Mr. Speaker, I rise on behalf of the people of Surrey Central to participate in the debate on second reading of Bill C-18, an act to amend the Federal-Provincial Fiscal Arrangements Act. Earlier the finance critic of the Canadian Alliance, the hon. member for Calgary Southeast, highlighted very beautifully our position and the weaknesses in the bill.
For the benefit of the folks at home I would like to tell them that for fiscal year 1999-2000 the bill removes the ceiling that would otherwise apply to equalization payments.
We recognize that different provinces and regions of Canada have different levels of wealth. All wish to provide similar services to their residents. We are committed to the constitutional principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide their residents with reasonably comparable levels of basic services at a reasonably comparable level of taxation. It will allow all Canadians from coast to coast to enjoy a comparable quality of important government services.
The bill implements a commitment by the Prime Minister to the first ministers to lift the cap on the first year of a five year cycle of equalization payments. Bill C-18 would increase equalization transfers by $792 million with over 50% going to Quebec, a per capita increase of $67.
The increase results from growth beyond the $10 billion ceiling. It was done to accommodate the demands of provinces made during negotiations with the premiers over the $21.1 billion CHST transfer package which was concluded in September 2000.
While the Canadian Alliance is open to exploring a new equalization system, that does not penalize poorer provinces that benefit from unexpected growth or new resource royalties, we believe the equalization formula should be consistently applied.
The official opposition has consistently called for reform of the equalization system to allow the poorer provinces to benefit from their economic development. Nova Scotia's Conservative Premier John Hamm is calling for equalization reform as part of his campaign for fairness. When he was premier of Newfoundland the industry minister also spoke in favour of equalization reform. There is a need for equalization reform and everyone is talking about it.
For every dollar a province gains in royalties, the federal government reduces its equalization payments by about 75 cents. The current equalization formula actually prevents the equalization of economic opportunity among the provinces. The bill merely touches on one aspect of the problem. There are many other aspects that I will be talking about in detail a little later.
Rather than address the issue of equalization payments on a piecemeal basis, a full and thorough debate is needed in the House. The equalization ceiling exists to protect federal taxpayers from excess growth in payments.
The Canadian Alliance supported the $21.1 billion increase in the 2000 CHST fiscal accord. We also supported reviewing the application of the formula to stop penalizing provinces that experience strong growth or increases in the non-renewable resource revenues. We believe that maintaining the ceiling is necessary for the overall integrity of the program.
We also believe that the equalization system should serve the longer term purpose of equalizing economic opportunity and autonomy in all regions and should not create incentives for perverse economic policies on the part of provincial governments.
The lifting of the cap is a one time ad hoc reaction that fails to address the bigger and longer term problems. It was promised for purely political reasons. It may be good politics, but is it a good policy? The fact that this one time band aid solution is even being proposed indicates a need for open disclosure in parliament, in the provinces and among levels of government to come up with ways to prevent the necessity of applying such band aid solutions time after time.
I will describe the equalization payment system that the government operates. Every five years since 1957 the federal government through the finance department reviewed the equalization program. The purpose of the equalization program is to equalize provincial revenue raising capacity. In theory, this enables provinces to provide reasonably comparable levels of public service at reasonably comparable levels of taxation.
Without equalization payments Canada's wealthier provinces would be able to provide more services to their residents than the poor provinces could at the same level of taxation. The equalization formula is important to the Canadian federation.
The program is only as good as the processes that allow it to keep pace with the provincial tax system. The key element in the equalization formula is the representative tax system called RTS. The RTS is a hypothetical tax system that is supposed to be representative of the actual systems of the separate provinces. The key to success rests on how well the RTS reflects provincial tax systems. The RTS should be comprehensive, representative, accurate and appropriately categorized.
The RTS should include all revenue sources used to support public services comprehensively. Partial coverage of the revenue sources yields a biased picture of the relative fiscal capacity of the provinces. The RTS should use definitions of tax bases that reflect the tax structure actually used by the provinces to reflect what governments actually do. It should not represent imaginary, unfair and unrealistic measures. It should be representative of the actual tax systems used in the provinces or in the country. The data used to measure the various tax bases must be as accurate as possible for it to be a reliable measure.
The items in the RTS that make up a category or revenue source should have common characteristics, the ability to be taxed at a similar rate and should be appropriately categorized. The finance department currently uses such criteria for its assessment of the RTS, but nowhere is it explicitly set out.
The finance department has not formalized the set of principles to guide its review of the RTS. The need for a formalized set of principles is necessary if we are to arrive at a common way of estimating the tax base for the provinces. For many of the 33 revenue sources used by the department as measurements, the bases are not straightforward and no consensus exists.
We on this side of the House have been trying to force this weak Liberal government, that lacks vision, to do the work necessary to fix the system.
