Debates of March 9th, 1994

The Budget

[The Acting Speaker (Mr. Kilger)]

It being 6.15 p.m., pursuant to Standing Order 84(5), it is my duty to interrupt the proceedings and put forthwith every question necessary to dispose of the amendment to ways and means motion No. 6. The question is on the amendment.

Is it the pleasure of the House to adopt the amendment?

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Acting Speaker (Mr. Kilger)]

All those in favour of the amendment will please say yea.

[Some hon. members]

Yea.

[The Acting Speaker (Mr. Kilger)]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Acting Speaker (Mr. Kilger)]

In my opinion the nays have it.

And more than five members having risen:

[The Acting Speaker (Mr. Kilger)]

Call in the members.

(The House divided on the amendment, which was negatived on the following division:)

[The Speaker]

I declare the amendment lost.

The House proceeded to the consideration of Bill C-3, an act to amend the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act, as reported (without amendment) by the committee.

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

[Paul Martin, Liberal, Minister of Finance and Minister responsible for the Federal Office of Regional Development-Quebec]

moved that the bill be concurred in.

[The Speaker]

Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

[Some hon. members]

On division.

(Motion agreed to.)

[The Speaker]

When shall the bill be read the third time? By leave, now?

[Some hon. members]

Agreed.

[Paul Martin, Liberal, LaSalle—Émard, QC]

moved that the bill be read the third time and passed.

[David Walker, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, it gives me great pleasure to speak on third reading of Bill C-3. Bill C-3 amends the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act. Essentially, Bill C-3 is about one thing, the renewal of the equalization program.

As members of the House well know, equalization is of such over arching importance that the principle has been enshrined in the Constitution. The unique sense of Canadian sharing goes back to Confederation and shows that the Canadian federation works.

In considering the renewal of equalization we on the government side have had to balance the need to provide provinces receiving equalization with the appropriate financial resources on the one hand and the need to be fiscally responsible on the other.

I have no doubt that this bill does both. Equalization is projected to rise from $8 billion this year to $10.4 billion in 1998-99. All seven provinces that receive equalization are expected to gain from these increases. Provinces currently eligible for equalization are Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba and Saskatchewan.

Equalization is the most important federal transfer program for reducing disparities in provincial governments. Before equalization payments the revenue raising capacity of the seven recipient provinces is 85 per cent of the national level. After equalization it is roughly 93 per cent of the national average.

Let me now go through some of the details of Bill C-3.

First, it is proposed that equalization be renewed for five years. Accompanying a five year renewal is a commitment by the government not to change the structure of the formula. This means that there will be greater certainty in budgetary planning for the provinces. This does not mean that all work on the equalization program will cease, rather ongoing work on measuring the revenue raising or fiscal capacity of the provinces will continue, as will research on the general structure of the program with a view to the needs of the next equalization renewal.

Second, the equalization standard will be unchanged. The so-called five province standard measures the fiscal capacity of Quebec, Ontario, Manitoba, Saskatchewan and British Columbia.

Third, as already mentioned, a ceiling will be retained.

Fourth, the program floors will remain unchanged. The floor provides protection to the provinces against large year to year declines in equalization. The floor depends on provinces' revenue raising abilities, with the less well off equalization receiving provinces receiving the greatest protection.

Fifth, a number of tax base changes to update the measurement of provinces' fiscal capacity will be introduced. This is critical in order to maintain the fairness of the program in measuring provinces' revenue raising abilities. For example, the recent decline in farmland values has particularly disadvantaged Saskatchewan, a technical update to the program calculations adjusts for this.

Finally, the legislation contains 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 long standing irritant to the provinces on this so-called tax back issue. This will enable provinces to retain 30 per cent of the revenues from the relevant natural resources rather than losing equalization on a dollar for dollar basis. This measure has been welcomed by the affected provinces.

This is very fiscally responsible and I recommend its passage to the House.

[Maurice Bernier, Bloc, Mégantic—Compton—Stanstead, QC]

Mr. Speaker, I am pleased to rise at this stage of consideration of Bill C-3, which was tabled by the government to renew the equalization payments program. This bill is yet another proof of the inefficiency and inequity of the federal system for the provinces, and particularly for Quebec.

