Finance Committee on Sept. 21st, 2022

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you, Mr. Chair, and thank you, Gabriel.

Hello, Seth. I have read your book multiple times. I think we have an interesting moment here, because many of my colleagues, and they are all friends at this table, think that the climate crisis can be resolved through measures that are incremental and inadequate. We have recent science, even as recent as last week, that the tipping points are closer and more dangerous.

I wanted to ask you to reflect on a wonderful quote in your book from C.D. Howe. When asked, “This is costing too much. How much can we afford to spend on this war?”, he said, “If we don't win the war, nothing else matters.”

You referred moments ago to the hellscape our children would experience. Can you perhaps try to inject into this discussion, at this committee table, the risks of not acting with appropriate urgency and appropriate resources?

[Seth Klein]

Well, it's one of my favourite quotes, too, from C.D. Howe—he was, of course, an icon in the Liberal Party government during the Second World War—that if we lose the war, nothing will matter. That is certainly true of the climate crisis. If we do not do what we have to do, the conversations about what seems reasonable and how much we can actually do.... You know, our grandkids are going to shake their heads and wonder what we were thinking.

The point I was also making, or trying to make, in response to Mr. Albas is that if we fail to do this, the cost of the devastation that's coming will far surpass the cost that we're talking about now. The Fraser Valley in the wake of the atmospheric rivers last November knows that full well. I guess what I'm inviting all of you to consider out of that story in the book is the kind of cross-partisan unity that occurred. I would say this even to the Conservatives on this panel. The Conservatives were also in opposition during the war. They critiqued, rightly, the government, but mostly they critiqued the government for failing to prosecute the fight enough. I think that's what we're going to need today.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

On the question of just transition, former environment minister Catherine McKenna commissioned a panel chaired by Lois Corbett of New Brunswick and Hassan Yussuff, who now sits in the other place. They actually went into all of the communities where people are dependent on coal mining. I feel as though those communities must be so enraged, because they shared what they felt they would need as individual workers and as communities if and when coal was shut down.

In the 40 seconds that remain, can you tell me how duped those communities were when the Liberals have done nothing to provide a just transition after all the advice that was provided?

[Seth Klein]

In the case of Alberta, we saw some support for the coal transition—not enough—and of course far more went to the coal companies than to communities and workers. This is what I'm trying to get at. There's stuff that's happening, but we need that hopeful and compelling alternative, that counter-offer. That's what I hope people will see in the proposal that I'm making to you.

Honourable members, this is the “make it or break it” decade for us and our kids. Again another civilizational threat is on our doorstep. You have all been elected at a historic time. A couple of decades from now, when you find yourselves in conversation with your kids and grandkids and nieces and nephews about your time in office, they're going to be curious. You'll all no doubt have things to point to, accomplishments that you feel some pride in. Then they will realize that you were elected into leadership in the first half of this decade. They're going to want to know what we did on this file.

[The Chair, Liberal, Peter Fonseca]

Thank you.

[Seth Klein]

I guess what I'm saying is that your role in bringing this about, with a transition transfer like this, is something that you could point to.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP May and Mr. Klein.

We will now go to our last questioner for this panel.

We thank you, Mr. Klein, for taking so many questions.

MP Blaikie from the NDP, it's over to you.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

You touched on this a bit in your exchange with Ms. May, but I thought it might be helpful for you to come back to the cost of inaction, specifically the financial cost. We often talk as if investing in climate solutions is compared to a status quo that doesn't involve extraordinary costs.

Can you paint a brief picture of what it means to not meet this moment and not spend what we need to spend in order to win? What are the costs that are coming down the line for us? We've seen some already, whether they're measured in the amount of money that had to be spent, in the case of wildfires, or in lost economic opportunity, when the Port of Vancouver was shut down for an extended period of time, for instance.

Could you put a bit more context around that for the committee?

[Seth Klein]

I don't have all the costs at my fingertips, but they're huge. To give you just one example, the atmospheric river event that happened last November here in this province had a total public and private cost in the billions. That's one event. There are the costs....

