It is unfair not to tax B.C. Rail if we're taxing the bus lines and the other railway companies. It's the private sector that says: "Treat us the same." B.C. Hydro: if we have private power producers, as the previous government was promoting, they will pay a capital tax. The real question here is fairness of the application. We felt that in order to be fair to the private sector, those commercial Crowns should be paying it. I understand your concerns, and I'm sympathetic to them, but that's really the rationale. I think that the competing forms of transportation -- those private companies -- would have had a very good argument that they were being penalized. In fact, the Crown agency would have been subsidized in a way, and that would have put them at a competitive disadvantage. So that's the rationale behind it.
Section 4 as amended approved.
Section 5 approved.
On section 6.
F. Gingell: To the minister, 6(3) requires the corporation to advise the administrator of a change in that taxation year. As you can appreciate, before a corporation can change its taxation year, I believe it has to get agreement from the federal corporate tax authorities. It has to write a letter to them explaining their reasons and asking for permission. And their reasons have to be valid -- not just for the purpose of delaying the payment of a tax, or reducing it. There has to be a good and valid business reason. Why would you then require a corporation, having gone through this exercise of getting permission to change its taxation year, to write another letter to advise the administrator?
Hon. G. Clark: My staff advised me....Of course, we are sending out adjustment forms and the like, and all we're really saying is that you have to notify us. Send us a letter within 30 days after you get approval from the federal government so that we can adjust accordingly. I don't think it's onerous. My staff advised me, in fact, that there's no penalty. Maybe I shouldn't say that in here, but the notion is simply administrative to make sure this tax is applied smoothly.
I want to say, though, that those people paying should also know that it's in their interest to advise us, because the taxes work smoother if we have clear rules. People apply those rules, and we work to try to administer them. Obviously, failure to notify may result in some hardship on the company, which could be avoidable. So it's really an administrative measure.
[5:15]
F. Gingell: Without getting into discussion about this, because it really is a minor matter, the result of any change will always require the corporation to file a tax return earlier than it would otherwise have done -- never later. With that, I'll move on.
Section 6 approved.
On section 7.
Hon. G. Clark: I move the amendment standing in my name on the order paper. [See appendix.]
Amendment approved.
Section 7 as amended approved.
On section 8.
Hon. G. Clark: I move the amendment standing in my name on the order paper. [See appendix.]
On the amendment.
F. Gingell: I wonder if you would explain what your description of a deferred credit is in the case of a trust company or a credit union, and what the results are of your striking out the words in 8(c): "...evidenced by obligations issued for terms of not less than 5 years."
Hon. G. Clark: These are technical questions. I frankly would have hoped that these might have been cleared up in the briefing. I don't say that lightly, but they're really accounting terms, and I'm not that familiar with them. Essentially they are things that have been paid but not yet earned.
F. Gingell: We're going to get into a discussion about deferred credits in section 9 concerning what my understanding is and what your understandings are. But I was under the impression that the intention in the taxation of banks, trust companies and credit unions was that you were truly taxing capital. When we get to other corporations at a tax rate that we accept and recognize as one-tenth of this particular rate, it includes a whole bunch of other things that basically make it a tax on assets less the amount of the current liabilities. Suddenly bringing in this additional deferred credit description under section 8 and not doing it under section 7 really does create quite a difference. To describe it simply as something that has been received and not yet earned is a very general description. If it hasn't been earned, it will then have to be paid back if there's some happening. If it has been earned, it will have been included in the income and will form part of retained earnings that have been taxed. I'm a little surprised that they would suddenly be bringing this in.
I'm also surprised that they are now going to bring in all subordinated indebtedness. The intention of the act before was to bring in subordinated indebtedness that was clearly long-term capital. My understanding of the change they have made is that if the indebtedness has been subordinated to some other lender, then it is
[ Page 1917 ]
going to be included in the taxation base. Even if it is due in -- 30 days? 60 days? -- less than a year, it is clearly not the permanent type of capital that we were led to believe was going to be taxed under this.
