Debates of Feb. 8th, 1994

Questions On The Order Paper

[Peter Milliken, Liberal, Parliamentary Secretary to Leader of the Government in the House of Commons]

Mr. Speaker, I would ask that all questions be allowed to stand.

[The Deputy Speaker]

Shall all questions stand?

[Some hon. members]

Agreed.

Federal-Provincial Fiscal Arrangements And Federal Post-Secondary Education And Health Contributions Act

[Fernand Robichaud, Liberal, for the Minister of Finance]

moved that Bill C-3, an act to amend the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act, be read the second time and referred to a committee.

[Peter Milliken, Liberal, Parliamentary Secretary to Leader of the Government in the House of Commons]

Mr. Speaker, I am pleased to have the opportunity to debate Bill C-3 at second reading. It amends the Federal-Provincial Fiscal Arrangements Act and Federal Post-Secondary Education and Health Contributions Act.

Bill C-3 is centred on the renewal of the equalization program, which is in fact the cornerstone of fiscal federalism in Canada. The objective of equalization, whose principle is enshrined in the Canadian Constitution, is to enable provincial governments to offer to the Canadian people fairly comparable public service levels at fairly comparable tax levels.

Equalization has a long tradition. It was established as a program in 1957. Even here the wartime and post-war tax rental agreements implicitly equalized provincial revenues. Indeed in 1867 higher statutory subsidies were paid to Nova Scotia and New Brunswick than Ontario and Quebec in recognition of their disproportionate loss of customs duties and excise taxes upon entry into Confederation.

Because equalization is paid only to the less wealthy provinces, it is the most progressive of the major federal transfers to the provinces. In 1994-95 it is anticipated that the government will provide about $8.5 billion in equalization to receiving provinces. This means that a provincial government along with its local governments that levies average rates of tax will have per capita revenues of $5,000 from taxes and equalization to fund public services.

However as we all know the context for this year's renewal of equalization is unprecedented. The federal government's fiscal situation is worse today than in 1992 and much worse than in 1987 and 1982, previous times of equalization renewal.

In our deliberations on renewing equalization we have balanced the need to be fiscally responsible with the singular role of equalization in underpinning the unique sense of Canadian sharing.

I think the bill is moving in that direction. It calls for an increase in equalization payments of 5.5 per cent a year for the next five years. It also provides for several changes to the tax base in order to update and improve the measurement of provincial tax capacity, which is essential to maintain the equity of the program. For the provinces these tax base updates will translate into gains of about $165 million next year and some $900 million in the next five years.

In addition, the government has promised the provinces not to amend this formula in the next five years. The provinces will then be able to plan their budgets in a stable climate.

Clearly the renewal package has to be affordable. This is why we have retained a ceiling on equalization, one that will be effective in providing protection to the federal government's ability to finance the program. The ceiling limits the cumulative growth in equalization to no more than the growth of the economy from a base year. This means for example if the economy grows 5 per cent from the base in the first year, equalization can grow no more than 5 per cent. If in the second year the economy grows a further 5 per cent, the cumulative or total two-year growth of equalization is 10 per cent.

The year 1992-93 has been retained as the base. It is a year of relatively modest equalization payout. Unlike previous equalization renewals where the first year of the term was not subject to a ceiling constraint and in fact set the base year, we have put a limit on the payout for the first year. In current fiscal circumstances it is simply not appropriate to have an open-ended first year. Having 1992-93 as the base year uses a year where the data

are close to final, that is to say subject to little revision. This will provide more certainty on payments for both the federal government and the provinces.

Now let me go into some details of the bill.

First, equalization will be renewed for the next five years. Given the commitment to maintain the structure of the formula, this will give more stability to the provinces receiving equalization payments.

Second, the level of the five provinces, namely Quebec, Ontario, Manitoba, Saskatchewan and British Columbia, whose provincial fiscal capacity is being raised will be maintained.

Third, as I said earlier, the ceiling based on the 1992-93 fiscal year will stay in place.

Fourth, the program floors will remain unchanged. The floors provide protection to provinces against large year to year declines in equalization.

Fifth, certain tax base changes to update the measurement of the provinces' fiscal capacity will be introduced. This is essential to maintain the integrity of the program.

Sixth, the legislation will contain a means to alleviate excessive reductions in equalization for provinces with specific and exceptionally large proportions of the tax base for certain natural resources. This will remove a longstanding irritant to the provinces on this so-called tax back issue.

Finally it is important to note the base for the ceiling will be adjusted so that the provinces can benefit from the tax base updates and tax back even if the ceiling applies.

In closing, passage of this bill will have beneficial effects for Canadians and the provincial governments, providing essential services to them. It will provide for the next five years a stable funding regime for equalization. It will provide substantial support for the less wealthy provinces, underscoring the priority the government puts on equalization. It maintains the fairness and equity of the program and it is fiscally responsible. It is fully consistent with the government's deficit target.

I commend the bill for the consideration of the House. I hope with co-operation from all sides we can obtain second reading of the bill promptly this day so that it can be studied in detail in the standing committee.

[The Deputy Speaker]

I wish to inform the House that because of the ministerial statement, Government Orders will be extended by 39 minutes, pursuant to Standing Order 33(2)(b).

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Mr. Speaker, I am pleased to share with you the Bloc Quebecois's opinion on Bill C-3, to renew the Canadian equalization program.

First of all, we cannot properly appreciate this bill and its impact and propose amendments to it and deletions from it without considering equalization among the other kinds of transfers made by the Government of Canada to the provinces. Besides equalization, these federal transfers are established programs financing, which is the federal contribution to provincial health and post-secondary education programs, and shared cost programs, of which the Canada Assistance Plan is the most important.

Nor is it desirable to analyze this bill without looking at the reason behind equalization, which was entrenched in the 1982 Constitution, a Constitution that Quebec has not approved, by the way. By reviewing these two aspects of federal transfers, we will be able to demonstrate clearly that from the time ceilings were imposed in 1982, this equalization program no longer meets the objectives for which it was established. An examination of the other transfers will complete our analysis and show the need for a complete review of federal transfers. It will show the bankruptcy of fiscal federalism as designed on the basis of the Rowell-Sirois report of 1941, which I had an opportunity to analyze in my youth at university.

The spirit of the Rowell-Sirois report is mocked by the doings of this government and the previous one. For example, transfers help provinces which need them least. Is it any surprise that the gap between rich and poor provinces has been growing in the last ten years or so?

Indeed a close examination of the way federal transfers work reveals that since the mid-eighties transfers have increased more rapidly in the well-to-do provinces, namely Ontario, Alberta and British Columbia, than in the poor provinces, which should logically be the ones benefitting from such transfers. For example, between 1984 and 1991, total federal transfers have, on average, increased by 6.9 per cent per year for Ontario, and by 3.1 per cent only for Quebec. And Quebec is considered a not so well-to-do province.

Why do we have this situation, which I find absurd? Simply because of the very nature of federal programs, because of the federal withdrawal and, more specifically, because of the failure of Canadian fiscal federalism.

Let us take a closer look at the situation; let us examine each program, one at a time, starting with equalization. As the hon. member opposite said, the purpose of federal equalization is to reduce disparities between provincial governments regarding their ability to collect taxes and to impose taxes on their

territory, so that they can provide uniform services among them, such as regular public services. This capacity is measured by using various provincial and municipal taxes. And, as the document prepared by the federal Department of Finance says, equalization payments are calculated by using a formula established in the federal legislation. First, revenues which each province could draw from a typical, and therefore theoretical, tax base are calculated. Then, the overall ability of each province, on a per capita basis, to draw revenues from these sources is compared to a "representative standard", which is based on the fiscal capacity of the five provinces-this standard is currently estimated at $4,800 per capita, or roughly $5,000. If the total per capita capacity of a province is below that standard, federal equalization payments are used to bring revenues to that standard, so as to standardize the ability to provide public services.

In theory, based on this calculation, the average fiscal capacity of the seven poorest provinces should be more similar after making equalization payments to enable those provinces to provide comparable public services. In fact however, this is not the case at all.

Since 1988-89, because of the ceilings set, payments made to provinces do not enable them to reach that representative standard. According to the terms of these ceiling provisions, equalization entitlements of all the beneficiary provinces can no longer increase more rapidly than the economy, as measured by the gross national product. The ceiling for equalization was used twice in recent years: once in 1988-89, and again in 1990-91, in the middle of a recession that hit hard the economy of Canadian provinces, and especially that of Quebec.

During those two periods, this ceiling translated into a loss of revenue of more than $2.9 billion for the beneficiary provinces. I might add that Quebec, because of its distinctive features, especially from a demographic point of view, absorbed more than 60 per cent of that loss, including $1.8 billion for 1992-93 alone.

Mr. Speaker, you will remember, as will the members who are here, that this situation is what triggered the famous retroactive tax of the previous Minister of Finance in Quebec, the late Gérard D. Lévesque. So, by extending this ceiling on equalization, the federal government is once again putting Canadian provinces in a difficult position.

