An Act to amend the Federal-Provincial Fiscal Arrangements Act

This bill was last introduced in the 37th Parliament, 1st Session, which ended in September 2002.

Sponsor

Paul Martin  Liberal

Status

This bill has received Royal Assent and is now law.

Elsewhere

All sorts of information on this bill is available at LEGISinfo, an excellent resource from the Library of Parliament. You can also read the full text of the bill.

Federal-Provincial Fiscal Arrangements ActGovernment Orders

April 2nd, 2001 / 7:05 p.m.
See context

The Speaker

The House will now proceed to the taking of the deferred recorded division on the motion at second reading stage of Bill C-18.

Federal-Provincial Fiscal Arrangements ActGovernment Orders

April 2nd, 2001 / 3:30 p.m.
See context

NDP

Judy Wasylycia-Leis NDP Winnipeg North Centre, MB

Mr. Speaker, it is good to have an opportunity to participate in this debate on Bill C-18, which really goes to the heart of what we as New Democrats have been trying to do in the House and what so many Canadians are concerned about.

It was interesting to hear the comments of the Parliamentary Secretary to the Minister of Finance. I want to register concern about his suggestion that opposition attempts to lift the ceiling on equalization and to eliminate the cap are in any way, shape or form preferential treatment for one province over another. His comments do a great disservice to a fundamental concept, a philosophical instrument, that has been very much a part of the history of this country in shaping it into what it is today.

I am not sure what the parliamentary secretary's main point was in raising his question on the Conservative member's comments around lifting the ceiling, but it strikes me that what we are hearing from both the Liberals and the Alliance in this debate is a fundamental questioning of a principle grounded in the notion of equality. Surely that is what the debate should focus on. That is why it is so important for the government to hear and to act upon the recommendation, which is not just to lift the cap for the fiscal year 1999-2000 but to in fact lift it permanently.

Many of my colleagues in the New Democratic Party have said very eloquently how important equalization is as a principle in the country. It has been said to hon. members in the House that equalization is not only a moral principle but a constitutional principle. In this debate, we are asking the question: if something is a moral principle, is it not in fact morally reprehensible to disband the concept entirely? Is it not morally wrong to remove or to erode a program that has been fundamental to the notion of equality in this country? If it is, as my colleagues have said, a constitutional principle, is the government not wrong not to address the error of its ways when it so arbitrarily put a cap on equalization in the past, and is the government now not wrong not to act to remove it forever?

That is the point of our submission throughout this debate. We very much believe that equalization is there for a reason. It has been part of our history for a long time in order to ensure some measure of equality among all regions in the country. It is in the constitution for a reason. It has been part of our tradition as a nation in terms of building links from one end of the country to the other.

It is our view that it was wrong on the part of the Liberals to implement this cap on equalization in the first place and that it is wrong of the government at this moment not to lift it permanently. Obviously it is a small step in the right direction to lift the ceiling on equalization for one fiscal year. That is a tiny step. It is an improvement. It deals with some of the concerns that have been raised. However, today is an opportune time and this parliament is an opportune moment for the government to put back in its entirety the full equalization program, without its limitations, without its ceilings, without its caps.

It is interesting to hear such clear support from the Conservative member, the hon. member for South Shore, for lifting the ceiling on equalization on a permanent basis. We appreciate that support and that position. However, it is important to point out that in many ways today we are in this dilemma of trying to address and correct a major assault on social policy in the country because of Conservative policies then and Liberal policies now.

I do not think we should let this moment pass without remembering just what kind of damage has been caused to the social fabric of the nation as a result of the Mulroney Conservatives and now the Liberal government which has followed so steadfastly not only in implementing but in adhering to and accelerating the Mulroney Conservative agenda. It is worthwhile to point out that we are really talking about a decade or more of Conservative and Liberal cuts to social programs, a very deliberate assault on our social policies, which is causing such serious ramifications today and around which we are trying to regroup to redress the errors of the past caused by these governments.

It would be fair of us who have been working so hard on these issues for more than a decade in terms of the right wing agenda of both the Conservatives and the Liberals, at least from the New Democratic Party's point of view, to draw the attention of the House to the consecutive cuts and the slashing of programs over the last while, starting with Brian Mulroney and the Conservatives.

Let us not forget that it was under the Conservatives that a cap on the Canada assistance plan was first introduced. Let us not forget that the Mulroney Conservatives used three consecutive acts to amend fiscal legislation in the country, putting funding for education and health on very shaky ground. It was under those steps taken by the Mulroney Conservatives that the country faced the threat of seeing cash for health care and education entirely dry up.

Under the Conservatives, the changes to the established programs financing formula restricted growth in the formula and made it such that given the combination between cash and tax points, cash for health care and education would dry up in at least one province by this year, right at this very moment as we are speaking in the House today.

Incredible damage was done to our social policies, which had to be corrected. Unfortunately, the Liberals came into office in 1993 and by and large continued with that kind of slashing and hacking at our social policies and at our important health, education and social assistance programs. Let us not forget, in fact, that the Liberals promised in the 1993 election campaign to redress those egregious errors and those horrific cuts of the Conservative government. Instead, they very much perpetuated that direction.

We had hoped that the Liberals, once back in power, would lift the cap on CAP and would put back into the formula for health and education arrangements in order to allow for growth in the transfers to provinces, so that our provincial jurisdictions could keep up with the growing threats to the preservation of health care because of demands, needs and changes in the system.

Instead, as my colleague from Winnipeg Centre pointed out earlier, the Liberal government proceeded to make the most regressive social policy change in the history of the country. It took the single biggest bite out of financing and cash transfers for health and education that we had ever seen in the history of medicare.

Enormous damage was done by the Conservatives and it was perpetuated by the Liberals. Today we are trying to catch up. We are trying to address the fact our medicare system, our public post-secondary education system and our equalization program, the programs that are pride of our country, were dealt enormous damage and are on very shaky ground in terms of meeting the needs of Canadians. In fact, they are failing to do precisely what they were intended to do, which was to ensure that all people in the country, regardless of where they live or what community they are from, regardless of their income, their cultural background or their ethnocultural heritage, are able to access those programs that are considered to be fundamental rights and fundamentally part of what it means to be a citizen in the country today.

The Liberal approach has been very much a band-aid one in the last number of years. We hear a lot of rhetoric about trying to patch up the system, trying to move forward based on the resources available and trying to do things in a balanced and responsible way. However, the band-aids are so small and the approach is so ad hoc that we are not able to put a stop to the bleeding and actually start to build again for the future.

For example, I think of all the rhetoric and the great fanfare from the government around money that it claims to have put back into transfer payments. In the February 1999 budget the government made a great deal of the millions of dollars being put back. In fact, it turned out to be two cents for health care for every dollar in tax cuts. Then of course last fall as we tried to convince the government to take its responsibility seriously, the answer was an supposed additional massive influx of money through the federal-provincial agreement in the September accord. That turned out to be enough money to get us back to 1994 levels.

This is hardly the kind of strategy and leadership that one would expect if medicare was so central to who we are as a country and if our social programs were so fundamental to the very definition of what it means to be Canadian. The parliamentary secretary does a disservice to the definition of equalization when he talks in terms of preferential treatment. Probably the accurate definition of equalization is as my colleague, the hon. member for Winnipeg—Transcona put it: to ensure a comparable level of public services in the country. Regardless of the fiscal capacities of the province, regardless of the wealth each province is able to generate based on natural resources and other economic advantages, no one region should be able to have greater benefits.

It would be fair to define equalization as something that was instituted in order to allow provinces with lower fiscal capacities to fund health, education and other provincial programs at tax rates comparable to those in more affluent provinces. That is certainly the understanding of provincial governments. That is certainly the understanding of the government in the province I come from.

In fact, I just quoted from a letter from the minister of finance from the province of Manitoba. The parliamentary secretary may very well be aware of a very detailed letter from that province. I am sure he has received similar presentations from other provincial finance ministers, who are all concerned about the way in which this government has failed to address the concerns that provinces brought to the table and also concerned about the failure of the government to live up to the Prime Minister's words and the commitment he made in September 2000. In fact, the finance ministers in all of our provincial and territorial governments are very mindful of those words and hopeful because of the wording that was agreed to in the communiqué around the September accord.

I would like to quote a sentence from that communiqué because it shows just how much people and the provinces feel they have been let down by the bill before us today, Bill C-18, and by the failure of the government to restore the equalization program on an ongoing basis and to lift the ceiling on equalization on a permanent basis. That communiqué states:

First Ministers raised the issue of Equalization. The Minister of Finance will examine this issue further after consultation with provincial Ministers of Finance. While final revisions for Equalization purposes for the fiscal year 1999/2000 likely will not be known until October 2002, the Prime Minister agreed to take the necessary steps to ensure that no ceiling will apply to the 1999/2000 fiscal year. Thereafter, the established Equalization formula will apply, which allows the program to grow up to the rate of growth of GDP.

The provinces believed from that communiqué that the ceiling on equalization payments would be lifted for the year 1999-2000, as specified in the bill, but they also expected the Prime Minister to actively pursue an extension to that lifting of the freeze for at least another fiscal year. They also expected to see the Prime Minister and the government address their concerns for a growth factor in the formula so that there would be some way for less affluent provinces to keep pace with the needs and demands on their systems.

As an example, I will outline the kind of impact this would have for a province like Manitoba. Manitoba is a wonderful province with great potential but it is not one of the most affluent provinces. It depends very much on the federal government's fairness and commitment to ensuring that cash transfers meet the growing needs in the fields of health and education. It is a province that depends heavily on the federal government to be firmly committed to the notion of equalization.

In a letter to the government, the province of Manitoba pointed out that its potential cost for 2000-01, given the government's failure to lift the cap for that year, was about $100 million. Application of the ceiling to 2000-01 equalization entitlements may actually result in lower payments than for 1999-2000, despite a significant increase in entitlement as generated by the formula.