Hon. G. Clark: I'm not completely sure of your point. If you're looking at the amendment to sub-subsection (a), it is only for investment dealers. We've defined a new, narrower base for investment dealers at the lower rate of 0.3 percent. Rather than 3 percent, this is 0.3 percent. We've tried to exempt.... This is to help investment dealers, frankly, because of some aspects of their business, like deposit taking. We've taken them out of the definition and made a narrower base. That's what this is designed to do. It's specifically designed for investment dealers.
F. Gingell: Thank you, Mr. Minister. I did not appreciate that you had made this section 8 deal with investment dealers and have now excluded from being taxed all trust companies or credit unions. I think that's a very good move.
Hon. G. Clark: No, we haven't.
F. Gingell: In your amendment it says.... I see. You've slipped the credit unions up into section 7 and then brought in a new section 8. Unfortunately, I didn't have the opportunity of a full briefing prior to all these amendments.
Hon. G. Clark: That's okay. You can talk to section 7 even though it's passed.
F. Gingell: I'd like to be advised by the minister, if I may, whether the movement of the credit unions up into section 7 has changed the basis of taxation from that which was proposed in the original act.
Hon. G. Clark: Yes. We've left out the subordinated indebtedness now from trust companies and credit unions, and we've narrowed their base as well. That's again in their interests.
Section 8 as amended approved.
On section 9.
Hon. G. Clark: I move the amendment standing in my name on the order paper. [See appendix.]
On the amendment.
F. Gingell: Perhaps the minister would give us a full explanation of it.
Hon. G. Clark: It's gone from 120 days after the end of the tax year to 120 days before the end of the tax year, so it doesn't impinge upon corporations as they are preparing their financial statements. The revised definition reduces the compliance burden for corporations, which now will be able to calculate this item at the same time as preparing their financial statements.
Amendment approved.
On section 9 as amended.
F. Gingell: I think section 9 may take us a little longer, because this really is the centre of the tax calculation area that is going to concern most corporations. The minister will remember that during the course of debate on second reading I discussed the question of bank loans and how, if a corporation were to operate its business in a fairly casual manner by writing a whole series of cheques, keeping them in a drawer and mailing them out as there were funds so that there appears to be an overdraft on the books -- even though there may not be one there in fact -- and if instead of doing that they were to take out a demand loan, pay all their accounts currently and carry this demand loan, my understanding is that it will be included in the base that is being taxed. I really would appreciate a comment from the minister on that. You can keep the bank overdraft going along for as long as you like, but my understanding is that if the demand loan doesn't revolve, or is just renewed for the same amount, rolled over, you are going to include it.
Hon. G. Clark: That's absolutely correct. In effect, it becomes the permanent capital of the business. The simple answer is that we had to sort of draw the line somewhere. I'll just leave it at that. It's essentially an attempt to try to define it in a way that makes the most sense.
F. Gingell: There is another matter here that I would like to deal with, a matter that I had some knowledge about in an earlier life. If a company is buying and reselling a particular product that is somewhat large in amount for its capital or its net worth, it may very well, as a matter of sensible business practice, give security to the seller of that product that they are purchasing in the form of a mortgage or a subordinated debenture of some sort. If, instead of buying from one supplier, they were buying from four or five, the amounts would all be a lot smaller. The sellers would not necessarily be in a position to take this kind of security, because there were other sellers. If the account is a current account payable and is paid off on a regular basis -- every 15 or 30 days or whatever the circumstances are -- in my mind, it is clearly an account payable and should be deducted as a current liability and allowed under subsection 9(1) of this act. But if the security has been given just because the company is very new, I am concerned that giving the security, rather than what the account really is, may unfairly drag it in to be unfairly taxed.
Hon. G. Clark: That's an interesting point, but there's no distinction between different types of indebtedness or securities. The tax is based on the indebtedness minus current liabilities. You're suggesting that there's a certain type of security which may trigger the tax when it's not intended to trigger the tax. That's not really our understanding. If it's part of the
[ Page 1918 ]
working capital of the corporation, then it's intended to be taxed as part of that operation.