In principle, this program is basically designed to reduce financial disparities between the provinces. It is more than time to see if this objective has been reached. In the case of Quebec, our province is still penalized, in the long term, by such a redistribution of revenue. Of course, some will say that Quebec receives more than its share of federal transfers, but let us not forget the historical causes which put our province in this uncomfortable situation.

Indeed, is it not strange that, since the implementation of equalization programs, the money given to Ontario was intended to cover structural expenditures such as investments in research and development, or infrastructure expenditures which have promoted a stable economic development for that province?

All these measures have weakened Quebec's position and, to this day, even if our province's contribution still accounts for more than 23 per cent of Canadian wealth, it never gets its fair share when the federal government decides to distribute monies

for structural investments. The statistics are quite eloquent in that regard, and I want to mention a few.

Between 1979 and 1989, Quebec's share of research and development was 18.5 per cent, while Ontario's was 50.1 per cent. Again, let us not forget that Quebec's contribution accounted for 23 per cent of Canada's wealth.

As far as federal investment is concerned, in recent years Quebec's share has been 15.4 per cent, with the remainder allocated outside Quebec. When we consider the value of infrastructures in the defence sector, the figures become even more revealing and damning, with Quebec receiving only 13 per cent of investments in this sector, compared with 25.8 per cent in Ontario, 34 per cent in the West and 27 per cent in the Maritimes.

While we are on the subject of infrastructure, there is also the St. Lawrence Seaway which goes back at least 30 years, in which although it did provide opportunities for ports in Quebec to expand, also stimulated development of ports in Ontario and especially the development of the automobile industry in Southern Ontario.

Meanwhile, Quebec was allocated funds for unemployment insurance and welfare benefits, symbols of a negative outlook for Quebec's economic development. As we have seen, the difference in fiscal capacity between Ontario and Quebec continues to exist, despite supposedly generous equalization payments to Quebec.

As a result, Quebec has become increasingly dependant on federal transfer payments, because its unemployment situation has always been worse than Ontario's. For decades, unemployment in Quebec has always been from 3 per cent to 5 per cent higher than in Ontario. It was a situation bound to please those who favoured authoritarian federalism.

Bill C-3 provides that the ceiling on equalization payments will not be abolished but extended for a period of five years. However, this measure negates the very principle of equalization by failing to provide for equitable redistribution of Canada's wealth. In a particularly underhanded way, it will actually reduce transfers to the provinces, and Quebec will again be stuck with paying most of the bill.

If the rate of growth of the GNP reaches 5 or 6 per cent a year, as predicted by our very optimistic Minister of Finance, that is under the best possible assumption, Quebec will suffer a loss of $900 million, or 60 per cent of the planned $1.5 billion reduction in transfer payments, solely as a result of freezing the ceiling for the next five years. That is the perverse effect of this bill.

Once more, the federal government is passing the buck in terms of the deficit to the provinces by giving Quebec and other provinces less money while their citizens require the same level of services. It means that they will have to raise taxes.

I can already imagine what the members opposite are going to say. They are going to say loudly that the critics from the Official Opposition are exclusively motivated by crass sovereigntist-if not separatist-intentions, since it seems that last week the Prime Minister learned that the Official Opposition intended to pull Quebec out of the Canadian federation.

Let us come back to Bill C-3. The Quebec minister of finance and Premier Johnson form the most federalist pair imaginable; yet even that minister of finance could not help but make some negative comments on the bill dealing with equalization payments. Naturally, as a good champion of Canadian unity, Minister Bourbeau said that he was generally satisfied with the results of the Federal-Provincial Conference of Finance Ministers held in Montreal last January. However, Minister Bourbeau made some negative comments on this bill. His criticisms take on a very special significance since Mr. Bourbeau is member of a Quebec Liberal Cabinet which was ready, as we saw with the Charlottetown Accord, to accept any shady deal to save a semblance of Canadian unity.

