Debates of March 22nd, 2001

Questions On The Order Paper

[The Acting Speaker (Mr. Bélair)]

I am sorry to interrupt the hon. member, but I have been advised by the table that those questions that were asked during the last parliament cannot be carried over into this parliament. Rules and procedure tell us that if hon. members do want their questions answered, they have to resubmit the same questions to the government. I hope this explanation serves.

[Greg Thompson, Progressive Conservative, New Brunswick Southwest, NB]

Mr. Speaker, I rise on a point of clarity. I appreciate the member for Winnipeg Centre helping me out on this, but in terms of the clarity of this issue, those questions were resubmitted. We have gone through two parliaments. They were put on the order paper last June. Following the election, they were re-entered into the system and deemed to be in order by the Clerk of the House. The parliamentary secretary—

[The Acting Speaker (Mr. Bélair)]

I can understand the hon. member's frustration, but technically those questions die at the same time as the writ is issued. I will repeat that if the hon. member wants to resubmit those questions, he can submit those questions again to the government. In the end, the two interventions that I have heard will certainly pass on the message that if the government needs to be more effective, it will be.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, for my own information and so that all members here know what the rules really are, the hon. member for New Brunswick Southwest already pointed out that he did resubmit the questions since the election to this new parliament.

What I understand from the Speaker right now is that if the member is serious about getting his questions answered, he should resubmit his questions. Have the rules changed to such a point where if we really want a question answered, we have to keep resubmitting it over and over again? How many times can we ask the same question or resubmit it?

Just for the information of the members here, in a situation like this, once we have submitted the question and we are not getting an answer, is the only way to get an answer to resubmit the question?

[The Acting Speaker (Mr. Bélair)]

As I see the situation, the questions have been resubmitted and of course they are then subject to a timetable. Like I said, the member's message is quite clear and I take it that the government will make the effort to respond timely to those questions.

Shall the remaining questions stand?

[Some hon. members]

Agreed.

Federal-Provincial Fiscal Arrangements Act

[Lawrence MacAulay, Liberal, for the Minister of Finance]

moved that Bill C-18, an act to amend the Federal-Provincial Fiscal Arrangements Act, be read the second time and referred to a committee.

[Roy Cullen, Liberal, Parliamentary Secretary to Minister of Finance]

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.

[Jason Kenney, Canadian Alliance, Calgary Southeast, AB]

Mr. Speaker, I am pleased to rise today to speak to Bill C-18.

The official opposition, the Canadian Alliance, supports the principle of equalization payments, but we do have certain concerns relating to this particular bill.

The official opposition does support in principle the constitutional obligation of equalization but has particular concerns with respect to the bill.

We just heard a fairly comprehensive overview of this legislation from the Parliamentary Secretary to the Minister of Finance. We also heard him set it within the larger context of federal fiscal transfers to the provinces. However, the bill is quite narrow in its scope, much narrower than my hon. colleague's comments would suggest. It is strictly limited to increasing or lifting for one particular fiscal year the ceiling for equalization payments. It does so for the fiscal year 1999-2000, now nearly two years past.

At the outset, my colleagues and I are bound by the democratically approved policy of our party to support the principle of equalization. Our manifesto states:

We recognize that different provinces and regions of Canada have different levels of wealth but all wish to provide similar services to their residents. Therefore we are committed to the constitutional principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide the residents with reasonably comparable levels of basic services at reasonably comparable levels of taxation.

We do support the notion that in a large and complex federation with fairly significant disparities in wealth, income and standards of living the federal government ought to play some function to equalize access to core public services at reasonably comparable levels of taxation.

Having said that, we do believe that the current formula and structure of equalization should be open for serious debate and review. Most provinces have called for such debate. We in the official opposition would like to be on the record as embracing that. We believe there are many problems with the current system, many unintended consequences that have the effect of both penalizing those provinces that are successful in terms of economic development and growth and penalizing taxpayers in the so-called have provinces.

It is often observed that in a country as wealthy as Canada it is inappropriate to suggest that we have seven provinces out of ten that are perpetual have not provinces. The mentality of the current equalization system perpetuates an attitude among some which is contrary to economic development.

One point we in the opposition have raised and hope to explore is the idea of opening negotiations to look at allowing provinces that are now bringing on stream certain non-renewable resource revenues to not be penalized in their equalization payments from the federal government for those new revenues for at least a period of time.

As the system is currently designed, there is what many economists refer to as a welfare trap phenomenon, where earning incremental income, or in this case developing incremental revenues to the provincial treasury, results in a proportionate reduction in federal transfers to the equalization program. This is a perverse incentive against domestic economic development among the so-called have not provinces. That is one of the many areas that ought to be explored.