Moreover, this ceiling reduced the transfers that provinces should have received to maintain their fiscal capacity standard, so much so in fact that this capacity currently varies by as much as 12 per cent between have and have-not provinces. That finding is not mine, nor that of my colleagues from the Bloc Quebecois. This statement was made by a great federalist from Quebec, the present Minister of Finance of that province,Mr. Bourbeau, who, when it was announced that the equalization agreement was being extended, made some veiled criticisms, since a great federalist does not lash out at one of his colleagues, but he nevertheless criticized the government for extending the application of this ceiling.

This ceiling deals a blow to fiscal federalism as well as the Rowell-Sirois principles. Equalization has not been reaching the federative goal set originally, especially since the end of the Second World War.

Let us now examine established programs financing, another main element of the federal transfer program. Established programs financing represent the federal health and post-secondary education contributions to the provinces. Yet, the federal withdrawal from this area has been quite obvious. Since 1982, the federal government has been gradually opting out of established programs financing. For example, in 1990-91, basic contribution per capita was frozen to the 1989-90 level for fiscal years 1990-91 to 1994-95.

This freeze and the equal per capita cuts arising from this overall reduction program hit the have-not provinces more harshly. Again, not only is equalization not aiming for the goals originally set when the system was created, but even the other transfer programs are not as fair to the have-not provinces as they are to the have provinces.

In fact, since the average income of taxpayers is lower in the have-not provinces than in the rich provinces, the poorer provinces are less able to levy taxes even after equalization, with a current difference of 12 per cent, as we saw earlier.

Thus the have-not provinces must raise their tax rate more than the others to be able to maintain the health care and post-secondary education they offer their own people through the established programs financing.

The situation gets even worse when the equalization ceiling is reached as is the case since 1988-89, that is, when needs exceed the nominal GNP growth. Indeed, the additional revenues levied by the provinces do not bring additional equalization and the poorer provinces must make a greater effort than the others to levy even one dollar more per capita. In Quebec, for example, the loss in revenues resulting from all the changes made to the established programs financing since 1982 amounts to $1.8 billion for fiscal year 1993-94.

Since established programs financing provides for equal per capita transfers, another kind of unfairness has developed over the years in that 59 per cent of the funds are handed to the three richest provinces in Canada. As we have seen earlier, all of the transfer programs were originally meant to help the have-not provinces.

As for the shared cost programs, their operation raises the same kind of problems. The majority of existing programs do not do enough to reduce economic disparities in Canada since they favour the provinces that have a greater fiscal capacity and can afford a higher level of services. Again, the richer provinces are favoured by cost-shared programs.

Second type of problem, the fact that the federal government uses its spending power in various areas-and Quebec is well aware of this situation-leads to overlap, duplication and conflicting priorities which, in turn, unquestionably lead to a waste of public funds.

Third type of problem, here again, as was the case with the two previous programs, we are witnessing the progressive withdrawal of the federal government from several areas in which it had encouraged the provinces to make commitments. The circumstances are always the same. Because of its spending power, the federal government gets involved in areas that should be under provincial jurisdiction. Then, it decides that it does not want to be involved any more or that it cannot afford to be involved any more. Since its involvement has created a need over the years, its withdrawal forces the provinces to honour the commitment previously shared with the federal government.

Among cost shared programs, the Canada Assistance Plan is the most important of all federal transfer programs. If my memory serves me correctly, transfers under this program totalled $7.8 billion this year.

The Canada Assistance Plan, commonly known as CAP or the federal contribution to social assistance, is a good illustration of the problems associated with shared costs programs: first, the lack of explicit consideration of the gaps in needs and financial resources between provinces; second, the obligation for provinces to spend in accordance with the rules set under the plan, known otherwise as national standards that we traditionally have disliked in Quebec; third, inefficient management; and fourth, high administrative costs. Here again we have an absurd situation as far as shared cost programs are concerned, a situation that makes one question the value and strength of Canadian fiscal federalism.

Between 1984-1985 and 1989-1990, for example, federal transfer payments under the Canada Assistance Plan have grown at an annual rate of 11 per cent in the more advantaged provinces. Over the same period the less advantaged provinces showed an annual growth rate of 4.3 per cent only. As for Quebec, the growth rate was even less than the general average for the less advantaged provinces, amounting to 3.3 per cent over the same period.

In the budget speech for 1990-1991, the federal government announced that it was also setting a 5 per cent cap on the growth of its transfer payments under the Canada Assistance Plan. This capping contributed to reducing the share received by the more advantaged provinces-thank goodness for that ceiling-which decreased from 55.1 per cent in 1989-1990 to 50.2 per cent in 1992-1993. But we are talking about a lot of money. A shared cost program such as the Canada Assistance Plan provides more than half the funds to provinces that need them the least, that is the richest provinces in Canada. That is why the federal transfer payment system is flawed.

The shared cost programs include many other programs besides the Canada Assistance Plan. In 1992-93, there were more than 60 federal-provincial agreements under which Quebec, as well as all the other Canadian provinces, were getting transfer payments. Since the early 1980s, the federal government has opted out from many of these programs, as it did with previous programs, so that provincial governments, including Quebec, are now in a very difficult position which is also forcing them to raise taxes, while the federal government washes its hands of the matter.

What are we doing with Bill C-3? What we are doing is carrying on with all the problems that I mentioned to you, the almost absurd problems in transfers to rich provinces as opposed to poor provinces. So we carry on with this nonsense by attacking only one type of these transfers which is called equalization. The government sticks to the same absurd position by keeping the ceiling previously established, a position which misrepresents the role that equalization payments should play.

The Bloc Quebecois is opposed to Bill C-3, because it simply renews the ceiling on equalization payments. This Bill is contrary to the goal of equalization payments which is to reduce the differences in the ability to raise taxes between the better-off provinces and the less well-off provinces .

If the government is unwilling to remove the ceiling it should, like the previous government, acknowledge the fact that it is putting into question the goal of equalization payments and the principle of fiscal federalism expressed in the 1941 Rowell-Sirois report.

The ceiling, when it applies, reduces the transfer payments that a province would have received otherwise to maintain the same standard of fiscal capacity as the other provinces. I will quote the Quebec Minister of Finance, although it is not very often that I refer to Mr. Bourbeau. Mr. Bourbeau said, in referring to the ceiling, that today there was a difference in fiscal capacity of about 12 per cent between the wealthier provinces and the poorer provinces, after equalization. The question therefore arises whether the poorer provinces are really in a position to provide public services comparable in quality to those offered in the wealthier provinces, and at comparable tax rates.

For a committed federalist to raise this issue, which goes to the very heart of Canadian federalism, is a clear indication that it is a problem that must be dealt with quickly, as soon as it reaches the Finance Committee with Bill C-3.

We must not forget that, as I said before, the ceiling applied from 1988-89 to 1990-91 caused recipient provinces to suffer a potential loss of over $2.9 billion. In this case, recipient provinces means those that are least able to absorb these tax losses. Quebec absorbed 60 per cent of this potential loss and thus suffered a loss of $1.8 billion in revenue.

Assuming that the GDP annual growth rate will be between 5 per cent and 6 per cent per fiscal year, the federal Department of Finance expects that applying the current ceiling provided in Bill C-3 will cause the recipient and thus poorer provinces to lose nearly $1.5 billion over the next five years. Quebec will again absorb 60 per cent or nearly $900 million.

Earlier, I had to smile when I heard the hon. member say that a change in the reference tax base used to establish equalization amounts for each province would give another $300 million to the poorest provinces and about $70 million to the province of Quebec. The mere fact of extending the ceiling for the next five years will cause Quebec alone to lose $900 million. If we take this loss of $900 million and subtract about $300 million gained over the next five years as a result of redefining the tax base, the result is still a net loss of $600 million for Quebec alone.

This will only happen if the forecast growth of nominal GDP over the next five years-the optimistic forecast made by the federal Department of Finance-is accurate. Recently I have seen figures of 5 to 6 per cent. In particular, a number of organizations in Quebec were talking about growth of around 4 per cent, so if we have 4 per cent growth and if there is a 4 per cent ceiling on equalization payments, losses may be well in excess of the figures I just mentioned.

The federal government, by tabling Bill C-3 and ignoring all the problems, incongruities and even absurdities found in other federal transfer payments, has made it clear that, like the previous government, it intends to shift the burden of the deficit onto the provinces and, by the same token, undermine the grand design of federal equalization. Like the Conservatives, this government will let the provincial governments take the blame for tax increases and wash its hands like Pontius Pilate.

[An hon. member]

Blameless.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Absolutely. Like Pontius Pilate.

If I were a federalist, I would recommend a complete overhaul of the transfer payment system and go back to the position taken in 1941 an expressed so well in the Rowell-Sirois report. However, I am not. And even the most committed federalists are starting to have doubts about the effectiveness of the tax system and Canadian fiscal federalism.

I am a sovereigntist, like the Bloc Quebecois. To us, the best reform would be to give Quebec its sovereignty, and we cannot repeat this often enough.

If one looks at the mix-up there is in standards, federal transfer payments, the necessity to respect national standards, duplications, overlapping, et cetera, only one solution comes to mind and that is the redefining of the relationship between Quebec and Canada, the establishment of a new relationship which would allow a sovereign Quebec to adopt consistent policies on income security, policies combining income security with education programs and manpower training; a new relationship where there would be only one stakeholder and not two who sometimes implement contradictory measures which cancel one another.