So, that was what the Quebec minister of finance told us in a press release dated January 21. We can consider that that declaration is still in order today. The minister said, and I quote: "However, I have a hard time accepting that the federal government decided to maintain the ceiling on equalization payments". If the Quebec minister of finance, who is definitely a federalist, declares that that decision is hard to swallow, that means it is simply ridiculous and unacceptable to the population of Quebec.

With this ceiling, we are moving away from the aim inscribed in the Constitution, which is to give provinces enough revenues to be able to provide quality public services based on more or less comparable taxation systems from one province to another.

It is always surprising to hear a Quebec minister, and a keen partisan of federalist orthodoxy, declaring himself satisfied with a provision that moves away from one of the major aims of the Canadian Constitution. But the contradiction did not end there, and the Quebec finance minister, as we saw recently, will not let a contradiction stop him.

Indeed, the minister went on to say in the same release: "Property taxes are the second largest source of revenue used to calculate equalization payments, and Quebec's fiscal capacity in that area is clearly overestimated, which results in a serious shortfall in that regard. For the Quebec government, the fact that

we have to wait for five years before this standard of fiscal capacity is significantly improved is hard to swallow".

How can anybody claim to be pleased with a measure that is so detrimental to him? The answer is quite simple and is matter of common sense. Everybody knows the perfectly legitimate position of the Quebec finance minister and his government on the preservation of federal ties. Everybody knows as well that a general election is looming in Quebec and the provincial government has nothing to gain from a confrontation with a newly elected federal government, and a Liberal one at that.

Not too many people are pleased with Bill C-3. One positive proof that sovereignists are not the only ones to condemn the ceiling on equalization payments is the declaration of the Manitoba deputy minister of finance, Mr. Newman, who recently said to the Standing Committee on Finance, right here in Ottawa:

"The proposed ceiling on equalization payments violates the spirit and intent of the Constitution. Continued application of the ceiling is unwarranted and detrimental to Canadians living in the less affluent provinces".

If you combine the principle of transfer payments to provinces with the various discretionary powers of the federal government, as is the case presently, you get a result which is particularly bad for Quebec.

Let us see what happens: first, in order to finance programs which, in many instances, are of provincial jurisdiction, the federal government levies taxes on Canadian and Quebec taxpayers. Then that same federal government creates supposedly national standards which everyone from coast to coast must observe. This is pure and simple interference in provincial affairs, and such interference is especially unacceptable, even indecent, when the federal government reduces its own contribution to programs while maintaining national standards that provinces must keep on respecting.

In other words, the federal government is asking the provinces to maintain the same level of services while giving them less money to do so. That is exactly what happened in Quebec in the health and post-secondary education sectors, which are still exclusively provincial jurisdictions, according to the Constitution of Canada. Between 1977 and 1993, the federal government's share for the provision of these two programs was cut from 47 to 34 per cent of total costs.

Then this same federal government told Quebec that it was going to keep on taxing the province more and more, as shown in the finance minister's recent budget speech, to fund both these programs. But it was going to give Quebec less money to provide services to its people. If you call such transfer payments fair, I do not know what fairness is!

In the health care area, while the federal government was continuously decreasing its share of contributions, it compelled the provinces to abide by health standards it had set. Quebec is not getting greater control over its health care system, it is getting the power to cut without being able to decide where to cut. Another one of the great inequities of the present system of transfer payments to the provinces can be found in established programs financing, under which the federal government comes and takes money from Quebecers to implement national programs according to Canadian standards, even though they do not always fit the Quebec reality.

The distinct society is much more than a hollow formula which emerged one day out of a lake that was the scene of a so-called constitutional agreement-the distinct society is, for believers, and we are among those, much more than that; it means also that Quebecers are a nation and that their specificity is rooted in a very real social and political situation.

A nation draws its sense of identity from the values shared by its people. Its programs and infrastructures should be based on these values, which should also be reflected in government programs which will determine people's standard of living. Quebecers have come to identify less and less with the standards imposed on them by the federal government. For its part, the government still refuses to recognize Quebecers' distinctiveness.

