Thank you.
In its next budget, the federal government should set out clearly the solutions it intends to introduce to correct the fiscal imbalance. In one of the budget documents that came out at the time of the last federal budget, the government acknowledged the existence of a fiscal imbalance and made a commitment to take steps to correct the problem over the next year. That was good news, because it suggested that the respective roles of the federal and provincial governments within the federation might be reviewed.
However, as the months go by, the more it seems that the federal government, and consequently the provinces, are missing out on this opportunity. Despite recent reports by experts on the fiscal imbalance and equalization, meetings among the provinces on these matters are breaking down and the federal government seems to claim that this lack of agreement among the provinces means that nothing can be done. I would simply like to point out that the provinces may agree on the fact that they want more federal transfers, but that they cannot necessarily agree on the way in which they should be provided. It goes without saying, for example, that the provinces that do not receive equalization payments are opposed to any increase in these payments to the provinces that do receive them.
Sooner or later, even without unanimity among the provinces, the federal government will have to make a decision about how to deal with the famous fiscal imbalance. It must rely on certain principles in doing this. Principles are the main thing lacking when it comes to determining federal transfers. Over the years, the way in which the payments have been calculated has become increasingly arbitrary.
In his speech on the fiscal imbalance in Quebec City, Stephen Harper judiciously mentioned that at stake was the functioning and the spirit of the federation. I use the term "judiciously", because the objective of federal transfers is to give the provinces the resources they need to pay for the public services for which they are responsible under the Constitution. So these principles must be restored. There is no shortage of ideas. For example, the report of the Séguin Commission could be used as a basis, without being considered the Bible.
The federal government should avoid certain traps in its negotiations with the provinces. Some of them could try to take advantage of the situation to get special advantages that would be detrimental to the proper collective functioning of federal transfers. The introduction of federal transfers distributed simply according to a per capita rule must be rejected. This does not take the needs of the provinces into account.
I will now give you the most striking example of this. Since the federal government has been giving the provinces funds for social assistance based on the per capita rule, provinces with the greatest number of welfare recipients are receiving less money for each welfare recipient than provinces where there are fewer welfare recipients. The Quebec Ministry of Finance has calculated that Quebec was receiving less than $3,000 from the federal government for each welfare recipient, while Alberta was getting close $10,000. It is essential that needs be taken into account once again. For social assistance and education, for example, the amount should be based respectively on the number of welfare recipients and the number of students. In the area of health care, the demographic profile should be taken into account. The population of Quebec is aging. As people age, there is an exponential increase in the demand for health care. Therefore, it is inadequate to merely count the number of inhabitants in a province.
Furthermore, the federal government must never repeat what it did in 2005, namely sign individual agreements. At that time, the agreements were with Newfoundland and Nova Scotia. Under agreements of this type, money is given to the provinces without taking into account their fiscal capacity.
We must also stop saying that Ontario and Alberta are financing equalization: it is financed by the income tax and other taxes paid by all Canadians, throughout the country. The fact that Ontario and Alberta do not receive equalization payments does not reduce their fiscal capacity. We have to put equalization back on the rails, go back to the 10-province standard and take into account all sources of revenue, including non-renewable natural resources. In order to restore good intergovernmental financial relations, we must respect federal and provincial areas of jurisdiction under the Constitution, rebalance fiscal capacity among the provinces and, of course, increase the financial resources of the provinces. There are two ways of doing this: transferring tax room or increasing federal transfers.
Restoring a properly functioning equalization program requires an increase in federal transfer payments. The promise to reduce the GST must also be used to help correct the fiscal imbalance. To do this, the federal government must work in cooperation with the provinces, by giving them an explicit opportunity to recover this tax room. The federal government has already reduced the GST from 7% to 6% and has promised to reduce it to 5% during this mandate. Why does the federal government not consider withdrawing completely from the GST and offering these funds to the provinces? It goes without saying that substantial amounts of money are involved here.
The provinces should show their good will by playing fair, that is, to agree to having their federal transfer payments for social programs withdrawn, to make compromises and agree to a progressive implementation. That is what should happen.