Madam Speaker, I rise to speak to Bill C-65, an act to amend the Federal-Provincial Fiscal Arrangements Act. As the parliamentary secretary said, the primary object of the legislation is to renew the federal equalization program for another five years.
I would like to begin by simply stressing the importance that the Official Opposition, and I am sure all members of the House, attach to equalization. Under our Constitution, as the parliamentary secretary said, parliament and the Government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenue to provide reasonably comparable public services at reasonably comparable levels of taxation. I do not think it can be stressed enough that equalization is an important principle which makes our federation work.
The Official Opposition, the Reform Party, is committed to equalization and has been from the outset. Also I believe that the rank and file people in provinces like British Columbia, Alberta and Ontario who receive no equalization payments and in fact are net contributors to federal-provincial transfers also support the principle of equalization. They have objections as to how the federal government administers it, how the federal government handles transfers, but do not object to the principle itself.
Equalization is linked to taxation. It is linked to the finances of the provinces. It is linked to the financing of social programs. It is linked to the social union. It is literally linked to the financing of federalism itself.
Besides commenting on the particular bill, I also want to take the opportunity to comment on the broader subject of federal-provincial financing arrangements of which equalization is only one part. In particular I want to make the case that the reform of federalism which the government consistently avoids requires the reform of the financing of federalism that should include the reform of equalization and not merely the tinkering reflected in the bill.
The average person reading the bill and the act it amends—and I venture to say most of us as MPs—would find it utterly incomprehensible because equalization payments are now supposedly based on a complicated formula that has over 30 elements to it as well as ceiling and floor provisions which complicate it even further.
Finance ministers and officials of the Department of Finance often imply that every element of this program is based on principles and rationality beyond the ken of ordinary mortals. In other words there is a mystique associated with equalization and federal-provincial fiscal arrangements which often tends to discourage members of parliament and ordinary citizens from investigating the subject or questioning the status quo. I encourage all members to disregard that mystique in considering the bill and to penetrate it with some common sense, analysis and suggestions for improvement.
My own first encounter with the mystique connected to federal-provincial financial relationships occurred at the University of Alberta when I was a student there in the early sixties. I sat through a lecture by a learned economist in which he carefully and cautiously explained the principles and the rationale that lay behind the old tax rental agreements which were the predecessor to the current equalization formula. It was a beautiful theory. It was beautifully laid out. Everything was connected to principle and analysis.
I then went across the river from the University of Alberta and had lunch with my father, who was Premier of Alberta at the time, and attended the dominion-provincial reconstruction conferences initiated by Mackenzie King after the war from which came the tax rental agreements that then later gave birth to equalization.
I rehearsed for him this grand rationale and theory that lay behind the tax rental agreements which I had just learned at the University of Alberta. I got halfway through and he started to laugh. The reason was that when he attended those conferences Mr. Ilsley was the finance minister at that time. Mr. Ilsley presented the tax rental agreements and of course, as usually happens at these conferences, they could not agree. The premiers could not agree. The federal government could not agree. No one could agree on anything.
As also usually happens, they went to the prime minister's house for dinner that night and they did arrive at an agreement. They then hauled in the officials and told them they had an arrangement where Boss Johnson of B.C. was supposed to get so many million, Manning in Alberta was supposed to get so many million, Garson in Manitoba was supposed to get so many million and Douglas was supposed to get so many. They wanted to come up with a formula that delivered those dollars to those provinces, and so on it went right across the country.
I am not saying there is no rationale or there are no principles behind both equalization and federal-provincial fiscal relations, but a lot of it has been added after the fact. Beneath and behind a lot of this complicated formula lay some very basic financial needs and, I would also add, some very basic political considerations.
If members want to be reminded of the political factors that go into equalization, we need look no further than at the events that just preceded the calling of the Newfoundland election which is to be held tomorrow. Just days before the Newfoundland provincial election was called the government of Premier Turbot, as he is affectionately referred to on this side of the House, was projecting a $30 million deficit. Lo and behold on January 15, just two days before the election was called, the federal finance officials recalculated the equalization formula and the payment even though the figures were not supposed to be released until February 15. It was a miracle. Lo and behold, coincidence of coincidences, the projected increase in Newfoundland's equalization entitlement was just enough to cover the deficit and to enable Premier Tobin to announce that the budget would be balanced.
There may be rationality and principles behind equalization but there are also some very tangible political considerations and MPs should not allow the mystique of equalization to deter us from discussing those here.
I will read into the record a brief description of the federal equalization program. It is only 10 paragraphs. As members will know, because of the Official Opposition's interest in federal-provincial relations and reform of federalism, we read a lot of what the provincial governments produce on this subject and we read what the federal government produces and often we compare the two. Sometimes it cannot be recognized that these descriptions are describing the same thing.
For example, the federal description of the Calgary declaration and the descriptions produced by the provincial governments are so different that it is hardly recognizable they are talking about the same thing.
On equalization I am happy to report that the information sheets in most of the provincial information packages and the federal package are almost identical. This is a miracle in itself. It deserves a little recognition.