Just think how much we could reduce disparities between regions, income levels and generations that constitute a major problem in developed countries today. Think of all the possibilities we could have in Quebec and in Canada if we would only review the federal transfer programs, of all the opportunities there would be for us to face today's great modern challenges like globalization and job creation-jobs, jobs, jobs. We are also concerned about jobs considering all the measures that have been on our mind for almost two decades if not three.

We will contribute nevertheless, as we have said since the beginning, since we have taken on our role as Official Opposition in a responsible and efficient manner; we will continue to play that role and when Bill C-3 is referred to the finance committee, we will propose, among other things, that the equalization ceiling be removed.

In conclusion, I would like to add a few elements to the evaluation of equalization and other federal transfer payments. A word of warning for my colleagues from other parties. Let no one come and tell us, during the debate on equalization in this House or during the finance committee proceedings, that Quebec receives more than its share of equalization and transfer payments, that Quebec receives more than its share of the Canada Assistance Plan and therefore of social assistance. Quebec does not need equalization payments nor does it need CAP, and it definitely does not need equalization payments rendered useless since being capped. What Quebec needs is a strong, well structured and vibrant economy providing it with the necessary tax revenues. That is what Quebec needs. It is jobs we want in Quebec, not the Canada Assistance Plan.

Let us consider the surplus Quebec gets from the Canada Assistance Plan and the supposed surplus from equalization payments, since there are losses and shortfalls in that area, and let us compare them with the losses Quebec incurs because of unfair distribution of federal funds in terms of productive investments, that is to say federal investments in, for instance, research and development. In the past 30 years, Quebec has been receiving between 13 and 18 per cent of all federal R and D funding, both intra and extramuros. Let us figure what this loss of revenue means, not so much in accounting terms, but in terms of lost opportunities.

What would the situation be today in Quebec if it were not for this unfair distribution of R and D transfer payments? Would Quebec be one of the have-not provinces now, supposedly being helped by a sham of an equalization system, or would it be able to have sufficient tax revenues, just like Ontario does? For the last 30 years, Ontario has been receiving around 50 per cent of all federal funding. And you would have us believe that it has nothing to do with a weaker economy in Quebec?

Having said this, we will do our best to defeat or amend Bill C-3 when it goes to the finance committee, and as I mentioned a little bit earlier, we will fight against the continued capping of equalization payments. We will strive to bring about changes to help our Canadian friends to take better advantage of a system that might have been excellent at the start but which now borders on the absurd.

[The Deputy Speaker]

Since there are no questions or comments following what the spokesman for the Official Opposition said, I recognize the Reform Party. The hon. member for Calgary West.

[Stephen Harper, Reform, Calgary West, AB]

Mr. Speaker, I rise to lead off our party's contribution to this debate on amendments to the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act. In Bill C-3 we are discussing amendments or renewal of the equalization program.

As I understand it this bill does several things. The parliamentary secretary alluded to these and I will repeat them. It renews the current equalization program to the end of fiscal 1999. It retains the GDP ceiling on equalization transfers. It makes some changes to tax base calculations in the formula tax base updates. It provides relief on tax back of some unique resource capacities in certain provinces.

Under this bill equalization payments are projected to grow from $8.4 billion this year to about $10.4 billion by the end of the century. That will be an annual growth rate of about 5 per cent per year. It includes about 2 per cent additional growth that is being added by the measures in the bill. Because of the cost of the program, rather than the particulars of the formula or some of the elements of the bill, our finance committee within the Reform caucus has recommended to Reform MPs that they oppose this bill at second reading.

During the past election our party campaigned-and I have made reference to this several times-on the need to undertake a dramatic program of expenditure reduction to get us on the path to long run financial sustainability of all our most valuable programs. It was the zero in three plan to balance the budget within the life of this Parliament.

In that plan we have projected and continue to maintain that spending at the national level is at least 15 per cent above our long run ability to sustain it. We have attempted to examine categories of spending and we will continue to do so, including spending on social programs and within that transfer programs to the provinces.

The zero in three program proposed relatively small cuts in these areas. That was the feedback we received through consultation with the public. In fact we had proposed only reducing federal transfers to the provinces by about 5 per cent of the total from this level of government or about $1.5 billion. Another way to put it would be about 1 per cent of provincial tax revenues.

Let me review what we are talking about in this particular envelope of spending. I am quoting from a recent publication of the Department of Finance. It states that in fiscal year 1992-93 this category of spending would include such things as established programs financing in the health care field, $8.3 billion; the equalization program discussed in this bill, $7.4 billion; Canada Assistance Plan transfers, $6.7 billion; established programs financing transfers for post-secondary education, $2.9 billion; and various other transfers, the so-called minor transfers.

Things become minor when they are less than $1 billion. That includes significant transfers to territorial governments, all of which total according to the documents roughly $28 billion that fiscal year. That does not include tax point transfers which add considerably to the total. We are talking about one-quarter of all program spending and more than that if we take into account the tax points.

As I indicated, people did not want to target the area of social programs and transfers generally for reductions. However given that these are now two-thirds of all current spending, it is hard to avoid some kind of action in these areas.

In developing our program we found that what people wanted to preserve most strongly were the funds dedicated specifically to the maintenance of health and post-secondary education programs. The public felt there was some room to reduce

transfer payments toward such things as equalization and the Canada assistance plan.

I suspect the reason for the less strong support for those programs as compared to the others was not just the nature of the programs but the fact that these two programs have strong discriminatory elements that are funded more favourably in some provinces than in others.

I do not want to say that the bill costs too much but I would specifically suggest to the government this alternative. We have proposed that equalization payments should be reduced by about 10 per cent at some point and that these reductions should focus on middle income rather than on the poorest provinces. Something like this could be achieved by reducing the equalization standard to less than 100 per cent of the average fiscal capacity. If one says in the range of 98 per cent to 99 per cent that would achieve the objective.

More important, it would retain the principle of equalization which is not only something we support but which is embedded in the Constitution Act, 1982, which our party recognizes and which other parties do not necessarily recognize. Under our proposal one would retain inflation protection in the growth of formulas over the long term.

I would also suggest that other elements of the equalization formula and calculation should be examined both on grounds of fairness as well as some of the incentive issues in these various programs.

We will be voting on this later this afternoon. We will be voting on looking at fairness and incentive issues in the structure of transfer programs, largely the transfers to individuals such as welfare and unemployment insurance. We will be looking at those kinds of programs.

I would suggest a similar study is warranted in this area. My colleagues will be commenting at greater length later today on some of these problems. Let me give a couple of examples.

The formula used now assigns Alberta, which is not a recipient province, a 25 per cent higher fiscal capacity than the province of Ontario. While this obviously is not going to have a direct impact this year as neither are recipient provinces, I would suggest it clearly indicates some bizarre functioning in the calculations. Alberta does not have a 25 per cent higher fiscal capacity than the province of Ontario.

I would also note that the way this program has increasingly operated, the costs are now linked to economic growth. In other words there is a tendency for the payments under this formula to be limited at precisely the time that provinces are having difficulty with their revenues.

During boom times the ceiling operates in a way that would allow provinces to collect greater revenue in federal transfers. That would seem to me to be something that should be examined in terms of the efficacy of the equalization program.

Maybe I could spend a few minutes commenting on the bill in a little more detail in light of the Liberal position. I have found it somewhat strange that the Minister of Finance would announce he is going ahead with a guarantee on this program and these sets of funds when he has indicated he is reviewing other major transfer programs to the provinces and there is no necessary guarantee at this moment they would be renewed in their current form. That is a series of priorities I have trouble understanding. It is obviously not consistent with our party's priorities. It seems particularly inconsistent with the fact that we are waiting for a budget and most of these issues are soon to be addressed. I do not understand why this particular program has been guaranteed in advance before the budget consultations have been completed.

I can say some things on the positive side, though, in terms of the specific elements. I would like to commend some of the smaller changes, in particular the excessive tax back provision element of this bill. That at least conceptually will move us toward a somewhat fairer system, even if the dollars involved immediately are not terribly significant.

I also would like to urge the government to continue what the previous government did in 1982, that is retain the GDP ceiling. Obviously we would like to see stronger reductions in that, but it is necessary for the federal government to protect itself against a situation in which it would be liable for open ended transfers.

Maybe I could also take a minute to comment briefly on the position of the Bloc Quebecois and on some of the comments that were made by the critic from that party. It is important that we say these things. I do not want to get into these regional kinds of debate at great lengths, but we should be really clear here. I am sure members of the government will agree with me. We are discussing here a very major transfer program of Confederation, and one that is mandated under the Constitution Act, 1982.

Regardless of our differences with the government on the cost, what we are talking about is a program that is going to cost $8.4 billion in the upcoming fiscal year. Of that $8.4 billion, $3.7 billion or 45 per cent of those funds is targeted for the province of Quebec.

