Mr. Speaker, I appreciate the opportunity to speak today at second reading of Bill C-18 which amends the Federal-Provincial Fiscal Arrangements Act with respect to the equalization program.
This legislation stems from the landmark agreements reached by Canada's first ministers on September 11, 2000 on a plan to renew health care, improve support for early childhood development, and strengthen other social programs.
In support of these agreements, the federal government is making the largest contribution ever to health, higher learning and social services: a new investment of $23.4 billion over the next five years.
Most of this funding, $21.1 billion, was legislated in Bill C-45 last fall and is being provided through the Canada health and social transfer, CHST, which I will discuss in a moment.
At the first ministers' meeting, the issue of equalization was also raised.
The bill before us today fulfils the commitment made by the Prime Minister at that time to lift the ceiling on the equalization program for the 1999-2000 fiscal year.
The Prime Minister also asked the Minister of Finance to consult with provincial and territorial finance ministers on how best to follow through on this commitment. The finance minister has recently completed his consultations.
Before discussing Bill C-18, let me take a moment to set the legislation in context. I want to briefly explain how the federal system of transfer payments works and the importance of the equalization program itself.
The federal government, in partnership with the provinces and territories, plays a key role in supporting the Canadian health system and other social programs. The provinces and territories deliver their own health care, education and social services, while the federal government provides them with financial assistance through transfer payments.
Today the federal government transfers approximately $40 billion to the provinces and territories. It does this through three major programs: the CHST, equalization and the territorial formula financing.
Because of transfers, all Canadians can expect: equal access to public health care; a safety net to support those most in need; the freedom to move throughout the country to seek work; higher education and training available to all who qualify; and reasonably comparable services wherever one lives.
I will take a moment to look at each of these federal transfer programs individually because there has been some confusion and misinformation in the Canadian public.
First, I will speak to the Canadian health and social transfer. The CHST upholds the five medicare principles of the Canada Health Act: universality, comprehensiveness, accessibility, portability and public administration. It also ensures that no minimum residency period is required to receive social assistance.
This block fund is provided on an equal per capita basis to provinces and territories in the form of cash and tax transfers for health care, post-secondary education, early childhood development and social programs.
The new funding legislated last fall is the fifth enhancement in the CHST since 1995. CHST cash transfers to the provinces and territories will now rise to $18.3 billion in 2001-02, $19.1 billion in 2002-03, and $21 billion in 2005-06—at which time CHST cash will be 35% above its current level of $15.5 billion.
I will speak briefly about tax transfers. This is one of the least understood aspects of the CHST despite the fact that tax transfers are fundamental to how the program functions.
In 1977 under established programs financing, one of the CHST's predecessor programs, the federal government transferred tax points to the provinces. The federal government decreased its personal income tax by 13.5% and its corporate income tax by 1% so that the provinces could raise taxes by an equivalent amount.
The net impact of tax points on taxpayers was zero. It was totally transparent. However the impact on the federal and provincial governments was very real. Indeed, tax point transfers represent increased revenues to the provinces and foregone revenues for the federal government. It was done so the provinces and territories would have direct access to revenues to fund health care, post-secondary education and social programs.
In 2001-02 the value of transferred tax points will account for nearly $16 billion, about half the total amount provided to provinces under the CHST. That point is often forgotten by members opposite.
The second federal transfer program, equalization, provides extra funds to less prosperous provinces to enable them to offer comparable programs and services to their residents. Payments are unconditional and provinces can spend them as they see fit. In 2000-01 seven provinces are projected to receive equalization payments totalling $10.8 billion.
Territorial formula financing or TFF, the third transfer program, recognizes the higher costs of providing public services in the north. In 2000-01 payments provided under this program are forecast to be $1.4 billion.
These are the federal government's three major transfer programs and, as I mentioned, they provide approximately $40 billion annually to the provinces and territories.
Bill C-18 specifically deals with equalization, a program that in many ways expresses the generous spirit of Canada. Equalization has been in existence since 1957 and has played an important role in defining the Canadian federation. It is unique among federal transfers in that its purpose was entrenched in the Canadian constitution in 1982.
As stated in the Constitution, “Parliament and the Government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation”.
Phrased another way, its purpose is to ensure that less prosperous provinces can provide reasonably comparable public services without their taxes being out of line with those of more affluent provinces.
At present, seven provinces qualify for federal support under equalization: Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba and Saskatchewan. Ontario, Alberta and British Columbia are not eligible.
The fact that equalization was one of the few programs exempted from restraint measures during the mid-1990s illustrates the importance the government attaches to it. The government clearly understands what equalization means to receiving provinces.
Equalization has increased faster than anticipated. It has grown by 33%, or $2.7 billion, since our government took office. Equalization estimates are updated twice a year as newer data become available regarding economic developments and their impacts on provincial revenues.
Estimates show that equalization is at its highest level ever. The latest official estimates released by the finance minister in February show that payments to receiving provinces will be about $1.8 billion higher than estimated last October.
These higher figures are not due to the poor economic performance of receiving provinces. On the contrary, payments are increasing immediately by an estimated $1 billion due in large part to the exceptionally strong economic growth in Ontario over the last two years.