Let me give one example which the Minister of Health herself used in this House a while ago. I am talking about the network of local community service centres, or CLSCs, which Quebec established without the help or advice of the federal government. This network was set up in the early 1970s and the minister cited it as a model for service delivery. This mechanism which allows Quebecers to benefit from health care and social services right in their own community was fully developed and funded by Quebecers.

The Bloc Quebecois advocates radical changes to improve federal transfer programs to the provinces. By carrying out small sectoral program reforms, the federal government is manipulating the figures and pushing through changes which are not in the best interest of the provinces. As we have seen with the recent budget, the budget which is now before us, on the one hand, the government is slashing $2 billion from established programs financing in the area of post-secondary education and the Canada Assistance Plan, while on the other hand, it is maintaining the ceiling on equalization payments, despite the resulting inequity that I described earlier. All this just to confuse people and to make believe that the federal transfer payments system has been upgraded, when it is not so.

The Bloc Quebecois is strongly opposed to Bill C-3, which renews-

[Peter Milliken, Liberal, Kingston and the Islands, ON]

It is unbelievable!

[Maurice Bernier, Bloc, Mégantic—Compton—Stanstead, QC]

Yes, and I repeat it, it is opposed to Bill C-3 which renews the ceiling on equalization payments, a measure which, I want to remind you, means a loss of 900 million dollars for Quebec and perpetuates the federal government's tradition of unloading its problems on the provinces.

[Stephen Harper, Reform, Calgary West, AB]

Mr. Speaker, before I discuss Bill C-3, the bill to renew the equalization provisions of fiscal transfers for the next five years, I would like to thank the government for allowing us to have this debate tonight.

Originally the government had wanted to discuss this bill on Friday when I and the critic for the Bloc would be unable to attend. We were able to reach an agreement to debate this bill this evening. I say that in all sincerity in spite of the fact that I will oppose the bill. I will also express some concerns about the process not so much on this bill but the general process followed in reviewing such pieces of legislation.

As I have indicated my party opposes the bill. I want to take the time tonight to reiterate the nature of that opposition and also to review concerns about the process of discussion and debate used here in deciding some of these matters.

Our party does support some elements of this bill and it is important to indicate that. We support for example the concept a ceiling. It is important for anybody who is serious about fiscal responsibility and the nature of the problems we find ourselves in to not have a situation where the federal government finds itself liable for open-ended transfer payments. That certainly could be the case without some kind of a ceiling.

We also support the concept in this bill of some kind of compensation for excessive tax back of unique resource sources in the equalization formula.

While making these remarks, I would also like to say that the position of my party is not that of the Bloc Quebecois or that of the member from Mégantic-Compton-Stanstead. Despite his well-thought out remarks, our views are totally different.

I would like to take a few minutes to mention those differences in perspectives. As a party we support the concept of equalization. I would point out to all here that the concept of equalization is embedded as a principle in the Constitution Act, 1982, which our party recognizes and which we believe all provinces of Canada are part of. I understand that is a very different position from that of the Bloc Quebecois.

I also want to point out that in spite of whatever shortcomings this bill or other federal programs may have, this particular program is very generous to the province of Quebec. This has come up before. This year roughly $3.8 billion of the $8.4 billion spent under this program will be directed to the Government of Quebec, none to the Government of Alberta and none to the Government of British Columbia. While there may be shortcomings in the bill it is important to acknowledge that. All Canadians should acknowledge the importance of these transfers not only symbolically but in dollar terms.

I also point out, although we will get into this debate at a later date, that the Bloc Quebecois at some point is going to have to address more seriously than it has its support for independence and opposition to the Constitution Act on the one hand and its apparent love for some of these social programs and some of this spending on the other. In spite of the considered words of my friend there is a contradiction in not liking Canada and having such great love of the Canadian dollar. However we will discuss that at a later date.

The nature of our opposition is primarily the expenditure size involved and the fact we are making enormous commitments without proposals for comprehensive reform in this area. Our zero in three plan had called for reductions in the area of equalization as part of some fairly small reductions over all to the level of transfers to the provinces.