My constituents pay into this and our provincial government receives nothing. Surely the appropriate response is not to say it is not enough, but we have serious problems in the country, not just with our annual deficit but with the $500 billion of debt that we have accumulated. Whether we have a major constitutional reform or even the sovereignty of Quebec as the Bloc Quebecois would like, surely we recognize we are going to be stuck managing this debt for decades to come. I would anticipate that

at some point we will get some realistic discussion of how to deal with that and the impact of that from all the parties in this House.

I am floored by some of the comments that I have heard. I would urge the government to consider something that we asked for in the previous Parliament. Our caucus had asked that the government publish regularly the regional and provincial distributions of its tax expenditure and transfer policies so that those things are on paper and clear, so that we can see the impact of changes on provinces and so that we can have this kind of discussion in a rational atmosphere rather than it becoming simply a matter of scoring points in a particular province.

We have done considerable work in this area to get a greater understanding of these kinds of considerations. Let us be clear about it once again. To assist in the running of the government in the province of Quebec $3.7 billion is being voted here. It is a principle we share, an equalization payment, because there is a lower fiscal capacity in that province. Let us be clear that this is what this bill does. I am also looking for some realistic discussion of this in the next couple of years. Let us be clear that the option the Bloc Quebecois is proposing to deal with this, the sovereignty of Quebec, would result in the province of Quebec receiving zero.

I am really looking forward to the day we begin to discuss both sides of the argument and, in a much more realistic fashion, these kinds of considerations.

In concluding my remarks I would urge the House to reconsider Bill C-3 and to reconsider at this point committing to a growth in our financial commitments that will amount to $2 billion over the next five years before we have even had presented a financial framework.

I am under no particular illusion that our colleagues on either side of the House are going to support such reduction proposals. I do not think the time has come yet when all parties are willing to bite the bullet. I would at least suggest that the Liberals give this some consideration as in the upcoming months and year they have to grapple more seriously with the financial mess of the country.

We will be discussing the bill in committee and at third reading. In the meantime there will be a budget. We also will be examining our position on this matter in light of the budget, in light of the data we get out of that, and in light of proposals we have and we are expecting in areas of other fiscal transfers.

Once again, we will examine this in light of our deteriorating financial situation. In the meantime I believe my colleagues will be opposing this extended financial commitment.

[Benoît Tremblay, Bloc, Rosemont, QC]

Mr. Speaker, I have a question concerning the speech made by the member for Calgary West. What would be the fiscal capability of the western provinces if the federal government did not pay $2 million to $3 million for the wheat?

[Stephen Harper, Reform, Calgary West, AB]

Mr. Speaker, I am not sure precisely what the question is driving at. I think the member is asking me what would be the effect on the western provinces if there were not bridge payments in the event of the kind of agricultural crises that have occurred in the prairies.

In the context of the current equalization program Saskatchewan and Manitoba are recipients of this particular program. Other provinces and individuals are also recipients of other transfer payments.

The member alluded to one in particular. There are contributions that all governments and individuals make to certain agricultural stabilization programs. There are also periodically payments under those, an emergency payment under those. Obviously if those things did not come to pass in a timely fashion the impact would be negative. Nobody doubts that and nobody is debating the principle of there being fiscal sharing when that is appropriate.

I have suggested today to the government, and I will reassert that particular suggestion, that we begin to publish in an objective manner the comprehensive effects of these things on all provinces, not just individual programs. We can all point to programs in which we are short changed or there is a special consideration. Let us officially, through the Department of Finance, begin to regularly have this kind of analysis so that we can discuss these issues in a rational manner.

In short response to the member's question, there is absolutely no doubt that the impact of not receiving some of these programs would impact western provinces as well.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Mr. Speaker, I listened carefully to the statement by my colleague from the Reform Party. I particularly noticed a remark which I found rather biased and uncomplimentary, I would say, towards Quebec, namely that Quebec received 45 per cent of equalization and suggesting that Quebec was the spoiled child of Canadian Confederation. If he did not understand, probably there are problems with the simultaneous translation. Maybe he did not get my message just now, which was that equalization is meant to raise the revenue of provinces and that Quebec is a have not province. If Quebec is less well off, they should ask by looking at it objectively, since they seem to be objective once in a while when their ridings or home provinces are concerned what

Quebec has had in terms of research and development, federal purchases of goods and services, transportation and agriculture in the past 30 years. Do not tell me that when it comes to agriculture, the three prairie provinces, with payments of about $1.5 billion a year since 1986, in addition to regular programs, are not favoured provinces in the Canadian Confederation.

Before throwing figures around left and right, I would ask for a real debate in this House on the federal government's contribution to Quebec, if they want such a debate, and I will be pleased to answer all their pernicious arguments.

[Stephen Harper, Reform, Calgary West, AB]

Mr. Speaker, I certainly appreciate the question.

The point I was trying to make was not that other provinces do not receive payments. I was not even suggesting that Quebec receives too much. I was merely suggesting that an $8.4 billion program, of which $3.7 billion is going to the province of Quebec, is not something to sneeze at. It is not a drop in the bucket. It is not something to deny the importance of. The thrust of the member's remarks, as I heard it, was to dispute the workings of the ceiling that has been in effect more or less since 1982 and about how much had been lost through the ceiling.

It was the intention of the member to give to members of the House, other Canadians and Quebecers who may be watching the impression that they are not getting anything out of this program or that they are experiencing tremendous losses from this program, none of which is the case.

Our party is suggesting that we make major reductions in spending and is willing to look at all these categories and at the impact on our region as well as Quebec and Ontario. This is an important exercise and is why I suggest we have this open debate.

However, it is important because the time is going to come when these things have to be looked at realistically. We have studied with some comprehensiveness the overall workings of the federal finances for various provinces over the period of the last generation, and we know the kind of negative effect it has had on our particular province.

Let me just mention equalization, for example. Alberta received no equalization at the height of its recession in the early 1980s, a recession brought about largely by federal government policy. Albertans have never quarrelled with the concept of sharing and contributing to the pot. These things have to be addressed realistically.

It is my view and the view of many Canadians and many Quebecers that Quebec does experience some significant economic gain from its participation in Confederation. There are some problems, but there are significant economic gains in being tied to the stronger economic units of Ontario and the west.

In my view that is not the reason or the only reason to stay in Confederation, but it is a reason Quebecers are going to have to consider and the Bloc Quebecois is going to have to address realistically at some point.

[George Proud, Liberal, Hillsborough, PE]

Mr. Speaker, just prior to making my comments I would like to inform the House that members on this side of the House will now share their speaking time at 10 minutes each.

I rise to speak about a topic which goes to the very heart of Canadianism and it goes to the very centre of the reason for our being as a nation, the subject of equalization.

At the outset I would like to congratulate the Minister of Finance for the announcement he made in Montreal on January 21 of this year when he told the provincial and territorial finance ministers that the equalization program would be renewed for the next five years. This gives them the opportunity to realistically plan for the future while we at the same time fulfil a major campaign promise made by our party to bring about stability to federal-provincial financial relations.

As hon. members know the equalization program remains the most important federal program for reducing disparities in this country. After equalization transfers the fiscal capacity of the less wealthy provinces is raised to about 93 per cent of the national average compared to about 85 per cent before equalization. This means that any province which levies average rates of taxation will be assured about $4,800 per capita with which to finance public services.

As hon. members also know equalization is an unconditional transfer to the provinces. The payments under the program are determined by an established formula which calculates each province's capacity to raise revenues and then compares its fiscal capacity to a standard level. The payments then raise the less wealthy provinces to the standard level and the payments are made in per capita terms.

As a person who comes from one of the smallest and one of the poorest provinces in Canada, I can assure hon. members how important equalization payments are to our province. I can also assure hon. members how upsetting it was for our provincial government on those occasions when it received less in equalization than had been anticipated.

This five-year equalization renewal will allow our smaller and poorer provinces to provide consistent levels of service in

the future. In looking at the estimated equalization entitlements over the next five years, I see a projected increase from $8 billion in 1993-94 to approximately $10.4 billion in 1998-99. This represents an average growth of approximately 5 per cent.

Looking at my own province I see it is estimated that Prince Edward Island's entitlement is projected to increase by some $16 million in the next fiscal year and in increments of $10 million per year for each of the following years until the end of the agreement.

The equalization program allows people in all regions of the country to enjoy roughly an equal level of service from our governments at reasonably equal levels of taxation. Looking back through history it is easy to see the historical precedents for making things equal across the country.

This country, Canada, was brought together by the railway in defiance of economic and geographic factors which would have pulled us toward the United States. However, because the Fathers of Confederation felt it was important to establish an east-west axis in the country, great efforts were made to make the colonies unified from sea to sea by the railroad.

That same philosophy applies to equalization. Canadians are united by a common level of service no matter where they live. The richer give part of their wealth to aid the poorer. If and when the economic patterns of the nation change, those areas which now receive these transfers would only be too happy to share their good fortune.

Tariffs which were designed to protect industries in central Canada were an accepted part of the economic policies of the country and were of great benefit to Ontario. Preferential freight rates were of great assistance to the farmers of the Canadian prairies. Even projects like the St. Lawrence seaway are examples of the whole of Canada participating in programs which benefit one particular region.

