Mr. Speaker, it is with considerable pleasure that I rise to contribute to third reading deliberations on Bill C-65 which proposes to amend the Federal-Provincial Fiscal Arrangements Act.
As hon. members know, the legislation essentially involves two federal programs: the provincial personal income tax revenue guarantee program and the equalization program, each for an additional five years.
The major portion of the bill deals with the equalization program, a program that is really the fiscal cornerstone of Canadian federalism. Hon. members also know and are aware that the commitment to equalization payments is enshrined in the Constitution.
Payments under equalization go essentially to the heart of what it means to be Canadian. The payments provide provinces that are less well off with the resources they need to deliver reasonably comparable public services, including health care, to the their people without having to tax excessively.
Equalization has been a long tradition. It was established as a program in 1957 and has been continuously renewed and improved ever since.
The government's commitment to equalization is clearly evident in the fact that this program is one of the few to be exempted from the restraint measures that took place some five years ago.
For the next five years it is projected that the payments will be $5 billion higher, including increased payments due to the technical improvements worth an estimated $700 million over this same period. Further, last month's budget showed that payments would be even higher this year as well. Current year payments are expected to reach $10.7 billion and that is up $2.2 billion from the 1998 budget estimate.
It is clear that these transfers are indeed very significant. In 1998-99 they make up between 14% and 42% of total revenues of the recipient provinces. These payments are unconditional. This means that receiving provinces can use them as they wish. Experience has shown that they play a significant role in improving the quality of a wide array of public services.
Currently seven provinces benefit directly from equalization payments: Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba and Saskatchewan. There are also indirect benefits for all Canadians as well. We all benefit from knowing we live in a country where health care, education and basic public services are provided at essentially the same levels in all provinces.
In renewing the equalization program the bill proposes a package of improvements. These improvements aim to ensure the program continues to accurately measure the revenue raising ability of each province. The proposed modifications will be gradually phased in over the next five years so the impacts on provinces are smoothed over. In addition this will give federal and provincial governments time to plan for changes in the amounts of transfers.
What will make this happen? There are three components to the equalization renewal package proposed in the bill. First the equalization legislation renewal for five years provides a secure planning framework for receiving provinces.
Second, equalization ceiling and floor provisions are improved. The ceiling provision provides protection to the federal government against unexpected increases in equalization payments. In other words, this prevents changing economic circumstances from unaffordably driving equalization payments through the roof. The new ceiling will be set at $10 billion in 1999-2000 and will grow by the percentage change in gross domestic product thereafter. This change will ensure the program remains affordable and sustainable over the five year renewal period.
The floor provision is the other side of the coin. It provides protection to the provincial governments against unexpected large and sudden decreases in equalization payments. The new floor will be applied equally across all receiving provinces and will reduce fluctuations in floor protection that can result from application of the equalization formula during a period of economic change. What does it mean? It means more predictable protection for provincial governments.
The third change is that improvements will be made in the measurement of the ability of provinces to raise revenues on their own. The equalization formula measures the provincial revenue raising capacity by looking at over 30 different provincial taxes and comparing those results to a standard. It is on the basis of this formula driven exercise, and the formula is applied equally to all provinces, that the size of equalization transfers is calculated for each province.
We all know the taxation environment is not static. It changes and the changes proposed in the bill are needed to ensure that the equalization program reflects existing provincial tax opportunities and practices.
The changes in measurement which will be implemented through regulation relate to five tax bases that require significant improvements and other tax bases that require technical changes because of revised or new data. For example, changes are proposed for the measurement of the ability of provinces to raise sales tax. The new tax base will now reflect the taxing practices of those provinces that have moved to a value added tax, as well as those that have maintained retail sales tax systems.
Similarly, because of increased activity in related games of chance, the treatment of revenues that flow from them needs to be updated. Currently the equalization program only measures provincial ability to raise revenue from lottery ticket sales. The proposed changes will take into consideration the ability of provinces to raise revenue from casinos and video lottery terminals.
In addition a number of resources such as forest products and natural gas will be measured according to value rather than by volume as is currently the case.
It bears repeating that these modifications will happen gradually. The proposed tax base changes would come into effect in stages over the five year period. This renewal caps more than two years of consultation with the provinces. Considerable technical work was performed by both the federal and provincial officials and then that technical work was reviewed by ministers of finance at both the federal and provincial levels.
It is important to review the equalization program on a regular basis to assess accurately what change is needed. I submit to the House that this has been done. Bill C-65 was introduced in the House at the earliest opportunity. It is important to remember there are a number of other inputs like the Statistics Canada reports which contribute to the final outcome of this review. As is sometimes indicated by members of the opposition, the government did not drag its feet on the bill.
Passage of the bill continues a Canadian tradition of providing and showing that we all care deeply about the well-being of residents of provinces that are less well off than others. The renewal we are considering will provide substantial and reliable support. The legislation intends to see that we maintain the fairness with which the equalization program is delivered.
I cannot stress enough the importance of the legislation. It continues a Canadian tradition of generosity and fairness. I believe all members know this. The agreement, as all members know, expires March 31 and must pass in both the House and the Senate.
I am looking forward to the House expediting the passage of the legislation because I know that it is the kind of legislation all members of parliament can support.