Mr. Speaker, I am pleased to rise in debate on Motion No. 424 regarding equalization put forward this evening by the hon. member for St. John's East. I commend the hon. member for his hard work on this matter and his diligent representation of the interest of his province and constituency. I think the member is well known for such diligence.
The motion seeks to end what the member characterizes as a decrease in equalization payments to provinces that see an increase in revenues through resource development projects.
In this case he is referring to the projects recently off the ground in Newfoundland such as Hibernia, Voisey's Bay and others. All Canadians take some gratitude in the fact that we now have some real economic development in terms of natural resources happening in these areas of Newfoundland. We all hope that these developments will signal a new and brighter economic future for the people of Newfoundland and Labrador.
The motion addresses the question of equalization. It seems to us that equalization formulae already take into account the possibility of provincial revenues growing from within the resource sector. There are already in place floors to protect provinces from variations in the reductions from equalization as a result of increases in the provincial resource tax base.
A province with a relative per capita fiscal capacity less than or equal to 70% of the national average in the equalization formula is entitled to a floor protection of 95% of the equalization entitlement of the previous year.
In the case of Newfoundland, which has already signed agreements with the federal government applying to resource projects initiated by the Hibernia project but also applicable to White Rose in Voisey's Bay, this means that in the short run Newfoundland may lose just 5 cents in equalization for each new dollar in resource revenue and that in the medium run it may lose less than $1 or about 70 cents in equalization payments for each new dollar in resource revenues. In other words, a transition mechanism is already built into equalization to smooth resource driven declines in equalization entitlement.
If the capacity of a province to raise revenues increases then its equalization entitlement should decrease, which is what the current formulae allow for. However that decrease is smoothed out over time. It is not jarring. It does not happen too quickly so provinces should have the ability to adjust.
The hon. member appealed at the end of his remarks for a new deal in Confederation based on true equality among Canadians so that all people would be treated equal. Those of us in the official opposition could not agree more strongly. We advocate the principle of equality as the basis for any true and lasting union in our Confederation.
However, the kind of equality that we speak of in economic terms is equality of opportunity and not equality of outcomes. It is simply not possible for this or any other government to guarantee equality of outcomes in terms of the economic situation of various Canadians. We can try to provide a basic level of equality of opportunity, and that is what the current equalization system attempts to do.
The problem with the hon. member's motion is that it would seek to treat Newfoundland differently from all other provinces. The money that comes from equalization payments does not just come from out of thin air. It does not grow on trees. It is not just printed by the Bank of Canada. It is money that is taxed from certain Canadians and redistributed to provincial governments in other parts of the country. In this respect I do not believe that equalization is necessarily the most efficient means of creating equality of opportunity and redistributing income.
There are people in my constituency in Alberta of modest income. They work hard and carry a very large tax burden, yet part of the federal taxes they pay to Ottawa are redistributed in the form of equalization payments to citizens in other provinces, which in the sense of fairness that Canadians pride themselves on is a reasonable principle. Except what you end up with is the aberration of lower income working people paying taxes to Ottawa in areas like Alberta, Ontario and British Columbia in order to subsidize public services that upper income people benefit from in other provinces such as Newfoundland and Quebec and the other so-called have not provinces.
This is not an equitable form of redistribution. It is difficult to believe that in a country like Canada, being one of the wealthiest countries in the history of the world, there are seven have not economically disadvantaged provinces.
We accept the principle that we need to assist those who are going through difficult times such as people in Newfoundland and Labrador. We do not accept the principle that there are seven have -not provinces which should always be guaranteed a transfer from the taxpayers of other provinces. That is why we would propose to readjust the equalization formulas to focus benefit on the four poorest provinces as opposed to the seven provinces which are currently characterized as have not.
In so doing, by changing the incentives in the equalization system we hope to remove the potential for the so-called welfare trap effect taking place. There is now a disincentive for provincial governments to broaden and deepen their tax bases because if they do so they lose some of the equalization payments. What is needed are greater incentives for serious private sector economic development which can create meaningful sustainable jobs for the people of the economically disadvantaged regions.
For 30 years we have followed an economic approach in places such as Newfoundland and Labrador predicated on government intervention, on enormous subsidies and transfers. As a result we have seen unacceptably high levels of unemployment and unacceptably low levels of economic development. If we look to those areas of the country which have relied more on policies that are oriented toward private sector investment and lower taxes, greater incentives for people to work, save and invest, what we see in such jurisdictions as Alberta are the lowest levels of unemployment and the highest levels of growth.
We ought to look to the recent economic history of Confederation to suggest that continuing the enormous subsidization of regional economies does not create real jobs or real opportunities. Unfortunately that is why so many people from the province of Newfoundland and Labrador are leaving, because of a lack of economic opportunities. They are moving to, for instance, Alberta which has for the past many years has pursued quite a radically different approach to economic development, one of lower taxes, less intervention and fewer subsidies.
I close by commending the hon. member for the sentiment behind his motion and his effort to speak on behalf of what he regards as the best interests of his constituents. However, in the true interests of equity and fairness across the country we cannot change the rules of equalization when a province is starting to see some broadening of its tax base. We must treat all provinces with some degree of equity. For that reason we would like to reform equalization but not by creating a double standard where a province can see higher own source revenues and continue to be subsidized by Ottawa.