Finance Committee on May 7th, 2026

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Thank you. That's time.

Next, for two and a half minutes, we have Monsieur Garon.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Mr. Chair.

It will be nice to get back to the topic of today's study.

Mr. Laplante, I get the impression that, in Canadian history in general, the federal government has, intentionally or unintentionally, taken advantage of crises to—with the provinces' consent—centralize unemployment insurance at one point, centralize part of natural resource policy through the national energy program at another, impose more conditions in the 1990s, and impose new programs linked to the federal spending authority during the pandemic.

Currently, in the crisis stemming from tariffs, we see the federal government interfering in workforce training, albeit delicately, by taking the necessary detours, but it remains, in principle, interference.

Do you believe that, generally speaking, crises have benefited centralization? After such crises, does the federal government tend to return to its natural role or to retain the powers it assumed during the crises?

[Robert Laplante]

Not only have crises encouraged centralization and increased or expanded the federal government's role, they've also sedimented these gains, decade after decade.

[Jean-Denis Garon, Bloc, Mirabel, QC]

What do you mean by “sedimented”?

[Robert Laplante]

What I see, for example, is that interventions made for reasons of urgency, to find short-term solutions, are perpetuated and established.

Bill C‑5 will do just that. It'll give the federal government free rein to intervene in the construction of infrastructure, to change or delay regulatory differences around environmental issues, impact studies and so on.

All the arguments made to justify urgency are really instruments to allow a purpose defined by the federal government to become an imposed purpose.

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Thank you. That's the time.

Next, we have Mr. McLean for five minutes.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you, Mr. Chair.

My first question will be for Mr. Robson.

When you talk about fiscal capacity, Alberta was a recipient of the federal equalization program once—in 1964, over 60 years ago. Since that time, there has been over $600 billion in fiscal transfers between Alberta and the rest of the country—$600 billion over about 60 years. That included periods when Alberta was suffering far worse than the rest of the country in terms of unemployment and the deficits it was incurring to deliver services to its citizens, and yet the transfer of funds never ceased from Alberta to the rest of the country.

Do you consider it a fair equalization system when even one of the suffering provinces doesn't get money back to serve its citizens and support its social services?

[William Robson]

Given that I've commented on the equalization program explicitly already, perhaps I could address some of the other programs on which Alberta would be on the negative side of the ledger.

I can understand the logic of provinces that receive the Canada health transfer and therefore have more money to spend on health care than they would have if they were relying only on their own resources, and are therefore willing to accept the federal government's limitations on how they can run their health care system—even when the federal government is requiring them to do things their population would prefer them not to do. It's a lot harder to understand the logic of a province that is a net loser from a system like that and is simultaneously both being made poorer as a result of the net transfers going out of the province and being told by the federal government how it can and cannot run its health care system.

One of the things I think would be very helpful for us as we think about fiscal federalism is to look at the ways in which the federal government is using its spending power to distort provincial priorities. I think we can logically separate those two things from the net flows of funds. I don't quarrel with what you've said about the net flows out of Alberta, but I think it makes sense to look particularly at the programs where, as I said, the federal government is taking money away from a province on a net basis and simultaneously constraining the province's policy choices in ways the province does not like.

I understand, again—

[Greg McLean, Conservative, Calgary Centre, AB]

Mr. Robson, thank you. We have limited time, but I appreciate your response.

Let me move to Mr. Béland, because he did talk about the system.

I appreciate the time you spent in Alberta and your understanding of what people are looking for there. You said that people, Albertans in particular, “want the system to be fair and transparent.” Many Albertans feel it is not right now. They feel it needs to change so that we can actually see what the inputs and output are and what determines how the transfers happen between the provinces.

Can you give us some examples about how that could be better done, how it's failing Canadians right now and how it could be more transparent and fair?

[Daniel Béland]

I've been writing about that for a long time with my colleague André Lecours, from the University of Ottawa. I can send you some documents about it.

I think that having a permanent arm's-length commission that will make recommendations to Parliament on equalization payments on a regular basis would be more transparent. It's something they do in other countries, such as Australia. They will report every year on how they calculate equalization payments and the choices they make. Between these reports, they will go across the country and consult with provinces about their fiscal needs and their perspectives, as well as with business groups and other civil society actors. I think—

[Greg McLean, Conservative, Calgary Centre, AB]

I'm sorry, Mr. Béland, but I have to interrupt you because you're not getting to the specifics we need here right now.

Let me go back to Mr. Robson.