Of this amount, $52 million is for 1999-2000 and $955 million is for 2000-01. The other $800 million is the additional funding that will be provided to receiving provinces through passage of the bill.
Allow me a moment to explain how the equalization program operates. It is quite technical and misunderstood. Equalization is the most important federal program for reducing differences in the abilities of provincial governments to raise revenues. Federal and provincial officials review the program on an ongoing basis to make sure the differences are measured as accurately as possible.
In addition, the legislation is reviewed every five years. The last renewal was in 1999. Payments are calculated according to a formula set out in federal legislation, and adjust automatically in response to economic developments in the provinces.
When a province's economy is booming relative to other provinces, its equalization payments automatically decline under the formula in proportion to the increased wealth of the province. Conversely, when a qualifying province's fiscal capacity declines due to a slowdown in its economy, its equalization transfer automatically increases.
In this way, the program acts as an automatic stabilizer of provincial government revenues. Equalization payments are subject to “ceiling” and “floor” provisions.
The ceiling provision provides protection to the federal government against unexpected increases in equalization payments. In other words, the ceiling prevents changing economic circumstances from driving equalization payments through the roof. The ceiling thus ensures the program remains sustainable in the long run.
The floor provision is the other side of the coin. It provides protection to provincial governments against sudden large decreases in equalization payments.
The ceiling for 1999-2000 was set at $10 billion and, except for the provisions in this bill, will grow at a rate equal to the growth of GDP in subsequent years.
I now turn specifically to Bill C-18, which lifts the equalization ceiling only for the 1999-2000 fiscal year. As I explained earlier, lifting the ceiling fulfils a commitment made by the Prime Minister last September at the first ministers meeting.
The communiqué issued at the end of the meeting clearly states that “the Prime Minister agreed to take the necessary steps to ensure that no ceiling will apply to the 1999-2000 fiscal year. Thereafter, the established Equalization formula will apply, which allows the program to grow up to the rate of growth of GDP”.
While the final cost of removing the ceiling will not be known until the fall of 2002 when the final estimates for 1999-2000 become available, the cost is projected to be $792 million.
That amount will be allocated among the seven eligible provinces on an equal per capita basis. Each will receive the same amount of money per person because the ceiling affects all provinces in the same way. Removing the ceiling for 1999-2000 means that each receiving province will receive $67 per person.
The total breakdown per province is as follows: Newfoundland will receive $36 million. Prince Edward Island will be eligible for $10 million. Nova Scotia will qualify for $62 million. New Brunswick will receive $50 million. Quebec will get $489 million. Manitoba's payment will be $76 million, and Saskatchewan will receive $69 million.
I want to clarify an issue relating to the new equalization estimates released in February. The recent announcement of an additional $1.8 billion in equalization payments has generated reaction among some people. Some see the funds as a slap in the face if their own province's allocation is small, or they complain of favouritism if the allocation to other provinces is large.
Equalization payments are based on a formula that measures the relative performance of provincial economies. That formula is applied the same way to all provinces.
All provinces that have a revenue-raising capacity below the standard receive payments from the federal government. Why? Because the federal government is committed to the idea that all provinces should be able to provide comparable levels of service to their residents.
Provinces do not receive the same amount of equalization because they do not have the same economic circumstances. This year Saskatchewan needs $230 per person to be brought up to standard, while Newfoundland needs $2,000 per person. Per capita figures are multiplied by the total population of a province to arrive at the total equalization payment.
Quebec, despite the second lowest per capita equalization entitlement, generally receives the highest total payment because of its large population. At the other extreme, P.E.I., with its second highest per capita entitlement, generally receives the lowest total payment because of its small population. I hope these explanations will help clarify the issue for my hon. colleagues.
I will review a few points. All parts of the country cannot generate the same revenues to finance public services. Federal transfers, therefore, help ensure that important programs are adequately funded. Transfers also help ensure that all Canadians receive reasonably comparable levels of public services no matter where they live in Canada.
The result is that we all benefit from knowing we live in a country where health care, education and basic public services are provided at roughly comparable levels of quality in all provinces.
In considering the legislation I urge all hon. members to keep in mind that federal transfers have increased significantly in the last few years. Over $35 billion has been added to the CHST. Equalization entitlements are up $2 billion annually since 1995-96 and are expected to increase. Removing the equalization ceiling for 1999-2000 will add almost $800 million to transfers alone for that year.
I want to impress upon this House that, through this bill, we are fulfilling the Prime Minister's commitment to lift the equalization ceiling for 1999-2000, which means more money for the receiving provinces. Bill C-18 underscores the priority the government places on equalization and helps ensure that the receiving provinces continue to have resources to provide the services their people need and want.
I will conclude with a quote from the finance minister. After his meeting with the Atlantic finance ministers a few weeks ago, he said:
The federal government in the end always has to act in the national interest, and part of that acting in the national interest is ensuring that every single province is treated fairly.
This is exactly what Bill C-18 does. It continues the tradition of fairness with which equalization has been delivered for over 40 years. I urge all hon. members to pass this legislation without delay.