Here, therefore, is the official description of equalization:
Equalization is an unconditional transfer. Provinces receiving equalization may spend it in accordance with their own priorities. Equalization is funded by the federal government and is authorized by federal legislation covering five-year periods.
The current equalization legislation expires on March 31, 1999. Seven provinces currently qualify for equalization—Newfoundland, Prince Edward Island, New Brunswick, Nova Scotia, Quebec, Saskatchewan and Manitoba. Three provinces do not receive equalization program payments—British Columbia, Alberta and Ontario.
Equalization transfers are determined on the basis of legislated formulae. First, the amount of revenue which each province could raise if it applied national average tax rates is calculated for each kind of revenue that provinces and their local governments typically levy. Second, each province's overall ability to raise revenue from these sources is compared to that of the five provinces making up a representative standard—Quebec, Ontario, Manitoba, Saskatchewan and British Columbia.
This incidentally is one national standard to which Quebec does not object. If a provincial government's total revenue raising ability falls short of this standard its per capita revenues are raised to the standard level through federal equalization payments. If a provincial government's total revenue raising ability exceeds the standard, as in the case of B.C., Alberta and Ontario, it does not receive equalization. As a result of this formula, when the fiscal capacity of a receiving province decreases in relation to the standard its equalization increases. When the fiscal capacity of the receiving province increases relative to the standard its equalization falls.
Equalization is subject to ceiling and floor provisions. The purpose of the ceiling based on the growth of the national economy is to protect the federal government from open ended growth in payments while the floor provisions protect the individual provinces against any large annual declines.
The ceiling and floor provisions are referred by economist Tom Courchesne as part of the bells and whistles connection to equalization which often ensured that the actual payments are not exactly what the formula itself delivers. It is just part of the mystique.
Equalization is the most important federal program for reducing disparities among provincial governments and their relative abilities to raise revenues and based—and this is the bottom line—on current estimates equalizations for 1998-99 will ensure that all provinces with average tax rates have revenues of $5,431 per resident to fund public services.
Now that is the program as it is described. The bill in front of us essentially renews that program with a bit of tinkering.
The broader financial and political considerations affecting equalization are as follows. I was disappointed that the parliamentary secretary did not connect equalization to the other things it is connected to, namely the whole approach to tax policy, to social policy and to the operation of federalism itself.
First, health, education and other social services have now become the largest component by far of the budgets of the provincial governments. Whether or not the federal government recognizes it, Canadians now rely more and more on private resources and the provincial governments for health, education and social assistance expenditures than they do on the federal government.
For example, in the all important area of health care, out of a total of $82 billion in health care expenditures, 30% now represents private spending, 61% represents provincial expenditures and only 9% represents federal expenditures. This incidentally is in a field where a previous Liberal administration once promised, once swore up and down on a stack of Bibles it would never change. The federal government would always assume 50% of the approved cost of health care.
No wonder that more and more Canadians' summary impression of the government is boiling down to two phrases: they raised our taxes and they cut our health care; they make us pay more and they give us less.
Second, it is increasingly clear that all the provinces, including British Columbia, Alberta and Ontario which receive no equalization, are experiencing increasing difficulty in financing health, education and social services. These difficulties are compounded by the insatiable appetite of the federal government for tax revenues, federal tax revenues having increased 38% since this group got into office, and the reduction of federal transfers to the provinces by over $6 billion per year which adds up to a cumulative decrease, if we add up the annual decreases over the period since they have been implemented, of about $16 billion.
In light of these circumstances, what is required? What is required with respect to equalization? I would say something more than tinkering, something more than what is contained in the bill for which the government has had five years to prepare. It is dealing with one of the pillars of social financing and we always hear how passionately committed the government is to social programs. It brings a bill to the House that is mere tinkering with one of the pillars of social service financing.
If we are concerned about hospital closures and the shortage of doctors and health care personnel; if we are concerned about the 200,000 people on the waiting lines; if we are concerned about spiralling tuition fees and Canadian students rapidly increasing their debt load; if we are concerned about the ever increasing number of Canadians, particularly children, living in poverty; if we are truly concerned about all these things, what is needed is a substantive reform of federal-provincial financial relations. That includes a substantive reform of the three pillars that undergird the financing of social services, namely tax policies, federal-provincial transfers such as the CHST, and equalization, the subject of the bill before us.
I also suggest that any significant improvement in federal-provincial financing of social programs requires a substantive rethinking of tax policy, CHST and equalization. These have to be considered together because they are all tangled up together. They are all interrelated. We cannot change one without affecting the other.
What is the record of the Liberal administration with respect to implementing the real reforms needed to revitalize the financing of social programs? There is no record other than defending the status quo.
It is mere tinkering with regard to tax policy. Prebudget discussions have disclosed that the budget will only include token tax relief in comparison to the over $30 billion of increased revenue which the government has collected per year since it took office.
With regard to transfers for social purposes, it is mere tinkering. The recent social union and health agreement proposals disclose that the federal government appears prepared to put only $2 billion to $3 billion back compared to the $16 billion it took. It plans no real reform in the relations between the federal and provincial governments that would allow the provinces to do more with less. What reforms Ottawa has agreed to have been initiated by the provinces and not by Ottawa.