I note with this program even with the ceiling that the projected growth rates for equalization are about 5 per cent per year. That is very high in comparison with the expected rate of growth for spending on federal programs generally. It is certainly higher than most programs which involve federal transfer payments to the provinces. The cost of the equalization program will grow from $8.4 billion to about $10.4 billion over the five year period, fiscal years 1995 through 1999.

On top of that we are making these kinds of commitments in the absence of a comprehensive reform proposal. This bill was tabled and second reading debate occurred before the tabling of the budget, before the infamous red ink book.

We know the federal government in making this announcement reiterated its commitment to federal transfer programs. It implied as it had during the election that it would never consider cuts to social programs or to federal transfers. However the budget revealed that despite the renewal of this particular program, the renewal of the current dollar levels, there were going to be planned cuts in transfer payments in other areas, some of which we do not particularly support.

I note, for example, the budget talks about additional caps to the Canada assistance plan that would kick in the 1995-96 fiscal year. We would begin to limit spending in absolute dollar terms to the level of 1994-95 combined with established programs financing for post-secondary education. In 1996-97 the combined total of CAP and EPF post-secondary will not be allowed under the budget to exceed spending for those two programs combined in 1993-94.

This raises the spectre of something I think has been missed in much analysis of the budget, that is planned expenditure reduction by the government in the area of post-secondary education which is not a target that we deficit cutters have specified. We certainly have not found support in the country for making that a priority for reduction.

It is very funny that while we advocate some cuts in our plan the government is saying it is renewing this program. It is planning cuts to transfer payments to the provinces but there is no particular plan for any kind of comprehensive reform or rationale.

This is interesting considering that debate on the bill both at second reading and in committee has raised the fact that there needs to be such an examination in the case of equalization as well as in the case of other transfer programs. Generally speaking there is a lack of clarity on the objectives and the operations of the equalization program.

The hon. member for Lethbridge pointed out during second reading and in committee that if the formula created equity in federal programs, if we had equalization for that purpose, why would we then support in a number of ways special funding over and above this that recognized have not provinces in particular programs in other areas? I think, for example, of the infrastructure program, RRAP or the cap on CAP in the case of the have provinces. There is definitely a duplication of efforts and clear objectives.

As well there are problems that go back to the very beginning of equalization. Professor Tremblay of the University of Montreal pointed out to the finance committee in his presentation the original economic justifications for programs like equalization based on economic deficits and surpluses created by the system of tariff payments in the country. Those things are now obsolete, particularly with the implementation of free trade. That is not to say the program is unnecessary but the original economic justification of the program has been eclipsed.

Important questions were raised not only by Professor Tremblay but by other people in committee and at second reading: the impacts of equalization on regional dependency and on structural unemployment and whether it prevents natural adjustment to market forces and outward migration of population from areas with low income potential.

These are all very important questions. We are undergoing an examination in certain federal programs-unemployment insurance and welfare-of the effects of these programs on individuals and the restructuring of incentives. It certainly would be appropriate to undertake a similar study here on the effects of these programs on large governments both provincial as well as municipal.

The government in its defence of the bill has said that it now requires certainty in the area of federal transfer payments to the provinces, in particular certainty on the equalization formula. This is one reason it is anxious to support it and one reason government members gave for supporting it.

I would point out to the Chair that in the course of our committee hearing one government representative we did hear from, Mr. Neumann of the Intergovernmental Affairs Office of Manitoba, indicated considerable doubt about that as the previous speaker from the Bloc indicated. There is not unanimous provincial agreement with this particular approach. Governments are expressing some doubt about the issue of certainty. Mr. Neumann had indicated over and above his concerns about the ceiling, which I do not share, that some particulars in the calculations lend themselves to uncertainty about future receipts and that we should be examining those sorts of things. Of course we did not.

There are other specifics that are difficult with this. This bill leaves on an indefinite basis choices between two different kinds of equalization options for certain Atlantic provinces. We continue to have inequities in the equalization formula. They are well documented.

The treatment of natural resource revenues can be very different depending whether they are owned by crown corporations or private enterprise. The formula is extremely complex, difficult to understand and administer. On top of that, the formula does not use any kind of standard measures of fiscal capacity. It is a very unique formula developed only for this type of transfer and once again, there is no particularly clear rationale, at least to myself and to others I have talked to, between the particulars of the program and the objectives of the equalization program.

