Finance Committee on April 27th, 2010

[Tom McGirr]

I'm sort of sensing there are several questions here, so let me try to answer them one at a time.

On what you're talking about in the Quebec budget, it is simply a proposal. We don't have the final details on it. My understanding is that people at Health Canada are studying the proposal. Clearly, as you know, the Canada Health Act requires provinces to meet certain conditions of the Canada health transfer. I'm not an expert in that area, so that's about as far as I'm going to take that point. But Health Canada is looking at the proposal and will be assessing it with respect to the Canada Health Act.

As time moves along, the equalization program is always evolving and trying to capture how provincial taxation practices change. When you get into something called a user fee, the current program excludes user fees because it does not lead to fiscal disparities. But I'm not even going to try to pre-judge what the ultimate treatment would be, because I think it is a bigger issue. Until we have more precise details it's very difficult to give an answer.

[Thomas Mulcair, NDP, Outremont, QC]

On this last point, I agree with you. It's delicate to the extent that there is a proposal in a single province. Perhaps I should have addressed it from a purely hypothetical standpoint, but I'm also taking into account the fact that you explained to me that this was not your field. So I'll take the liberty of asking one brief final question on what, I believe, is in your own field. Would you be so kind as to explain in your own words the difference between the treatment of Hydro-Quebec and Hydro One in calculating equalization?

[Tom McGirr]

Hydro-Québec is a crown corporation that's engaged in the generation of hydroelectricity. Hydro One in Ontario is primarily engaged in transmission and distribution.

The policy in equalization is that you take the remitted profits in their entirety of any crown corporation engaged in hydroelectricity generation. It is part of the natural resource base. All other crown corporations would be treated as part of the business income tax base.

[Thomas Mulcair, NDP, Outremont, QC]

If I clearly understand the distinction you are trying to make, you are saying that, although Hydro-Quebec has three different companies, one that handles generation, another power transmission and a third export and distribution, for Hydro One, there is a fundamental difference because it mainly handles transmission and distribution and is not involved in generation? Is that what makes the distinction or are we looking inside Hydro-Quebec? For example, since it makes profits on exports, everything has been looked at in the case of Hydro-Quebec, not in that of Hydro One? Is that what you're telling me?

[Tom McGirr]

The policy is that you take all of the remitted profits of any crown corporation engaged in hydroelectricity production. The reason for that is the following, and I'll step back a bit here. The expert panel on equalization recommended that the revenues from natural resources be the base for natural resources, and that the revenues or remitted profits of a crown corporation engaged in hydroelectricity production were from that corporation gaining revenues from natural resources.

It's very difficult, of course, to be able to take the remitted profits of a crown corporation and distinguish precisely where those profits are coming from. Now, I know that Hydro-Québec does report amounts differently, but you can look across the country at the various crown corporations engaged in hydroelectricity production and it's very difficult to pinpoint exactly how much of that profit is coming directly from natural resources and how much is coming from distribution, transmission, etc. So the policy has been set that we'll simply take the total profits. It's a clean dividing line.

Now, Quebec has raised its concerns with us, and we have agreed with Quebec that we're going to hold multilateral discussions, where we will raise the treatment of hydroelectricity in general. Those discussions have begun.

[Thomas Mulcair, NDP, Outremont, QC]

In closing, just to make sure I clearly understood, when you say that it's—and I'm using your term in English—a policy, which I would take the liberty of translating as a policy orientation, it's generated by the administrative machinery, by the bureaucracy. That is not the subject of an agreement between the province and the federal government, unlike, for example, the signing in the health field where Quebec has undertaken to meet a certain number of conditions. Here it's unilateral. That's your policy. It has never been accepted as such by Quebec. Is that correct?

[Tom McGirr]

Equalization is a federal program.

[Thomas Mulcair, NDP, Outremont, QC]

The question I asked you was a little more subtle than that. In the case of health, we do have an agreement. Here there has never been an agreement. You say, for example, Hydro-Quebec is reporting.

