Hon. Joseph A. Day:

Honourable senators, I would like to begin by congratulating Senator Greene on his speech, in particular the first part of his speech that actually dealt with the bill before us. I find that I can agree with most of the points made therein. I will leave for others the second part of the speech that wandered into political posturing. I will try to stick with the features of the bill. There is enough within this bill that we need not wander off into other areas.

This is second reading debate of an amendment to the Excise Tax Act. At second reading, we discuss the bill in principle, which often results in many questions, especially given that this chamber received this legislation only two nights ago. We sat late Wednesday night to receive the bill. I trust that honourable senators will forgive me if many of the points that I raise are really questions that I hope to pursue if and when this bill is referred to committee.

Honourable senators, I am not entirely in agreement with the Honourable Senator Greene in respect of his characterization — and he said it several times — of the fundamental question of whether the provinces have the right to fix the tax. I suggest that the fundamental question of this bill is with respect to the proposed harmonized sales tax for Ontario and British Columbia.

Our task is to study the implications from the federal point of view. We must properly review 34 pages of provisions concerning the federal government's desire to meet the request of the provinces to harmonize a sales tax with the GST. That is the fundamental issue that we will want to look at.

The honourable senator spoke about political risk, and there certainly is one. However, that is a decision for the provinces, and we will leave that decision to the provinces to make. I agree with the honourable senator that the provinces have the right, under our Constitution, to directly tax their citizens. The federal government has a broader tax authority and can tax citizens of Canada in any matter that it sees fit. However, the GST has been characterized as a sales tax similar to a provincial sales tax.

Honourable senators, let us now look at some of the steps that have been taken in this particular bill from the federal government's point of view. First, there is the decision with respect to Ontario. In consultation with the Province of Ontario, the tax will be 13 per cent; for British Columbia, it will be 12 per cent. Ontario will receive compensation of $4.3 billion from the federal government in order to help with the transition into this program; British Columbia will receive $1.6 billion.

The harmonized sales tax is not new. Certain provinces, such as New Brunswick, Nova Scotia and Newfoundland and Labrador, entered into a similar scheme in 1997. As a resident of the province of New Brunswick, I can tell honourable senators that the program works very well. I believe that the objectives of efficiency from the point of view of tax collection in the provinces save money because the federal government — that is, the Canada Revenue Agency — collects the money much like it collects the provincial portion of federal taxes in many of the provinces. It is more efficient from the point of view of industry because they pay one tax only. Manufacturers should be able to pass that on in the form of lower prices for their products.

I support that concept. However, we must specifically review the provisions of this particular bill, whether they achieve the desired result and whether there are any areas that we should be concerned about.

Honourable senators, when a previous government tried to encourage harmonization, every province was have the same rate. There is built-in flexibility now. As I stated, the overall harmonized tax in British Columbia will be less than it is in Ontario; Ontario will have the same rate as the Atlantic provinces. There is now a built-in flexibility that in large part is a good idea, but it creates other problems if there is cross-border trade between provinces — that is, if a product is manufactured in one place and sold in another place — and if there are taxes in terms of the input tax credit. If a manufacturer makes its sales to an intermediary, then there is an input tax credit back to the original manufacturer. Ultimately, the consumer pays the entire tax, but what about the various people in the chain between provinces?

That is one of the issues that we will want to explore in more depth at committee.

The flexibility that is built in to allow provinces to provide for tax rebates for new home construction is something new. Different provinces will opt for different ways in that regard. There is some suggestion in this bill of flexibility, which I think is right as long as it can be managed.

With regard to the treatment of the financial sector and how we deal with new home construction started before July 1 and concluded after July 1will have to be considered. In fact, all of the transition rules are points that will require review.

Honourable senators, in our more cooperative moments here we talked about this bill possibly going to the Finance Committee. That committee is ready to review the legislation if this chamber decides it should go there. We are prepared to deal with it.

One issue we will want to look at is the provision for opening up, in effect, the agreements in the other provinces for harmonized sales tax if they feel they got a worse deal than the two new provinces. I anticipate that that will be one point of discussion between the federal government and the provinces in the future.

Another point that must be made here is that the First Nations have brought to our attention that they have not been consulted in relation to this measure to the degree they would have liked. They claim that they have an issue and that there should be provisions made to accommodate their tax-free status at point of sale. They are now exempt at point of sale from paying the provincial sales tax portion. With harmonization, they are now being told that they will not have that exemption, and there has been no meaningful discussion to compensate or accommodate them in that regard.

That is the primary area that we will have to wrestle with and determine. We have witnesses already set up to talk to us about that matter.

Those are some of the points that I see from an initial review of this legislation. I saw in the supplementary estimates that we reported on two days ago that the federal government is anticipating that we will pass this bill and are providing for almost $43 million. This is at page 100 of Supplementary Estimates (B). We have already approved that, in principle, through the report, and the supply bill will be dealt with on Monday. The $43 million is spread among the Canada Border Services Agency, Canada Revenue Agency and the Department of Finance to deal specifically with the harmonization and the bringing into effect of what hopefully we will pass in Bill C-62.

The funds are already there from the federal government, and I have already discussed the compensation.

Honourable senators, those are some of the points that I believe will be of interest when this matter is referred to committee. We look forward to reporting to you after we have had a chance to look into the bill in detail.

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