I have tried to lay out not only our general objection to the cost but also the fair range of issues that this bill really provoked both at second reading and in committee. I point this out because this is my first time as a new parliamentarian being a critic for a particular piece of legislation and being part of the system and seeing how it works.

We had the debate here. We went to committee with these bills. Points were made in the committee by members of the

opposition in both parties in opposition to the bill. Points were made, concerns were raised about the bill and about the philosophy of the bill by witnesses who appeared before the committee.

What was quite interesting to me was that the government members, generally speaking, who engaged in debate here and who talked in committee generally made no effort or only the most minimal effort to refute or to comment on any of the points raised.

I am not trying to be critical of any individual but the general defence of the bill offered by government members was certainty. The other was that equalization is about sharing and sharing is good, therefore let us pass the bill.

With that kind of orientation, we proceeded to pass the bill. We had two committee hearings and then proceeded to move to clause by clause, somewhere between 30 seconds and a minute, sums of money totalling $45 billion to $50 billion over the next few years.

I suppose an option available to myself or to members of the Bloc Quebec or other members of the Reform Party or perhaps any member would be to endlessly filibuster the bill, to bring speakers forward, to continue to raise these points in committee and in the House.

I follow our leader's example on this. There is no point saying that one is going to practise economy in government if one cannot practise economy in words. I am not interested in endlessly filibustering this bill but surely the point of the process is that we do an examination and even if we do not reach agreement that we at least sharpen our arguments so that we can better rationalize this bill.

Of course this does not happen because in our system with the pattern we have fallen into of government confidence on every motion and lack of free votes, the issue becomes not the substance of legislation but simply what party one belongs to.

Unlike in other legislatures, for example in the Congress of the United States, the one closest to us, it is unnecessary for us as individual members to defend or explain our position on pieces of legislation, even pieces of legislation that we are personally responsible for. All we have to know is that the government voted for it. If one is a government member, they had to support it.

That disappoints me. I am not suggesting that there are not members of the government who do not understand the equalization bill or who could not give good defences of this piece of legislation but this certainly did not transpire in the debates that I was involved in.

Why are we rushing this? This has all occurred very quickly. The bill was tabled before the budget. The government originally wanted it through committee around budget time. It certainly wants the bill through this House and has our limited co-operation to do so because as I say we are not interested in endless filibustering. It wants the bill through the House by March 31. Why? Because the program is slated to kick in on April 1 and is to go for so many years. In spite of the fact that we do not really have full provincial agreement this decision has been taken.

The bill had only been debated or on the order paper for a couple of weeks when I was contacted by Professor Boothe of the University of Alberta who has written extensively on federal transfer programs to the provinces. He would have liked to have said something on this but the committee hearings were done before he was aware we had a bill.

Why does this occur? This kind of rush occurs not because there is any real necessity or that there will be any collapse of the federal-provincial system if we do not pass this bill by March 31. It is because there is an attitude of the government, an attitude passed over from Parliaments in the past, that this process is a formality. This is a rubber stamp. It does not matter the sums of money that are involved, the objective is to pass it. In fact the decisions have been rendered in the executive. They were rendered in some other forum and there is no particular need to become knowledgeable only to get it through and maybe we will defend it at the next election.

These kinds of things concern me. I do not make these criticisms of the bill or of the process here as attacks on any particular government member or even on this government. This is the pattern of legislative process that we have fallen into in this country. It does not work. It is how we got ourselves into the kind of financial mess we have in this country.

I remind members once again that in many, many areas of public policy we spend more money than just about every country in the world, whether it is on education or health or unemployment insurance, transfer payments to lesser levels of government or whatever. We are spending as much or more than our competitors. The results are simply not comparable to what is required to compete in the international marketplace.

I think I have said my piece on that, Mr. Speaker. As I said, we anticipate the bill will pass. We oppose it on principle and will oppose it on division.

[The Acting Speaker (Mr. Kilger)]

Is the House ready for the question?

[Some hon. members]

Question.