Evidence of meeting #72 for Finance in the 44th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was equalization.
A video is available from Parliament.
Conservative
Marty Morantz Conservative Charleswood—St. James—Assiniboia—Headingley, MB
Professor Béland, I have a question for you. I think you've written something positing this idea of a federal-provincial taxation regime to fund health care in replacement of the Canada health transfer. I think I have that right. You can correct me if I'm wrong.
I just wanted some clarification on your thinking here. In this tax regime, would there be a corresponding tax reduction correlated with the amount of the Canada health transfer, or is this a new tax on Canadians?
Director, McGill Institute for the Study of Canada and James McGill Professor, Department of Political Science, McGill University, As an Individual
No, no. What we can do is use an existing tax—for example, part of the GST or business income tax—and then allocate it to the provinces. The thing that's important here, of course, goes back to the idea I'd put forward with Trevor Tombe.
I think the URL of our paper is embedded in the text I sent to the clerk. It's available to you and is already online.
The idea here is that the provinces will actually have to be consulted over any change to the tax rate. Really, it would become a shared tax so that the federal government could not suddenly lower the tax if it's to go to the provinces.
Here again, we actually borrow the government's mechanism of the Canada pension plan, where you need two-thirds of the provinces representing two-thirds of the population to actually support a change in order for the change to occur. I think that's a way to protect the provinces. If it's really a tax-sharing system, and the tax is being shared, the provinces should have a word to say in terms of increasing or decreasing the tax rate.
This is the idea we put forward in our paper for the University of Calgary policy school. There is another version of the paper. As soon as it's published in an academic journal, I will circulate it to this wonderful committee.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Morantz.
Now we will go to the Liberals.
MP Virani, welcome to our committee.
December 7th, 2022 / 6:15 p.m.
Liberal
Arif Virani Liberal Parkdale—High Park, ON
Thank you. It's a pleasure to be here, Chair.
Thank you to the witnesses.
I've been listening along. This is not my usual committee, but I'm going to ask you two questions.
One, Mr. Giroux, is that you opined a bit about attaching conditions to federal transfers. I am a lawyer. We know from constitutional jurisprudence that there is shared jurisdiction in the area of health, right? That's a case called RJR-MacDonald, where it was established quite clearly by the Supreme Court.
We also know, obviously, that there is federal legislation: the Canada Health Act. That has been mentioned many times. It's certainly within the purview of the federal government to ensure the principles that are enshrined in the Canada Health Act are maintained by the provinces, right, so I'd agree with that.
I thought it was quite illuminating when you were outlining some of what has been represented in the public domain versus what your number crunching is showing. I take great stock in terms of the fact that you are, as you said, accountable to all 338 of us and all of the senators, etc. That's important, but you said, as opposed to the 22% number we've heard bandied about, that it's actually more like 32% to 33%, which I think you said about 45 minutes ago.
I'll say to you in the wake of some of the questions put to you by my colleague Mr. MacDonald that the lion's share of the COVID supports that were put in place—the number we as government members frequently use is $8 out of every $10—were federal dollars to support Canadians during COVID. Those were important, and many of those supports were in place to address the concerns, as you said, of avoiding the calamity of depression, and of massive poverty, which I would add to that list, etc.
That being said, when we enter into this discussion about transfers, particularly on health, we're also seeing where the largesse of the federal government has resulted in deficits and debts on the federal side, but we're looking at provinces that are sitting on surpluses, including my home province, which is Ontario.
Do you make similar observations and do you have any suggestions about how equalization payments can be structured to address that inequity between surpluses on one level of government versus deficits on another?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Well, we're talking about I think potentially two different things. There are structural and cyclical deficits and surpluses. On the one hand, we have the federal government that is in deficit because of I think two things—cyclical. We suffered what was a short and profound recession and we're recovering from that, but the government also embarked on a series of spending decisions, which is well within its policy purview, whereas provinces have recovered more quickly because they have not needed to go as deep in debt as the federal government due to COVID-19. Both elements are there.
But looking at the longer term, when we do the fiscal sustainability report we assume that everything is put on autopilot, and we see that the federal situation is likely to be better than the provincial situation, taken as a whole, for the structural elements that I talked about earlier.
Liberal
Arif Virani Liberal Parkdale—High Park, ON
Okay.
You also mentioned at one point that there are some of the benefits that are.... In the context of a slightly different discussion about inflation, you talked about certain benefits being indexed to inflation. My understanding of the various benefits that are tied to the cost of living.... I forget the index you called it: CAI, CPI—
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The CPI.
Liberal
Arif Virani Liberal Parkdale—High Park, ON
They include the Canada child benefit, the GST credit, the CPP, OAS and the GIS. Even, in fact, the federal minimum wage—which was increased to $15 an hour—is also tied to that index. Is that a step in the right direction in terms of addressing pressures that relate to the cost of living and that Canadians are experiencing around the country right now?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Well, the fact that these benefits are indexed, with a certain lag to take into account data gathering, is intended to fully protect recipients from the impact of inflation. I think it does a relatively good job of that because of their nature. It's fully indexed, which is not what every worker gets when they retire. Some pension plans are fully indexed and others are not, but the Canada pension plan, the Quebec pension plan, old age security and the guaranteed income supplement are fully indexed, so they are designed, by their very nature, to protect the purchasing power of seniors who receive these benefits.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Virani. That's the time.