There are mountains of evidence and research out there to get at your question. I want to close by emphasizing the human cost. The other thing that happened in my province a year ago, in June, was that 600 people died in the space of a week in the heat dome. That was the most deadly weather event in Canadian history. Not to get obscene about this, but they cooked in their homes. A few weeks ago, we saw flooding in Pakistan, where a population virtually the same size as the whole of Canada's was displaced from their homes.

This is only going to get worse. We are on a path where, if we do not get serious about this, it will be catastrophic and deadly for hundreds of thousands. It is deeply disruptive for everybody. As the Secretary-General warned everyone two days ago, it is quite possibly ungovernable.

If we lose this war, nothing else matters.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaikie.

On behalf of the committee, we want to thank you, Mr. Klein, for answering so many questions. We really appreciate it. Your testimony will help inform this report on fiscal federalism. Thank you.

With that, members, we are going to suspend for a minute or two to bring on our second panel.

[The Chair, Liberal, Peter Fonseca]

I call the meeting back to order. Welcome back, everybody. We are here with our second panel on this discussion on the current state of fiscal federalism in Canada.

Before us, we have the Canadian Health Coalition. We have the national director of policy and advocacy, Stephen Staples, and Keith Newman, an economist. From the Canadian Union of Public Employees, we have Angella MacEwen, senior economist, national services. From the Canadian Taxpayers Federation, we have Mr. Jay Goldberg, who's the director here in Ontario.

We'll start with the Canadian Health Coalition for opening remarks, please.

[Steven Staples, National Director of Policy and Advocacy, Canadian Health Coalition]

Thank you, Chairperson and members of the House of Commons Standing Committee on Finance. My name is Steven Staples. I am the national director of policy and advocacy for the Canadian Health Coalition, and I am soon to be joined by my colleague, board member and economist Keith Newman.

The Canadian Health Coalition was founded in 1979 to defend and expand public medicare in Canada. We are composed of frontline health care workers, unions, community groups and experts.

I am delighted to speak to you on the topic of the current state of fiscal federalism in Canada. The aspect we would like to address today is public health care spending. Today we would like to make three recommendations to the government through this committee: first, that the federal government must oppose increased reliance upon for-profit delivery of health care services; second, that the federal government should increase its funding to provinces and territories while ensuring accountability and outcomes for health care dollars; and third, that the federal government should deliver on its long-promised health care programs, especially a national universal pharmacare program.

Let's take these step by step. The Canadian Health Coalition is very concerned by statements made and actions taken by some premiers to the effect that they intend to devote more public dollars to private, for-profit health care providers. While these measures are occurring within their respective jurisdictions, the federal government is not a bystander. The government must state its opposition to this for-profit direction clearly and strongly, and take action by using the tools at its disposal to defend public medicare. This starts with increasing enforcement of the Canada Health Act's principles and conditions, which govern funding to the provinces through the Canada health transfer, or CHT.

The impasse between the federal government and the provinces and territories over funding formulas is preventing urgently needed action to address the crisis faced by patients, families and health care workers.

We support the call for more funding for health care by all levels of government. The federal government should increase its funding to provinces and territories. At the same time, federal dollars should not come without strings, and we expect accountability from the provinces and territories for health care dollars. Premiers should not use federal health care dollars for non-health care spending, such as tax cuts or rebates, and certainly they should not decrease their health care spending after receiving more federal dollars.

Along with increasing funding through the CHT, the federal government must work with provinces to ensure improved outcomes for people in Canada, and this can be accomplished by establishing new, long-promised universal programs such as pharmacare. Pharmacare, in particular, will create savings through reduced drug costs, which now account for as much health care spending as doctors do. Furthermore, public universal pharmacare will reduce the strain on our system. Full prescriptions mean empty emergency rooms.

Finally, we would like to suggest that the path through this crisis can be found in the commitments made by the government in its accord with the NDP. The confidence and supply agreement—or the CASA, as we call it—has four important health care commitments: public dental care, universal pharmacare, health care investments, and safe long-term care. Most, if not all, of these will require co-operation between the federal and provincial governments.