In the years since Confederation prosperity has moved from one part of Canada to the other. Canadians have responded to the changes by aiding and assisting those areas which are down on their luck.

At the time of Confederation my region of Canada was the most prosperous. Later prosperity moved west, first to Ontario and then to the western provinces. The western provinces which suffered the worst in the great depression came to a time of great prosperity in the seventies and eighties. Now Atlantic Canada is the poorest region of Canada and we receive help from our fellow citizens.

When we examine the documents released by the Minister of Finance we can see that Newfoundland, Prince Edward Island, New Brunswick and Nova Scotia in that order are the highest per capita recipients of equalization. The last few years have not been good in Atlantic Canada. We have suffered through the lengthy recession like the rest of the country. Now we are faced with the collapse of the ground fishery which was once part of our economic salvation.

We all realize things are tough but we are optimistic that better days lie ahead. I can assure hon. members that we in Atlantic Canada are not terminal welfare cases. We are proud Canadians who through a combination of factors need this assistance at the present time. I would venture to say there is not one politician in Atlantic Canada today who would not willingly see funds from our region go forward to help poorer regions of the country if and when the economic basis were to change.

Right across the region governments are cutting back becoming leaner and more efficient. People are being encouraged to generate more economic activity. We must and we will develop the resources we have in Atlantic Canada and we will return to the prosperity we once enjoyed. What we need now is the level and stable assistance of the federal government to get us through these tough times.

I must also say that we are living in a time of increasing optimism in my province. The fixed link project, the biggest construction project in Canada today, is bringing a new wave of confidence into Prince Edward Island and New Brunswick, a confidence which our people will carry forward into the next century. I look forward to the day not many years from now when people from all over the world flock to Atlantic Canada to see this engineering wonder and when Atlantic Canadians who have constructed this massive project are in demand for similar projects around the world.

The equalization program marks our compassion as a nation. Because of equalization no citizen of Canada is a second class citizen regardless of where they live. The citizens of Cape Race, Newfoundland, of York, P.E.I., of Montmagny, Quebec, of Watrous, Saskatchewan and of Vancouver, B.C. are all entitled to roughly the same level of service in the government. That is the essence of Canada. That is why this country remains united.

As I noted earlier, that is why we have equalization, the levelling of service, just another manifestation of the Canadian way of doing things.

[Roger Simmons, Liberal, Burin—St. George's, NL]

Mr. Speaker, I too have a few words to say on Bill C-3. I am rather pleased with the provisions of the bill. It does introduce a bit more certainty into the process of federal-provincial fiscal relations and avoids the excessive tax backs that have become not only an aggravation but such a big problem in real terms for several provincial governments, including the Government of Newfoundland and Labrador

I share at least what my friend from Calgary West was saying in so far as that issue is concerned. There are other things I do not particularly share, but he is not in sight at the moment so at another time I am sure we will have an opportunity to pursue that

debate, not to give the impression that he and I are poles apart on this, but there are one or two points that need some discussion.

The issue of transfer payments generally gets characterized in several ways as handouts, as assistance of some sort and I suppose in the general broad term it is assistance. I completely reject the notion of the handout context that some people want to talk about from time to time.

The best way to illustrate my point is to go back in history just a bit to what Newfoundlanders and Labradorians call Confederation. To most in this Chamber and in this country Confederation conjures up the period of 1867. But for Newfoundlanders, when we talk about Confederation we refer to the great Confederation debates of 1946 to 1948, the two referenda of 1948 and the actual becoming part of Canada or, as we like to say, when the two dominions became one, because that is in effect what happened and what technically happened on March 31, 1949. Therefore when we talk of Confederation we mean that particular period.

At that time we entered into a partnership. We did not apply to go on a welfare role. We entered into a partnership. In the process we gave up certain things.

We stood by and had our small but rather vital and vibrant manufacturing base destroyed. We had a heavy trade going with what we called the Boston states, the New England states. We had a particularly lively trade going in fish and fish products, for example. It was a trade that was essentially wiped out by the coming of Confederation in 1949. We had some other manufactured commodities which had to take second place to the new central Canadian reality, the Ontario and Quebec reality, in terms of manufacturing prerequisites.

Therefore we have always seen transfer payments not in the context of some kind of handout but rather as part of a partnership that was entered into in 1949. As Newfoundlanders we have never made any apologies for the fact that we have a system of established programs financing and equalization payments.

I see my friend from Calgary West has taken his seat again. We have to choose our words well around here. We are not allowed to draw attention to the absence of a member, but we can draw attention to his presence.

This is the theme on which I was speaking last week. I understand the member for Calgary West speaks from a somewhat different perspective and so he should. We only have to look at the average family incomes of the ridings that he and I respectively represent.

I represent a riding where the average family income is $24,900 and my friend from Hillsborough who spoke a moment ago represents a riding where the average family income is $24,220. Of course the gentleman from Calgary West represents a riding where the average family income is of the order of $41,000.

If one looks to his colleague, who was there a moment ago and who has now joined us at least temporarily, the gentleman from Capilano-Howe Sound, he represents a riding where the average family income is $52,500. That is quite a difference. He is sitting with the gentleman from Scarborough East where the average family income is $44,800. I can see why they are talking; they have a fair amount in common. I say to my friend from Scarborough East that I hope he will persuade the gentleman from Capilano-Howe Sound to stay on. We could use his talent on this side of the House.

We represent very different perspectives. The gentleman from Lethbridge and I have a fair amount in common because the kind of average family income in that riding would be of the order of $35,000 which is a bit higher than in my riding.

It is not a bad indicator. If one looks at average family incomes in various parts of this country, one will very often understand why the delegates, the MPs from those areas, are saying very different things.

That is why I have special compassion for my friend from Lethbridge. I wonder how he is managing in that caucus where all the high priced discussion is going on when he does not represent a very high priced riding, not in dollar terms at least. However I wish him the best. I know he is equal to the task. He has been in politics long enough not to need very much advice from me on the subject.

Let us come back very briefly to Bill C-3, the equalization bill. It does two or three things I am rather happy about. Transfer payments generally help ensure that a province will have the means to provide a certain basic level of service. Surely that is the whole principle of equalization. That is what it is all about. What the Minister of Finance is doing here today is ensuring by building a little more certainty into the program that we can continue to discharge that mandate which is the principle under equalization.

The whole business of transfer payments does something else. It provides for the mobility of people across the country. Those who have been here before have heard me talk about how people from my province literally have gone to the four corners of the earth, but particularly to the four corners of Canada to work.

There are of the order of 10,000 or so in Fort McMurray in the riding of Athabasca. There are many thousands and tens of thousands in southern Ontario and all over the country working on the CP rail lines, including in Saskatchewan and in British Columbia. We in Canada are contributing to the economic stability of the country by having that mobility of people. If we have labour skills then they are accessible not only in terms of the province of origin but right across the country. That is a good thing. It flies in the face of all the myths we hear about people from Newfoundland and from Atlantic Canada generally being too lazy to get up and go where the jobs are. That is a theme you

will hear me talk on very often because it is one that needs to be rejected at every possible opportunity.

As I think I said in this House on Thursday, there are more native born people from my province living outside the province today than living inside. That is the best indication I can give that they are there where the labour activity and economic activity is.

Transfer payments do something else, have traditionally done so, and continue to do so. They help to stabilize the economic situation in the seven provinces which are recipients of equalization. Surely it is the goal in the Canadian national interest to ensure that each of the provinces no matter how poor-poor in the context of fiscal yardsticks, certainly not poor in terms of human resources but poor in the first context-each province in the confederation, each of the 10 provinces and territories, is in an economically stable situation.

It is easy to support Bill C-3. I invite members of the House on all sides not to confuse this debate with some other axes they want to grind later. This is a good bill. It brings them certainly to the old issue of transfer payments and it introduces a rate of growth of around 5 per cent. That is legitimate in the context of the demands of those particular provinces.

I would hope that in this debate we would put our other axes which we have to grind aside and focus on the merit which is contained in the bill and give it the support of the entire House if possible.

[Stephen Harper, Reform, Calgary West, AB]

Mr. Speaker, I would like to thank the hon. member for Burin-St. George's for his remarks. I know him by name. I have known him for a number of years but I can never remember the riding, which is why I am not Speaker, and unlike the hon. member was not even qualified to run for the post. We all know about the hon. member's legendary memory for the ridings and details of the ridings of every single member in this House.

I want to ask a question of the member, maybe a little off the topic of his remarks, but I think would nevertheless be interesting for the House. He spoke about some of the economic problems that Newfoundland experienced after Confederation, some of the unfavourable restructuring of the Newfoundland economy that occurred, in his view, because of Confederation.

He has talked about some of the benefits of Confederation, obviously this particular program which I reiterate we support the principle of, equalization and the benefits of transfers. He talked about the benefits of the mobility of the Newfoundland work force leaving the province.

I think he would agree that if we look at the sum of that it is not a pretty picture, the loss of economic capacity in exchange for out-migration and transfer payments.

I wonder if that is really how he would characterize Newfoundland's experience in Confederation. Whether he would or would not characterize it that way, would he share with us some of the options he sees for Newfoundland in terms of a greater economic participation in Confederation and what alternatives there are to long run dependence on programs like equalization or on developments like out-migration of population.