We ought to explore whether indeed the formulae are applied or calculated on a fair and equitable basis and whether all provinces rather than some provinces should be included in the calculation of the equalization formula, as some provinces have suggested. We ought to take a hard and close look at the application of both the floor and the ceiling of equalization. We should see whether this program is really working to equalize access to core public services across the country at comparable levels of taxation.

It has been observed by academic economists including, for instance, those at the C.D. Howe Institute, that perhaps a better way of equalizing access to quality public services across this broad nation is through income sensitive transfers to persons as opposed to insensitive transfers from one government to another.

These economists have asked us to reflect as policy makers on the paradox, for instance, that there are members of, say, my constituency, a western riding in Alberta that is the largest contributor to equalization, who earn below average incomes. They are from modest families with modest means who are nevertheless obliged to pay a very large share of federal taxes. A portion of their taxes goes to finance the equalization program.

Most of my constituents would not object to the general principle of sharing opportunity and wealth across the nation. However, these economists ask us to reflect on how efficient this transfer of wealth is from government to government and from taxpayer to taxpayer in a way that is not sensitive to income. When the lower middle income family in my riding pays more taxes to finance equalization, it may have the impact of improving the road system, or the health care system which, for instance, is used by, among others, higher than average income people in other provinces.

Some economists have suggested that the current way the program is designed is perhaps not the best way to maximize the equalization of opportunities across the country. They suggest that instead the best way to do that is to redistribute wealth from higher income people, wherever they live and in whichever province they happen to reside, to lower income people, the working poor, who need a hand up. That is an interesting observation by academic economists, which I think ought to be included in the broader and more thorough review of the principle of equalization and its application.

I also think that this larger debate unfortunately has not been engaged by the government. Instead, the government tends to approach the issue of equalization on an ad hoc basis and in the crucible of very political negotiations with the provinces. That is not necessarily the best way to make good public policy.

I would point out, for instance, that the bill brings to us an amendment that lifts the ceiling on equalization payments for the fiscal year 1999-2000, pursuant to an agreement struck between the Prime Minister and his provincial counterparts on September 11 of last year.

Hon. members will no doubt recall that the date, September 11, 2000, was about a month before a federal election was called. Certainly the Prime Minister had the electoral timeline in mind. All of the premiers and public commentators were certainly aware of the very distinct possibility of a federal election on the horizon. It was in that very politicized context that this agreement was reached.

Some commentators have said that what we have before us today, this lifting of the ceiling, was a political demand put on the table in a horse trading session with the premiers and that the Prime Minister agreed to lift the ceiling for at least one year. That is not exactly how we ought to make serious, sober public policy decisions regarding hundreds of millions of taxpayer dollars, in this instance increasing equalization payments by some $792 million.

The ceiling is there for a reason: to protect the federal government from unforeseen increases in these payments. It is matched by a floor as well so that provinces are protected from an unforeseen reduction in equalization payments. For some 20 years now, I think, we have had this system that precludes wild variations or aberrations in the payments, either too much or too little, to the provinces. For the Prime Minister to simply politicize this very important part of the equalization structure in the crucible of an election campaign shows that he is not really committed to a serious, sober review of equalization and its application. That is something we would call on the government to engage in.

I am pleased to say that my hon. colleague from Portage—Lisgar, who is the official opposition critic for regional equity, will be speaking to the bill later today and will perhaps outline some of the principles he thinks should be included in a general review of equalization and the federal-provincial transfer arrangements.

Our party did support certain elements of the accord reached between the premiers and the Prime Minister in September of last year, particularly with respect to the restoration of funds stripped out of the Canada health and social transfer fund since the 1995 Liberal budget. I know I do not need to remind this place that in that budget and since that budget, the federal government removed some $23 billion in real hard cash dollars that were designated to the provinces to finance the highest priority program areas of Canadians, namely health care, higher education and other social priorities.

In poll after poll Canadians register health care as their single highest public spending priority. Yet when the government was given an opportunity to demonstrate its fiscal priorities, what did it choose? It chose to slash, gut and eviscerate health care funding to the provinces, a decision that had a very clear and tangible impact on the delivery of care to Canadians in need of health care. My colleagues and I for several years now have been consistent in saying that this was the wrong choice to make, a choice which the Prime Minister sought to undo in the September accord of last year, from which this bill derives.