If it were negotiated alongside a commitment for increased CHT funding, which the provinces have been requesting, we can see the potential for a “grand bargain” on health care. The federal government would provide more health care funding. In exchange, provinces and territories would co-operate on new programs such as pharmacare. Parts of this bargain must include a focus on building our public health care system and not increasing the corrosive effects of for-profit delivery.

Thank you for inviting the Canadian Health Coalition to present today. We look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Staples, for your opening remarks.

We'll now hear from the Canadian Union of Public Employees and Ms. MacEwen for five minutes.

[Angella MacEwen, Senior Economist, National Services, Canadian Union of Public Employees]

Thank you very much.

The Canadian Union of Public Employees is Canada's largest union. It has over 700,000 members. CUPE members take great pride in delivering quality services in communities across Canada as they work in a broad cross-section of the economy, including health care, education, municipalities, libraries, universities, colleges, social services, public utilities, emergency services, transportation and airlines.

For all of our members, the pandemic has brought forward many underfunded, inadequate and altogether missing systems to the forefront. Now these workers need action. From our broken long-term care system, which still allows for-profit operators and poor working conditions, to the inadequate employment insurance system, we need substantial change to better serve workers in the services that we all rely on.

New programs such as the child care agreement, a national pharmacare program or a just transition require significant federal leadership and funding in order to be successful.

I recognize that borrowing in the current environment would be considered inflationary by the Bank of Canada and so lead to a further hiking of interest rates. However, the federal government has cut taxes for corporations and the wealthy over the past 20 years, which means that we have significant room to increase these taxes.

The tax rate for large profitable corporations was cut from 27% in the year 2000 down to 15% in 2007. The capital gains inclusion rate was cut from 75% to 50%. Just for the information of the members and those watching, capital gains is income from selling an investment asset, like real estate, other than your primary residence, or stocks. It's treated differently than employment income is. This is one way in which our tax system privileges wealth over income. The inclusion rate is used to calculate what portion of the profit is considered income for tax purposes. Research shows us that 90% of the benefit from this goes to the top 10% of income earners.

Stephen Harper also made steep cuts to the federal government's fiscal capacity, cutting the GST by two percentage points before the 2008 recession. Together, these cuts under Jean Chrétien, Paul Martin and Stephen Harper resulted in the federal government's revenue falling from 18% of GDP in the year 2000 to 14% in 2010. Under the current government, this percentage has risen slightly, to 15%. Just for reference, 1% of GDP is around $24 billion. That is, in current dollars, a significant amount of money.

This left a huge hole in the federal budget and has had a ripple effect across provincial budgets. When Stephen Harper cut the GST, he suggested that provinces could easily recover the lost revenue by raising provincial sales taxes, but provincial governments have faced backlash at the ballot box when they attempted to do so, and they've only managed to maintain the status quo on revenue as a share of GDP. It's much easier for the federal government to raise revenue than it is for provincial governments, which face real competition in terms of tax prices with their neighbours.

The result is that provincial governments have picked up a larger and larger share of total government spending in Canada, with no additional revenue sources to fund the critical services they provide. Restoring federal revenues to 2000 levels would mean at least an extra $50 billion a year to fund expanded public services. We recognize that with this additional funding it's essential that there be strong conditions to ensure that it is additional financing and not merely replacing what provinces are already spending.

This is especially true in health care, which is under threat of further privatization. We need strong national standards on how provinces and territories are allowed to spend these funds. CUPE wants to ensure that provinces and territories are prevented from using Canada health transfer funds on privatized health services, including for-profit medical facilities and for-profit care delivered through virtual health care systems.

Finally, municipalities own or control about 60% of Canada's core infrastructure. They should have the funding and authority to manage it and maintain it publicly. The federal government could play an important role in this by scrapping the current privatization mandate of the Canada Infrastructure Bank. The bank would better fill its purpose for the public if it prioritized direct financing to help local governments build public infrastructure.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. MacEwen.

