Finance Committee on May 30th, 2006

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

Thank you, Mr. Chair, and thank you, Mr. Minister, for appearing.

I have in my hand a letter from the then leader of the opposition, Stephen Harper, to Premier McGuinty, dated January 18. On January 18, during the course of an election, he confirms that he is prepared to support the Canada-Ontario agreement. Just to read a couple of sentences from this letter, he says:

However, given your strong commitment to the terms of the current agreement, I have no difficulty in accommodating your request. This means we will be fully funding this agreement through the 2009-10 and 2010-11 fiscal years, a commitment which is clearly within the fiscal flexibility of our plans.

He then finishes his letter by saying: “I have attached the spreadsheet which sets out the details of the funding of that agreement in order to avoid any confusion.” And what he attaches is table 1.2, “Initiatives Proposed Before the November 2005 Economic and Fiscal Update”.

I'd like to know, Mr. Minister, just what part of this agreement is still on the table? Are you still committed to Ontario to provide over the period of time set out in this chart $2.3 billion for higher energy costs?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I can save you the time of going through it, Mr. McKay. We are honouring the agreement in full. It is fully funded in Budget 2006. The Prime Minister's commitment will be fulfilled in full, and I've told the Minister of Finance in Ontario that.

His concern is going to change there, but the previous minister's concern was in some of the details of when funding would flow. He and I were to get together, I think it was last Monday, to discuss that, but there's been a change in minister there, so that meeting has been temporarily delayed. But we still intend to have the meeting to work on the details.

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

But the previous minister had some concern that in fact you were not going to honour the agreement, that in fact you were only going to commit to a period of two years rather than the five years. Is that correct or incorrect?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I don't know. He didn't express that concern to me. I can tell you we are fully funding the agreement for the full six years of the agreement.

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

He also had a concern that you were going to count tax credits as credits toward this agreement. Is that correct or incorrect?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

It may depend on the specific issue. We're committed to the flow of funds. We'll have to talk about some of the details if there is some concern that way. Some people say to me, too, are you funding a subway in Toronto? That's up to the Government of Ontario about what they choose to fund or not with the dollars that are provided to them--for example, for infrastructure.

But in this agreement, in the Canada-Ontario agreement, there's an extra $300 million for infrastructure that only the Province of Ontario gets, and that's a substantial extra contribution--

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

But you will agree with me that even the proposal, even a hint, even a scintilla of a hint, of a tax credit to a citizen is a far different beast from an actual direct transfer to a government. Would that be correct?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I can't deal hypothetically with it. I'd have to look at specific issues. I haven't had that--

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

So you're not proposing at all under any circumstances that tax credits be considered as part of the funding for the Canada-Ontario agreement?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

My job as Minister of Finance was to fully finance the Canada-Ontario agreement. We fully financed, fully funded, the agreement. There may be some details with respect to which the province would have to have discussions, and that wouldn't surprise me. Our officials have met and they've had some concerns about this item or that item. But the people of Ontario don't need to be concerned that the agreement is fully funded, and fully funded over six years.

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

But I want you to confirm for the purposes of this meeting that you will not propose that tax credits form any part of the obligations that the Government of Canada has to the Province of Ontario.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I'm not going to deal with hypotheticals. I'm going to just say to you--

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

That's not a hypothetical. It's a very simple question, and it has to do with the point that this agreement contemplate cash transfers to a government, not tax credits to tax-paying citizens.

So it's relatively simple, are the obligations that your leader undertook during the election going to be fully funded by way of cash to the Province of Ontario over the course of the spreadsheet attached to his letter?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

We will fully fund the agreement. We already have. We will fully implement the agreement over the course of the six years of the agreement.

[The Chair, Conservative, Brian Pallister]

Thank you, MInister.

The next questioner is Monsieur St-Cyr.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you.

In your budget and during the election campaign, you talked about correcting the fiscal imbalance. This was why the Bloc Québécois supported the budget and why certain Quebeckers voted for you. Everyone is now expecting the fiscal imbalance to be completely eliminated once and for all. We are not talking about starting to look for solutions or doing things on a gradual basis. Everyone in Quebec is expecting the matter to be settled in the next budget.

Is this a firm promise that you intend to keep? Could you give us an idea of how much it will take, in financial terms, to correct the fiscal imbalance?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Thank you for the question.

If I may speak specifically to the issue of equalization, I know the Government of Quebec has certain views about what should be included and what should not be included in the formula, as do some other governments in Canada. They are not in agreement, and that's a reality.