I understand your point. I would even say that you've raised some concerns in my mind that I'm prepared to review over the course of implementing the tax, and perhaps the individuals in question may raise those over the course of it. But I'm not sure that we can get into that kind of definition very easily. All I can give you is some sense that we'll review it.
[5:30]
F. Gingell: I appreciate that from the minister. I note those who are sitting on either side of him, because I did have a dispute on this particular subject with the gentleman on his right many years ago. It was a most unfair set of circumstances.
Again, we come to the words "deferred credit" in this description under subsection 2(c). I would be interested in whether or not the minister would consider a deferred credit to include such things as rent paid in advance. A tenant pays rent for the year instead of paying it monthly; they may pay it quarterly or annually. Are those amounts that happen to be outstanding at the year-end when the tax is calculated to be included?
At the same time, I would also like you to think about the question of damage deposits. Corporations that own apartment buildings often demand damage deposits from their tenants. Would you see those damage deposit amounts being included or excluded?
I would, of course, be interested in a general definition of what you call a deferred credit, which is not really an accounting term that is often used in the 1990s, because of its lack of definition.
Hon. G. Clark: Generally speaking, I don't think there would be tax in that case. What you're really getting at, and I think it is a difficult question, is where to draw the line between current accounts payable and permanent capital. That is where I know the debates have been in the past on these taxes, and I anticipate that's where the debate will be again. I don't say that is an easy distinction. We have to go through a period of interpretation, interpretative bulletins and all of that, and work with companies. I think this is a useful discussion. But it is extremely difficult to.... You're asking me hypothetical questions, and certain sets....
F. Gingell: No, I'm asking about rental deposits.
Hon. G. Clark: I understand that. You're asking me general questions, and I appreciate that. I'm not trying to hesitate in answering. I'm just saying that, in general, these are things that are worked through the system as we go through and interpret it. That's where we draw the line.
On the question of deposits, my staff say that, in general, they don't think that would be covered by this.
F. Gingell: Perhaps we could bring forward one more subject. One item that is quite relevant to British Columbia companies is the growing discoveries of natural gas in the northeastern portion of the province and these take-or-pay agreements where pipeline companies and buyers of natural gas enter into agreements with corporations to either pay for the gas or take it. These can amount to fairly substantial sums. I wonder whether you would plan on including these in the amounts that are taxable or whether they would be excluded.
Hon. G. Clark: My staff say that's a difficult one. In fact, we would have to review the actual contracts. We can't answer that in the abstract, to be quite candid.
F. Gingell: Then I would just -- if I may -- add a word of caution. If you are dealing with what we think of as untaxed income, then -- if you're going to treat it as income included in the capital -- you should at least provide an allowance for the income taxes that will be payable as it moves from unearned income to capital for the purposes of calculating this tax. It would be most inequitable and most unfair not to do that.
Hon. G. Clark: We provide an exemption for the current income tax payable. Deferred income tax payable is a more complex question.
Section 9 as amended approved.
On section 10.
Hon. G. Clark: I move the amendment standing in my name on the order paper. [See appendix.]
Amendment approved.
On section 10 as amended.
F. Gingell: Perhaps you could explain to me what the difference is between joint venture capital amounts and joint venture amounts. I'm sorry I haven't had a chance to have a look at it and see what the consequences are.
Hon. G. Clark: The short answer is that all of the amounts listed underneath -- (a) to (f) -- are not capital amounts, so we wanted to try to narrow the definition. This subsection (1) includes in the tax base the total paid-up capital of a corporation, its proportionate share of the capital value of its business undertaken in the commercial form of either a joint venture or a partnership.
Section 10 as amended approved.
On section 11.
Hon. G. Clark: I move the amendment to section 11 standing in my name on the order paper. [See appendix.]
These amendments essentially do the following. They clarify the reference to those exploration costs eligible for deduction from paid-up capital which will be deducted from retained earnings. This change limits eligibility for the deduction for exploration costs to
[ Page 1919 ]
corporations whose exploration costs are reflected on the asset side of the balance sheet but do not represent real economic assets. And secondly, they clarify reference to the paid-up capital of associated corporations by changing the word "some" to the word "aggregate." That's just a technical wording change.