[Roger Simmons, Liberal, Burin—St. George's, NL]

Mr. Speaker, I thank my friend from Calgary West. I would not characterize it that way. That is not the tradeoff at all.

The point I was wanting to make at the beginning of my few remarks was with regard to those who talk condescendingly about transfer payments, as though somehow we are helping those poor people down there who are trying to keep body and soul together. I do not subscribe to that notion. I am saying that part of the tradeoff that we entered into in 1949 was the one that I described. In the interest of time I will not repeat that.

I want to come to the second part of the member's question about what opportunities I see. One does not need to be a nuclear specialist to realize a couple of things. By the way in 1949 when we agreed to take on Canada as part of a larger nation, we were in the black in Newfoundland, don't forget.

I did not hear the heckle so I do not what was said. Enjoy it anyway.

We came in with a balance in 1949. That is not quite the case right now. There were a couple of reasons. We had a very thriving post-war economy based largely on the military. When I say "the military" I mean the very large presence of American forces in St. John's, many thousands in my riding of Stephenville and many thousands in Argentia and so on. That was a part of it. The strategic realities of the last few years have changed, hence the need for deployment of forces in Newfoundland. American forces have drastically altered over the last few years.

We had a thriving fishing economy as well. I do not need to take the House through what has happened to that, particularly in the last two or three years. When I came to the House for the first time federally in 1979 I used to brag that my riding had the same unemployment rate as the province of Alberta at that particular time which was 3.8 per cent or 4 per cent. That was the unemployment rate in the riding of Burin-St. George's. The south coast of Newfoundland is essentially ice-free year round

so people work there eleven to eleven and a half months a year. They do what all smart Newfoundlanders do: they take two weeks off at Christmas and have a party and then go right back at it in January. That was the unemployment rate.

It has changed considerably since then. There is a factor that the downturn in the fishery has caused problems for us. The opportunity, to respond to his question, is to crank the fishery back up.

In closing, I am sure I will rile my friends from Quebec but this is not the intention. If we were were getting the economic value for hydro power we would not be one of those seven provinces today. We would be in the other column. We would not be getting any equalization payments, thank you very much, at all. If we were getting the economic value for our resource, Churchill Falls Power, we would not be needing one cent of equalization from the federal government.

The opportunities are somewhat constrained by some of the political realities at the moment.

[Pierre Brien, Bloc, Témiscamingue, QC]

Mr. Speaker, Bill C-3, an act to amend the federal-provincial fiscal arrangements and more precisely the equalization system in place, is not a very exciting subject. If invited to give a lecture somewhere, one would certainly choose another topic to grab the public's attention.

However, even if it represents a somewhat boring task, we must have debates like this one, especially in this House. Today we must examine closely the bill on equalization payments. Of course there are precise measures we must look at because they come to term at the beginning of April, but equalization is a measure which is part of the complete transfer program.

Members will know that transfers are crucial for the provinces. These payments represent a very important part of their revenues, a share which has decreased over the recent years, particularly in Quebec we look at the province's situation as a whole.

We examine the equalization system today, but soon, next year, there will be other obligations, we will have to examine other transfers, particularly as regards established programs financing. Even if it looks like transfers are being increased in that area, we must be very careful and follow closely any future developments. We cannot have this debate and disregard the present state of government finances. The finance minister cannot but take it into account when reviewing transfer payments to the provinces. It is probably his main concern, which explains his drifting away from the initial objectives of the equalization system.

We do not want to disregard the present state of government finance, however, we cannot ask others to make choices for us. In the past few years, it has been a concern and a trend which could very well continue.

Let us not forget that, during the election campaign, it was very difficult to pinpoint the position of the Liberal Party in this respect. The position of the Conservative Party was much clearer: transfer payments to the provinces would be cut. Among the Liberal ranks, they did not talk a lot about that; they skirted the issue and talked instead about the infrastructure program; they kept on pointing at the infrastructure program as a means of creating jobs, but we never got to the bottom of things regarding what the Liberal Party really intended to do with the whole issue of transfer payments to the provinces.

At the very beginning of their mandate, they came out with the first part of their plan, saying: "Look, we are not going to cut transfer payments to the provinces,» since it appears that we are going to have a 5 per cent increase in equalization payments this year. And they gave us projections. But we have to be careful regarding this 5 per cent, especially compared with the objectives of the equalization system; I will get back to that later on.

Let us look at what transfer payments comprise. They are made up of four parts, for a total of $40.5 billion a year in federal expenditures.

First, there is established programs financing, mainly in the education and health care fields; it is a very important part. Then, there is the Canada Assistance Plan, which deals more with social assistance, and accounts for around $7.8 billion; it is indeed a lot of money. The third part is the equalization payments which total approximately $8 billion. There is also cost-shared program financing which is one of the central elements, with $12 billion.

There has been much pulling out in this regard in the last few years. What causes a major problem is that the government attaches so-called common objectives to these shared costs and then pulls out, leaving the provinces to shoulder the burden of these programs by themselves or to pay the political price when they are axed.

It is not always easy to explain this to taxpayers who, understandably, cannot follow closely what goes on every day. But we recently went through a gradual transfer that started here and ended up with the municipalities. It is not easy for a mayor or a city councillor to explain that budget cuts in federal transfers to provinces led provincial governments to make more difficult choices that ended up in the municipalities' court. It is obvious that, from a political standpoint, efforts are being made to soften the blow.

All this was done to make users more aware of costs. It is not necessarily a bad thing, but we must be careful: objectives and cutbacks are not always defined in the same terms as we do not always agree.

The equalization system is special in the sense that it transfers money to provincial governments, which have much more flexibility to do with it what they want.

It is these four elements that define transfer payments. Let us now look at the basic objective of the equalization system, which is one of these elements.

The basic objective of equalization is to ensure horizontal or vertical redistribution. This can seem very theoretical but the objective is to ensure that, in the end, each province has the same capacity to provide an adequate level of service.

Equalization measures the provinces' capacity to collect revenue according to various factors and a 31-element tax base. This is all very complex. Equalization is a mathematical system that would give nightmares to any professor having to teach it in a maths course, even an advanced maths course. Not many people are looking at this closely to try to understand how the system works, but it is important. These very serious matters affect our daily decisions and actions. And these links are not easy to establish.

So, after assessing the capacity of the provinces to generate revenues, you compare it to a sample of five provinces, make some adjustments, and translate the result in dollars per capita. That gives you the amount of money to be given to the provinces. There are seven provinces which actually get some money under this program, including Quebec, which will receive, yes, $3.7 billion out of the $8.4 billion set out for next year. There are reasons for this, and I will get back to them, because I heard the hon. member for Calgary West refer to them earlier, and I will address this issue in a little while.

This whole issue is important for the Bloc Quebecois, but there is one thing we have to remember. Soon, Quebecers will have collective choices to make. At that time, it is true that we will not have to deal with this equalization system. We may have to create another one within our own country. Nevertheless, this system will not be affecting us, not anymore. Meanwhile, the Bloc Quebecois has to protect Quebec's interests here and play its role as the Official Opposition. That is what we are going to do, and that is what we are doing. We will try to improve the whole principle behind the transfers to the provinces. There is room for a lot of improvement.

The bill before us has two major flaws. The first one is the ceiling, which affects the basic principle of the equalization system, since transfers are subject to a maximum level of 5 per cent if economic growth is higher. Given the situation, some of the richer provinces will be able to get even richer, and if the poorer provinces have trouble generating revenues, the gap will widen. At the present time, in spite of the equalization system, there is a 12 per cent difference in the capacity to generate revenues between the have provinces and the have-not provinces. You should remember that that capacity is what differentiates the richer provinces from the poorer provinces.

A previous ceiling was set at the end of the 1980s, and another one for the 1993-94 fiscal year. Of course, during the recession, when economic growth was slower, the ceiling had less severe consequences, but still resulted in a decrease of $2.9 billion in transfers. Of the additional $2.9 billion in transfers, $1.8 billion would have gone to Quebec. These lost revenues forced Quebec to make the difficult choices I was telling you about a moment ago. They forced Quebec to gradually pass the burden on to the municipalities and, increasingly, to the taxpayers.

We will not be able to say forever that the principle of equalization justifies the measures now being taken. It is not the principle, it is the fiscal constraints that justify these measures. Let us not mince words. We have to say it because it is the truth. That is the reason for this provision. As I was saying at the beginning of my remarks, the fact that the government wants to increase transfer payments does not mean that we will not have to examine the whole issue of transfers to the provinces. We have to look at what is going on to realize that there is an election looming in Quebec. I can hardly imagine the present premier, Mr. Daniel Johnson, campaigning with cuts in equalization payments pending, on top of all the other problems he has to face. This would be very difficult for him since he will have to demonstrate the effectiveness of federalism, including from a fiscal point of view. It will be a real challenge for him, and I can tell you that we will be there to take part in this debate and he will have to prove his point. So, this will be very difficult for him.