The minister of finance for the province of Manitoba, Mr. Greg Selinger, goes on to make a very important case to the federal government for lifting the ceiling on equalization for at least another year and for the government to look seriously at the need to fully restore the program as it was originally intended.

The most important message we can bring to the House today, in hopes of shaking up the government and persuading it to amend the legislation while it has a chance, is to appeal again to the sense of what it means to be Canadian, what is a part of our identity and what is very much central to any notion of national unity in the country today. I do not think I need to repeat this as many members have said it so eloquently. It is our notion of equality between regions and between all people in the country.

What we bring to the debate is the notion based on an old cliché “from each according to his ability to each according to his need”. That is the essence of the debate. We are looking at ways to ensure that the wealth of regions can be shared equally across the country and that everyone has access to decent public service, universal health care, education, decent housing, clean water and clean air to breathe. Those are basics. That is the role of the federal government. That is why we have the equalization program.

I appeal to the parliamentary secretary, who I know has been listening intently throughout the debate, to find a way to amend the bill or to accept our amendment before pushing it through. The government has the fiscal flexibility today to do that.

I hear the rhetoric time and time again. It is now time for the government to show what it means to put its money where its mouth is and lift the ceiling on the equalization program for not only this fiscal year, which is referenced in the bill, but for the next fiscal year, and to look at it as a permanent feature of our system.

As has been noted so many times in the debate, it is a moral principle, is it not? If it is, how can we in any sense of the word dismantle a concept that is about equality and about achieving that kind of adherence to that kind of moral principle?

If it is a constitutional principle, how in any way can we justify that there should be a cap on a constitutional principle? How can we justify a cap on morality? How can we justify a ceiling on equality?

I appeal to the government to amend the bill and to act in the best interests of all Canadians.

Federal-Provincial Fiscal Arrangements ActGovernment Orders

April 2nd, 2001 / 3:10 p.m.
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Progressive Conservative

Gerald Keddy Progressive Conservative South Shore, NS

Mr. Speaker, it is a pleasure to discuss Bill C-18 regarding equalization from the federal government to the provinces. The bill, if passed, and I expect the government will be able to get its members into the House for an important vote like this one, would lift the cap off equalization payments for the year 2000-01. Quite simply, that is what the bill is about.

It is not a complicated piece of legislation. It deals specifically with an issue and certainly would be a help and a boon to the provinces that need increased equalization payments, especially in this fiscal year.

As we are debating this bill today we know that the four Atlantic premiers, including one of the only two Liberal premiers in the country, are meeting in Charlottetown to discuss equalization payments. Certainly what they are asking the government to do and what we are expecting they will ask the government to do is permanently lift the cap on equalization. There are a number of reasons the government should seriously consider measures such as lifting the cap on a permanent basis.

The concept of providing effectively level taxation or similar levels of taxation and services across the country is perhaps the very cornerstone of Canadian social policy. That was said in the House not long ago by our finance critic, the member for Kings—Hants. I would like to state—

Federal-Provincial Fiscal Arrangements ActGovernment Orders

April 2nd, 2001 / 1:40 p.m.
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NDP

Yvon Godin NDP Acadie—Bathurst, NB

Mr. Speaker, it is a pleasure to speak to Bill C-18.

As members know, we are against the capping of equalization payments, especially for provinces like New Brunswick and the other Atlantic provinces, but also Manitoba and Saskatchewan.

In a country like ours, where we talk about national unity and where we should be able to work together for our common well-being, it is important to help each other. The goal of equalization payments was to get money to the provinces that needed it, mainly for social programs like education and health.

Now, the cuts imposed upon the provinces create an unacceptable situation and place them in a difficult situation.

I would like to read a newspaper article published in L'Acadie Nouvelle , which summarizes what has happened in New Brunswick. This article, published on March 1, 2000, reads as follows:

The decapping of equalization payments for 1999-2000 will allow New Brunswick to receive $50 million more from Ottawa than what was initially anticipated for the fiscal period 1999-2001. New Brunswick's finance minister, Norman Betts, is far from carried away by the bonus resulting from the decapping of transfer payments and prefers to put things into perspective.

“Fifty million dollars represent 10 days in health care spending. It represents 1% of our $5 billion budget” said Mr. Betts, adding that the province could also receive less money because of the country's economic performance.

Besides, according to official new estimates by the federal Department of Finance, New Brunswick will receive an extra $5 million for the 1999-2001 period.

For fiscal 2000-2001, New Brunswick will receive $1.207 billion from the federal under the equalization program. This amount represents more than one quarter of the province's budget, which was $4.472 billion in 2000-2001. Before Minister Betts can cash the $50 million cheque from his federal counterpart, the Commons will have to pass the bill reviewing the equalization program formula tabled on Tuesday.

This was for the month of March 2001. The article goes on, and I quote:

The equalization program was created to close the gap between the have and the have-not provinces, so that these provinces can provide to the public services comparable to those provided by the wealthy provinces. Three provinces, British Columbia, Ontario and Alberta, get nothing under the equalization program.

As I said, living in a country is something like the unions, which I will use as an example. Within a union, there are big locals and small locals but every member is part of the same union. It is true there are smaller locals with only five, six, seven or eight persons. It is more expensive to give them services because they cannot afford to pay for all those services. I like this example because I think it is a good illustration of what happens in the case of the provinces.

It is called a union because all the workers of the country, big groups and small groups alike, are united in one union. That is how I imagine the country. The country is a group of all 10 provinces and the territories, including the Yukon and Nunavut. All those provinces and territories form the union which is our country.

Whenever we are no longer able to take care of the have nots, why remain a part of it? Why stay in a country if we cannot take care of each other?

The reason a country takes money from the rich, yes I dare to say it and I am not ashamed of it, is to redistribute it. This sharing can be compared to what happens in a family. Sometimes in families those who have more help those who have less. This is what a country is all about.

I believe we have a problem today because we are too selfish. It is everybody for himself. This attitude runs from the top down: the country, the leaders and the governments down to the provinces and the families. We have to show that we can take care of each other. This is why a cap is unacceptable.

If we can help a province to survive and if we are able to invest to create jobs, I think people will be able to manage on their own. However, if we deprive them every day of these tools and if we are unable to make the transfers needed to help those provinces, I think it will go from bad to worse. This is contrary to common sense and to national unity, utterly contrary.

The federal government has a responsibility, which is convincing people, be they from Ontario, Alberta or British Columbia, that this is the way Canada works; all the provinces are together, and we must have a formula to help Canadians all over the country. We have to recognize this.

For example, if Alberta were to say “We are now rich; we have oil and we don't need anybody anymore”, I hope they will not run out of oil, because they might need this formula also. This is what a country is all about.

In New Brunswick, we never asked that the fisheries go the way they went, and we never asked for the elimination of groundfish quotas. We never asked for this. People in fishplants were working 30 to 32 weeks before the moratorium on groundfish. We never asked for this closure of the fishery.

It can get tough for any province when revenues do not come in. Let me take Alberta as an example. I am very glad for Alberta, because it is a rich province, but when one is rich, one should share with the poor. I do not mean that our own region is very poor but it does have certain needs, just as Manitoba does.

The whole country is glad that we have an agricultural industry in Manitoba and Saskatchewan. Thanks to them, we can have three meals a day. We need provinces where agriculture can prosper. It is the same thing in Quebec. Between Montreal and Rivière-du-Loup, farms line the road on both sides. It is nice that we have farmers but it is also nice to have fishers.

People like to visit New Brunswick and other Atlantic provinces. We have people working in the tourist industry. As I said very often in other speeches, people in Toronto are fond of our two by fours but to have two by fours, we need lumberjacks. These people work hard yet they have seasonal jobs. It goes without saying that seasonal workers cannot pay as much income tax as if they worked 12 months per year. Our provinces are losing out on benefits because these are seasonal jobs.

I would like the federal government to show some leadership in this regard, and to say “This is the rule, this is the formula that will help our poorer provinces and keep our country united”. Again, if there is no advantage in being part of a country, why stay in it? What is the country in the end when the federal government makes such cuts in health, education and all the rest?

I will conclude by asking the federal government, the Liberals, those in power, to show some leadership. This is why we have to oppose the capping of the equalization program.

Federal-Provincial Fiscal Arrangements ActGovernment Orders

April 2nd, 2001 / 1:35 p.m.
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NDP

Pat Martin NDP Winnipeg Centre, MB

Mr. Speaker, I thank my hon. colleague from Dartmouth for those remarks, many of which I can relate to as I also come from a province that relies heavily on the whole concept of the redistribution of wealth through federal transfer payments.

I want to raise something that has come up recently with regard to the ministers of finance and the first ministers of the various provinces who recently agreed on the arrangement to lift the cap for a one year period and to then reinstate it. The sentiment we are hearing now is that some premiers and some provincial finance ministers feel this is not quite what they agreed to, that what we are dealing with in Bill C-18 is in fact less than what they thought they were agreeing to on, I believe, September 11, 2000.

For the province of Manitoba this is certainly the case. Is it true for the province of Nova Scotia? Is there disappointment that what is being proposed is less than what Nova Scotia thought it was agreeing to at that meeting?

Federal-Provincial Fiscal Arrangements ActGovernment Orders

April 2nd, 2001 / 1:30 p.m.
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NDP

Wendy Lill NDP Dartmouth, NS

Mr. Speaker, it is my pleasure to stand today to speak to Bill C-18. I will be splitting my time with the member for Acadie—Bathurst.

Bill C-18 is an act to remove the cap on equalization payments for the fiscal year beginning on April 1, 1999. The act concerns me and the other members of the New Democratic Party a great deal because of the implications it will have for the have not provinces in Canada.

The equalization program has enabled less prosperous provincial governments to provide their residents with reasonably comparable levels of public service and taxation. Equalization payments are unconditional in that the receiving provinces are free to spend them in public services according to their priorities.