It was the wrong choice to make because it reflected the wrong priorities. Between 1993 and 1999 the deficit was eliminated. About two-thirds of that deficit elimination came about through increased revenues to the federal government, in part because of higher tax rates imposed by it and in part because of automatic tax increases through the then deindexation of the tax code and various other revenue measures. Basically because Canadians were working harder and working longer hours, they were paying more to the federal government.

About two-thirds of the so-called deficit elimination is attributable to higher taxes which are now at the highest level in Canadian history as a percentage of our gross domestic product. It leaves us with the highest income tax burden relative to GDP in the G-8 and, further, the highest corporate income taxes in the OECD, the 23 principal industrialized economies of the world. That is the legacy of the fiscal policy of tax increases over the past decade.

The other third of the deficit reduction can be traced to the so-called spending restraint. It is the government's worst spending cuts. Three-quarters of the spending cuts involved in the deficit elimination exercise came about in the $23 billion reduction in transfers for health care to the provinces. Another very large chunk came about through gutting the capacity of the Department of National Defence to provide the resources for our men and women to defend our sovereignty and meet our international obligations.

If we take out national defence and the CHST, the rest of the federal government averaged a spending cut of only 3%. That reflects the fiscal priorities of the government. It was willing to cut health care transfers by one-third, by about 33%, and to virtually gut the capacity of our defence forces; but when it came to the myriad of other wasteful Ottawa bureaucratic spending programs they remained virtually untouched.

I will give some examples of wasteful programs: the Minister of Canadian Heritage with free flag giveaways, multimillion dollar handouts, grants to Liberal special interest groups, subsidies to bloated crown corporations, and the Minister of Industry with billions of dollars wasted on corporate welfare.

Then there is the general waste of mismanagement, duplication and misadministration of the federal public sector. It was virtually left untouched because the easier choice for the government was to pass the buck on to the provinces rather than fixing its own problems in its own backyard. They in turn had to pass the buck on to health care consumers. That is a synopsis of the fiscal choices of the government during the past several years.

Bill C-18 has come before us as part of a package. It was a sweetener to have the provinces accept less than a full loaf in terms of restoration of the CHST transfers to 1993 levels. In the September accord last year the governments agreed to increase those health transfers to only $21.1 billion. The money taken out since 1993 was at least $23 billion. The government was still about $2 billion short on its CHST cut in the accord that it negotiated with the provinces last September. In order to make up for this continued shortfall in critically needed health care funding, it offered to raise the ceiling on equalization. That is why the bill is before us today.

I would like Canadians and my colleagues to understand the political and fiscal context of the bill. In other words, had the government not made the wrong choice to slash health transfers by a third in 1995, had it not stubbornly stuck by that, and had it instead made different choices and reduced wasteful spending in Ottawa programs that do not affect real people, we would not have Bill C-18 before us today. The provinces would not have been so short of revenue that the poor ones would have demanded this aberrant lifting of the ceiling on equalization.

In its frantic pre-election effort to cover up the enormous mistake it made in terms of slashing the health care transfers, the government decided to make a change in the pre-existing, longstanding arrangements with the provinces with respect to equalization.

I do not quibble for one moment with certain provincial governments and premiers for seeking any way they possibly could to get more federal transfers into their provincial treasuries to reinvest in the health care and other social spending which had been stripped by the CHST. I do not object at all to their principled and effective advocacy on behalf of provincial taxpayers and health care consumers in this respect.

I am sure all my colleagues would agree that it would be in the best interests of the administration to have predictability and stability in the application of equalization agreements. We ought to try to play by the rules. Surely we could all agree that it is good public policy not to make exceptions from year to year. However the reason the government made the exception it did in the bill before us today with respect to the ceiling on equalization was to cover up for its own political mistake, its enormous policy blunder in its 33% cut in health transfers to the provinces since 1995.

We do not feel the government has much moral authority to come before us and say that it has decided out of the kindness of its heart for one particular fiscal year to raise the ceiling on equalization payments to the provinces to account for unexpected economic events two fiscal years ago. That is nonsense.

The Parliamentary Secretary to the Minister of Finance knows as well as I do that bureaucrats in the Department of Finance are no doubt rolling their eyes today as they watch the debate go forward. They know this is undermining the overall integrity of their program. In a way it, politically it had to happen in order to reinvest the money that had been taken out of the health transfer which the government refused to put back in.

Without a doubt the bureaucrats are standing there knowing that it may be good politics but it is awfully bad public policy. I would just say that we see over and over again this pattern of misplaced priorities leading to bad policy outcomes and then the government trying to wiggle its way out. That is what it is doing with the bill today.

