Madam Speaker, it is not an easy task to explain the equalization process so that our voters, the people of Canada can assess this thing, but I think that it is important that we do so. It is one of the responsibilities that fall upon us as politicians.
As a preamble, I would like to quote the statement the Minister of Finance made on January 21, 1994, when he unveiled the details about the renewal of the equalization program for five years.
He said this: "This is a key program to reduce disparities between provinces in terms of their revenue raising capacity".
He also said: "I have indicated to my colleagues that I will proceed with this renewal in a financially responsible way, taking into account both the needs of the citizens in each province and the need for the seven provinces that receive equalization payments to enjoy the necessary stability for planning".
This is a little arid, but it is important to understand what this statement implied.
Equalization payments are calculated using a method prescribed by federal legislation which takes into consideration the overall capacity of each province as well as local governments to raise revenues through taxes and various dues. This includes personal income tax, corporate income tax, sale taxes in general, taxes on fuel, tobacco products and alcohol, fiscal levies on natural resources, property tax and many more not so far-reaching taxes.
Each year, the fiscal capacity of the provinces is compared on the basis of their individual estimated revenues if the same tax base and tax rate were applied in each case. This requires a standardized tax system known as representative tax system in which provincial governments' revenues are divided up based on 33 different revenue sources, each having a base representative of those actually used by the provinces. The size of the tax base is then calculated for each province and, using the average provincial tax rate from each source, the revenues of each province is calculated for each source separately and globally.