Finance Committee on Dec. 7th, 2022

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Thank you.

In your opinion, what kind of impact do you think a decline in energy projects would have on fiscal federalism in Canada?

[Yves Giroux]

That's a much bigger question than just transfers themselves, because then you get into the dynamics of reducing transfers, increasing transfers, equalization and so on, as well as some pure policy questions regarding provinces blocking developments of others, etc., which is not for me to comment on.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Fair enough.

Jay Goldberg from the Canadian Taxpayers Federation told this committee that equalization formula changes, such as reducing resources revenues to 50%, have punished resource-heavy provinces such as Alberta, Saskatchewan or Newfoundland and Labrador, and has disincentivized other provinces from developing resources.

If there isn't new resource development in the so-called have-not provinces, how does this affect the sustainability of equalization and the current fiscal federalism model?

[Yves Giroux]

That's a delicate question, because I know it was the subject of many deliberations of the Expert Panel on Equalization in 2005-06, as Processor Béland alluded to.

It's true that the moment you include some types of revenues in the formula to determine the entitlement of equalization to provinces, it provides a disincentive to that tax base growing, because otherwise, if they grow or allow that tax base to grow, it diminishes their entitlements for equalization.

But I think there are broader incentives at play that provinces should take into account when deciding to develop—or not—certain sectors than just revenues that they could forego from the federal government, such as jobs for their citizens.

However, it's true that including some elements in the formula for equalization can have perverse incentives.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Hallan.

We're now moving to the Liberals and MP Baker for five minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you, Mr. Chair.

Mr. Soderstrom, I want to start with you, if I may, briefly.

You've spoken quite a bit about tax points. I'm wondering if you have data you could share with this committee—if not today, maybe in writing—of how much we lowered the personal income tax and corporate tax in 1977, and how much the provinces raised theirs and the dollar value of it then on an annual basis—and also in today's dollars—just so that we can evaluate the extent to which those tax points have resulted in a transfer of funding capacity from the federal government to the provinces. Could you share that with us in writing?

[Lee Soderstrom]

You raised a good question. As I've been thinking about the cost-sharing issue for the last couple of years, I realize that one of the mistakes I and my colleagues in health economics made is that we didn't look at the response in taxes at the federal and provincial level after 1977. So you couldn't go into the literature and find an answer to your question.

There's a good Ph.D. thesis there, though, for somebody to go back and look at what actually did happen to federal and provincial taxes to see if the feds actually reduced all of the points they promised and if the provinces did the opposite.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Let me just jump in there. I've pursued a couple of degrees at university and I won't pursue a third, or a Ph.D. thesis or anything like that, but if you can share it with the committee in writing, I really would be interested in what the dollar value was of the change in taxes that the federal government gave up to the provinces in those tax points.

I'm just looking for a quantification of the tax points that you spoke about. If you could sent that into the committee, that would be great.

Mr. Chair, I'd like to move on to another question, if I may.

Mr. Giroux, I'd like to come back to you, if I may.

Chair, how much time do I have?

[The Chair, Liberal, Peter Fonseca]

You have two and a half minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Mr. Giroux, first of all, in our earlier exchange, we were talking about the value of measuring value for dollars. Those are the outcomes that we obtain for Canadians for the federal dollars invested. You talked about the fact that analyzing that, or measuring that, would be useful.

Let's say we did measure that. I know that there are challenges in measuring certain things, but assuming we do our best and we get over that hurdle, what's the value of that for government? What could we potentially do with that information?

[Yves Giroux]

I'm not sure there would be that much value for the federal government itself. There could be, depending on the policy directions that the government chose to take.

I think the value would be mostly for citizens. They would have a better idea as to how their tax dollars—ultimately, it's their tax dollars, whether they're provided by the feds or the provinces—are used and how efficient their use is.

I think there would be some benefits for provinces and territories, too, in the sense that if they see that some jurisdictions can perform surgeries, for example, in a more efficient manner, they could learn from each other, taking into consideration the differences in backgrounds, environments and clientele. I think that's what the value could be. We might find that there are useful areas to spend in or invest in, in that case, that we haven't thought about.

To go back to our earlier exchange, I'm not implying that it is necessarily the federal government's job to collect that information. To go back to Mr. Ste-Marie's point, I'm not implying that the federal government necessarily has to do that job, but there are federal institutions that collect data, such as the Canadian Institute for Health Information, known as CIHI. They provide valuable information to provinces and territories and Canadians.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

You spoke earlier about the fact that we are accountable to citizens, as elected officials at the federal and the provincial levels. As someone elected and who's accountable to the citizens of the community of Etobicoke Centre, if we discovered that certain investments or certain federal spending was resulting in better outcomes than other spending, would it not be incumbent on us, as legislators accountable to people who want to get maximum value for the dollars, to make adjustments in how we spend or to urge those who are ultimately executing that spending to deliver higher outcomes?

Would that not be appropriate?