It's like saying that's what they're telling us. However, in actual fact, there are three separate businesses and it isn't a question of what they're reporting.

It's really three very separate things. You don't agree that it's the same thing in Quebec as in Ontario. As the saying goes, what's good for the goose is good for the gander.

[Tom McGirr]

It's my understanding that there's never been an agreement, so to say, between provinces and the federal government vis-à-vis equalization. Equalization is a federal program and it's paid out under federal legislation. Provinces, from time to time—

[Thomas Mulcair, NDP, Outremont, QC]

Excuse me, but isn't it also part of the Canadian Constitution?

[Tom McGirr]

It is.

[Thomas Mulcair, NDP, Outremont, QC]

Okay, I'm just checking. It's not federal legislation.

[Tom McGirr]

The actual program is laid out in federal legislation, and from time to time provinces have disagreed with the various treatments that have happened within the program. We consult with the provinces and listen to what they have to say, but at the end of the day, it's the federal government that decides what the equalization program is going to look like.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

Merci.

Monsieur Paillé.

[Daniel Paillé, Bloc, Hochelaga, QC]

I'm going to keep the ball rolling. The opportunity is too good.

In people's minds, Hydro-Quebec generates, transmits and distributes electricity. Hydro Ontario produces, transmits and distributes electricity. The two organizations belong to their respective governments, but as a result of administrative, legal, and whatever other differences, the Government of Quebec receives less money. In its last budget, it stated that that difference was approximately $250 million a year.

I'm quite pleased that you've confirmed that the equalization program is a federal program that is not the subject of agreements. This is a transfer from the federal government to the provinces. We already knew that, but it's nevertheless good to have that confirmed for us. The federal funding sources are not the provinces. It isn't the provinces that hand the money over to the federal government, but rather the taxpayers and businesses that contribute to the Canadian tax base. Quebeckers pay direct and indirect taxes and royalties to the Government of Canada, and the government redistributes them through the equalization program. Contrary to the urban legend about the equalization program, the principle is not that the rich provinces hand money over to the poor provinces; it's the Government of Canada that redistributes funds through the equalization program.

So far, I don't believe I've made too many mistakes.

[Tom McGirr]

That's correct.

[The Chair, Conservative, James Rajotte]

I'm checking, but I understand that we may have votes.

[Daniel Paillé, Bloc, Hochelaga, QC]

It's like for the Pope.

Are we continuing?

[The Chair, Conservative, James Rajotte]

If there are votes and the bells are ringing, we do have to stop, unfortunately. I apologize for that.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

We have 30 minutes to get to the House for the vote.

[Daniel Paillé, Bloc, Hochelaga, QC]

We'll stop.

[The Chair, Conservative, James Rajotte]

It's 30 minutes, but because of a standing order, the committee does have to stop when the bells start ringing for votes.

I apologize for the delay, but members will have to go to the House for a vote.

We will be back as soon as possible, colleagues. We'll just suspend the meeting.

[The Chair, Conservative, James Rajotte]

I call the meeting to order again.

We were still on part 6 of Bill C-9, and Monsieur Paillé had the floor.

Monsieur Paillé, s'il vous plaît.

[Daniel Paillé, Bloc, Hochelaga, QC]

Before the interruption, we were confirming that equalization was indeed a federal program.

To get back to the bill, clause 1646 refers to a program that takes into account the fact that equalization should not fall, that this is a protection payment. We're going to grant $250 million to Nova Scotia, $80 million to New Brunswick, $175.5 million to Manitoba and $3.3 million to Prince Edward Island. In total, $509.5 million will be distributed. Clause 1648 still refers to one-time protection. For provinces that are not receiving equalization, that is Saskatchewan and Newfoundland and Labrador, the payments are respectively $7.3 million and $8.4 million, for a total of $15.7 million. All that totals $525,215,000.

Clause 1647 provides that a payment is made to Ontario. However, that province receives equalization, but the clause does not state the amount that is paid to it. First, I'm going to ask you why the amount is not specified and, second, whether the estimated amount of $214 million is correct.