I spoke to the bill in the last parliament when the five year time period expired. As I mentioned earlier, the House debated the details of the equalization program and how it would operate for the next five years. At that time the government had given the House only a matter of days to deal with a bill that it was passing, the one that has to be passed every five years for the purpose of the operation of the equalization plan.
It was really an outrage. The government did not want the opposition parties in the House to have very much time to talk about equalization payments. It held back the bill for three days and then there were only a few days left before the calendar year deadline approached. The Liberals said that they had to rush the bill because the clock was ticking. That was because they would not put the puck on the ice until five minutes was left in the game.
Today we are debating a bill that is tinkering with the nation's equalization program, a program that we all support and that we all want to operate in the best possible manner. The Liberals do not want to do that work. The bill touches only one aspect of the problem, ceilings. How about the other related and more serious and complicated problems that the bill does not address at all? The Liberals are pretending that other problems do not exist. Maybe the problem will go away by pretending that the problems do not exist.
I will give six examples to prove what I am saying.
First, some provinces calculate their payroll taxes on the total payroll of business, while other provinces tax only a portion above certain thresholds. Still other provinces charge no tax at all. For the purpose of RTS, the base chosen across all provinces must be common.
Second, for sales taxes, the base used in the RTS is no longer representative of the tax structure used by all provinces. The four provinces that account for a third of Canada's population use a common sales tax base, the GST, which is different from the one used in the RTS. We are comparing apples to oranges. They are not equivalent. There is a need to review the way the sales tax base is currently measured.
Third, there are user fees which are not part of the current federal-provincial discussions for the 1999 renewal. it is very important to mention that governments at every level are resorting to alternative revenue sources such as user fees. It is a tax with only a semantic distinction.
Provincial and local government receipts from user fees doubled from $6 billion in 1984 to $12 billion in 1994. It doubled in 10 years.
How these revenues are treated in the equalization formula can have a significant effect on overall equalization payments. User fees imposed by the provinces have been part of the equalization of the RTS since 1967.
Similar fees imposed by the municipalities were brought in with the 1982 renewal. They are currently included under the miscellaneous revenue category of the RTS. It is a category that is altogether different and impacts on the calculations of the complicated equalization formula.
Fourth, since 1977 lottery revenues have been treated as a separate revenue source in the RTS, with gross revenues from the sale of lottery tickets constituting the lottery base. It worked well until the provincial gaming sector became significantly transformed. Today, provinces are operating video games, casinos, bingos, VLTs, break-open tickets and other games of chance.
The RTS base does not cover these newer gaming activities. This is unfair. The revenues are treated differently for equalization purposes. Where a casino is operated by a provincial lottery corporation, profits are equalized under the lottery revenue source. If the casino is operated by a government department, the gross revenues of the casino are equalized under the miscellaneous revenue source in the RTS. Again, the weak Liberal government allows mixing apples with oranges. Similar inequities arise in the treatment of revenues from other games. That is unfair.
The RTS has become less representative of the provincial taxing policy. We will see if the government is addressing these gaming inequities in the bill. It has its chance. It needs to look at it.
Fifth, is resource taxation which is an area where the ground is always shifting. The resource revenue type bases in the RTS are measured on the basis of the value or volume of production.
Ideally they would be measured on the basis of economic rent or the value of the resource over its cost of production. Rent is a measure of taxable potential, not actual but potential. It consists of a value that can be taxed without affecting production because natural resources in different locations can differ in quality and production costs. Rent associated with them can also differ significantly. These differences are not captured by the value or volume of production.
There are many flaws in the present equalization program. It should be completely reformed. We know the equalization provision has limited the cumulative growth of total equalization payments to the cumulative growth of GNP, gross national product, from the base.
Sixth, the ceiling and floor levels were introduced. I will not elaborate on that much but it does not work favourably. Rather it would make it difficult for the provinces, particularly those close to the floor level, to plan their budgets.
There is asymmetrical treatment of underpayments and overpayments. The overpayments are treated as non-interest bearing loans to the provinces. This is an important one. In the last year or so, it cost the federal government $38 million.
Free use of federal funds is not necessarily shared equally by all of the receiving provinces. The federal government does not charge interest on the underpayment. So the government has manipulated the program for political favours. The former premier of Newfoundland, who is Minister of Industry, was given a gift before the election. That is the kind of favours I am talking about. That is how the government can manipulate because the system is not fair.
Evolving over many decades, every five years the traditional political parties have given us an extremely convoluted and complex process. If the design is so archaic and cryptic that it defies logic and reason. It is not fair that our system is such a conundrum. Equalization as it is structured is divisive. It pits one Canadian against another. That is not right. The measurements should be accurate, reliable and sound. In this case, they are not.
The Reform Party of Canada, now the Canadian Alliance, advanced the new Canada act which sought to improve the Canadian political and economic system. There is a need for a single social union agreement on transfers from the federal government to the provinces.
Since we are debating the bill, I ask the government members to please look into the whole issue and make a serious attempt to reform our equalization program.