Let me also say, lest the government try to paint itself as the great dispensary of Liberal generosity to the provinces, that this is a one time, one year deal. It does not intend to continue lifting the ceiling in perpetuity. If I had an opportunity to ask the finance minister's parliamentary secretary, I am sure he would be opposed to lifting the ceiling in perpetuity.

He would probably argue that it would contravene the rules set out in the agreements and that if we lift the ceiling, we should lift the floor and so on and so forth. I am sure he would make that argument, but somehow he avoided that question. He avoided mentioning why exactly this deal happened and why it applies to one year and one year only.

Another point I would like to add is that the practice of retroactive legislation in general is not a good one for parliament to pursue. When we consider fiscal matters, estimates, spending authorizations, ways and means motions, authorizing tax measures or any form of legislation, a principle of parliament ought to be that it ought not to try to go back and change history, as it seeks to do in this bill. We should make things right the first time.

Later today we will be considering Bill C-17, another example of the ham-fistedness with which the government administers its legislative program. We will be making so-called housekeeping amendments to correct mistakes that were made in the bill some time ago.

An enormous amount of parliament's time is consumed with correcting the mistakes the government makes in its legislation. Today we are seeking to change an agreement with the provinces from two fiscal years ago to help save the Prime Minister's hide. It was a deal he made at the last minute before a federal election to make up for his callous and irresponsible 33% cuts in health care transfers.

On that point I express my disappointment with the government for the manner in which it has handled its fiscal relationships with the provinces over the past number of years. I express my hope, although not my expectation, that it will begin to get things right in terms of long term stable and predictable cash transfers, tax points and equalization to the provinces so that we do not have these last minute deals and we do not need this kind of retroactive corrective remedy in legislation.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I am pleased to join the debate on behalf of our finance critic and on behalf of the other members of the NDP caucus to share our views.

I am one of the many Canadians who believes that the redistribution of wealth through the federal transfer payments and through the federal equalization payments is probably the single greatest achievement of the Canadian federal state. It is a concept that finds its origins in a generosity of spirit and what is a very real belief that most Canadians share.

They believe that even though all regions of the country are not equal we should be striving for equal treatment in all areas. We should be guaranteeing at least some constant minimum standards in social programs throughout the country no matter what the economic situation of the region.

I should make it abundantly clear that the NDP has always supported the many incarnations of transfer payments and equalization payments throughout history. It is interesting to note that the change in the distribution programs indicates a fundamental policy shift on behalf of government.

Many years ago we had the EPF, the established programs financing. It was equal 50:50 funding for established programs within the various provinces. My political party always believed in a widely shared view that there was a far greater ability for the federal government to control and to implement some national standards when the funding formula was 50:50. It was simple. If one of the provinces chose not to comply with the national standards put in place they were jeopardized in that 50:50 funding formula.

The established programs financing worked very well. We then saw the CAP, Canada assistance plan, come in, followed by the cap on CAP. Then came the CHST. Now we are seeing a removal of the cap of the new ceiling imposed in a temporary way. I will deal with that in greater detail later.

Let me say at the outset for those whose interest I will probably lose in the next few minutes that we are very critical of the bill. Speaking on behalf of many of the provincial finance ministers, even though the cap is to be lifted for one year, when the cap is reinstated one year from now it will be at a lower level than most of the finance ministers understood it to be.

The provincial finance ministers thought that they had an agreement on a certain set of circumstances. They are now finding that what is being announced today, the newly imposed ceiling, will be lower than what they thought they agreed to on September 11, 2000. That is a problem.

It is certainly a problem in the province that I come from. I have spoken about established programs financing and the history of the CAP, the cap on CAP and the CHST.

I am glad that previous speakers have pointed out the devastating impact of the CHST on social programs in the country. It should be stated clearly and abundantly by the opposition members, so that the public hears it over and over again, that the government stripped 33% of the funding out of the federal social transfers with the CHST. I believe the total figure since 1995 has been $23 billion or $24 billion. The government went from $19.1 billion to $11 billion in social transfers. Slowly it has been inching it back up. It went to $12.5 billion to $14.5 billion.

In these figures, and from what sense I can make of them, we will be at $15.5 billion. With some other features the amount will be close to $18 billion. It is still below what it was in 1995, in spite of all that has occurred since then, including greater revenues and a surplus for the government. We are not getting any government largesse, we are getting the restoration of some of the money it stripped away from the federal transfers in recent years.

I hope the Canadian public is not buying this line that the government had this fabulous meeting on September 11, 2000, that the provincial finance ministers convinced it to be more generous, so the government agreed and now it is more generous. The government is still as miserly and as shortsighted as ever in its commitment to try, what I believe to be the single greatest achievement of Canadian federalism, to redistribute the wealth through federal transfer payments.