Mr. Robson, you talked about the fact you that you were a professor who taught about equalization and that it's become so complex that you can't even teach it anymore, because it doesn't make sense—if I can paraphrase what you said here. You talked about the level of gamesmanship played by the different levels of government—and I presume that's the federal government and different governments that use certain input mechanisms to make sure they continue to profit from the system—and you said that it impacts the trust that Canadians feel in the system.

Can you tell us about the impacts on a country of citizens losing trust in the system?

[William Robson]

Well, it's clear that one thing that particularly bothers people is the feeling that they're being taken advantage of. There have been a few references to that over the course of this conversation.

When you look at the original structure of the equalization program—

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

The time is up.

Closing off this round, we have Mr. Lavoie for five minutes.

[Steeve Lavoie, Liberal, Beauport—Limoilou, QC]

Thank you, Mr. Chair. Thank you to the witnesses for joining us today.

When we prepare for our meetings, as we did this morning, we often prepare a lot of questions to ask, and things often evolve over the course of our discussions.

My first question is for Mr. Béland. I'd like to go back to equalization. Let me play devil's advocate. You'll see where I'm going with this, and you'll help me.

In my former life, I often witnessed situations where systems had not evolved and no longer seemed adapted to the current reality or to meet needs. I also heard a witness say that, if we're going to do it, everything should be simplified.

At first glance, the suggestion of consulting experts and changing everything is appealing. However, based on what I've experienced and found out, new systems often create new problems that don't solve the situation, but make it worse. How can we have a full guarantee, even if nothing's guaranteed, that conducting studies to change all that will improve the situation? Do you think there are any guarantees to using a group of experts to study the situation and make changes, and will things be better?

That's my question and I look forward to your answer. Thank you, Mr. Béland.

[Daniel Béland]

You're right to say that every change to equalization will necessarily bring a certain level of controversy. We saw it in 2006. You may remember Danny Williams, from Newfoundland, who rose against the formula. In Saskatchewan as well, the NDP government wasn't too happy with certain aspects of the changes to equalization.

I think that's the mandate we would give this group of experts. It has to be broad so that, instead of just trying something or gradually changing the system, we can really look at all the possibilities based on the Constitution, and make general proposals on various possibilities, even some that might go beyond the equalization program we're familiar with. Rather than just changing the formula, it would be a matter of telling people what the possibilities are. There are three or four options, the group could obviously recommend one, but it would be up to the government and Parliament to decide. However, it has to be a transparent process and experts have to take their time and really look at what's being done elsewhere.

We're often too “provincial”. I apologize for using that word because it might have a different meaning in Canada, but I think there are countries where things are done in a more effective or transparent manner than here. We have to look at what's being done in Switzerland or Australia, among others, and produce a real document accessible to all Canadians so we can take a step back and think. This is an extremely political issue. When we talk about money, it's obviously always very political.

[Steeve Lavoie, Liberal, Beauport—Limoilou, QC]

Absolutely. As I said when I was talking about guarantees, we can never guarantee everything, but we don't want to open Pandora's box. You talked about the Constitution, but aside from that, what objectives or guidelines would you put in place to make sure things work?

Opening Pandora's box can send us in any direction without necessarily making things better. What safeguards would you put in place, or what goals would need to be achieved to make sure things are going in the right direction?

[Daniel Béland]

First, because this issue always makes provinces anxious, especially those that receive equalization, we could say the new system won't penalize any of them. Obviously, that can create constraints for the experts working on this, but it can also reassure a lot of people, since most provinces currently receive equalization. Based on that, we can still be very creative, do a lot to improve the program, without necessarily making many Canadian provinces anxious.

[Steeve Lavoie, Liberal, Beauport—Limoilou, QC]

In closing, do you have any tangible ideas? There are only a few seconds left.

[Daniel Béland]

I talked about considering an equalization system where the costs of services are based on demographic factors, such as population aging or density, and not just fiscal capacity.

[Steeve Lavoie, Liberal, Beauport—Limoilou, QC]

Thank you very much.

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Thank you. That's the end of this panel. I want to thank all the witnesses for being here.

We'll suspend for a few minutes to welcome the next witnesses.

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Welcome back, colleagues. We'll resume the meeting.

I would like to welcome our witnesses.

I'd like to remind participants of the following points. Just wait for me to call your name before you speak, and I remind you that all comments should be addressed through the chair.

Witnesses, you'll have five minutes for your opening remarks, after which we will open the floor to questions.

We have officials from the Department of Finance.

You have five minutes for your opening remarks.

[Galen Countryman, Director General, Federal-Provincial Relations and Social Policy Branch, Department of Finance]

Good morning. My name is Galen Countryman. I'm the director general of the federal-provincial relations division at Finance Canada.

