Finance Committee on May 28th, 2007

[The Chair, Conservative, Brian Pallister]

I call the meeting to order.

We are here pursuant to the order of reference of Tuesday, May 15, 2007: Bill C-52, an act to implement certain provisions of the budget tabled in Parliament on March 19, 2007.

Welcome back, colleagues, and welcome to our guests today. We appreciate your being here. I understand there was some last-minute juggling, and we appreciate very much your ability to accommodate our changes in scheduling as well.

You've each been told that you have five minutes to make opening comments. I will give you a visual indication that you have a minute remaining, and then we'll unceremoniously cut you off at five minutes to give time for an exchange with the members of our committee.

Go ahead, Mr. McKay, on a point of order.

[John McKay, Liberal, Scarborough—Guildwood, ON]

As you know, the appearance of all of the witnesses was a matter of some negotiation in the week we were here last. One provision was that the premiers would be afforded a separate panel, as distinguished and fine as the other panellists might be. The first panel is to go to the premiers, so I would ask you to invite the other witnesses to sit in the audience and wait while Premier Calvert makes a presentation.

[The Chair, Conservative, Brian Pallister]

There is no point of order there, Mr. McKay--

[John McKay, Liberal, Scarborough—Guildwood, ON]

That is a point of order; it is a very significant point of order--

[The Chair, Conservative, Brian Pallister]

We'll give you some explanation, however.

Some of the invited witnesses for the so-called “premiers panel” cancelled at the last minute. Rather than having a disjointed process in which we had one member testifying for an hour and then several others testifying for an hour, I thought it was most reasonable not only to accommodate the wishes of the committee but also to acknowledge the wishes of the committee in sharing the time reasonably well among all witnesses who were able to come today. That's why the arrangements were made as they were.

These people have been invited to come at this time, and I hope that committee members would understand the need for flexibility, Mr. McKay, in arranging panel structures as I have.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Chair, with the greatest respect, that certainly goes against both the intention and the spirit of the negotiations that I had with Mr. Dykstra and all members of the committee. I think a premier is a witness like no other witness. I think that whether it's going to be three premiers, or two, or one, a premier deserves the respect of his office. Other witnesses have valuable and important things to say, and they should be said in the second panel. I think that Premier Calvert deserves the recognition of his office--

[The Chair, Conservative, Brian Pallister]

Mr. McKay, again, you don't have a point of order, but most certainly Mr. Calvert has the respect of the committee, as do all the other witnesses. Nonetheless, I'm accommodating the resolution that was adopted by the committee unanimously last week. In fact when the proposal was made, it was with the assumption--as you well know--that there would be several members of such a premiers panel, and there are not. Therefore, I'm trying to accommodate the time as well as I possibly can by sharing it reasonably among all the witnesses. As any of our members may, you may wish to devote more time to questioning the premier if you so desire, sir; that is your choice. However, I rule that you don't have a point of order, and we'll proceed now with presentations from the witnesses.

We'll begin with the Honourable Lorne Calvert, Premier of Saskatchewan, for five minutes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Chair, I invite Mr. Dykstra to speak to this.

[The Chair, Conservative, Brian Pallister]

Did you have a point of order, Mr. McKay?

[John McKay, Liberal, Scarborough—Guildwood, ON]

Yes. I invite Mr. Dykstra to speak on whether this is in fact a recollection of our agreement.

[The Chair, Conservative, Brian Pallister]

Mr. Dykstra, you've been invited to speak. Would you like to speak?

[Rick Dykstra, Conservative, St. Catharines, ON]

I will, certainly.

Well, let me be direct about it. We did certainly agree that if we had premiers who were going to be coming as witnesses, they would be afforded time allocation on a panel to be able to do so. For the record, it was certainly what Mr. McKay and I spoke to.

[The Chair, Conservative, Brian Pallister]

Okay.

Premier Calvert, please proceed.

[Lorne Calvert, Premier of Saskatchewan]

Thank you very much.

I am in fact very, very pleased to be sharing this panel, if not with my colleagues from the provincial governments, with representatives of child care and early childhood education in our province and representative working people. I'm pleased to appear before the committee today to discuss the equalization reforms that are contained in the most recent federal budget and what they mean, not to the Government of Saskatchewan but to the people of Saskatchewan.

I'd like to begin by reminding committee members of commitments that were made to the people of Saskatchewan regarding proposed changes to equalization, in a letter delivered to myself from the now Prime Minister of Canada, Mr. Stephen Harper. He said to me, “The Conservative Party of Canada will alter the equalization program to remove all non-renewable resources from the formula, as well as move the program to a ten-province standard.” That was in 2004.

From the Conservative Party platform in 2006, the Conservative Party will “Work to achieve with the provinces permanent changes to the equalization formula which would ensure that non-renewable natural resource revenue is removed from the equalization formula to encourage economic growth. We will ensure that no province is adversely affected from changes to the equalization formula.” That was the promise made to Canadians.

And repeated, of course, in a publication that was delivered to residents of Atlantic Canada, but I assume intended for all Canadians, which I read, is “That is why we would leave you with 100 per cent of your oil and gas revenues, no small print, no excuses, no caps.”