It was pointed out that we have to look at some of the other origins of the money the government is claiming to share through its great largesse right now. Let us not forget the cuts in programs worth $23 billion or $24 billion. The cuts to the EI program accumulated a surplus of $35 billion to $37 billion, depending on who we talk to. Much to the government's discredit this money went into the consolidated revenue fund to be used for whatever it saw fit. It did not go into any kind of an insurance fund.

The other thing that has almost blown over, and I cannot believe it does not get raised in the House of Commons more often, was another great pool of dough or source of revenue that the government stumbled upon which was the public service pension plan surplus. It took $30 billion out of the of that surplus. Rather than negotiating some deal so that some would go to benefits and some would go to offset future premiums, every single nick of it went into the consolidated revenue fund to be used for whatever it sees fit.

Dribs and drabs of it are going back to actual Canadian citizens in the regions in which we live. Little bits and pieces are being sliced off scrap by scrap. Then with some great fanfare the Liberals announced $23 billion or $24 billion in extra spending. I think of the members of the House of Commons know it is a myth, it is an illusion and it borders on a cruel joke being perpetrated on the Canadian people.

The government can fool some of the people some of the time, et cetera. This is not going to wash. The jig is up on this particular funding formula because there is going to be a hue and cry with the growing realization of where this money really is. The government cannot take our money away from us, then give it back slowly and try to pretend that it is some kind of great largesse on behalf of a benevolent government. That is simply not going to fly.

When the equalization program was renewed in 1999, the ceiling was reduced by roughly $1 billion per year, in spite of the broad objections from virtually every finance minister in the various provinces, to an arbitrary level of $10 billion in 1999-2000. It was then indexed by GDP growth in subsequent years.

The program ceiling is now lower as a proportion of GDP than the entitlements have ever been under the current five province standard. The program was at the lowest level ever at that point in time. At the time the ceiling was reduced the federal finance officials indicated that this level would provide ample room to accommodate entitlements over the present renewal period. Recent estimates have proved them wrong. This is the source of frustration on behalf of the provincial finance counterparts.

The current estimate of equalization entitlements for the 1999-2000 fiscal year, the very first year of these new arrangements, exceeds the ceiling by close to $800 million. That is the origin of the problem.

The impact on my home province of Manitoba is presently estimated at about $76 million. This amount has been agreed to now but as the ceiling gets lifted Manitoba will, in the coming fiscal year, get about $76 million. This is very welcomed and necessary money. Manitoba has places to spend that money because God knows it has been coping with the shortage of funding over all these years. Many of its programs have been cut, hacked and slashed to the point where they are barely functional. It is critical that my province get the restoration of some of that equalization money to put back into the programs that it finds necessary for our people.

The parliamentary secretary told us that we could not just look at the CHST transfers. He told us that we had to look at the tax points as well. It is not just the $18 billion or so total CHST payments, but we have also transferred the ability to tax to the provinces. Let us look at that as a fundamental policy shift too and who that benefits.

The federal government only pays 13.5% of health care funding which is below the 50:50 ratio in the good old days. It has reduced it to the point where it is only paying 13.5%. It is now letting the provinces do the taxing. How does the general public like that? The general public does not like anybody who is responsible for deducting money off their pay cheques. The government has off-loaded the burden of the collection of taxes to the provinces through a tax point transfer. It has withheld money to the point where the funding relationship is 87% paid by the provinces and 13% paid by the federal government.

This is a flawed concept now. It is a system that had its origins in a very noble concept, which was the redistribution of wealth through federal transfer payments to ensure some national standard of quality social programs for all Canadians, no matter where they live. This is the kind of thing that nations are built on. This is the kind of thing that does more to hold Canada together than any 10 constitutions. This one aspect of the Canadian Constitution probably does more to keep the country together, even more than Peter Gzowski and the CBC, which is a very bold and dramatic statement.

We see a familiar pattern as we look at the details surrounding what has been introduced today and what the Parliamentary Secretary to the Minister of Finance outlined. We hear talk of the equalization ceiling which is the maximum payment that the federal government will make to the provinces under the equalization program. That ceiling is set in the upper limits on the growth rate of equalization entitlements.

We know that the goal should be to protect the federal government from rapid and unaffordable year to year increases in payments. That is all very well and good but that is also based on the premise that there will be some stability and predictability out there. Need does not always follow convenient budget lines in a budgetary plan. I argue that the need is great in many parts of Canada. We cannot have economic development and independence and the type of economic growth in areas until all come up to a base level starting point. We are then talking true equality within the country.