Now we're going to hear from the Canadian Taxpayers Federation. We have Mr. Goldberg for five minutes, please.

[Jay Goldberg, Director, Ontario, Canadian Taxpayers Federation]

Good evening.

The pandemic has renewed calls for major changes to Canadian fiscal federalism on pretty well all sides. The motion currently under consideration definitely calls for a reform of current challenges.

I do think it's important to look back historically and recognize that Canadian fiscal federalism is incredibly far from where the system was designed to be almost 150 years ago. The trend in recent years has been for the federal government to increase transfers to the provinces to face growing health care system issues. The problem here is that doing that obscures accountability and allows the level of government with the greatest revenue, in this case in Ottawa, to exert control over choices provincial policy-makers can make.

In a paper that I wrote when I was in the Ph.D. program at the University of Toronto, we spoke of the dangers of what we called “entanglement”. This is the idea that while one level of government has the taxation power to fund programs, there is a constitutional responsibility to another level of government. By having different levels of government funding and operating social programs, Canadians are in many ways losing out on the ability to hold the appropriate level of government accountable for failures within the system when they do occur.

We've known about funding problems within the framework of Canadian fiscal federalism for decades. The Rowell-Sirois Commission, which made recommendations on the state of fiscal federalism in 1940, noted that there was a significant imbalance between the revenue-generating capacity and spending responsibilities of the federal government and those of the provincial governments. I think we can consider the fact that in 1937, when the commission was created, the federal government generated revenues amounting to double those of all the provincial governments combined. The Rowell-Sirois Commission made some sweeping recommendations for reform, and most of them were never actually adopted. What we've ended up with is a complex web of transfer payments from the federal government to the provinces. Canadian fiscal federalism in many ways is broken.

At the time of Canada's founding, the provinces were given responsibility over issues like health care and education. These were seen as more minor issues at the time. These costs have ballooned, and that has led to ballooning spending at the provincial levels, as many have mentioned, but ultimately the taxation power is still in Ottawa. To fund these programs effectively but to also allow for greater responsibility, the federal government should look at transferring taxation points to provincial governments so they can raise the revenue, spend it, and then be accountable to the voters with respect to how that money is being spent.

The status quo in equalization is also in need of reform. We have taxpayers from some provinces who have ended up sending money to other provinces with little in return. Again, the issue is accountability. Provinces that receive equalization funding don't have adequate incentive to strive for improvement. The program is unfair to many provinces, not just Alberta. We've noticed, for example, that Newfoundland and Labrador has been considered to be a “have” province but at the same time has received a $5.2-billion backdoor bailout from the federal government. This is a program as well that has discouraged resource development in provinces other than those provinces that have used that revenue, which has then been transferred to other provinces as part of the equalization formula.

Ultimately, the Canadian Taxpayers Federation, which has been around for more than 30 years now, believes that accountability is one of the most important things you can have in government. If we are going to have government deliver important health care, education or other services, it ought to be the case that voters, when they go to the ballot box, are able to hold politicians accountable for whether or not they've delivered on their priorities, whether those are health care, long-term care, or other areas.

Obviously, the pandemic has certainly brought about a conversation about the appropriate extent of government involvement in health care, the delivery of health care and issues involving long-term care, and I think those are all conversations that can be had. However, the major danger we have gone through here in Canada over the past several decades is having one government sending money to another level of government without an adequate level of responsibility and without being held accountable at the ballot box. If voters cannot hold the appropriate level of government accountable for problems with our health care system, well, that's what's leading to so many of the broken things we see today.

I will just close by saying that we think it's absolutely essential that the government that is delivering services be at the same level as the government that is funding those and that it can be held accountable for the mistakes and the problems that are happening in those areas. That's not the case now, and it's something we need to rectify.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you to our second panel of witnesses for their opening remarks.

We are starting with our first round of questions. In this round, each party will have up to six minutes to ask questions. We are starting with the Conservatives.

I have MP Lawrence for six minutes.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you, Mr. Chair.