But what will happen next year, when the election is over and other programs have to be renewed? It is something that we will have to watch. Maybe this is just a smokescreen to hide the Minister of Finance's real intentions, and this is why we heard him say that it would be a tough budget this year, that he would reduce the deficit to perhaps $38 billion. We will know soon. But watch what will happen next year, watch where the money is going to come from.

The other principle contained in the bill is that there will be changes-and that is even more technical-in tax bases as such and in their composition. It would be interesting if the committee could review the regulations in order to evaluate their impact more precisely. We already have an idea of that impact but they really should be made available to the committee.

In that regard the Quebec government has some demands of its own, especially in the field of property taxation, that may seem legitimate in certain respects and that deserve to be examined. The finance committee could take a look at it. That would add to its workload but that committee does not have a reputation for idleness. We will give it a look.

I would now like to speak about the results of equalization because one day we might have to question the way transfers are made to provinces. I repeat, despite equalization, there is a 12 per cent gap between the fiscal capacity of the richest and the poorest provinces, even though equalization has been paid all these years. The principle of transfers to the provinces has existed since after World War II. Inequities are still visible across Canada; all regions have not reached the same level of development. That can be explained and I will do that while commenting a bit on the speech of my colleague, the hon. member from Calgary West, who said that what counts is not the amounts spent but the quality of the spending.

In this regard, we fail to understand why the federal government has spent so little on research and development in Quebec compared to Ontario which does not get equalization payments. But then one cannot have it both ways. One cannot get 50 per cent of all research and development expenditures and, at the same time, equalization payments that are often used to finance shared cost programs, welfare programs and so forth.

We would very much prefer a better dollar. We would be quite proud to contribute to equalization rather than benefit from it. It would be a sure sign that we have greater fiscal capacity and are in a better financial situation.

We do not need to be geniuses to understand that provinces who do not benefit from our equalization system are in a relatively good financial situation. Ontario, as we shall see, experienced numerous problems in the last few years. But British Columbia, Alberta and Ontario get by pretty well.

Things do not look as good in Quebec, because of a lack of vision or all kinds of reasons. Expenditures and investments there have been ill advised. Spending was done more on structures than on research and development. It would be interesting to look at other programs too. Those issues are being discussed. During the election campaign, we talk about them to a certain extent, and even quite a bit. In the next few years, this House will have to look at them because the political context will leave us no other choice. We will prove our point, and we will be delighted to hold the debate the hon. member for Calgary West mentioned earlier.

A little while ago, I skimmed through a fascinating magazine called Options politiques in which an article by Gilles Godbout lists a number of points in his assessment of the equalization system of federal transfers to provinces. He points out a number of contradictions. He says, and I will quote his five points, starting with the following: The importance of the redistribution function played by transfer payments to provinces has been recognized in the 1982 Constitution Act. The purpose of equalization, which is to guarantee that provinces have enough revenues to ensure comparable levels of public services at comparable levels of taxation, was even spelled out in the Constitution.

The same year, the federal government placed a ceiling on equalization payments, thus reducing the redistributive effect of the program. This is the first contradiction in the first year.

Moreover, the federal government made repeated cuts to the other transfer programs, regardless of regional disparities, particularly in the funding of health and post-secondary education. When we look at the data on the system's funding, for health as well as post-secondary education, when we look at the contributions that are made, and I have looked only at those made for Quebec, I can tell you that the situation is tragic because payments are going down instead of going up.

In spite of its financial withdrawal, the government has reaffirmed its commitment to maintain national standards in the health sector. These standards significantly limit the provinces' capacity to better manage essential public services.

That is not new. Because of its spending power, the federal government always wanted to set the standards, although when it reduces financing, they stay the same. We soon discovered the problems that caused for the provinces. It is very hard to maintain standards, requiring funds, when there is no money available.

Finally, it is said that the federal government is interfering in several sectors with its shared cost programs, a fact advantageous to provinces with a high spending power. Of course, it is often a question of money per capita. This way, the provinces which are well off are managing quite well. Members who are interested in equalization and transfers to provinces could find that article very revealing.

Now, let us examine the situation as a whole, in the few minutes left. The Bloc Quebecois is sensitive to public finance issues and that is why we suggested alternatives. We said we wanted to look at expenditures item by item. We would like a review of the tax system which is generating a lot of unfair and unjust privileges. We are ready to work towards this end. A lot of work is being done, but a lot more could be done to make this into something very positive. This is very important for the economy of Quebec and the Canadian economy.

I am afraid that the whole problem of public spending will be passed on to the provinces and that they will have to pay the price and make some difficult choices, the choices we have trouble making here, or that the government will try to make them start sooner. It may be tempting to look at items like transfer payments to the provinces, which total $40.5 billion and are a major share of the federal budget, and say that we will

start cutting there. This would force the provinces to go the same route. It is risky to take the lead and impose certain standards. Federal spending powers mean that the government remains involved in a lot of areas where there is overlap, because of joint standards. We must also realize that taxes raised at both levels are used for the same purpose. The system is not exactly a model of efficiency.

We must be vigilant in this respect, and we intend to monitor this very closely. As I said earlier, I am mainly concerned about the fact that this year, equalization payments will be increased, but with a ceiling, which in our opinion is inefficient. Wait and see what happens next year to the rest of the transfer payments to the provinces, and watch the announcements in the next budget.

I intend to keep today's speech and take it out again and look at it after next year's budget. I am sure there will be some drastic cuts in transfer payments to the provinces. That is an easy prediction to make. It is understandable in the current political climate that we should want to wish to help our federalist friends from Quebec on the other side of the House and support a one-year postponement of cutbacks in transfer payments to the provinces.

In concluding, there are a number of measures that would be appropriate to improve equalization and the system of transfer payments to the provinces, and I will mention a few. Reforms should be carried out in accordance with certain principles. Criticism should be constructive.

First of all, there should be no cuts in transfer payments to the provinces, either in real terms or per capita, to ensure that fairness remains a part of the equation and that the provinces are able to offer quality services to their residents. There is also the question of national standards which do not reflect Quebec's specific needs. National standards have always been a problem. The hon. member for Saint-Hyacinthe-Bagot referred to this earlier, and we often hear people talking about problems generated by national or joint standards and the time it takes to solve these problems.

My next point concerns federal interference, especially in matters of provincial jurisdiction, which is another source of inefficiency. Reforms should aim at improved redistribution of revenues among the various provinces, especially in the case of equalization payments. The ceiling on such payments should be removed, since it contradicts the very principles of the system. Reforms should provide incentives for more effective financial management. This measure concerns shared cost programs such as the Canada Assistance Plan.

These are the principles that would guide us if we had a choice and if the government were willing to change the transfer payments system. Of course, there will be choices to make in Quebec so that eventually we may be ahead of the game. Nevertheless, these principles would be useful for all Canadians. The situation is serious because of the inequities in the system. I will now conclude my speech, Mr. Speaker.

Injustice is often the root cause of disobedience, civil or otherwise, as we have seen in the smuggling issue. People must feel there is fairness in the system. It is not enough to talk about fairness and justice. We must practise what we preach. And we could start right now by removing the ceiling in this bill. It would certainly be an improvement.

For the reasons I mentioned earlier, we cannot support this bill and intend to vote against it.

[Ronald J. Duhamel, Liberal, Parliamentary Secretary to Minister of Public Works and Government Services]

Mr. Speaker, I appreciated some of the comments made by my hon. colleague. I would, however, like to ask him a question. With respect to national standards, it seems to me that the Bloc is truly unaware of what it going on in the world today.

In Europe, for instance, a number of countries have established national standards that go way beyond what had long been in existence as far as different cultures, languages and so forth were concerned. Why this hesitation to go along with national standards? Why can we not sit down together and agree on reasonable national standards and give the provinces the chance to decide how they will meet these standards? Why dismiss or simply ignore what is going on in a number of other countries in the world, not to mention the benefits of having national standards?

There seems to be a feeling that national standards are a bad thing. This is not the case and I would like the hon. member to comment on this point.

[Pierre Brien, Bloc, Témiscamingue, QC]

One should not believe that the Bloc is alone in taking this stand. There is a fairly broad consensus in Quebec on the issue of national standards. One need only look at manpower training to realize how difficult it is to have common programs.

I think that the principle here is not being grasped. When the Meech Lake agreement was signed, there was a willingness to recognize the principle of two nations. Language and culture are not the only things that set a nation apart. Often it is the way things are done. We have different aims and we go about solving certain problems differently. National standards prevent us from achieving our goals since they are defined and often imposed

even by virtue of the sums of money allocated. This is very difficult to accept.

If each side were able to set its own standards, this would not preclude, for example, that at the international level-and this is a very specific example and I would hope that this would be the case in the future, even though it would prove very difficult-there would be general agreement on minimum environmental standards to be met. This would be desirable.

Which is not to say that minimum standards should be set to instruct each community on the training of its workers. Each economic milieu has its own specific characteristics, its own special niches, therefore, it can adapt more quickly. National or broad measures or standards are often cumbersome or slow to respond. The closer one is to that milieu, the more one is grounded in reality and the quicker one is to react.