There is nothing more unfair in the world than treating unequal parties equally. This happens in all kinds of applications. I hear that sometimes in the speeches made by Canadian Alliance members who want all the provinces treated equally. That means recognizing that not all provinces are equal. Some are quite unequal in terms of their opportunity and the resources they enjoy.

All the provinces and the territories called for the removal of the ceiling on equalization payments as recently as August 2000. They were demanding that this ceiling be lifted because they believed that the ceiling acted as a barrier for them to get their fair share of the wealth that should have been redistributed, money that was taken from the provinces in cuts to program funding over the years which amounted to 33% or $24 billion.

There is inherent financial protection for the federal government on the growth of equalization payments through population adjustments and shared revenue fields. When it comes to population adjustments, some provinces are going to do better than others.

When we look at it on a per capita increase, if the dollar figure is approximately $67 per head, the obvious impact on provinces showing a net population growth, by ratio and proportion, is they are going to enjoy more of the money being shared.

The current distribution of the extra federal transfer payments just took place. We saw the province of Manitoba getting only $3 million which really was not much to celebrate or write home about. We saw the province of Quebec get $1.4 billion out of $2 billion. The rest of us divided up what little was left over.

This is the way these things happen. It is a formula we have all agreed to. I do not think anyone resents that.

In dealing with shared revenue fields, the majority of the equalization entitlements stem from tax revenues that are jointly shared with the federal government. For example, during the fiscal year of 1998-99, the federal government increased the equalization entitlements by $368 million respecting personal income taxes, and then by $259 million respecting corporate income taxes.

In the same period the federal revenue was increased by $2.7 billion from personal income taxes and $1.5 billion from corporate income taxes. This is quite a disparity. Certainly a great deal of the revenue that we felt could have been transferred to the provinces, or could have raised that ceiling, failed to go into the hands of the provinces. We presume it was put to other priorities.

Recent federal surpluses have exceeded the size of the entire equalization program. That is something to remember. Again I ask the House to look at where those surpluses came from. They did not just sprout out of the ground. They did not grow on trees. They were taken from cuts to program funding in the amount of $23 billion or $24 billion. They came from surpluses in the EI fund which meant denying benefits to workers so that no one qualifies anymore. The House may be shocked to hear that the surplus figure in the EI fund is $750 million a month. That is where some of the extra revenue came from.

There is another pot of dough to which I alluded earlier in my speech, something we do not hear enough about in the House of Commons. It is the public sector pension plan. The public sector pension plan had a surplus of $30 billion, partly because of layoffs and wage freezes in the public sector. Actuarial people had made the projections of what needed to be in the pot based on 1985 and 1987 figures. Obviously when one-third of the public service was cut and when wages were frozen for eight years, the actuarial figures were no good to anyone anymore.

We wound up with a $30 billion surplus and the federal government took every penny of it away from where it should have been. We would argue it should have gone to benefits or at least some combination of benefits to people in the program or possibly reducing the premiums or a premium holiday for those who made contributions to the program. Neither of those were contemplated. The President of the Treasury Board simply seized the entire amount and applied it to whatever was seen fit.

Those are the three sources of revenue. Now the government is faced with a surplus which is larger per year than the entire equalization transfer. That should be alarming to Canadians. It is our money. People have to keep in mind that it is our money to serve the needs of our communities.

The federal contention was that the 1999-2000 decision to rebase the equalization ceiling to $10 billion was appropriate, independent of the Prime Minister's commitment. The way we look at it is that the federal government tries to defend the ceiling in terms of making the equalization ceiling affordable. It really makes us question the concept when the surplus is bigger than the entire payout.

The largest downward rebasing of the ceiling, to $10 billion in 1999-2000, occurred in the year of the highest ever recorded federal surplus of $12 billion, so in the same year that the Liberals had never made so much money in their lives, they cut the ceiling to the lowest it had been since the history of the program. These are inconsistencies that need to be pointed out. These are things that need to be exposed.

As noted by the federal auditor general, the equalization ceiling was rebased downward as a per cent of the GNP in the program renewals of 1987 and 1992, but not in 1994. In those program renewals the ceiling went from—and I will read this out—in 1982, 1.34% of the GNP. In 1987 it went down to 1.24% of the GNP. In 1992 it went down to 1.17% of the GNP and then in 1999 we were down to 1.08% of the GNP or 1.04% of the GDP.

Imagine what a trend we are showing there. If we could illustrate that as a chart or a graph on a wall, it would show this going down and down as a percentage of the gross domestic product or the gross national product.