As I think we're all aware, the equalization program is one that is constitutionally mandated to achieve a simple basic federal commitment: to ensure that all provinces and their people have reasonably comparable levels of public services that are supported by reasonably comparable taxation. This federal commitment is based on the principle of fairness and equity, fairness and equity throughout Canada. It requires, therefore, that equalization be applied fairly to all provinces for the benefit of their people.

We believe that the reforms put forward in the recent federal budget do not achieve these fundamental principles of fairness and equity. In particular, the proposed new equalization system perpetuates the untenable situation of the excessive clawback rates on Saskatchewan's non-renewable resource revenues.

The reforms that are part of this budget, as committee members will know, reflect two separate calculations in determining equalization entitlement. The first is the formula-based determination of entitlement, and the second is an ad hoc application of a fiscal capacity cap.

The first is now a principle-based calculation that will permit full exclusion of resource revenues, which recognizes the unique characteristics of resource revenues, including that they're owned by the province and their benefits are one time only. That's exactly what we and other resource-producing provinces have been advocating. But the fiscal capacity cap is not. This provision in the budget takes 100% of a province's resource revenues into account, which has the effect of a 100% clawback of Saskatchewan's resource revenues. In other words, it leaves Saskatchewan people without any financial benefit from incremental resource development but with all the expense of managing and regulating the resource sector.

While this cap provides benefits to Saskatchewan in the current fiscal year, it's only because this current fiscal year is based on old data. Therefore, there will be no equalization for Saskatchewan after, for the foreseeable future.

I recognize that my time is short and I'm running out, so let me conclude with the hope that we can have a discussion between us, the hope that I can return to the people of Saskatchewan with a clear answer: one, where did the cap come from, because we never heard of a cap before any elections; and two, why has this promise to the people of Saskatchewan been broken?

Thank you very much.

[The Chair, Conservative, Brian Pallister]

Thank you very much, sir.

We continue with Erin Weir, from the Canadian Labour Congress. Mr. Weir, five minutes to you.

[Erin Weir, Economist, Canadian Labour Congress]

Thank you very much.

The aspect of Bill C-52 that I'd like to speak to today is the tax-back guarantee proposed in budget 2007. The view I'd like to present is that, at best, this measure is a gimmick, and at worst, it places an inappropriate constraint on future federal budgets.

One could start from the premise that the federal government would have reduced income taxes by a given amount in any case, in which case it's really meaningless to say that the income tax reductions are being funded by interest savings from debt repayment rather than from general revenues. If a dollar of interest savings is used to finance tax cuts, that simply frees up a dollar of general revenues for something else. Conversely, if a dollar of general revenues were used to finance the tax cuts, that would leave a dollar of interest savings to finance something else.

So if one assumes that the tax reductions were going to be made in any case, this supposed connection between debt repayment interest savings and the finance into those tax cuts wouldn't have any practical effect. However, when this tax-back guarantee is understood in conjunction with the commitment to repay at least $3 billion of debt annually, the tax-back guarantee effectively mandates a corresponding minimum level of tax reductions in every budget, regardless of changing fiscal circumstances.

Now, it's conceivable that if future revenues ended up being less than projected, this tax-back guarantee would in fact force the federal government to cut spending in order to fulfill its guarantee. We see this as quite problematic, given the pressing needs for investment in public services, public infrastructure, and other priorities.

I suppose that I should just clarify that if this current government were to say that it would have a policy of using interest savings from debt repayment to finance income tax reductions, there wouldn't necessarily be anything wrong with that. What I find really problematic about Bill C-52 is that it purports to enshrine that policy in legislation forever and for always. If we regard the budget-making process as an optimization problem, speaking mathematically, the best possible solution would come about by giving democratically elected representatives maximum latitude to evaluate the resources available, the needs that are out there, and to allocate funds accordingly. The tax-back guarantee places an artificial constraint on that process and reduces the latitude that our elected representatives will have to allocate resources among various priorities.

Essentially, I would suggest that even if the federal government is committed to this notion of using interest savings to finance tax cuts, it's a bad idea to enshrine that policy in Bill C-52, and I would definitely recommend against it.

The other issue I would like to suggest is around this whole notion of the fiscal imbalance and increased federal government transfers to the provinces. That was definitely a major aspect of budget 2007 and Bill C-52.

I suppose the notion of the fiscal imbalance really speaks to the insufficiency of funds to finance public services at the provincial level. Yet what we've seen since the budget is that the Government of Quebec has used a substantial amount of increased transfers to finance tax cuts instead. And if that's what happens in other provinces, then we really won't have made any headway in solving the fiscal imbalance.

My plea today is that in increasing these transfer payments to provincial governments, the federal government consider attaching some conditions to those transfers to ensure they're actually put into the public services that the people of these provinces need and that provincial governments said they needed the money to fund in bringing forth this notion of the fiscal imbalance. In particular, I think it's important, in light of increased Canada health transfers, for the federal government to take a much more active role in trying to enforce the key principles of the Canada Health Act.