The NDP has always supported transfer payments and equalization payments as a way of cementing the country and its provinces together. Many years ago we had the EPF, the established programs financing program. It was equal, with 50:50 funding for established programs within the various provinces. The NDP believes it was of far greater benefit to the provinces when we had the federal government in control of implementing national standards with the funding formula of 50% and 50%. It was simple. If one of the provinces chose not to comply with the national standards that were in place, it was jeopardized in that the 50:50 funding formula was pulled back.

The established programs financing worked very well. We then saw CAP, the Canada assistance plan, come in, followed by the cap on CAP. Then came the CHST. Now we are seeing a removal of the cap of the new ceiling imposed in a temporary way.

In earlier debates, New Democratic Party members pointed out the devastating impact of the CHST on social programs in the country. It should be stated clearly and abundantly, so the public hears it over and over again, that the government stripped 33% of the funding out of federal social transfers with the CHST. I believe the total figure since 1995 is $23 billion. The government went from $19.1 billion to $11 billion in social transfers.

When the equalization program was renewed in 1999, the ceiling was reduced by roughly $1 billion per year to an arbitrary level of $10 billion in 1999-2000, in spite of the broad objections from virtually every finance minister in the various provinces. It was then indexed by GDP growth in subsequent years.

Adequate levels of equalization and social transfers are critical to provinces like Nova Scotia. Otherwise Nova Scotians would not get what they are entitled to under the constitution, namely, reasonably comparable services at reasonably comparable levels of taxation.

Why do we need federal transfers to ensure that services in Nova Scotia are reasonably comparable to those elsewhere? We need them because our economy is smaller and weaker and does not produce as much wealth as the economies of most other provinces. Because there is less wealth, tax rates in Nova Scotia need to be higher to raise the minimum revenue needed to maintain public services. However, even though we pay a higher rate of taxation than most other Canadians, when it comes to public services Nova Scotians pay more and get less.

Nova Scotians value education and the role that good education plays in making possible a better and more prosperous future, and we in Nova Scotia invest our scarce resources in education. In 1995 Nova Scotians invested 8.4% of their gross domestic product in education. That was the highest rate of investment in education of any province, higher than Alberta, Ontario, B.C. or Quebec. Only Newfoundland put a bigger share of its collective wealth into education.

What did we get as a result? Did we get well funded schools, low pupil-teacher ratios and gilt-edged support services? Not a chance. Because our economy is small relative to other provinces, putting more of our economy into education still left us at the bottom of the class in terms of educational expenditures per student. I have spoken with many people in my riding who do not believe for a minute that Nova Scotia students are enjoying reasonably comparable services when it comes to education.

Health spending is another case in point. Last year Nova Scotians spent 11.3% of their provincial gross domestic product on health. The national average was just 9.3%, but because we are taking a larger piece of a considerably smaller pie the slice was not big enough to adequately serve our population. Once again we paid more and got less. The health care we can afford left our per capita spending the second lowest in the country. It was a full 9% below the national average. With that, we are expected to serve a population that needs more health care, 10% or 15% more than the national average. With those kinds of numbers, we have to wonder whether Nova Scotians are getting health services that are reasonably comparable to those enjoyed by many other Canadians.

Rather than improving, it is a sad fact that financial support has been declining since the promises of comparable service levels were put into the constitution. In 1980 federal transfers amounted to almost 48% of the revenues available to the province of Nova Scotia. By 1993 when the Liberal government took office, the percentage had dropped to 38.6%. Last year it was down to 37.2%.

By lowering the level of equalization payments, which is indeed where Bill C-18 will take us, the government will be moving us even further away from the goal of providing reasonably comparable services at reasonably comparable levels of taxation.

We in the New Democratic Party oppose Bill C-18. We oppose further cuts to the baseline equalization payments. In fact, in a time of galloping surplus we see the need to augment our equalization payments to allow for equal standards of education and health care across the country.

Now is the time to correct the crippling impact of inadequate funding on our education and on our health care, on our schools and on our hospitals. Now is the time to revisit the equalization formula to ensure that all provinces are afforded an equal level of services and all Canadians an equal level of citizenship.

Business Of The HouseGovernment Orders

April 2nd, 2001 / 12:10 p.m.
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Liberal

Don Boudria Liberal Glengarry—Prescott—Russell, ON

Given the motion that has just passed and the unanimous consent, I would like to clarify the business of the House because it has been changed. In any case, there have been consultations about future business which I would like to share it with the House.

After completing the debate on Bill C-2 at report stage, the House will return to third reading of Bill C-8, the financial institutions bill. After this we will call Bill C-18, the equalization bill; Bill C-17, the innovation foundation; and Bill C-22, the income tax bill, in that order.

Tomorrow shall be an allotted day, as already announced.

Wednesday shall be the day allocated for third reading of Bill C-2. I understand there will be some co-operation to ensure that all parties have a spokesperson on Wednesday. I intend to do my part on this side of the House in that regard.

On Thursday we shall resume the list from today, adding at the end Bill C-9, the elections bill. We shall continue the list on Friday, adding Bill C-12, the Judges Act amendment.

Business Of The HouseOral Question Period

March 29th, 2001 / 3 p.m.
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Glengarry—Prescott—Russell Ontario

Liberal

Don Boudria LiberalLeader of the Government in the House of Commons

Mr. Speaker, this afternoon we will continue consideration of Bill C-2, the employment insurance bill. We will then return to the second reading of Bill C-18, the equalization bill. That will be followed by Bill C-17 respecting the innovation foundation.

On Friday we will consider third reading of Bill C-8, the financial institution, and if necessary we will return to Bill C-18.

On Monday, we will return to Bill C-2. If it is completed at report stage, we will return to Bill C-18, C-17 or C-22 on the Income Tax Act, depending on which of these bills requires further consideration.

Tuesday shall be an allotted day, and I believe it is the Canadian Alliance's turn. On Wednesday, we will return to Bill C-2. We will also try to complete third reading of Bill C-12, the Judges Act amendments, and Bill C-9, the elections bill. If we have the time, I will also suggest completing Bill C-4, respecting the Sustainable Development Foundation, before adjourning for Easter.

Business Of The HouseOral Question Period

March 22nd, 2001 / 3:35 p.m.
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Glengarry—Prescott—Russell Ontario

Liberal

Don Boudria LiberalLeader of the Government in the House of Commons

Mr. Speaker, I am pleased to make the weekly business statement and to indicate to the House that I intend to do my utmost to have order paper questions answered as rapidly as possible.

This afternoon we will resume debate on Bill C-12 respecting compensation for judges. We will then continue with Bill C-18, the equalization bill, which we started this morning. That will be followed, if there is time, with Bill C-17 respecting the innovation foundation.

On Friday we will consider report stage of Bill C-4 respecting the sustainable development foundation, and any time left will be used on second reading of Bill C-7, the youth justice bill.

In an effort to complete consideration of the youth justice bill, we will continue discussing that bill on Monday next.

Next Tuesday we will commence report stage of Bill C-8 respecting the financial institutions legislation. Should that be completed, we would then continue with Bill C-22, the income tax amendment. As previously announced and as adopted by the House, in the evening there will be a special take note debate on the summit of the Americas.

Next Wednesday, March 28, we will debate Bill C-2, the employment insurance amendments, at report stage and hopefully have third reading on next Thursday, March 29.

That is the agenda of the House for next week.

Federal-Provincial Fiscal Arrangements ActGovernment Orders

March 22nd, 2001 / 1:55 p.m.
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Progressive Conservative

Greg Thompson Progressive Conservative New Brunswick Southwest, NB

Mr. Speaker, Bill C-18 is certainly an interesting debate. I guess it brings out the best and the worst in us. Some members in some parts of the country forget that Canada is a very generous country. Canada, as we well know regardless of our politics, has been defined by the United Nations as the best country in the world.

One of the reasons for that is equalization. It is an accepted reality in the country that not all the provinces are equal in terms of resources and richness. The government and the governments that preceded it, going back to the early sixties, recognized that and have been very generous over the years.

We can argue on points of generosity and whether or not the present formula works. However, if we were living in a perfect world and Canada was absolutely perfect, we would not need equalization. Unfortunately Atlantic Canada and some of the western provinces are not blessed with oil in the ground at $40 a barrel. That is a reality. Who do we blame for that, the Prime Minister or the Almighty? It is beyond the Prime Minister's capacity to put oil in the ground in every province, although I guess if we want to be entirely political we could attack him on that as well.

I wish to point out, and I hope that my colleagues from Alberta are listening, that from 1957 to 1965 Alberta received equalization from Ottawa. What does that tell us?

It tells us that it was not always rich and that it was not always prosperous. The energy there in its early years was just as Nova Scotia's is now, in its infancy. The major difference was that at the time Alberta received 100 cents of every royalty dollar that came in. For every dollar that it took out of the ground in oil, it kept it.

What we are arguing in Atlantic Canada, and especially our friends from Nova Scotia who are now blessed with natural gas, is that it should have the same formula applied to it as was the case in Alberta.

If logic prevails, and it does in this argument, and if we want to raise ourselves to a level of sustainability in terms of the economy and diversifying the economy, we need the tools to do that. The biggest tool of all is a financial tool, the financial resources to build a strong economy as Ralph Klein has done in Alberta and Premier Lougheed before him. It is building on the principle that what is ours is ours and we will use it to benefit the people of our province. That is what we are talking about in New Brunswick. The formula has to be revisited. Mr. Speaker, with your permission I will revisit—

Federal-Provincial Fiscal Arrangements ActGovernment Orders

March 22nd, 2001 / 1:35 p.m.
See context

Progressive Conservative

André Bachand Progressive Conservative Richmond—Arthabaska, QC

Mr. Speaker, I will be sharing my time with the very nearly right hon. member for New Brunswick Southwest, who will continue with the second part of the discussion on this bill.

I must admit that when I was preparing my speech on this bill, when I saw that the minister was introducing a bill, and when I saw that the title on the first page was “an act to amend the Federal-Provincial Fiscal Arrangements Act”, I was pleased. I said to myself that the people of Quebec, the maritimes and elsewhere do have some influence, because they have managed to convince the Minister of Finance.