Can hon. members imagine the purchasing power and the progress that communities could have made in the provinces had we remained constant at 1.34% of the GNP, which is where we were in 1982? Those were kinder, gentler times, I suppose, back in the times when we had federal governments that had some vision and some willingness to create strong national standards and strong regional economic development in other parts of the country.

Had we maintained that, the total cumulative amount of money that could have been transferred to the provinces would have been in the order of $80 billion more during that period of time. Can we imagine that? For the total transfer today the Liberals are talking about a ceiling of $10 billion. We, by design, willingly let successive federal governments reduce their commitment to the provinces by that incredible amount of money.

The $10 billion ceiling figure we are dealing with now was based on an early federal forecast of final entitlements for the 1999-2000 year, with an allowance for the transitional adoption of new technical changes in 1999-2000. It was not adjusted when equalization entitlements began to rise in 1999. This led to the contradiction, to the gap that the government was forced to deal with by lifting the ceiling.

Because the $10 billion ceiling was not adequate to allow for the 1999-2000 entitlements, it will be additionally strained as the technical adjustments of another $240 million incrementally enter the formula. Imagine the strain on the system and the strain on the relationship at that point.

Returning to the federal auditor general's direction regarding the establishment of a ceiling, the federal government did not establish criteria for the ceiling beyond it being an estimate of the 1999-2000 entitlements, plus an allowance for the adoption of the technical changes. It is as simple as that. As such, it appears that the ceiling level of $10 billion would not satisfy the federal government's internal rules established in 1997. There is just a host of inconsistencies and problems inherent in what we are being told.

These are some of the key points that have come to mind as the provincial finance ministers are reeling with the growing realization that in regard to what they agreed to on September 11, 2000, even though they called for and welcomed the lifting of the ceiling, they will in fact wind up with a ceiling even lower than they thought they were agreeing to when the cap is reinstated one year from now.

This whole situation raises the issue of and really does challenge and question the long term viability of the constitutional fiscal relationship we have with the provinces. There will come a time of growing unrest and growing discontent in the regions of the provinces that rely on the federal transfer payments. They will want to revisit the entire structural relationship of the transfer of funds.

As I said from the beginning, I believe that is a tragic mindset, a point of view that I find very threatening and disturbing as we look at the long term viability of this tenuous federation. The federal government has to bear some of the burden of responsibility for adding that tension to the federal state.

Certainly the growing discontent and the growing distrust between the feds and the provinces in terms of the fiscal relationship is going to exacerbate the whole growing unrest with the other general discontent. There was a time when the provinces did feel that there was a commitment on behalf of the federal government to regional economic development, to national standards within the country and to some commitment that we should all enjoy at least some basic level of health, education and social welfare funding, no matter where we lived, frankly, and no matter what the state of our provincial treasury was. Those things should not be considered. Some things are too important to be subject to those regional vagaries.

I am fond of using the story that Reverend Jesse Jackson of the United States used when he was talking about our view of equalization. He had a great way of trying to explain what I am trying to get my mind around here. He said that if one has five children and only three pork chops, the solution is not to kill two of the children, but neither is it a solution to cut the three pork chops into five equal pieces, because then all of the kids go to bed hungry and nobody gets enough to eat.

[An hon. member]

And he had an extra child.

[Pat Martin, NDP, Winnipeg Centre, MB]

The hon. member points out that he had an extra child as well. I may have to alter the story.

The social democratic point of view, the way Jesse Jackson would have recommended to deal with the problem, is to challenge the whole concept that there are only three pork chops. In the richest and most powerful civilization in the history of the world, neither I nor he can be convinced that we cannot afford to provide for the basic needs of Canadians to enjoy decent national standards. It just simply is not on. It is a myth. It is an illusion. It is a cruel hoax. It has been foisted upon the Canadian people for far too many years now.

We know the wealth is there. We have just seen how the Liberal government chose to deal with $100 billion worth of surplus. It chose to squander the money on tax cuts, in my opinion. People are always trying to accuse the NDP of seeking to squander things on social programs, of squandering money on poor children, of squandering money on better health care and education. I put it to the House that the Liberal government has just squandered $100 billion of our surplus on tax cuts to people who probably need it the least.

When we look at the 1% drop in corporate tax cuts, from 17% to 16%, what has corporate Canada really done lately to deserve a reward like that? Just that one seemingly innocuous percentage point amounts to $75 million to $100 million a year. Whether it makes Canada more competitive, as our right wing colleagues would have us believe, I do not really know, but I can tell the House that the money could have been better spent.