With that, thanks very much for allowing me to appear before this committee. I very much appreciate the opportunity.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Weir.

We'll continue with the Child Care Advocacy Association of Canada. We have Monica Lysack and Nancy Peckford here. Who will speak?

[Monica Lysack, Executive Director, Child Care Advocacy Association of Canada]

I'll speak.

[The Chair, Conservative, Brian Pallister]

Okay. Over to you, Monica. Five minutes.

[Monica Lysack]

Thank you.

I'm the executive director of the Child Care Advocacy Association of Canada, and with me today is Nancy Peckford, from the Feminist Alliance for International Action, a member organization of our council of advocates. Thank you for inviting us to appear before you today.

I'll briefly remind you of some of the key points we have already raised through our submission to Advantage Canada and to this committee.

This budget represents a loss to communities, to families, and to children. Almost $1 billion in committed child care funding is being taken away. It's a cut of $27 million to the children of Saskatchewan alone. As we stated in our Advantage Canada submission, we offer the following points outlining how child care relates to building a strong, sustainable, modern economy, and why a focused investment strategy is necessary.

Child care helps develop a talented, creative workforce for the future. Child care provides children with the foundations for lifelong health, learning, and skill development. Good child care is good for children.

Child care also supports labour force development and opportunities now. The CCAC wishes to highlight the inherent contradiction between the federal government's workforce participation goals and its lack of commitment to early learning and child care services.

Child care supports employability for all, immediately and on an ongoing basis. When Canadian families do not have access to quality child care, our labour force and our employability suffer. With women now the majority in virtually all university programs, decreased labour force attachment among mothers exacerbates skilled worker shortages.

To build the child care system that Canadians want and need, the CCAC therefore calls on the federal government to adopt the following focused investment strategy.

First, restore and increase sustained, long-term federal funding to the provinces and territories. Federal transfers must be specifically dedicated to improving and expanding child care services based on provincial and territorial commitments to advance quality, inclusion, and affordability.

Second, enact federal child care legislation, Bill C-303, which recognizes the principles of a pan-Canadian child care system, makes the federal government accountable to Parliament with respect to child care funding and policy, and respects Quebec and first nations rights to establish their own child care systems.

Third, redirect the capital incentives for child care spaces with dedicated capital transfers to the provinces and territories to be used to build child care services that communities prioritize, own, deliver, and account for.

Fourth, provide effective income supports for Canadian families by incorporating the current taxable family allowance into the Canada child tax benefit.

As you may know, the CCAC is the voice for parents, four million strong. I'll close my remarks with this statement by a parent, Dale Summers, from Brampton. Dale says:

Daycare is chronically underfunded, to the point as parents our child has 'dance-a-thons' (she is 16 months old), has to sell chocolate (pay up front) and we are forced to buy exorbitant priced pictures and movies (not allowed to record our own) to aid in the running of the daycare on top of the $1,000 a month we pay. The $100 from the government is an insult. You want to know why Canada’s birth rate is in decline? Try the cost of daycare to start. Who can afford two or three children anymore?

Thank you. Nancy and I will both be happy to answer questions.

[The Chair, Conservative, Brian Pallister]

Monica, you didn't think I was cutting you off there, did you?

[Monica Lysack]

No, I was finished.

[The Chair, Conservative, Brian Pallister]

I'm sure we'll have questions for you in a minute.

We'll begin with the first round.

Mr. Goodale, you'll commence, I understand. Six minutes, sir.

[Ralph Goodale, Liberal, Wascana, SK]

Thank you very much, Mr. Chairman.

With a panel of such excellent witnesses, it's hard to do justice to everything all at once, but let me focus my questioning for Premier Calvert.

Before the last election, in 2004 and 2005 the previous government of Canada made a number of adjustments to the equalization program that had the effect of providing Saskatchewan, in those two years, with a total of some $799 million in additional direct equalization benefits. We also increased federal transfers overall to an all-time record high, with another $100 billion in federal transfers booked to flow over the next 10 years.

In question period in the House of Commons today we were told that nothing in fact happened for Saskatchewan before February of 2006, and since then, we were told, Saskatchewan has never had it so good.

Mr. Premier, I would like to ask a number of questions, but let me start with two basic ones. First of all, what specifically was the promise made by Mr. Harper and the Conservative Party to Saskatchewan in dollar terms? We've heard a description of it in terms of the formula; I'd be interested to know what that formula change meant in dollar terms. How much was it worth, and where did that number come from? Who did the calculation of that particular number?

My second question is this. There is a claim circulating in Saskatchewan now that the 2007 federal budget provided Saskatchewan with some $878 million. Can you tell us where that number appears in the budget? Is it in fact all new money? What is it for? Is it annual funding every year, or a conglomerate of spending on several things over several years?

[Lorne Calvert]

Thank you, Mr. Goodale, for the inquiries.

I need to check with the chair. You folks seem to function on a little more disciplined time schedule than we do in our legislature. When you say six minutes, Mr. Chair, is that six minutes for the question, or for the question and the answer?