Amendment approved.
On section 11 as amended.
F. Gingell: I still have a problem with this section, and I'm surprised that the amendment did not take out the words "solely engaged." The government talks about fairness; they don't want to treat one person differently than someone else. One can go through an exercise and remove those exploration activities into a separate corporation so that the separate corporation is solely engaged and the original corporation is no longer engaged. There will be proper deduction and allowance for the intercorporate accounts, loans and capital that result from that change. I don't see why they wouldn't include an amendment to take out this reference, as this section is being amended.
Hon. G. Clark: I think we disagree on this one. What this is designed to do is this. If you are solely engaged in exploration, then you're exempt from the tax. Once you move from the exploration phase to the development stage -- if you find something and you go to develop it -- then it becomes an asset that's worth something that should be taxed. That's really the reason for "solely engaged in exploration activities." Then, when you move to the next phase, you are covered by the tax.
F. Gingell: I understand that what you're saying is that if you have a corporation and you go out and spend time, money, effort and energy looking for a mineral resource, you won't be taxed until the moment that you've found it. When you find it, and you have done a feasibility study, you have moved the whole thing along, you have started to construct all the infrastructure that is required -- but you haven't mined a tonne of ore yet other than tests -- you have built roads, you've maybe built airstrips and you've spent all this money, but nothing's happened yet.... You're going to add to the burden of all those costs by causing the company to pay tax at that point before they've earned a nickel. Is that what you're intending?
Hon. G. Clark: I don't know if I'd characterize it that way. I would characterize it this way. You've found a valuable asset which the banks and investors are prepared to give you millions of dollars to develop. That valuable asset is what we are taxing. We're taxing capital assets. To say that we should not tax that might be a criticism, but it's a criticism then that applies to the capital tax generally, which I understand the member has made. But if we want to try to treat these companies the same, it would be unfair to tax mines that are going concerns and not tax a mine that is being developed where there's a valuable ore body that has been found. We want to provide an exemption for exploration, and we have done that. But we cannot exempt companies that have found assets that are being developed.
L. Fox: I don't really believe that the taxation on exploration at that point will mean much, because this government has driven all the exploration out of the province anyway.
If the corporation is an operating corporation but does some exploration, how do you divide that from the corporation? Will the assets that they're using, even though they may be tied to a working corporation, still be excluded?
Hon. G. Clark: I'm not quite sure of the question. Obviously there's a two-year tax holiday for exploration. If they have borrowed money for that exploration, then after two years they would start paying tax on it. The answer is that we have exempted companies solely engaged in exploration; we have not exempted going-concern companies that do some of this, save and except for the two-year tax holiday.
F. Gingell: I'd like to move to section 11(3). My understanding, or rather my concern -- not my understanding, because it's a little complex -- is that subsection (3) could tax nonexistent assets by causing a deficit in an associated corporation not to be deducted but to be treated as nil, so one has book values that are greater than real values. We could get into the position where you're taxing nonexistent assets.
I'm also concerned that the deficits in the associated corporations do not get deducted due to the availability of the notch provision. I wonder if you would comment on those two questions.
[5:45]
Hon. G. Clark: I'm sorry, maybe he could repeat it.
First of all, let me just answer that section 11(3) is exactly the same as the capital tax that used to exist in B.C. and the capital that exists in the rest of the country. In some sense it is a technical provision to guide us. I wasn't quite sure what your question was.
Interjection.
Hon. G. Clark: I'll get a more detailed answer for you if you like.
If you have a group of companies and you have one that is negative, then you treat it as zero so as not to apply it to the notch provision -- not that you can't use the negative to move you to the notch provision, to move to a lower tax.
F. Gingell: So this is a real heads-you-win, tails-the-taxpayer-loses provision, because you will associate the corporations and add them all together for the purposes of determining whether or not they're taxable. You will add them all together for the purpose of taxing them even when they fall within the notch provision, but you don't allow a negative sum as the deduction for making that a determination. That really
[ Page 1920 ]
doesn't seem to be fair. If the associated corporations are not set up, and the losses have been incurred in the original corporation, then they wouldn't be taxable. But because it was in a separate corporation, you're taxing it.