Thank you to all of our witnesses for appearing today. It's greatly appreciated.

I will direct most of my questions to Mr. Goldberg. I'm very intrigued by his comments on entanglement, and I will get there, but I want to start by quoting from Jack Mintz's Financial Post article and asking a question about that. Mr. Mintz writes, “At one stage all resource revenues were included in the formula but when that meant Ontario would become a 'have not' province only half of resource revenues were counted.”

My first question is, would he agree with Mr. Mintz's characterization? Second, does he believe that the changing of formulas with respect to equalization is helpful or not helpful to national unity?

[Jay Goldberg]

Equalization and the changes we've seen in recent years, as Dr. Mintz noted, have created tremendous problems. One of the things this does is punish provinces that are developing resources, such as Alberta. It also serves to discourage other provinces that have potential natural resource capacity. We've seen in Quebec, for example, that there's a lot of potential there. It's discouraging those provinces from trying to move forward in generating those natural resources. That's, in part, because of the way the funding agreement is structured. It not only damages provinces like Alberta, but discourages development in other parts of the country, which could then lead to more balanced revenue and to less of an impulse to have these equalization payments in the beginning.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

You skilfully and diplomatically corrected me. It is Dr. Mintz. I appreciate your kindness there, sir.

On that, another quote from Dr. Mintz is this: “The equalization program is a tax on economic growth, especially for the smaller 'have-not' provinces.” It creates a moral hazard, in other words. Is that right? You already talked about that a bit in your previous answer, but could you expand upon that?

[Jay Goldberg]

Absolutely. The reality is that most of the resource development that we have in Canada is focused at the moment in Alberta and Saskatchewan, but we certainly have the capacity in other provinces. We've spoken about Newfoundland and Labrador and the potential that is there, although there have been funding issues. We've spoken about resources that are currently in Quebec. There are some in Ontario, as well.

The problem with this equalization formula is that it's punishing natural resource development, which is discouraging it. Again, that's not just a problem for Alberta or Saskatchewan in this case. It's punishing those provinces fiscally but, again, it is discouraging provinces all across the country from also pursuing resource development, which could allow for economic outcomes to start being more similar across the country as opposed to the disparity.

This is exactly why: It's discouraging resource development, and it's going to perpetuate equalization and the money that is being taken out of Alberta and Saskatchewan and sent elsewhere in the country.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I was very intrigued by your “entanglement”. I haven't read your Ph.D. thesis, but perhaps I'll get the opportunity to.

So that I and some of my constituents can fully understand it, your thesis, broadly put, is about the fact that—correct me if I'm wrong—a central, federal government that continues to creep into provincial jurisdiction through the use of leveraging the funding of this will make the federal government or the provincial government less accountable, because now you have a disparity between the person operating it and the government funding it.

Have I caught that correctly? Please expand if you can.

[Jay Goldberg]

Yes. I'm very happy to expand on that. That's precisely the issue. What we've seen is that these are areas of jurisdiction, particularly health care, that in the Constitution were outlined as areas of responsibility for the provinces. The provinces, obviously, are doing a lot of the spending and the management of delivery, while the federal government is sending billions of dollars to provincial governments every year.

The issue that you see when that occurs is a lack of accountability. If the state of hospitals within a province is unacceptable, if we're unhappy with what's going on in long-term care or if we're unhappy with the delivery of health care, the provincial government can simply turn around and say, “We don't have enough funding from Ottawa”, so ultimately it's Ottawa's fault and not the province's fault.

What you would do by transferring tax points is let the level of government that is constitutionally responsible for delivering these services deliver and fund them, and then you can hold the appropriate level of government accountable when they fail to do so. This simply allows for politicians at different levels to blame each other without achieving the proper results.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I believe I have 30 seconds left, and I have one last question.

Knowing that sometimes governments jealously guard their tax points, as you stated there, and that this might be difficult to achieve, would it perhaps be beneficial to have, as the Province of Quebec has been asking for, fewer strings attached to transfers to the provinces?