THE LAWYERS WEEKLY
July 16, 2010 | 9
DAVID
ROBERTSON
While politically controver-
sial, when B.C. and Ontario
eliminated their provincial
sales taxes and harmonized
with the federal GST/HST on
July 1, they sent a clear mes-
sage to the world that Canada
is open for business.
It also represented one of
the last significant steps in the
federal Department of
Finance’s plan that has con-
verted Canada from an eco-
nomic basket case into a
powerhouse.
To understand why, it is
important to put the switch
from PST to HST in histor-
ical context.
Fiscally speaking, Canada
was a mess from the mid-
1970s to the early 1990s. The
government was running
annual deficits that, by the
mid-1980s, were totalling
more than eight per cent of
the country’s annual GDP; in
1985, Canada recorded a rec-
ord annual deficit of $37 bil-
lion (the equivalent of $69 bil-
lion today).
As a consequence, the cost
of servicing that debt — paying
the interest charges — only
augmented the problem. By
the mid-1990s, the federal
government’s debt-to-GDP
ratio reached its all-time high
of 68.4 per cent.
With The Economist print-
ing headlines such as “Bank-
rupt Canada!,” finance officials
knew deliberate steps were
needed to rein in the country’s
deficit and debt.
They took a multipronged
approach, which included
everything from reining in gov-
ernment spending, moderniz-
ing Canada’s infrastructure,
opening up foreign markets to
Canadian exports through free
trade agreements such as
NAFTA, “nationalizing” the
Canadian federal debt by
replacing government debt held
by foreigners with debt held by
Canadians and focusing on
innovation and skills training.
One additional key com-
ponent was tax reform.
With Canada being a small,
open, export-based economy
of only 30 million people,
what the Canadian govern-
ment understood was that in
order to be relevant in the
global economy, Canada had
to create a tax system that did
not discourage, but rather
encouraged, business and
innovation.
It was the maturation of
the Canadian tax system.
What Canada and Can-
adians realized is that the his-
toric debate as to whether it
was better to tax individuals
or tax corporations was really
no debate at all. Corporations
are merely conduits through
which individuals — employ-
ees and shareholders
alike— come together to carry
on business. Furthermore, we
realized that countries are not
made up of corporations, only
individuals. (After all, the lar-
gest shareholders in the coun-
try are our public pension
plans like the Canada Pension
Plan Investment Board and
the Ontario Teachers’ Pension
Plan.) We realized that impos-
ing an excessive tax burden on
corporations merely drove
business and investment from
Canada— and the jobs, wages,
salaries, dividends and income
that went along with them.
DREAMSTIME.COM
Quebec, Alberta take on feds over national securities regulator
CHRISTOPHER GULY OTTAWA
While the federal, Quebec and
Alberta governments are seeking
clarity from the courts over the
constitutionality of the proposed
single national securities regulator, the federal government could
have strengthened its position by
making provincial participation
mandatory, according to a member of its blue-chip Expert Panel
on Securities Regulation.
“Making the structure voluntary slightly weakens the constitutional case,” says Heather Zor-del, a partner in the securities
group at Cassels Brock & Blackwell LLP in Toronto.
“However, for political and
practical reasons—to dialogue
with the provinces and ensure the
implementation goes smoothly
and has willing participants—the
federal government is proceeding
with a voluntary structure, even in
light of that viewpoint.”
She explains that the Wise Per-
sons’ Committee, in its 2003
Canadian Securities Regulatory
Authority (CSRA), was an acceptable use of the federal government’s powers.
Now, it will be up to the courts
to decide.
The Quebec and Alberta governments have asked their
respective courts of appeal to
determine the constitutional
soundness of the draft Canadian
Securities Act. (Quebec’s case will
be heard in January.) Their arguments will likely focus on s. 92
( 13) of the 1867 Constitution Act,
which gives the provinces jurisdiction to enact laws regarding
property and civil rights, and
which formed the genesis of their
own securities regulators as far
back as Manitoba’s in 1912.
Meanwhile, the federal govern-
ment’s reference to the Supreme
Court of Canada, which is expected
to be heard next April, will pre-
sumably centre around its author-
ity regarding the regulation of
trade and commerce under s. 91
( 2) of the Constitution Act.