At the end of the day, equalization is a federal program. It is not a provincially funded program. It is a federal program in Canada; it is a constitutionally mandated federal program. There is no discretion in the Government of Canada about whether or not to have equalization. The Constitution says one must have equalization. At the end of the day, it's the obligation of the federal government to move ahead with some kind of equalization payments. We did that in the budget this year, as you know.

We hope the discussions will be useful and fruitful this year, but we intend to move ahead. We must have an equalization program, and at the end of the day we will have a federal equalization program.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I am not talking specifically about equalization but rather the fiscal imbalance in general and how it will be completely resolved, through transfers, tax points and so on. Do you intend to keep the commitment you made to resolve this issue in the next budget? Without going into detail, I would like you to give us an idea of what this amount will be.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Yes, we will keep our commitment. Yes, we acknowledge the fiscal imbalance. Yes, we intend to move to a position of fiscal balance with the provinces and territories.

It would be a wonderful country if we could have a unanimity of opinion about what that means. I rather doubt that's likely, but one can always hope for a unanimity of opinion. But at the end of the day, we have to move forward.

As you know, some people would say that it's better to have transfers than it is to transfer tax points, and there are different views by different governments in Canada on that issue. But yes, we will keep our commitment to move toward fiscal balance and to deal with the funding issues in Budget 2007, assuming we're still the government at that time.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

As for the program for older worker assistance, we voted on a sub-amendment pertaining to the Speech from the Throne and you adopted it. It was the Bloc Québécois that presented the amendment. You said at that time that you would do a feasibility study on the matter.

Since this program has already existed, before it was cut by the Liberals in 1997, we know that it costs about $100 million.

When will we see this program reinstated?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

We said that in the budget—and this was strongly influenced by the views of your party and by Mr. Loubier in our discussions pre-budget—we would do a feasibility study with respect to older workers and to provide some funding. If there's a program to be implemented, there is funding in the budget so that we can do it, but we need to get on.

I know your party is of the view that we perhaps don't need to study it any more, but we would like to take a little time and study it in a feasibility study. We can then move forward with action.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

What is the timeline?

[The Chair, Conservative, Brian Pallister]

Malheureusement, you're out of time.

Madam Ablonczy, five minutes.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

Thank you, Mr. Chairman.

Thank you, Minister.

You mentioned in your earlier answers that in this budget there are tax reductions to Canadians of about $26 billion, almost $20 billion of which go to individuals. A number of people question that decision. They believe the money should have been kept in the hands of the federal government and spent on various programs, depending on the priority of the people talking.

I believe Canadians would be interested in the principles that guided you in making your decisions on this budget. Obviously, you put more emphasis on reductions and tax relief than you did on increased spending. I'd like to give you an opportunity to explain why you did that and what benefit you believe that will bring to Canadians.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Thank you.

The purpose of tax reductions is not simply to have people pay less tax and have more money in their pockets. The purpose is to create more economic activity, to create more investment, because people have more resources in their own hands to reinvest in their businesses, to start new businesses. We know that the small and medium-sized business sector is where job creation happens in Canada for the most part. So as a matter of principle, we believe in reducing the burden on Canadians and on Canadian families.

We also acknowledge that at the end of the day there is only one taxpayer, that there aren't three different people paying taxes to municipal, provincial, and federal governments, that there is one taxpayer who has one large burden in Canadian society. So we have reduced that burden substantially.

The other thing we're trying to do is to be clear, particularly with respect to how we budget, which is why most—not all but most—of the budgeting in the budget is on a two-year horizon, so that we're not doing what the previous government was wont to do, which was this kind of hockey-stick financing where they would say, “Oh, we'll have a 10-year program, or an 8-year program", and the funding is in the blade of the stick for the first couple of years. It's not very much, and then the funding goes up like this, like the handle of a hockey stick.

What we're trying to do is to be realistic and clear with Canadians about our budgeting and to avoid the kinds of so-called surprise surpluses the previous government was fond of creating. Those surprise surpluses are bad for several reasons. One, they distort funding, but also they put government in the position of avoiding Parliament with respect to substantial spending decisions at year-end with these surprise surpluses. So they're a good thing not to do for several reasons, and we're moving away from that.

We've also made a suggestion on the surplus issue in the fiscal balance paper that was issued with the budget about one alternative for distributing a surplus: in addition to paying down $3 billion of debt each year, perhaps taking the additional surplus or part of it and allocating it to CPP and QPP.