Perhaps finally the Minister of Finance has listened, perhaps he has travelled around the country without anyone knowing. Perhaps he went to ask the provinces what they thought of the equalization payment system. Perhaps he did this without anyone knowing about it.

I asked my assistant “Did you just bring me the first page of the bill?” She told me “No, that's it”. The title of the bill is an act to amend the Federal-Provincial Fiscal Arrangements Act. I said “There is a problem with the photocopiers at the House of Commons, something is going on. That is it”.

I must say that the Minister of Finance has not travelled in the country, he has not met the ministers of finance of the various provinces and he has not listened to what is going on in the maritimes or Quebec. So, there is a bill with fewer clauses than the clarity bill, but we will not get into that. That is to say that it is not very impressive.

I just want to add one small thing before I go on. Yesterday, it was announced that the former head of the Reform Party would be leaving in the course of the year. It was said that a page of history had been turned, that it was the end of the name Reform and its approach. It is a new century, a new approach. Not really. There he is today.

The government is trying to cover up the fact that, to please people in Ontario, Quebec and the maritimes, there must be no opposition to equalization. Out west, it has to say that it is against equalization, but elsewhere, it has to say it is not. Today, however, we realize that it is opposed to equalization. But there is more to it than that. It is the examples it gives in order to justify it being more or less opposed.

Basically, it is saying “If you get a welfare or an unemployment cheque from a government, if it involves an individual, or equalization payments, if it involves a province, then you are not worth much”. I remind members that they get cheques from the government themselves, and I am not sure what they are worth.

That said, for us, equalization payments are vital, but they need to be modernized. However, we realize that the Minister of Finance is under a lot of pressure. We say to him “You must change your system. It is not right. You are penalizing the provinces, and offending others. So, let us sit down and see what we can do together”. The minister's only reply, so that we will leave him alone, is “I introduced a great bill. I am removing a ceiling”. Yes, but where are the walls, where are the foundations of the equalization program? These are the things that must be rebuilt, with the provinces, with our partners in Confederation. But the government does not listen.

I heard the parliamentary secretary to the minister say “Listen, we are giving you a cheque”. He told the hon. member for Winnipeg—Transcona “You will get an additional $22 million”. This is a paternalistic system. One must practically get down on one's knees. Come on. This is a system that is in effect from coast to coast, not from minister's office to minister's office.

The government should listen to what is being said in all the provinces. I am not saying it should agree with everything. No. The Premier of Newfoundland is going around saying that changes are necessary. We want to make it and we will succeed. Give us a chance. But, no, that is no good, according to the government.

I should point out that the Premier of Nova Scotia is a Conservative. So are the premiers of New Brunswick and Prince Edward Island. And the Premier of Newfoundland will also be a Conservative. The current Premier of Newfoundland, as the hon. member from Newfoundland rightly pointed out in his speech, was recently elected leader of the Liberal Party in Newfoundland. He has contacts in Ottawa and he told his people “They listen to me in Ottawa. I will get a commitment from the federal government to renew the equalization system. You will see. The Minister of Industry and the Prime Minister are good buddies of mine”.

Off he goes to Ottawa. He tells his people back in Newfoundland “It's settled. The Prime Minister agrees with us, and so does the Minister of Industry”. A few minutes later, the PMO says “Not true”.

I know comparisons are odious, but I still cannot help but think of the English Prime Minister who went to Germany, and came back with a piece of paper. He announced “I have settled things with the German boss” but war was declared just a few days later.

All that to say that this system does not work. The only thing Bill C-18 does is to try to silence those who want to see major changes. We are told that more provinces should be added to the five currently used as the basis for calculating the equalization payments. There are arguments on both sides, but our immediate answer is no.

The Maritimes have sufficient resources to return to what they once were, but are told that this is not good, that it will not work. A balance must be struck. There is much talk of openness. As I have said on many occasions, the ruling party's conception of this country differs from ours in a number of ways, and of course from the other opposition parties as well.

For us, the country is comprised of regions and provinces, which decided to join together. As we know, first there was Quebec, Ontario, the Maritimes and later the west and the north. They have joined together and have a central government for shared services. This is a principle we defend.

The Liberals' principle is a different one. Canada is Ottawa, which in its great goodness, its vast generosity, will give little handouts to the regions and the provinces. This is ignoring history.

These two conceptions mean that Ottawa's management style varies from one party to another. When it is them, it means we have to beg the whole time. When it is another conception, it means simply getting together, discussing and agreeing. That is the difference. True, it is not always easy, but it is an approach that must be changed.

On the question of equalization, I remind the House that Bill C-18 is simply a bandaid, what we call a plaster. Do you know where they stick the bandaid? It does not go on a leg.

I listened to the parliamentary secretary say “Stick your bandaid, Bill C-18, here, provinces. Stick it on your lips. That is the end of that. Until 2004, there will be no talk of equalization. It is finished”. Will the Minister of Finance still be here in a few months' time? We will see. We will see who is going to be the next leader of the Liberal Party. That is going to change, we know. We know the individuals are going to change.

Mr. Speaker, between you and me, I hope that the approach will change as well, that the government will connect again with what is going on in the provinces and regions. They will never listen to the argument that the poor in one province pay for the rich in another. If our tax arguments, our economic and political arguments are based on such demagoguery, this is not the country I know. Thank God that people will fight that.

That said, we are very disappointed by the first page of the bill, which could have had the government reconnect with the regions and with the economic challenges facing the various provinces. We do not have a bill, we have a first page, that is all. Together with our partners in the provinces, we will push to have the bill complete.

Federal-Provincial Fiscal Arrangements ActGovernment Orders

March 22nd, 2001 / 12:40 p.m.
See context

Canadian Alliance

Ken Epp Canadian Alliance Elk Island, AB

Mr. Speaker, I am very pleased to speak on this important debate on Bill C-18. This is a bill of a temporary measure, but it is good for us to be able to see it in the larger context.

I would like to say something about the basic philosophy of equalization payments. What it says is people in Canada who cannot afford certain services because of their wealth or lack of it are still entitled to basic services. I cannot emphasize enough that I agree wholeheartedly with this premise.

The Prime Minister sometimes says, when he speaks of helping those in need, that this is the Canadian way. Unfortunately, in our political environment, it is all together too selective at times. We see certain people who have their needs met almost instantaneously and others have to work for years and years to have their needs met.

I am thinking of the tainted blood scandal and the hepatitis C victims. These are people who, because of a lack of proper procedures by the federal government, were injured by that very specific shortcoming of the federal government. Other provinces, such as Ontario, said that these victims should all be compensated for their loss, but not all of them were. In the federal government scheme of things there was a very narrow window defined. If they were outside of that window, it was too bad.

It so happens that my uncle died from hepatitis. He left a widow. He was in that exact category. He was diagnosed with a brain tumour. The operation was successful and he bounced right back. Before the operation he had problems with headaches and disorientation. However, his recovery took very long. He was always ill. Eventually they diagnosed that he was a victim of tainted blood. He had received hepatitis via his blood transfusions during the operation. He was outside the window for compensation. Is there any compensation for that loss? It seems not, so they fight and fight. Yet others receive aid very quickly.

In the larger scheme, when an election is coming and there is a flood, the promises of compensation and aid to farmers suffering from the disaster are immediate and are large. If it is not during an election or if it is in an area where there does not seem to be a great deal of political capital to be gained, it appears to us, as objectively as we try to look at it, that there is some bias on whether or not that helping hand is extended. I personally believe that we need to give a helping hand to those who cannot afford these things.

I grew up in Saskatchewan. I was born on the prairies, a first generation Canadian, my parents having been youngsters when their families escaped from Russia and came to Canada to make it their home. I remember very well in the early years of my life, which would have been in the 1940s, there was not a great deal of aid for people who were in distress. I know it is hard to believe I am that old, but I am getting there.

It was not an unusual occurrence for my family that the church community I grew up in would reach out a hand to those who needed it. Sometimes it was in the form of a loan. Sometimes it was in the form of outright gifts. Sometimes there were food transfers. That was the way things were done because we were people who were compassionate for those in need.

Later on when my wife and I were married we became aware of a couple who had come to Alberta from Ontario or even farther east. I do not remember which province they were from. They had moved to Alberta and they were in dire straits. They had no jobs and no income. He claimed that the police had stolen his car. We later found out that the police had confiscated it because they could not get into the trunk and they suspected there were drugs in it, but that is another story.

This couple was without food and without shelter. We did not go to a welfare agency. We did not see what we could do to get public funds for them. The way we thought was a natural thing. We knew these were people in need and we looked for ways to help them. I remember trundling groceries up to the second floor apartment that we had arranged for them. We made the payments on the rent for the first month or two so that they could get settled. One of the men in our group gave this man a job. We tried to help them.

Through the process of ever increasing taxation and with the present Liberal government and past Liberal style governments we have had over the last 40 or 50 years, we have had an increasing shift of social responsibility away from families, away from churches, and on to the government. Nowadays we end up with very little fiscal capacity as individuals and as families to actually accommodate the needs of people we encounter.

It is much more natural now to say we will see if we can help people get to the social services centre where there is a government program. This seems to be a general trend that our governments have taken over the last 30 or 40 years. In a way it is good, but it also has a tremendous downside, which is that while it trades on the fact that we as Canadians are compassionate to people in need, it takes away from us the capacity to actually exercise that compassion.

We are taxed to death. I was talking to an individual just yesterday and said that as a young family the decision was made that my wife would be a full time mom, so I was the sole wage earner. Even then our marginal tax rates were 40% to 45%.

I taught a night class instead of having my wife take a job. I taught full time in the daytime and I taught a couple of night courses to supplement our income. I used to say I worked Tuesday nights for Trudeau and Thursday nights for my family. Basically people live on half of their incomes.