[Yves Giroux]

I think Canadians would expect you to intervene in that manner and make these recommendations or have these discussions.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Baker.

We'll go now to the Bloc and MP Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Similarly, I think all provincial elected officials should seek out data to enable them to determine how efficient the federal government is in issuing passports. They could then make recommendations to the federal government and tell it how to do its job.

I am just talking, of course. As my colleague pointed out, there is something called the Constitution which sets out the areas of jurisdiction. I think each order of government should focus first on serving its role effectively in its areas of jurisdiction before it sticks its nose in the business of the other order of government.

I'm sorry, let me get back to my questions.

Mr. Giroux, I would like to know if it is possible to link your 2020 study on federal support, where you provide calculations regarding federal payments under the Canada health transfer, and your reports on more long-term financial viability.

If I understand correctly, the Canada health transfer was renegotiated a few years ago, resulting in a gradual decrease in the percentage of health care expenditures funded by the federal government. According to your table on page 2, that seems to have levelled off as early as 2016-2027, but the data only goes up to 2018-2019, since your report was produced in 2020.

Can you predict how this percentage will change in the years ahead if there are no new policies or new negotiations?

[Yves Giroux]

The percentage is not likely to increase much, but it might level off or decline as the number of elderly and very elderly people increases. I am talking about people aged 85 or 90, who are unfortunately at the end of their lives. That will place pressure on hospital systems and health systems. The percentage of health care expenditures funded by the federal government is expected to decrease gradually, because the provinces will see their health care expenditures increase and will be under increasing pressure, whereas the health transfer increases at the same rate as the economy.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

As you said earlier, health care costs are much higher for seniors than they are for younger, more active people.

Can you give us some average ratios to illustrate the need for health care services? For example, does health care for a senior cost four times more than health care for a younger person?

[Yves Giroux]

That depends on the age of the people you are comparing. That data is available from the Canadian Institute for Health Information. That information is public and, if I am not mistaken, we can easily have it sent to you in writing.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

Now we'll move to MP Blaney, please, for two and a half minutes.

[Rachel Blaney, NDP, North Island—Powell River, BC]

Thank you so much, Chair.

Mr. Béland, your essay on the economics of equalization alludes to the cost of living and how that can encourage or dissuade migration. I think all Canadians from coast to coast to coast are feeling extremely strapped for cash right now.

I'm wondering if you are concerned about the impacts of inflation. Are there areas of the country that you feel may be more at risk for feeling the impacts of inflation disproportionately? If so, what's the risk for provinces in terms of fiscally induced migration?

[Daniel Béland]

Yes, this is a bit outside my area, really, but I could say that inflation is hurting low-income people more than higher income people. Obviously, that is true all across the country. I think we need to address that, but I do think that fiscal federalism is probably not the best tool that we have. Transfers to individuals and families is probably the way to address this.

Here, I think the federal government has an important role to play, but of course fiscal federalism supports the provinces, which can also develop their own programs to support individuals and families, especially low-income individuals and families who are coping with inflation.

I think there is a direct way to do it through measures enacted by the federal government. Also, of course, if you help the provinces from a fiscal standpoint, they can adopt the measures that they see fit.

I do think that low-income people are especially vulnerable to inflation. This is something we should keep in mind, not just when we talk about fiscal federalism, but when we talk about social programs at large.

[Rachel Blaney, NDP, North Island—Powell River, BC]

Thank you for that.

I know that a lot of provinces have challenges around this issue of migration. Families are often split up. In some parts of my riding, we see a lot of people going to different provinces to work.

To come back, I understand it's not your area of expertise, but you talked about low-income people experiencing that.

Do you see that as a factor for low-income provinces, as well? How does fiscal federalism help with supporting stabilization for communities? Is that even something that we can look at?

[Daniel Béland]

Yes, the populations of poor provinces are on average more vulnerable than wealthier provinces, in a way, when we talk about the negative effects of inflation, in a sense. You could say that.

Regarding migration, you raise a very important issue. I think equalization, implicitly at least, is partly about helping people stay where they live by providing them with relatively good public services for a tax burden that's not excessive. By helping poorer provinces offer decent services to their inhabitants, you could say that it probably makes it easier for them to keep their people. People can leave their province for different reasons—because of job opportunities elsewhere and so forth, or a lack of job opportunities at home—but we don't want people to leave their province because the social and health services are so bad that they need to move to a another part of the country to access decent services.

Equalization is part of the tools that we have to prevent that.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Béland.

Thank you, MP Blaney.

We'll now move to the Conservatives with MP Chambers for five minutes please.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

I'm realizing from all of this discussion about provincial finances that maybe Mr. MacDonald should be a witness to give us his experience in the province of P.E.I., both in the provincial legislature and as a minister.

Mr. Béland, I just want to pick up on a conversation you had with my colleague, Mr. Lawrence. For this commission that you're considering in terms of a governance model, have you—and forgive me for my ignorance—discussed how you might set it up? Is the CPP an option as a governance model in the way that it's chosen? Is that what you think might be viable?