Hon. G. Clark: I'm not sure that's quite right. All you're really doing is taxing the positive ones. You're not taxing the negative ones. You're just not allowing them to deduct it from those positive ones. I don't think it's punitive. You're saying that you are taxing those with positive assets when it comes to the notch provision, and you're just not allowing another deduction for that one. You're simply taxing those corporations which are positive.
F. Gingell: To determine whether or not they are taxable you have taken them all and added them up and said that even though each one separately does not have capital the way you calculate it.... I don't agree with the way you calculate it. None of them alone have capital that's enough to be taxable. Because there's a form of common ownership, you've added them all together. You only add together all of the positive ones. You don't give a deduction for the negative ones.
Hon. G. Clark: It's not taxed; it's just treated as nil. So that company's not taxed. To do otherwise, you would invite restructuring of corporations in such a way as to avoid or reduce their capital tax exposure, if you allowed this kind of exercise. What you're trying to do is minimize that tax avoidance. You're saying we're not taxing that corporation. It isn't taxed for income tax purposes in this respect or for the capital tax; all the other ones combined are taxed.
F. Gingell: I'd like to suggest that the only way of tax avoidance that would concern me is if a corporation were to go out at this point and buy a shell company with a deficit purely and simply for the purposes of bringing the package down. You can easily avoid that happening by just requiring the losses to have been incurred while the corporations were associated.
I believe that what you are doing is unfairly bringing into the tax calculation what I'd like to describe as nonexistent assets -- I think that describes them best -- because this could be a way of doing an illegal or improper tax avoidance. I understand that problem. I agree with you that it shouldn't be allowed, if you insist on having this tax, but there perhaps could be a better solution that would be fairer.
Hon. G. Clark: Remember, this is extremely narrow. This is only dealing with the notch -- if you're $1 million to $1.2 million. All we're saying is that when you look at an associated company, if you have one that's negative it's treated as zero. You add all of the other ones up, and if they're between $1 million and $1.2 million, they're eligible for the notch provision, which is a slightly lower rate.
I appreciate your discussion, and I understand where you're coming from. But we're now debating a section dealing with the notch provision, which only applies to a very narrow band of companies. I think your concern may be slightly overstated when it comes to this section.
F. Gingell: That does lead me to another question, and I'm sorry that I have to ask it, because I really should know it. If there is a deficit in a series of associated companies which are being added together to see whether or not they are taxable, and let's say that the positive ones bring them well over the notch provision levels, are the deficits allowed as a deduction in those cases to determine whether or not all the associated companies together put them over the limit?
Hon. G. Clark: Just so we understand this, you're applying the tax to the individual companies, not to the aggregate of companies. You can't deduct the negative from the sum of the other positives to see whether you qualify or pay tax. If the decision is made because you qualify, then the taxes apply to the individual companies, not to the aggregate. That's why those individual companies that are negative do not pay the capital tax. The other ones do. The rate at which they're applied, whether at the notch provision or at the full rate, is the question here.
F. Gingell: Mr. Minister, you've only brought them into being taxable because all the associated corporations together -- positive amounts -- add up to more than the exemption. You are taxing people who really are being unfairly taxed. If it was all in the same corporation, and the deficit existed in the one corporation, they wouldn't be taxed.
Hon. G. Clark: If it all applied to one corporation, and a company was in a negative capital position, then it wouldn't be taxed; you're right.
Section 11 as amended approved.
On section 12.
Hon. G. Clark: I move the amendment to section 12 standing in my name on the order paper. [See appendix.]
On the amendment.
Hon. C. Clark: I will just explain for members that these do the following:
1. Extend the investment allowance for share or debt holdings in other corporations to include such holdings in non-resident corporations. This extension was announced by press release yesterday and will remove the incentive for holding companies with offshore assets to relocate to other jurisdictions outside the province.
