Mr. Speaker, it is with pleasure that I rise today to speak on such an important topic as equalization. I will be splitting my time with the hon. member for St. John's West today.
The principle of equalization and the notion that we should have approximately equal levels of taxation and equal levels of services across the country is a sound one. If there is a policy that Canadians are united around and support in principle, I think the policy of equalization, as a cornerstone of Canadian social and economic policy, is one where there is still a considerable level of support across our very diverse country. In fact, it is the only constitutionally enshrined spending program.
That being the case, if we look to the beginning of equalization, it has played a very important and, by and large, positive role in ensuring equality of opportunity across Canada.
If we look at the basic principles of equalization, that is the generally equal levels of taxation and equal levels of services across the country, and look at the reality of what exists today across Canada, we will see that there are significant problems in equalization in the current context, particularly if we look at the disparate levels of taxation across the country. Provinces that are in a position to do so are aggressively pursuing tax reduction policies that are positive from an economic growth perspective within their own jurisdictions.
That being the case, we do have an increasingly ghettoized tax environment across the country. Some provinces are having great difficulties in addressing and reducing taxes and debt in their own provinces, while other provinces are in a much stronger fiscal position. As a result, if we recognize the important role that tax policy plays in shaping economic growth and economic development policies, we will see that there are some significant disadvantages in some provinces that may not have been recognized a few years ago based on higher tax levels and that sort of thing.
Equalization, where it should put ladders in front of provinces to enable them to succeed, move forward and bootstrap themselves into success, in many ways puts barriers in front of provinces. There has been a tectonic shift in economic theory over the last 10, 15, 20 years in terms of the recognition that tax policy plays as a lever of economic growth. Even social democrat parties in most parts of the world recognize that one of the infrastructure requirements in any pro growth environment, particularly in the new economy, is competitive tax breaks. Equalization has not been reformed to reflect that evolution of economic thought.
If we look over the last 10 to 12 years, Ireland represents a tremendous example of a country that has effectively embraced some of the evolution of economic thought in this area and did in fact adapt successfully in that realization. Some people compare Ireland to Canada and say that what has been done in Ireland could be done in Canada.
Comparing Ireland to Canada is actually not a very good comparison because Ireland did benefit from EU transfers in order to facilitate the reductions in taxes and the increase in education spending which were so pivotal in enabling Ireland to achieve a 97% growth in GDP per capita over a 10 year period. Canada achieved a paltry 5% growth in GDP per capita during the same period. So Ireland outstripped our growth rate by almost 20 times during that period.
However, if we compare the Ireland example to Atlantic Canada, we see some striking comparisons. There is a beacon of opportunity for Atlantic Canada and for any recipient provinces of equalization. If we were to become more creative, we could address equalization as a lever for economic growth and not as a lever to perpetuate a cycle of dependency. In the same way that Ireland used transfers from the EU to facilitate investment in education and to reduce taxes, equalization could be used similarly.
One of the flaws we have in the current equalization system is that as provinces diversify their economies and try to find ways to increase revenues and achieve greater levels of growth, whether it is through the development of offshore resources, which is the case in Newfoundland and Nova Scotia, my home province, or in the case of a province like Quebec which is pursuing a very aggressive biotech strategy, or whether it is through revenues from IT, biotech or from offshore, the current structure of equalization will eventually result in an overwhelming clawback of almost all those revenues, which actually perpetuates the cycle of dependency.
As a province finds itself in a position, because of economic development decisions or economic growth in a particular area, to pull ahead and actually reduce their level of dependency, the federal government actually claws back the lion's share of revenue. In some ways it is the same welfare trap that some of our social programs put individuals on social assistance in and when they actually get a job they make less money or do not see any economic benefit for their initiatives or successes.
If we want to be serious about equalization, not as a tool to create dependency, not as a political bargaining chip to be waved around at election time by the Liberals in provinces like Newfoundland, Nova Scotia and Atlantic Canada, but as an actual lever to create greater levels of economic growth and opportunity, we have to recognize that the equalization reform must occur in lockstep with economic development policy reform.
I will give an example of some of the economic development issues that need to be addressed in lockstep with equalization reform. The policies for regional economic development agencies, ACOA, the Atlantic Canada Opportunities Agency, being one of them, need to be reformed. In Nova Scotia. for example, I think the ACOA budget is around $120 million per year. The total federal corporate income tax paid in Nova Scotia is approximately around the same amount. I think it is around $130 million or maybe $140 million.
We could actually use the ACOA budget to eliminate federal corporate taxes from Atlantic Canada. This is just one idea of something we could do that might create even greater levels of growth than perhaps ACOA has created. We recognize that ACOA has had some successes in the past but it has also had significant failures. In some ways, perhaps the ACOA model was a more successful model in the old economy than it would be in the new economy.
We need to have a very important debate about equalization reform and economic development reform. The campaign for fairness that Premier John Hamm of Nova Scotia has engaged in and is travelling throughout the country speaking on with opinion leaders and public policy makers, is a very important campaign. He is pointing out the flaw in equalization that is taking the clawback that is resulting in an 81% loss of offshore revenue.
Every dollar that goes into Nova Scotia from new offshore revenue is clawed back by the federal government. New Brunswick may be in the same position in the future, not necessarily through offshore revenues but perhaps through some other revenues, such as IT development or some other means. This speaks to a larger issue, which is the need for reform.
It is important to recognize that there is a precedent to Premier Hamm's argument that the current equalization system is flawed in that regard.
Equalization payments began in 1958. Alberta was receiving revenues from petroleum at that time and continued to receive those revenues until 1965, at which time it had achieved a level of economic dependence, which, of course, brought it out of the recipient province status and into a contributing province status. During that period of time, between when equalization started as a program and when Alberta was able to achieve self-sufficiency through the growth in petroleum revenues, Alberta continued to receive 100% of equalization revenue. I think that was an important precedent. That is why Alberta Premier Ralph Klein has been supportive of Nova Scotia Premier John Hamm's initiative.
It is important that we recognize in the House that before Albertans had the wisdom, foresight and vision to put oil in the ground, it was a have not province. We and recipient provinces are simply looking for the same opportunity to utilize our revenues in order to end the cycle of dependency.
I believe that in 10 years provinces will be looking back at a time when they were recipient provinces. I also believe there will be a significant possibility, if we work collectively and the provincial and federal governments share in the vision of economic self-sufficiency and opportunity, that we will see many of the provinces, which are currently recipient provinces, achieve the economic self-sufficiency and opportunity. Saskatchewan is another province that has that level of potential. However, it will not happen unless we change equalization and adapt the formula to reflect the realities of modern economic theory, which is to lower taxes and debt and create policies that enable provinces or other jurisdictions to achieve those very important infrastructure items. Unless provinces are in a position to do that, we will not see the light at the end of the tunnel and economic dependency will be something that we will continue to accept in Canada as opposed to the notion of economic opportunity in every region.
In closing, I would hope that we would change our approach to equalization to recognize that equalization should not just stand for the notion of approximately equal levels of services and taxes across the country, but that, in a more general sense, we should recognize it as an opportunity for provinces and individuals across Canada to achieve full equality of opportunity and success in the 21st century.