With regard to equalization, as I said it is mere tinkering again. Despite having five years to plan for this bill, it contains no rationale connecting it to the other aspects of federal-provincial program financing. It contains no substantive reform of equalization at all.
In these three things, the federal budget, the social union proposals and the equalization bill, we have only the latest example of fossilized federalism. The status quo is maintained with just a little tinkering to try to create the impression that substantive improvements are being achieved. Meanwhile, Canadians continue to pay more for less in terms of social services. Canadians must look elsewhere for substantive reform of the financial underpinnings of federalism.
I do not want to be entirely negative. In contrast to the fossilized federalism of the federal government, we have the flexible federalism recommended by the official opposition in its new Canada act. I also have to say it is advocated by an increasing number of the premiers. In contrast to the frozen federalism of the federal government, we have the springtime federalism recommended by the official opposition and also advocated by a number of premiers.
What does flexible federalism advocate to reform federal-provincial finances for the 21st century and to rebuild the financial foundations of our social programs, including equalization? Does the federal government not collect any of the thinking that is being done by the provinces on how to reform federal-provincial finances? Does it pay no attention to the work that has been done by the think tanks? Why is it that the federal government shows no leadership in these areas at all? It just clings to the status quo and adds a little tinkering. That is its only contribution.
I am proposing three things that substantive reform of federal-provincial financing would entail.
First, simplify and rationalize federal transfers for social purposes by providing simple equal per capita grants to all provinces for social purposes. Stop trying to equalize through every social program envelope, from health to social assistance to unemployment insurance. This position has been well articulated by both the Alberta and Ontario governments. I anticipate objections to this from some of the lower income provinces but I ask them to wait until I am finished.
Second, reform if necessary and refocus the equalization program we are discussing today even more heavily on the low income provinces. Listen to what I am saying. Equal per capita grants for social program funding across the country, then reform equalization and tip it even more steeply toward the lower income provinces to bring their capacity to finance social programs up to a national standard established by interprovincial agreements.
Third, complement these preceding measures with broad based substantive tax relief to increase the disposable incomes of individuals and families in every province so that private resources are also available for social spending and are enhanced.
For example, a $15 billion broad based tax relief program such as was in the Reform Party platform during the last election delivers financial transfers to the people of each province of the following orders of magnitude. Listen to the orders of magnitude. People do not seem to understand how much broad based tax relief could deliver into the pockets of people, particularly lower income people and businesses in the various provinces.
Newfoundland, $216 million. Nova Scotia, $396 million. New Brunswick, $329 million. P.E.I., $56 million. In Atlantic Canada $998 million in total can be delivered into the pockets of individuals and businesses through tax relief, more than what the federal government currently pumps in through regional development grants. For Quebec, $3.256 billion. For Ontario, $5.45 billion more. Manitoba, $498 million more. Saskatchewan, $438 million. Alberta, $1.4 billion. British Columbia, $1.8 billion. This is the order of magnitude of what can be pumped into provincial economies through broad based tax relief.
If this country had federal leadership committed to reformed federalism rather than fossilized federalism, if this country had a finance minister committed to the positive reform of federal-provincial financial relations instead of mere tinkering, what should have happened over the last year in discussions between Ottawa and the finance ministers of the provinces should have been this.
The finance minister should be meeting with every provincial finance minister to discuss and agree on substantive measures to stabilize and improve the financing of social services in this country. When the finance minister meets with his provincial counterparts, their discussion should occur with a simple table that has four columns.
Column one would show what the province would receive through simple, equal, per capita grants in support of social programs. Column two would show what the province would receive in terms of enhanced and better focused equalization. Column three would show what the people and employers of the province would receive through broad based tax relief which the province is free to either let it do its stimulative work or to tax back in part if it so desires. Column four would give the total and would show that each province would be better off financially, better equipped to finance health, education and social assistance than it would be under the status quo and Liberal tinkering.
In conclusion, the official opposition urges parliament to reject this equalization amendment bill as mere tinkering. The government ought to be embarrassed to bring something like this before the House. It is inadequate just as we consider the financial components of the social union agreement juvenile and inadequate and the tinkering tax changes in the next budget as inadequate.
As more and more Canadians and more and more of the provinces begin to see the inadequacies of this Liberal government's fossilized federalism, I express the hope that at some premiers conference in the not too distant future, instead of meekly accepting these tinkering proposals of the fossilized federalists, the premiers will take off their premiers' hats for just a day and put on their political leaders' hats.
In their capacity as political leaders, I would like to see some of those provincial political leaders, whose views on flexible federalism are more advanced than that of the federal government and more in tune with the need of the 21st century, discuss just for once their vision of flexible federalism and the political alliances and initiatives required to get a new government in Ottawa which is prepared to make the substantive reforms of federalism and federal-provincial financing required for the 21st century.
If and when that day comes, I assure those provincial leaders who favour reform of the federation over fossilized federalism that they will find an ally in federal Reformers united to create a better alternative to this bankrupt administration.