2. Include amounts due from non-resident corporations in the definition of loans and advances to other corporations, making such amounts due eligible for the investment allowance in keeping with the change above that extends the allowance to holdings in non-resident corporations.
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3. This one was as a result of consultation, which I think is appropriate. It will allow reclamation bonds or other security required under the Mines Act to be deducted from paid-up capital. Provincial requirements for such security to be posted effectively increases the corporation capital tax liability. This amendment removes this additional burden of tax.
4. There is a technical wording change by replacing "by which" with "that."
F. Gingell: You mentioned, Mr. Minister, that these were the amendments announced yesterday. Do they not include the amendment that you announced originally back in the early part of the month, or am I mistaken?
Hon. G. Clark: Yes. The non-resident stuff was announced earlier. This is what was announced yesterday and previously.
Amendment approved.
Section 12 as amended approved.
On section 13.
F. Gingell: I'm most interested if the rules for attribution have been prescribed yet and whether there is any intention of using Canada corporation income tax attribution rules, which, because they deal with sales and wages paid, don't seem to me to be quite as applicable for a capital tax as they would otherwise. I wonder what the situation is.
Hon. G. Clark: Yes. We are going to parallel the federal Income Tax Act rules when it comes to that. They'll be very similar, if not the same.
F. Gingell: Has your ministry looked at the consequences of using income attribution rules for the purposes of a capital tax? It seems to me that you could very easily get yourself in a position where you would be taxing capital effectively that sits in another province. When you think about how you attribute a multiprovincial corporation for purposes of the calculation of where the income is earned, you can see that a calculation based on sales and wages and those kinds of things has a logical and commonsense approach to it. But to use that same methodology for attributing capital for capital tax would open some weaknesses. I haven't sat down and thought about what the consequences might be. I wondered whether your department has.
Hon. G. Clark: My staff tell me that you're correct: there is a danger or concern about that. That's why we will be paralleling the Income Tax Act, because that's what every other province is using for their capital tax definition under this section. That should ensure that there won't be double taxation in those jurisdictions, because we're all using the same rules.
Section 13 approved.
On section 14.
Hon. G. Clark: I move the amendment to section 14 standing in my name on the order paper. [See appendix.]
On the amendment.
Hon. G. Clark: This, again, I think is a positive move as a result of consultation. We have added to the definition of eligible tourism property by adding "structures and changes to land acquired after March 31, 1992" to be an eligible deduction for the investment -- basically for the tax holiday for new investment. This allows, for example, investment in ski hills and golf courses to be exempt from the capital tax for the two-year tax holiday.
F. Gingell: I was really hoping that the minister.... He assured me that, although he couldn't remain in the House for the remarks that I made on second reading of Bill 6, he would read them. There were some thoughts in here that I really am disappointed you haven't dealt with.
There are a whole series of investments that are important to this province. I pointed out to the minister, when we happened to be passing in the corridor, that it seemed to me that if the province, for instance, is going to have private health facilities built -- there has recently been a major private health facility addition built in my constituency for Alzheimer's patients -- they would not fit into this tax holiday.
[6:00]
I think a whole series of expenditures and investments have been excluded. Intellectual property -- the development of intellectual assets -- may well be excluded if they are developed by research, but if intellectual property is acquired I don't think that they will be. This listing which talks about extracting minerals, exploring or drilling for petroleum, cutting standing timber, really doesn't recognize the way that industry and business in our province has changed. I was really hoping there would have been some major thoughts given to changes in 14(2) that would have included many of these types of investments.
Hon. G. Clark: I'll just say, first of all, that this is not exhaustive. You're correct, and we will review it over time. It will likely require amendments down the road to try to deal with this. We tried to be as broad as we could. We also have regulations to allow us to amend the tourism properties to try to deal with that, because that was extremely hard to define in the act.
With that I move the committee rise, report remarkable progress and ask leave to sit again.
The House resumed; the Speaker in the chair.
The committee, having reported progress, was granted leave to sit again.
Hon. G. Clark moved adjournment of the House.
Motion approved.
The House adjourned at 6:03 p.m.
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