One of the reasons I became a member of parliament was to try to address the question of the huge overtaxation. My family and thousands of families like us have lived on something between 30% and 50% of our income. I believe in personal charity. Over the years, besides having 50% of my earnings taken away from me for taxation, I have usually given between 10% and 20% of my income to charities.

In addition, since we were looking at retiring on only my pension which was not that great I put a little into RRSPs. Another 8% to 10% went into that. I had 30% of my salary left. We struggled month after month to pay the bills.

The situation has not changed a great deal. I can say it is great that we live in a country where everyone has free health care. I concur with that, but it has to be done efficiently. The federal, provincial and municipal governments took their taxes from money I had worked very hard for. I really needed a greater income for my family. I am speaking now of before I was a member of parliament. I do not want anyone to conclude that I am crying because I do not earn enough here. We struggled and said that if they were to take that money they had better use it very wisely.

One reason the Conservatives fell out of grace with many people in the west was that they were not perceived to be handling the money properly. They were not addressing the question of the debt. They were not addressing the question of huge interest payments.

I resented the fact that half of my income went to taxes and of that 30% was being used for interest payments on a debt which had burgeoned out of control because of lack of fiscal control by the government. That is why I came here.

Today we are talking about equalization payments. While I am in favour philosophically of helping people who need help, I am not in favour of doing that in an inefficient, wasteful or unfair way.

In passing, I should like to make a statement about equalization payments. Since they are done based on provincial numbers, there is no recognition of the fact that poor people are living in all provinces. Over the years I have thought of this often. Here is a specific example.

I was a young teacher with a young family, trying to make ends meet, making $6,000 a year. Through my unemployment insurance, it was called UI in those days, I was subsidizing a fisherman who made $18,000 a year. It somehow seemed to me unfair because I had no eligibility to ever make a claim. This was especially the case in those years when I was a student and my part time job required that I make UI contributions. I would quit in fall to go back to classes and I was not eligible to receive any benefits. That money was going to subsidize people who were making 20, 3 or 40 times as much as I was.

That is one thing the equalization program does not address. If we have poor people living in the so-called have provinces, they are proportionately disadvantaged compared to in some cases rich people who are living in the have not provinces. The well off people in the have provinces are paying huge amounts of money. I guess the Liberal way is to tax them to death.

When we proposed to level off the tax burden for those who make an adequate amount of money, we were told all we wanted to do was give tax breaks to the rich. The fact of the matter is that the equalization program gives transfers to provinces where some very rich people live, and those people benefit from those transfers.

I will put this in perspective. Most people here know the history of transfer payments. I picked up a book which had a chapter on them and found out a few things that were rather interesting. For fiscal year 2001 it is estimated that the total cash payments from the federal government to the provincial, territorial and local governments will total almost $25 billion. That is a lot of money.

I play with mathematics as some people play on the golf course. Whenever I have an opportunity to do some simple math I do it for recreation. Some time back I built a spreadsheet showing the major federal transfers to the provinces. From 1980 until 1999 I have a breakdown of the total major federal transfers from the federal government to the individual provinces.

It is fascinating to see that in that 20 year period Newfoundland received a total of some $22.5 billion in transfers; Prince Edward Island, $4.9 billion; Nova Scotia, $28.7 billion. New Brunswick, $24.9 billion; Quebec, $178.3 billion; Ontario, $154 billion; Manitoba, some $30 billion; Saskatchewan, almost $20 billion; Alberta, close to $40 billion; and British Columbia, almost $53 billion.

From 1980 to 1999 the total major federal transfers to the 10 provinces was $556 billion. That does not include Yukon and the Northwest Territories. At that time Nunavut did not exist. That amount essentially is equal to our national debt. If we add in the Northwest Territories and Yukon, the total major federal transfers to the provinces and territories for the 20 year period was $573 billion. By a strange coincidence that is almost equal to the present value of our national debt.

We agree with transfer payments, but they must be made wisely. It looks to us as if we could have had zero debt if they would have been managed better. I am not in any way suggesting that transfer payments should not have been made, but meanwhile with the growing rate of the debt there are interest payments due every year. The federal Liberal, then Conservative and then again Liberal governments did not address this issue until we came along and pretty well pushed them into it. The debt is out of hand. We are now spending $30 billion a year on interest payments. That should not be the case.

It is also interesting to find out that the whole idea of transfer payments is almost as old as history. It is included in our constitution. As a matter of fact most of us know that the repatriated constitution of 1982 has a clause in it which supports the concept of equalization payments. The formal system of equalization payments as we have come to know it today actually came into being in the mid-1950s when I graduated from high school. Now a very complicated formula is used which I wish I had time to explain to people.

I have been on the finance committee now for several years. Several years ago we had experts explain to us how the federal system of equalization works.

I remember with some amusement that during those hearings I asked one of these officials, after he had gone through a number of convoluted explanations of how these different things work, if there really was anyone who understood this totally. He looked at me and said probably not. He sort of admitted that even he, being one of the officials, did not know everything about it. He specialized in one area.

It is indeed very complicated. The federal government, in computing the amount of transfer payment, does not to compute how much income each province earns. Rather, it has a formula which, in 34 categories, looks at how much income the provinces could earn. There are different categories for the building of a national average. From that national average, the federal government computes, province by province in each category, whether each province in each category is in a surplus or deficit situation.

I remember when the government added the lottery category about five or six years ago. It was not a question of how much money a province earned through lotteries but how much it could earn. At that time, the equalization payments to Manitoba dropped by about $50 million. Why? Because even though there were literally thousands of people in Manitoba who on principle did not support the lotteries, it was deemed that it could have raised this money if those people would have bought those lottery tickets.

The fact that they did not buy the tickets meant that the provincial government did not have the income. If the people of Manitoba could be persuaded to buy lottery tickets, that would give their government more money. The fact that they were not persuaded took the money away from the provincial government and the formula took the federal transfer payments from Manitoba as well, because the federal government deemed that this was an amount that the province could have earned.

We have documented in the public accounts and other sources the formulas that are used to compute these payments. If I look at the lottery ticket revenue, according to this formula Newfoundland is $31 million short on lottery revenue. P.E.I. is $2.4 million over. Quebec is $63 million under. This qualifies the different provinces for transfers based on whether they are in a positive or negative situation. Alberta is in the plus category by $159 million. Consequently its equalization revenue is actually increased because of the amount of revenue that it presumably could earn using lotteries.

That is just one category. There are many others. They include the sale of licence plates for vehicles. They include many other categories. All 34 categories are listed in this documentation. It is interesting to see how, by using this formula, the government is able to arrange for different amounts of money, sometimes motivated for or by political reasons, for transfers to the provinces.

In conclusion I will simply say that we support in principle utilizing the wealth that we have in order to provide a comparable level of services to all of our citizens across the country.

Federal-Provincial Fiscal Arrangements ActGovernment Orders

March 22nd, 2001 / 12:15 p.m.
See context

Canadian Alliance

Gurmant Grewal Canadian Alliance Surrey Central, BC

Mr. Speaker, I rise on behalf of the people of Surrey Central to participate in the debate on second reading of Bill C-18, an act to amend the Federal-Provincial Fiscal Arrangements Act. Earlier the finance critic of the Canadian Alliance, the hon. member for Calgary Southeast, highlighted very beautifully our position and the weaknesses in the bill.

For the benefit of the folks at home I would like to tell them that for fiscal year 1999-2000 the bill removes the ceiling that would otherwise apply to equalization payments.

We recognize that different provinces and regions of Canada have different levels of wealth. All wish to provide similar services to their residents. We are committed to the constitutional principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide their residents with reasonably comparable levels of basic services at a reasonably comparable level of taxation. It will allow all Canadians from coast to coast to enjoy a comparable quality of important government services.

The bill implements a commitment by the Prime Minister to the first ministers to lift the cap on the first year of a five year cycle of equalization payments. Bill C-18 would increase equalization transfers by $792 million with over 50% going to Quebec, a per capita increase of $67.

The increase results from growth beyond the $10 billion ceiling. It was done to accommodate the demands of provinces made during negotiations with the premiers over the $21.1 billion CHST transfer package which was concluded in September 2000.

While the Canadian Alliance is open to exploring a new equalization system, that does not penalize poorer provinces that benefit from unexpected growth or new resource royalties, we believe the equalization formula should be consistently applied.

The official opposition has consistently called for reform of the equalization system to allow the poorer provinces to benefit from their economic development. Nova Scotia's Conservative Premier John Hamm is calling for equalization reform as part of his campaign for fairness. When he was premier of Newfoundland the industry minister also spoke in favour of equalization reform. There is a need for equalization reform and everyone is talking about it.

For every dollar a province gains in royalties, the federal government reduces its equalization payments by about 75 cents. The current equalization formula actually prevents the equalization of economic opportunity among the provinces. The bill merely touches on one aspect of the problem. There are many other aspects that I will be talking about in detail a little later.

Rather than address the issue of equalization payments on a piecemeal basis, a full and thorough debate is needed in the House. The equalization ceiling exists to protect federal taxpayers from excess growth in payments.

The Canadian Alliance supported the $21.1 billion increase in the 2000 CHST fiscal accord. We also supported reviewing the application of the formula to stop penalizing provinces that experience strong growth or increases in the non-renewable resource revenues. We believe that maintaining the ceiling is necessary for the overall integrity of the program.

We also believe that the equalization system should serve the longer term purpose of equalizing economic opportunity and autonomy in all regions and should not create incentives for perverse economic policies on the part of provincial governments.

The lifting of the cap is a one time ad hoc reaction that fails to address the bigger and longer term problems. It was promised for purely political reasons. It may be good politics, but is it a good policy? The fact that this one time band aid solution is even being proposed indicates a need for open disclosure in parliament, in the provinces and among levels of government to come up with ways to prevent the necessity of applying such band aid solutions time after time.

I will describe the equalization payment system that the government operates. Every five years since 1957 the federal government through the finance department reviewed the equalization program. The purpose of the equalization program is to equalize provincial revenue raising capacity. In theory, this enables provinces to provide reasonably comparable levels of public service at reasonably comparable levels of taxation.