We're off to the Bloc and MP Ste-Marie, please, for four minutes.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
I have few comments on the last exchange. We often hear from the federal government that it took action to support the economy during the pandemic. That is what we in the Bloc Québécois asked for. We relied in particular on your reports regarding financial viability, Mr. Giroux. We could see that the federal government had much more fiscal leeway than the provinces, according to long-term projections. So from our point of view it makes sense that the federal government would take such action.
The government bragged about its new spending related to the pandemic, especially spending related to vaccines. It said that the federal government contributed eight out of every ten dollars. In response to that, I pointed out that, every year, the provinces can contribute up to eight out of every ten dollars for regular health care expenditures, or seven out of ten dollars, according to your figures, Mr. Giroux. So we can see how it all balances out.
In short, it was the federal government that had the leeway.
What we are hearing now is that provinces are accumulating surpluses, while the federal government incurred huge debts to get through the pandemic. In response to that, I refer once again to the report on financial viability. In spite of the massive, historic and record level of debt incurred by the federal government to help Canadians and the economy get through the pandemic, that does not fundamentally change the picture, as you pointed out, Mr. Giroux. Rather, this debt is cyclical and tied to the current economic environment, and that does not change the fundamentals.
Based on that analysis, Mr. Giroux, I have the following question for you.
We are talking about fiscal federalism right now. Have your reports on financial viability and your various analyses allowed you to determine whether there is truly a fiscal imbalance between the orders of government?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The term “fiscal imbalance” has been the subject of heated debate in the past. I will probably avoid it so as not to revive old debates or re-open old wounds.
That said, when I published my first financial viability report in my current position, and even with the following report, I was surprised by the lack of discussion or debate about that imbalance, which I promised not to mention.
With regard to funding, the federal government seems to have fiscal flexibility, but there are not enough funds at the provincial level, at least in the long term. I would have expected this to give rise to a discussion about a transfer of funds from one level to the other. To my great surprise, however, that debate never occurred. Then the pandemic started, so there was really no opportunity for that discussion. We all had other concerns.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Now we can finally address this issue. We will certainly come back to it.
Those are all my questions, thank you.
I also want to thank the two other witnesses appearing by videoconference. I think I will have the chance to ask them questions another time.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Ste-Marie.
Now we're moving to the NDP and our final questioner, MP Blaney.
NDP
Rachel Blaney NDP North Island—Powell River, BC
Thank you, Chair.
I'm going to come back to Mr. Béland. I'm finding our conversation really interesting.
I want to circle back to the first question that I asked. In the answer you gave me you mentioned the idea of a climate transfer and the fact that it really hasn't come up as a domestic discussion. You outlined some of the avenues you think would be best to facilitate that conversation.
In response to other questions you have also mentioned some ways other jurisdictions do fiscal federalism well—Australia and their GST, for example.
With that in mind, do you know of any other countries that are exploring the idea of climate transfer, or do you have an example of somewhere else that has a climate or environmental lens to their approach to fiscal federalism and equalization?
Director, McGill Institute for the Study of Canada and James McGill Professor, Department of Political Science, McGill University, As an Individual
I think this is something that is being discussed, but I'm not aware of a major program in another country that will be the equivalent of what you have in mind. I think it's worth exploring that and looking at what is debated in other countries. There is nothing I can think of right now where I would say, oh, that would be the template that Canada could use. Based on what I know, there's nothing I could say on the model to follow or not.
NDP
Rachel Blaney NDP North Island—Powell River, BC
That's fair enough. I hope you keep your eye out on that.
When you did respond to me, you talked about the expert panel and how that might be one of the facilities and places that discussion could happen. You've talked a bit about what that might look like, but could you just give us a more fulsome idea of what that would look like, how that would be appointed, who would be invited and what their role would be in the context of these decisions?
Director, McGill Institute for the Study of Canada and James McGill Professor, Department of Political Science, McGill University, As an Individual
There is a template. You can find it on the website of the Government of Canada. If you look at it, the template is the Expert Panel on Equalization and Territorial Formula Financing. There is a report that it published in May 2006. The panel was appointed by Paul Martin, and the chair was Al O'Brien from the University of Alberta.
You can see that they explain at the beginning of the report how they were appointed and the work they did. I think this could be a template for future expert panels, because I think this expert panel, in terms of the depth and quality of the report they submitted, is really a template that we could certainly reuse to address new fiscal challenges and issues, including some of the ones you mentioned today.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Blaney.
On behalf of the entire finance committee, we want to thank our excellent witnesses for appearing and for their testimony for this study.
We thank Professor Béland and Professor Soderstrom. Of course, I'll amplify what many of the members said here: You're always welcome. We like having you here.
Parliamentary Budget Officer Giroux, thank you very much. Yes, I heard the accolades that you got from MP Morantz about how you're the master of everything and know everything. We'll often, I'm sure, have you here before our committee.
Thank you very much, everybody.
Members, we are adjourned.