The constraints we now face in terms of international economic development, namely the opening up of markets and the free movement of goods, capital and people, mean that those who have the ability to respond the fastest will be the ones who are best able to cope in the future. We have to avoid getting bogged down in national standards that are not to our liking, often do not correspond to our needs and create a great deal of friction between Canadians and Quebecers because they cannot agree on their definition.

When Quebec is a sovereign country, and I hope this comes to pass, we will set our own standards, while Canadians will set theirs. I think that it will be much easier for both sides to set their own standards and if we were to agree eventually on common standards in specific areas such as the environment, well then so much the better. But first, we have to start with the basics, with our own milieu. This is the preferred approach of the Bloc Quebecois and of a good many Quebecers.

[Nic Leblanc, Bloc, Longueuil, QC]

Mr. Speaker, I want to thank the hon. member for Témiscamingue for his excellent speech. He talked a lot about equity and I would like to make a few comments in this regard. When we talk about equity, we are talking about a fairer redistribution of wealth among the provinces. What we should be asking ourselves is why some provinces are poorer than others. We could look at the problem before distribution and ask why Ontario is a wealthy province while Quebec is not so well off. I do not like to hear that my province is poor or not so wealthy.

When we are making every effort to succeed in life and some higher authority, the federal government for instance, keeps us from developing to our full potential, I do not like to be seen as poor. I would like to use every opportunity to develop to my full potential, as the hon. member said earlier. For example: why did Ontario receive research and development contracts worth $1.2 billion more, in 1989, than Quebec. Would research and development not enable us to make money and to help our businesses grow? Is this not the reason why Quebec is a little poorer than Ontario? I do not like to be seen as poor. I would like to be able to give money to other provinces, as the hon. member said earlier. But it is not the fault of Quebecers if their province is poorer, it is the fault of the federal government that does not give Quebec the means to develop to its full potential. It is for these very reasons that we want to leave.

Here is a flagrant example of the other reason: in 1989, I asked the head of Statistics Canada how their employees were distributed across Canada. I was told that they were distributed very fairly, with about 180 employees in Ontario, 150 in Quebec, about 80 in the Maritimes and 80 in the West. I told the head of Statistics Canada that there was something wrong with his calculation since their total workforce is about 4,000. He said yes, but 3,500 people work here in Ottawa. But where is Ottawa? Ottawa is in Ontario. These people pay taxes in Ontario. They are fuelling the Ontario machine. They are helping Ontario to prosper. It is for these reasons that Ontario is better developed and richer than Quebec. For all these reasons. One does not have to look very far to see that Ontario is richer and more successful because the federal government treats it better.

The hon. member for St. Boniface should pay more attention so he can understand all this. He would then realize that he, too, is being penalized. He should react a little more, too.

I would like to say, once again, that the hon. member for Témiscamingue has delivered an excellent speech. He did an excellent job of outlining the problems we, in Quebec, are facing. I totally agree with what he said in his speech.

[Pierre Brien, Bloc, Témiscamingue, QC]

Mr. Speaker, I appreciated the comments of the hon. member for Longueuil whose example of Statistics Canada illustrated the situation well. A little over a year ago, I did some work, a study on research and development expenditures. As it were, almost all the money spent within the federal government, the intramuros expenditures as we call them were made here, in Ottawa and the National Capital region. So, by force of circumstance, most of the R and D investments are made in this region.

In some cases, the determining factor is the fact that the National Research Council is located here, but that does not explain everything and even then, the rest of the R and D funds should be distributed more equitably. That is why, as the hon. member said, we must look at the causes and the root of problems if we want to have a clear understanding.

I would like to mention a point that is coming back to me regarding the definition of the standards mentioned earlier. We would not be too happy in some ways-and I do not know what the hon. member for St. Boniface thinks of this-if we were to have common standards and that standards set by the Americans would apply to Quebec and Canada. It would not always be

pleasant to have models that are far from our reality, especially in the area of health, where we have a completely different system here, although the Americans are starting to lean in our direction now.

In that regard we must be careful. This does not mean that we cannot agree eventually to standards in very specific areas like the environment, as I pointed out earlier. But for the rest, we must be very careful with regard to standards and that is why we have this plan.

[George S. Rideout, Liberal, Parliamentary Secretary to Minister of Natural Resources]

Mr. Speaker, it is a pleasure to speak about this legislation and interesting to listen to the comments of others.

We in New Brunswick would like to be a have province. As we continue working toward improving our economy and improving our lot, we feel we ultimately will be a have province and will be able to contribute to those provinces which are less fortunate. Right now we have the problem where our resource base and our economy do not generate as much wealth as we would like. Therefore this legislation and the program that is contemplated by the changes recommended by the Minister of Finance are vitally important to New Brunswickers.

For those who are not aware of exactly what the bill contains, we are talking about equalization and making things fair. Each province has its own complaints. I have listened to members opposite talk about the different things that bother them, that they do not feel they are getting a fair shake. From time to time all provinces have complaints and feel they are hard done by. Most of the rest of the people in the world would like to be as hard done by as we are, with the resources, wealth and opportunities that exist for us.

Over the years the Liberal Party has stood for many things. One thing it has stood for is the principle of equality for all Canadians. This has been under attack by some. It is a difficult situation to maintain but it is a goal and an objective to which we should aspire. The changes this legislation puts forward will go some way to help the situation.

The purpose of equalization is to enable provincial governments to provide their residents with comparable levels of public service at reasonably comparable levels of taxation. It could not be achieved in the country without the principle of equalization.

Right now we face a situation in which approximately seven provinces qualify for equalization payments. I imagine that each one of those seven provinces is hoping it will be out of that situation and will be contributing rather than taking.

It is important to realize that in this legislation not only is some additional money going to the provinces. The legislation is also going to make changes which are also being made to help the natural resource based provinces of Atlantic Canada and in the west. What happens is a tax back because of the resource based economies. In part I a change is contemplated that will alter the formulas that are being applied so that it will not be a detriment to those provinces that have large natural resource contributions to their GNP. I imagine the members from Alberta and British Columbia are very pleased with this legislation and what it will do to assist them. Obviously Saskatchewan and Manitoba will see great benefits.

As well we have to look at what we are trying to equalize. We are not talking about frivolous things. We are talking about basic public services that are rendered to all Canadians. With that in mind this legislation goes a long way toward correcting some of the anomalies that have developed.

In 1991 the former Conservative government cut $100 million in support to the province of New Brunswick just by changing the formula. The government in New Brunswick had already prepared a balanced budget and all of a sudden with a change in the formula and support the federal government was going to provide, the province of New Brunswick lost $110 million in equalization payments. For a province like New Brunswick it blew the whole budget process out of whack. As Premier McKenna said at the time New Brunswick was being penalized for being better off: "The better off we are the worse we do".

The net effect of that was to take a province which probably has one of the most dynamic economies in the country right now and to penalize it when we should be trying to assist it. This legislation and the changes that are contemplated here will go in some measure toward getting a certainty back into the system. It will change the ceilings on the formulas so that they are applied more equally and better to all of the provinces in the country. It will allow provinces like New Brunswick to expand their economy, make things happen, but at the same time not penalize them when they are successful.

It reminds me of the situation with UI, which is another program that this government is finally going to deal with. It seems that any person who is on UI and tries to better themselves or tries to take advantage of educational retraining programs is automatically penalized as far as their UI program is concerned.

They stand to lose their UI support while they are trying to retrain themselves.

We see in that circumstance an anomaly which is applicable here. A province which starts to pull itself up by the bootstraps, starts to make its economy function better, is being penalized so that it is going to lose rather than gain. Those are the types of things we have to change and this program goes a long way toward that.

I am not sure whether people understand exactly how the program works, but the payments are determined by a formula. You probably have the formula committed to memory, Mr. Speaker. It does calculate each province's capacity to raise revenue, compares the fiscal capacity to a standard level, and then raises less wealthy provinces to that standard level. The payments are calculated on a per capita basis.

What we see is that after equalization transfers the fiscal capacity of the seven less wealthy provinces in Canada will be about 93 per cent of the national average, compared with 85 per cent before equalization.

That is an obvious benefit to those provinces. It will allow them to continue to maintain the basic services that each province offers. It will help curtail the trickle down effect of what the federal government does as it relates to municipalities, and that too should have some benefit.

What was happening, and we saw it in all provinces, particularly in mine, was that the provinces were taking some of the cuts that were hitting them from the federal government and passing those down to the municipalities. We all know that municipalities have the least amount of resources available to them to raise taxes and to provide services to their citizens. In that sense we should see some benefit by arresting this process of trickle down cuts.

In conclusion, I want to thank the Chair for the opportunity to address this particular issue. We are going to see $8 billion spent. We are going to see it equally spent on the basis of per capita and on the basis of the formula throughout the country.

Over the long term we are going to see a huge expenditure of money. I think the total when the program is over is quite substantial, I believe up to about $900 million in additional expenditure, with $160-odd million in the ensuing year. All of that is again going to assist governments in maintaining a basic level of service. It is also going to see money being put back into the economy. Hopefully we will see us start to move forward rather than stay in the recession mired economy that has existed for the total period of time that the Tories were in power.

I realize my time is over and I thank the Chair for the opportunity.