Without equalization payments Canada's wealthier provinces would be able to provide more services to their residents than the poor provinces could at the same level of taxation. The equalization formula is important to the Canadian federation.

The program is only as good as the processes that allow it to keep pace with the provincial tax system. The key element in the equalization formula is the representative tax system called RTS. The RTS is a hypothetical tax system that is supposed to be representative of the actual systems of the separate provinces. The key to success rests on how well the RTS reflects provincial tax systems. The RTS should be comprehensive, representative, accurate and appropriately categorized.

The RTS should include all revenue sources used to support public services comprehensively. Partial coverage of the revenue sources yields a biased picture of the relative fiscal capacity of the provinces. The RTS should use definitions of tax bases that reflect the tax structure actually used by the provinces to reflect what governments actually do. It should not represent imaginary, unfair and unrealistic measures. It should be representative of the actual tax systems used in the provinces or in the country. The data used to measure the various tax bases must be as accurate as possible for it to be a reliable measure.

The items in the RTS that make up a category or revenue source should have common characteristics, the ability to be taxed at a similar rate and should be appropriately categorized. The finance department currently uses such criteria for its assessment of the RTS, but nowhere is it explicitly set out.

The finance department has not formalized the set of principles to guide its review of the RTS. The need for a formalized set of principles is necessary if we are to arrive at a common way of estimating the tax base for the provinces. For many of the 33 revenue sources used by the department as measurements, the bases are not straightforward and no consensus exists.

We on this side of the House have been trying to force this weak Liberal government, that lacks vision, to do the work necessary to fix the system.

I spoke to the bill in the last parliament when the five year time period expired. As I mentioned earlier, the House debated the details of the equalization program and how it would operate for the next five years. At that time the government had given the House only a matter of days to deal with a bill that it was passing, the one that has to be passed every five years for the purpose of the operation of the equalization plan.

It was really an outrage. The government did not want the opposition parties in the House to have very much time to talk about equalization payments. It held back the bill for three days and then there were only a few days left before the calendar year deadline approached. The Liberals said that they had to rush the bill because the clock was ticking. That was because they would not put the puck on the ice until five minutes was left in the game.

Today we are debating a bill that is tinkering with the nation's equalization program, a program that we all support and that we all want to operate in the best possible manner. The Liberals do not want to do that work. The bill touches only one aspect of the problem, ceilings. How about the other related and more serious and complicated problems that the bill does not address at all? The Liberals are pretending that other problems do not exist. Maybe the problem will go away by pretending that the problems do not exist.

I will give six examples to prove what I am saying.

First, some provinces calculate their payroll taxes on the total payroll of business, while other provinces tax only a portion above certain thresholds. Still other provinces charge no tax at all. For the purpose of RTS, the base chosen across all provinces must be common.

Second, for sales taxes, the base used in the RTS is no longer representative of the tax structure used by all provinces. The four provinces that account for a third of Canada's population use a common sales tax base, the GST, which is different from the one used in the RTS. We are comparing apples to oranges. They are not equivalent. There is a need to review the way the sales tax base is currently measured.

Third, there are user fees which are not part of the current federal-provincial discussions for the 1999 renewal. it is very important to mention that governments at every level are resorting to alternative revenue sources such as user fees. It is a tax with only a semantic distinction.

Provincial and local government receipts from user fees doubled from $6 billion in 1984 to $12 billion in 1994. It doubled in 10 years.

How these revenues are treated in the equalization formula can have a significant effect on overall equalization payments. User fees imposed by the provinces have been part of the equalization of the RTS since 1967.

Similar fees imposed by the municipalities were brought in with the 1982 renewal. They are currently included under the miscellaneous revenue category of the RTS. It is a category that is altogether different and impacts on the calculations of the complicated equalization formula.

Fourth, since 1977 lottery revenues have been treated as a separate revenue source in the RTS, with gross revenues from the sale of lottery tickets constituting the lottery base. It worked well until the provincial gaming sector became significantly transformed. Today, provinces are operating video games, casinos, bingos, VLTs, break-open tickets and other games of chance.

The RTS base does not cover these newer gaming activities. This is unfair. The revenues are treated differently for equalization purposes. Where a casino is operated by a provincial lottery corporation, profits are equalized under the lottery revenue source. If the casino is operated by a government department, the gross revenues of the casino are equalized under the miscellaneous revenue source in the RTS. Again, the weak Liberal government allows mixing apples with oranges. Similar inequities arise in the treatment of revenues from other games. That is unfair.

The RTS has become less representative of the provincial taxing policy. We will see if the government is addressing these gaming inequities in the bill. It has its chance. It needs to look at it.

Fifth, is resource taxation which is an area where the ground is always shifting. The resource revenue type bases in the RTS are measured on the basis of the value or volume of production.

Ideally they would be measured on the basis of economic rent or the value of the resource over its cost of production. Rent is a measure of taxable potential, not actual but potential. It consists of a value that can be taxed without affecting production because natural resources in different locations can differ in quality and production costs. Rent associated with them can also differ significantly. These differences are not captured by the value or volume of production.

There are many flaws in the present equalization program. It should be completely reformed. We know the equalization provision has limited the cumulative growth of total equalization payments to the cumulative growth of GNP, gross national product, from the base.

Sixth, the ceiling and floor levels were introduced. I will not elaborate on that much but it does not work favourably. Rather it would make it difficult for the provinces, particularly those close to the floor level, to plan their budgets.

There is asymmetrical treatment of underpayments and overpayments. The overpayments are treated as non-interest bearing loans to the provinces. This is an important one. In the last year or so, it cost the federal government $38 million.

Free use of federal funds is not necessarily shared equally by all of the receiving provinces. The federal government does not charge interest on the underpayment. So the government has manipulated the program for political favours. The former premier of Newfoundland, who is Minister of Industry, was given a gift before the election. That is the kind of favours I am talking about. That is how the government can manipulate because the system is not fair.

Evolving over many decades, every five years the traditional political parties have given us an extremely convoluted and complex process. If the design is so archaic and cryptic that it defies logic and reason. It is not fair that our system is such a conundrum. Equalization as it is structured is divisive. It pits one Canadian against another. That is not right. The measurements should be accurate, reliable and sound. In this case, they are not.

The Reform Party of Canada, now the Canadian Alliance, advanced the new Canada act which sought to improve the Canadian political and economic system. There is a need for a single social union agreement on transfers from the federal government to the provinces.

Since we are debating the bill, I ask the government members to please look into the whole issue and make a serious attempt to reform our equalization program.

Federal-Provincial Fiscal Arrangements ActGovernment Orders

March 22nd, 2001 / 10:45 a.m.
See context

Canadian Alliance

Jason Kenney Canadian Alliance Calgary Southeast, AB

Mr. Speaker, I am pleased to rise today to speak to Bill C-18.

The official opposition, the Canadian Alliance, supports the principle of equalization payments, but we do have certain concerns relating to this particular bill.

The official opposition does support in principle the constitutional obligation of equalization but has particular concerns with respect to the bill.

We just heard a fairly comprehensive overview of this legislation from the Parliamentary Secretary to the Minister of Finance. We also heard him set it within the larger context of federal fiscal transfers to the provinces. However, the bill is quite narrow in its scope, much narrower than my hon. colleague's comments would suggest. It is strictly limited to increasing or lifting for one particular fiscal year the ceiling for equalization payments. It does so for the fiscal year 1999-2000, now nearly two years past.

At the outset, my colleagues and I are bound by the democratically approved policy of our party to support the principle of equalization. Our manifesto states:

We recognize that different provinces and regions of Canada have different levels of wealth but all wish to provide similar services to their residents. Therefore we are committed to the constitutional principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide the residents with reasonably comparable levels of basic services at reasonably comparable levels of taxation.

We do support the notion that in a large and complex federation with fairly significant disparities in wealth, income and standards of living the federal government ought to play some function to equalize access to core public services at reasonably comparable levels of taxation.

Having said that, we do believe that the current formula and structure of equalization should be open for serious debate and review. Most provinces have called for such debate. We in the official opposition would like to be on the record as embracing that. We believe there are many problems with the current system, many unintended consequences that have the effect of both penalizing those provinces that are successful in terms of economic development and growth and penalizing taxpayers in the so-called have provinces.

It is often observed that in a country as wealthy as Canada it is inappropriate to suggest that we have seven provinces out of ten that are perpetual have not provinces. The mentality of the current equalization system perpetuates an attitude among some which is contrary to economic development.

One point we in the opposition have raised and hope to explore is the idea of opening negotiations to look at allowing provinces that are now bringing on stream certain non-renewable resource revenues to not be penalized in their equalization payments from the federal government for those new revenues for at least a period of time.

As the system is currently designed, there is what many economists refer to as a welfare trap phenomenon, where earning incremental income, or in this case developing incremental revenues to the provincial treasury, results in a proportionate reduction in federal transfers to the equalization program. This is a perverse incentive against domestic economic development among the so-called have not provinces. That is one of the many areas that ought to be explored.

We ought to explore whether indeed the formulae are applied or calculated on a fair and equitable basis and whether all provinces rather than some provinces should be included in the calculation of the equalization formula, as some provinces have suggested. We ought to take a hard and close look at the application of both the floor and the ceiling of equalization. We should see whether this program is really working to equalize access to core public services across the country at comparable levels of taxation.

It has been observed by academic economists including, for instance, those at the C.D. Howe Institute, that perhaps a better way of equalizing access to quality public services across this broad nation is through income sensitive transfers to persons as opposed to insensitive transfers from one government to another.

These economists have asked us to reflect as policy makers on the paradox, for instance, that there are members of, say, my constituency, a western riding in Alberta that is the largest contributor to equalization, who earn below average incomes. They are from modest families with modest means who are nevertheless obliged to pay a very large share of federal taxes. A portion of their taxes goes to finance the equalization program.