I am joined today by my colleagues Thomas Larouche, director general, budget and government operations; Nelson Paterson, director general, economic studies and policy analysis; and Suzanne Kennedy, senior director, equalization and territorial formula financing policy.

The branch is responsible for the administration and oversight of Canada's four major transfer programs: the Canada health transfer, the Canada social transfer, the equalization program and the territorial formula financing.

In 2026-27, these major transfers will total $108.3 billion. Together, the major transfers represent one of the largest expenditure envelopes in the federal budget.

They are designed to provide predictable, stable and equitable funding across jurisdictions.

Major transfers are largely unconditional. I will specify the potential conditions for each of them individually.

Provinces and territories are accountable to their electorates regarding how they decide to use the funds. The Federal-Provincial Fiscal Arrangements Act and its regulations set out the specific methodologies, formulas and data requirements for calculating the various payments under the major transfer programs.

The Canada health transfer, or CHT, provides predictable long-term funding for health care and supports the principles of the Canada Health Act.

In 2026‑27, CHT payments will total $57.4 billion. CHT payments are allocated on an equal per capita basis. The CHT has a growth guarantee of at least 5% annually until 2027‑28. Starting in 2028‑29, CHT growth will return to a three-year moving average of nominal gross domestic product growth, with funding guaranteed to increase by at least 3% per year.

The Canada social transfer, or CST, aims to support three broad areas of social programs: post-secondary education, social assistance and social services, as well as early childhood development and early learning and child care.

The CST is provided to provinces and territories on a largely unconditional basis, with the exception of a minimum residency requirement for the provision of social assistance.

In 2026-27, the CST will total $17.9 billion. Like the CHT, the CST is allocated on an equal per capita basis, and CST funding is legislated to grow by 3% annually.

The federal government's equalization program deals with fiscal disparities between provinces. The principle behind equalization payments is to provide provincial governments with sufficient revenues to provide reasonably comparable levels of public services and taxation.

In 2026‑27, equalization payments will total $27.2 billion. Equalization payments are unconditional. Recipient provinces can use them at their discretion according to their own priorities.

The current formula is largely based on recommendations from the 2006 report of the Expert Panel on Equalization and Territorial Formula Financing. Payments for the entire program increase every year based on the three-year moving average of nominal gross domestic product growth.

Territorial formula financing, or TFF, is an unconditional transfer from the Government of Canada to the three territorial governments to enable them to provide their residents with a range of public services comparable to those offered by provincial governments at comparable levels of taxation. In 2026-27, TFF will total $5.8 billion. The current formula is largely based on recommendations from the 2006 report from the expert panel on equalization and territorial formula financing.

In addition to the major transfers, the division also manages the fiscal stabilization program and statutory subsidies. The fiscal stabilization program provides financial assistance to provinces that are facing significant year-over-year declines in their revenues resulting from extraordinary economic downturns. Statutory subsidies are provided as a result of how Canada developed as a federation. Most were legislated at the time of Confederation or when a province joined Canada. In 2026-27, they will total $45 million.

As well, the federal government provides a range of transfers to provinces and territories to address specific issues.

Transfers can come with conditions and reporting requirements designed, administered and overseen by the appropriate department. Some examples include early learning and child care, labour market transfers administered by Employment and Social Development Canada, targeted funding administered by Health Canada—

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Thank you, Mr. Countryman. That's five minutes.

We'll start our first round.

We have Mr. McLean for six minutes.

[Greg McLean, Conservative, Calgary Centre, AB]

Officials, welcome. Thank you for coming today.

This goes to the heart of what we're talking about in the equalization problem we have in the country, and I say that because it is a problem. Let's look at the way you actually calculate equalization. You calculate it, as you said, with reasonable levels of services at reasonable levels of taxation. When you determine that formula, you go toward the median or the mean, as the case may be, and you determine that effectively one province that might have lower taxation gets a larger economy. This is the thing that happens here. A province with a higher level of taxation doesn't have as much of an economy, and therefore doesn't have as much corporate or personal income tax revenue coming in to pay for their services, whereas the lower-tax province actually has a higher labour force participation and a higher taxation revenue as a result.

To erase that with an equalization system that says, okay, this would be the amount of taxes you pay based on the economy you actually have at this point in time, and you transfer that around, as if you could just do that.... The problem is that if you had a higher level of taxation in those low-tax provinces, you wouldn't have that much tax revenue. You wouldn't have that much economy. You wouldn't have that level of labour participation.

Do you see the circular contradiction you're going through in even determining the formula that way?