Most of my constituents would not object to the general principle of sharing opportunity and wealth across the nation. However, these economists ask us to reflect on how efficient this transfer of wealth is from government to government and from taxpayer to taxpayer in a way that is not sensitive to income. When the lower middle income family in my riding pays more taxes to finance equalization, it may have the impact of improving the road system, or the health care system which, for instance, is used by, among others, higher than average income people in other provinces.

Some economists have suggested that the current way the program is designed is perhaps not the best way to maximize the equalization of opportunities across the country. They suggest that instead the best way to do that is to redistribute wealth from higher income people, wherever they live and in whichever province they happen to reside, to lower income people, the working poor, who need a hand up. That is an interesting observation by academic economists, which I think ought to be included in the broader and more thorough review of the principle of equalization and its application.

I also think that this larger debate unfortunately has not been engaged by the government. Instead, the government tends to approach the issue of equalization on an ad hoc basis and in the crucible of very political negotiations with the provinces. That is not necessarily the best way to make good public policy.

I would point out, for instance, that the bill brings to us an amendment that lifts the ceiling on equalization payments for the fiscal year 1999-2000, pursuant to an agreement struck between the Prime Minister and his provincial counterparts on September 11 of last year.

Hon. members will no doubt recall that the date, September 11, 2000, was about a month before a federal election was called. Certainly the Prime Minister had the electoral timeline in mind. All of the premiers and public commentators were certainly aware of the very distinct possibility of a federal election on the horizon. It was in that very politicized context that this agreement was reached.

Some commentators have said that what we have before us today, this lifting of the ceiling, was a political demand put on the table in a horse trading session with the premiers and that the Prime Minister agreed to lift the ceiling for at least one year. That is not exactly how we ought to make serious, sober public policy decisions regarding hundreds of millions of taxpayer dollars, in this instance increasing equalization payments by some $792 million.

The ceiling is there for a reason: to protect the federal government from unforeseen increases in these payments. It is matched by a floor as well so that provinces are protected from an unforeseen reduction in equalization payments. For some 20 years now, I think, we have had this system that precludes wild variations or aberrations in the payments, either too much or too little, to the provinces. For the Prime Minister to simply politicize this very important part of the equalization structure in the crucible of an election campaign shows that he is not really committed to a serious, sober review of equalization and its application. That is something we would call on the government to engage in.

I am pleased to say that my hon. colleague from Portage—Lisgar, who is the official opposition critic for regional equity, will be speaking to the bill later today and will perhaps outline some of the principles he thinks should be included in a general review of equalization and the federal-provincial transfer arrangements.

Our party did support certain elements of the accord reached between the premiers and the Prime Minister in September of last year, particularly with respect to the restoration of funds stripped out of the Canada health and social transfer fund since the 1995 Liberal budget. I know I do not need to remind this place that in that budget and since that budget, the federal government removed some $23 billion in real hard cash dollars that were designated to the provinces to finance the highest priority program areas of Canadians, namely health care, higher education and other social priorities.

In poll after poll Canadians register health care as their single highest public spending priority. Yet when the government was given an opportunity to demonstrate its fiscal priorities, what did it choose? It chose to slash, gut and eviscerate health care funding to the provinces, a decision that had a very clear and tangible impact on the delivery of care to Canadians in need of health care. My colleagues and I for several years now have been consistent in saying that this was the wrong choice to make, a choice which the Prime Minister sought to undo in the September accord of last year, from which this bill derives.

It was the wrong choice to make because it reflected the wrong priorities. Between 1993 and 1999 the deficit was eliminated. About two-thirds of that deficit elimination came about through increased revenues to the federal government, in part because of higher tax rates imposed by it and in part because of automatic tax increases through the then deindexation of the tax code and various other revenue measures. Basically because Canadians were working harder and working longer hours, they were paying more to the federal government.

About two-thirds of the so-called deficit elimination is attributable to higher taxes which are now at the highest level in Canadian history as a percentage of our gross domestic product. It leaves us with the highest income tax burden relative to GDP in the G-8 and, further, the highest corporate income taxes in the OECD, the 23 principal industrialized economies of the world. That is the legacy of the fiscal policy of tax increases over the past decade.

The other third of the deficit reduction can be traced to the so-called spending restraint. It is the government's worst spending cuts. Three-quarters of the spending cuts involved in the deficit elimination exercise came about in the $23 billion reduction in transfers for health care to the provinces. Another very large chunk came about through gutting the capacity of the Department of National Defence to provide the resources for our men and women to defend our sovereignty and meet our international obligations.

If we take out national defence and the CHST, the rest of the federal government averaged a spending cut of only 3%. That reflects the fiscal priorities of the government. It was willing to cut health care transfers by one-third, by about 33%, and to virtually gut the capacity of our defence forces; but when it came to the myriad of other wasteful Ottawa bureaucratic spending programs they remained virtually untouched.

I will give some examples of wasteful programs: the Minister of Canadian Heritage with free flag giveaways, multimillion dollar handouts, grants to Liberal special interest groups, subsidies to bloated crown corporations, and the Minister of Industry with billions of dollars wasted on corporate welfare.

Then there is the general waste of mismanagement, duplication and misadministration of the federal public sector. It was virtually left untouched because the easier choice for the government was to pass the buck on to the provinces rather than fixing its own problems in its own backyard. They in turn had to pass the buck on to health care consumers. That is a synopsis of the fiscal choices of the government during the past several years.

Bill C-18 has come before us as part of a package. It was a sweetener to have the provinces accept less than a full loaf in terms of restoration of the CHST transfers to 1993 levels. In the September accord last year the governments agreed to increase those health transfers to only $21.1 billion. The money taken out since 1993 was at least $23 billion. The government was still about $2 billion short on its CHST cut in the accord that it negotiated with the provinces last September. In order to make up for this continued shortfall in critically needed health care funding, it offered to raise the ceiling on equalization. That is why the bill is before us today.

I would like Canadians and my colleagues to understand the political and fiscal context of the bill. In other words, had the government not made the wrong choice to slash health transfers by a third in 1995, had it not stubbornly stuck by that, and had it instead made different choices and reduced wasteful spending in Ottawa programs that do not affect real people, we would not have Bill C-18 before us today. The provinces would not have been so short of revenue that the poor ones would have demanded this aberrant lifting of the ceiling on equalization.

In its frantic pre-election effort to cover up the enormous mistake it made in terms of slashing the health care transfers, the government decided to make a change in the pre-existing, longstanding arrangements with the provinces with respect to equalization.

I do not quibble for one moment with certain provincial governments and premiers for seeking any way they possibly could to get more federal transfers into their provincial treasuries to reinvest in the health care and other social spending which had been stripped by the CHST. I do not object at all to their principled and effective advocacy on behalf of provincial taxpayers and health care consumers in this respect.

I am sure all my colleagues would agree that it would be in the best interests of the administration to have predictability and stability in the application of equalization agreements. We ought to try to play by the rules. Surely we could all agree that it is good public policy not to make exceptions from year to year. However the reason the government made the exception it did in the bill before us today with respect to the ceiling on equalization was to cover up for its own political mistake, its enormous policy blunder in its 33% cut in health transfers to the provinces since 1995.

We do not feel the government has much moral authority to come before us and say that it has decided out of the kindness of its heart for one particular fiscal year to raise the ceiling on equalization payments to the provinces to account for unexpected economic events two fiscal years ago. That is nonsense.

The Parliamentary Secretary to the Minister of Finance knows as well as I do that bureaucrats in the Department of Finance are no doubt rolling their eyes today as they watch the debate go forward. They know this is undermining the overall integrity of their program. In a way it, politically it had to happen in order to reinvest the money that had been taken out of the health transfer which the government refused to put back in.

Without a doubt the bureaucrats are standing there knowing that it may be good politics but it is awfully bad public policy. I would just say that we see over and over again this pattern of misplaced priorities leading to bad policy outcomes and then the government trying to wiggle its way out. That is what it is doing with the bill today.

Let me also say, lest the government try to paint itself as the great dispensary of Liberal generosity to the provinces, that this is a one time, one year deal. It does not intend to continue lifting the ceiling in perpetuity. If I had an opportunity to ask the finance minister's parliamentary secretary, I am sure he would be opposed to lifting the ceiling in perpetuity.

He would probably argue that it would contravene the rules set out in the agreements and that if we lift the ceiling, we should lift the floor and so on and so forth. I am sure he would make that argument, but somehow he avoided that question. He avoided mentioning why exactly this deal happened and why it applies to one year and one year only.

Another point I would like to add is that the practice of retroactive legislation in general is not a good one for parliament to pursue. When we consider fiscal matters, estimates, spending authorizations, ways and means motions, authorizing tax measures or any form of legislation, a principle of parliament ought to be that it ought not to try to go back and change history, as it seeks to do in this bill. We should make things right the first time.

Later today we will be considering Bill C-17, another example of the ham-fistedness with which the government administers its legislative program. We will be making so-called housekeeping amendments to correct mistakes that were made in the bill some time ago.

An enormous amount of parliament's time is consumed with correcting the mistakes the government makes in its legislation. Today we are seeking to change an agreement with the provinces from two fiscal years ago to help save the Prime Minister's hide. It was a deal he made at the last minute before a federal election to make up for his callous and irresponsible 33% cuts in health care transfers.

On that point I express my disappointment with the government for the manner in which it has handled its fiscal relationships with the provinces over the past number of years. I express my hope, although not my expectation, that it will begin to get things right in terms of long term stable and predictable cash transfers, tax points and equalization to the provinces so that we do not have these last minute deals and we do not need this kind of retroactive corrective remedy in legislation.

Federal-Provincial Fiscal Arrangements ActGovernment Orders

March 22nd, 2001 / 10:25 a.m.
See context

Etobicoke North Ontario

Liberal

Roy Cullen LiberalParliamentary Secretary to Minister of Finance

Mr. Speaker, I appreciate the opportunity to speak today at second reading of Bill C-18 which amends the Federal-Provincial Fiscal Arrangements Act with respect to the equalization program.

This legislation stems from the landmark agreements reached by Canada's first ministers on September 11, 2000 on a plan to renew health care, improve support for early childhood development, and strengthen other social programs.

In support of these agreements, the federal government is making the largest contribution ever to health, higher learning and social services: a new investment of $23.4 billion over the next five years.

Most of this funding, $21.1 billion, was legislated in Bill C-45 last fall and is being provided through the Canada health and social transfer, CHST, which I will discuss in a moment.

At the first ministers' meeting, the issue of equalization was also raised.

The bill before us today fulfils the commitment made by the Prime Minister at that time to lift the ceiling on the equalization program for the 1999-2000 fiscal year.

The Prime Minister also asked the Minister of Finance to consult with provincial and territorial finance ministers on how best to follow through on this commitment. The finance minister has recently completed his consultations.

Before discussing Bill C-18, let me take a moment to set the legislation in context. I want to briefly explain how the federal system of transfer payments works and the importance of the equalization program itself.

The federal government, in partnership with the provinces and territories, plays a key role in supporting the Canadian health system and other social programs. The provinces and territories deliver their own health care, education and social services, while the federal government provides them with financial assistance through transfer payments.

Today the federal government transfers approximately $40 billion to the provinces and territories. It does this through three major programs: the CHST, equalization and the territorial formula financing.

Because of transfers, all Canadians can expect: equal access to public health care; a safety net to support those most in need; the freedom to move throughout the country to seek work; higher education and training available to all who qualify; and reasonably comparable services wherever one lives.

I will take a moment to look at each of these federal transfer programs individually because there has been some confusion and misinformation in the Canadian public.

First, I will speak to the Canadian health and social transfer. The CHST upholds the five medicare principles of the Canada Health Act: universality, comprehensiveness, accessibility, portability and public administration. It also ensures that no minimum residency period is required to receive social assistance.

This block fund is provided on an equal per capita basis to provinces and territories in the form of cash and tax transfers for health care, post-secondary education, early childhood development and social programs.

The new funding legislated last fall is the fifth enhancement in the CHST since 1995. CHST cash transfers to the provinces and territories will now rise to $18.3 billion in 2001-02, $19.1 billion in 2002-03, and $21 billion in 2005-06—at which time CHST cash will be 35% above its current level of $15.5 billion.

I will speak briefly about tax transfers. This is one of the least understood aspects of the CHST despite the fact that tax transfers are fundamental to how the program functions.

In 1977 under established programs financing, one of the CHST's predecessor programs, the federal government transferred tax points to the provinces. The federal government decreased its personal income tax by 13.5% and its corporate income tax by 1% so that the provinces could raise taxes by an equivalent amount.

The net impact of tax points on taxpayers was zero. It was totally transparent. However the impact on the federal and provincial governments was very real. Indeed, tax point transfers represent increased revenues to the provinces and foregone revenues for the federal government. It was done so the provinces and territories would have direct access to revenues to fund health care, post-secondary education and social programs.

In 2001-02 the value of transferred tax points will account for nearly $16 billion, about half the total amount provided to provinces under the CHST. That point is often forgotten by members opposite.

The second federal transfer program, equalization, provides extra funds to less prosperous provinces to enable them to offer comparable programs and services to their residents. Payments are unconditional and provinces can spend them as they see fit. In 2000-01 seven provinces are projected to receive equalization payments totalling $10.8 billion.

Territorial formula financing or TFF, the third transfer program, recognizes the higher costs of providing public services in the north. In 2000-01 payments provided under this program are forecast to be $1.4 billion.

These are the federal government's three major transfer programs and, as I mentioned, they provide approximately $40 billion annually to the provinces and territories.

Bill C-18 specifically deals with equalization, a program that in many ways expresses the generous spirit of Canada. Equalization has been in existence since 1957 and has played an important role in defining the Canadian federation. It is unique among federal transfers in that its purpose was entrenched in the Canadian constitution in 1982.

As stated in the Constitution, “Parliament and the Government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation”.

Phrased another way, its purpose is to ensure that less prosperous provinces can provide reasonably comparable public services without their taxes being out of line with those of more affluent provinces.

At present, seven provinces qualify for federal support under equalization: Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba and Saskatchewan. Ontario, Alberta and British Columbia are not eligible.

The fact that equalization was one of the few programs exempted from restraint measures during the mid-1990s illustrates the importance the government attaches to it. The government clearly understands what equalization means to receiving provinces.

Equalization has increased faster than anticipated. It has grown by 33%, or $2.7 billion, since our government took office. Equalization estimates are updated twice a year as newer data become available regarding economic developments and their impacts on provincial revenues.

Estimates show that equalization is at its highest level ever. The latest official estimates released by the finance minister in February show that payments to receiving provinces will be about $1.8 billion higher than estimated last October.

These higher figures are not due to the poor economic performance of receiving provinces. On the contrary, payments are increasing immediately by an estimated $1 billion due in large part to the exceptionally strong economic growth in Ontario over the last two years.

Of this amount, $52 million is for 1999-2000 and $955 million is for 2000-01. The other $800 million is the additional funding that will be provided to receiving provinces through passage of the bill.

Allow me a moment to explain how the equalization program operates. It is quite technical and misunderstood. Equalization is the most important federal program for reducing differences in the abilities of provincial governments to raise revenues. Federal and provincial officials review the program on an ongoing basis to make sure the differences are measured as accurately as possible.

In addition, the legislation is reviewed every five years. The last renewal was in 1999. Payments are calculated according to a formula set out in federal legislation, and adjust automatically in response to economic developments in the provinces.

When a province's economy is booming relative to other provinces, its equalization payments automatically decline under the formula in proportion to the increased wealth of the province. Conversely, when a qualifying province's fiscal capacity declines due to a slowdown in its economy, its equalization transfer automatically increases.

In this way, the program acts as an automatic stabilizer of provincial government revenues. Equalization payments are subject to “ceiling” and “floor” provisions.

The ceiling provision provides protection to the federal government against unexpected increases in equalization payments. In other words, the ceiling prevents changing economic circumstances from driving equalization payments through the roof. The ceiling thus ensures the program remains sustainable in the long run.

The floor provision is the other side of the coin. It provides protection to provincial governments against sudden large decreases in equalization payments.

The ceiling for 1999-2000 was set at $10 billion and, except for the provisions in this bill, will grow at a rate equal to the growth of GDP in subsequent years.

I now turn specifically to Bill C-18, which lifts the equalization ceiling only for the 1999-2000 fiscal year. As I explained earlier, lifting the ceiling fulfils a commitment made by the Prime Minister last September at the first ministers meeting.

The communiqué issued at the end of the meeting clearly states that “the Prime Minister agreed to take the necessary steps to ensure that no ceiling will apply to the 1999-2000 fiscal year. Thereafter, the established Equalization formula will apply, which allows the program to grow up to the rate of growth of GDP”.

While the final cost of removing the ceiling will not be known until the fall of 2002 when the final estimates for 1999-2000 become available, the cost is projected to be $792 million.

That amount will be allocated among the seven eligible provinces on an equal per capita basis. Each will receive the same amount of money per person because the ceiling affects all provinces in the same way. Removing the ceiling for 1999-2000 means that each receiving province will receive $67 per person.

The total breakdown per province is as follows: Newfoundland will receive $36 million. Prince Edward Island will be eligible for $10 million. Nova Scotia will qualify for $62 million. New Brunswick will receive $50 million. Quebec will get $489 million. Manitoba's payment will be $76 million, and Saskatchewan will receive $69 million.

I want to clarify an issue relating to the new equalization estimates released in February. The recent announcement of an additional $1.8 billion in equalization payments has generated reaction among some people. Some see the funds as a slap in the face if their own province's allocation is small, or they complain of favouritism if the allocation to other provinces is large.

Equalization payments are based on a formula that measures the relative performance of provincial economies. That formula is applied the same way to all provinces.

All provinces that have a revenue-raising capacity below the standard receive payments from the federal government. Why? Because the federal government is committed to the idea that all provinces should be able to provide comparable levels of service to their residents.

Provinces do not receive the same amount of equalization because they do not have the same economic circumstances. This year Saskatchewan needs $230 per person to be brought up to standard, while Newfoundland needs $2,000 per person. Per capita figures are multiplied by the total population of a province to arrive at the total equalization payment.

Quebec, despite the second lowest per capita equalization entitlement, generally receives the highest total payment because of its large population. At the other extreme, P.E.I., with its second highest per capita entitlement, generally receives the lowest total payment because of its small population. I hope these explanations will help clarify the issue for my hon. colleagues.

I will review a few points. All parts of the country cannot generate the same revenues to finance public services. Federal transfers, therefore, help ensure that important programs are adequately funded. Transfers also help ensure that all Canadians receive reasonably comparable levels of public services no matter where they live in Canada.

The result is that we all benefit from knowing we live in a country where health care, education and basic public services are provided at roughly comparable levels of quality in all provinces.

In considering the legislation I urge all hon. members to keep in mind that federal transfers have increased significantly in the last few years. Over $35 billion has been added to the CHST. Equalization entitlements are up $2 billion annually since 1995-96 and are expected to increase. Removing the equalization ceiling for 1999-2000 will add almost $800 million to transfers alone for that year.

I want to impress upon this House that, through this bill, we are fulfilling the Prime Minister's commitment to lift the equalization ceiling for 1999-2000, which means more money for the receiving provinces. Bill C-18 underscores the priority the government places on equalization and helps ensure that the receiving provinces continue to have resources to provide the services their people need and want.

I will conclude with a quote from the finance minister. After his meeting with the Atlantic finance ministers a few weeks ago, he said:

The federal government in the end always has to act in the national interest, and part of that acting in the national interest is ensuring that every single province is treated fairly.

This is exactly what Bill C-18 does. It continues the tradition of fairness with which equalization has been delivered for over 40 years. I urge all hon. members to pass this legislation without delay.