When we are dealing with an era of record surpluses, it is galling that we are dealing with an era of record low transfer payments to the provinces. I come from a province that has benefited from and still enjoys the relationship that we have in terms of being able to use the money transferred to us in these federal-provincial financial relationships. Coming from the province of Manitoba, I can speak from personal experience as to how worrisome it has been to witness what seems to be a deliberate policy shift, a going away from any real commitment to a strong central government, a strong national presence and a strong influence in national standards across the country.

There is a graphic representation of what I believe is that unwillingness or inability to get involved with national standards, and that is watching the government's financial commitment diminish from year to year. It is withdrawing, pulling out, abrogating itself from any responsibility for what happens in the regions now.

Perhaps a federal government without vision finds the problems just far too tough in some of the regions. It just cannot cope with the reality of Cape Breton or inner city Winnipeg. It is simply turning its back on those areas and saying “You guys have a real serious problem, and if you are ever in Ottawa, look us up and we will buy you lunch”. That is certainly how a lot of people out in the regions feel about what appears to be—and I do not think it is paranoid to assume this—a lack of willingness to really try to thread the country together and keep the country together with a strong fiscal interprovincial relationship.

There was a time when fiercely proud Canadian nationalists occupied those benches over there. They were people who had a real vision for their country. I can name some senior Liberals in the old days who I think had a real commitment to keeping Canada together and to using the constitutional relationship as an instrument for building a strong Canada.

Now one would think they are trying to dismantle the country piece by piece if what they are doing from a financial point of view can be taken as an indication of what their true intentions and wishes are. There are people over there who are dismantling the country brick by brick and dismantling the faith, hope and optimism that Canadians have in a strong central government. Sometimes it worries me. Maybe they are just too busy, but I do not think the people across the way give any thought to how fragile the federation of Canada is as we speak and at this point in our history.

If we love this country and care about keeping it together, one would think we would be pulling out all the stops, more than ever in our history, to make the federation work. It is a federation that I feel strongly about. We in the provinces will work for it. God knows we sacrifice and compromise on a day to day basis to try to make the federation work. We are not seeing the same commitment from the federal government, at least as it translates into a fiscal strategy, in a period of time when it has record surpluses, the largest ever, and also has the lowest ever ceiling of transfer payments. What kind of commitment is that?

I am sure that the next speaker on the Liberal side will stand up and say that the government does not give as much money any more, but it gives all the tax points. It is off-loading the burden of taxation onto the provinces and cutting, hacking and slashing the flow of real dollars, the real hard cash that we actually need for programs.

Speaking on behalf of the people of the riding of Winnipeg Centre and the people of Manitoba, let me say that we have serious reservations about the state of the current fiscal relationship with the federal government. We draw the Canadian people's attention to the fact that it is an era of record surpluses and that those surpluses came from cuts to program funding, by and large, and from surpluses in the EI system after that. They also came from gouging the surplus out of the public sector workers pension plan. That is where those surpluses came from, so when tiny bits are incrementally released into the provinces again I do not think the Canadian public should be fooled into thinking that it is some grand largesse on behalf of the ruling Liberal Party.

Canadians should be going into this with their eyes open and should be very aware that we are not getting all we could from the federal government. If the federal government had a stronger vision of how to build Canada into a truly strong national state again, it would pay more attention to the regional frustrations that stem from the inadequate commitment to funding the CHST and the fiscal relationship.

When the CHST first came along, the national council on welfare called it the most devastating thing to happen since the 1930s. It could predict the beginning of the end as we moved from established program funding to CAP, to the cap on CAP and to the CHST. It could sense in the wind what was happening there, which was that the feds were pulling out of funding these types of programs. Some would say it was so they could give tax cuts to their friends. Others would say that the feds simply did not want the burden of responsibility any more. That is when we started to see this downward trend in terms of the overall relationship.

I have read some of the figures. The most telling figure and the best example to use is the fact that in funding our health care the feds now pay for approximately 13.5% and the provinces struggle to pay the other 87%. It is a growing challenge and has gone beyond being a fiscal problem. It is now a problem for the health and well-being of Canadians.

I could probably go on about this particular issue as it is a topic close to my heart, but I will close with these remarks.

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

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.

[Roy Cullen, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, I enjoyed the comments from the member for Kings—Hants. I think he is trying to be creative by putting out some ideas and propositions.

The notion that money from ACOA or an equivalent amount could result in the elimination of corporate income taxes in Nova Scotia is interesting. I am not sure how that would work at the federal level in the sense of uniform corporate tax rates. That is the kind of thinking we need to get into.

Last year the Atlantic Canada Opportunities Agency allocated $700 million to the maritime provinces to encourage innovation and transition economies et cetera. Unfortunately the take-up on it has not been significant, but it offers some big potential.

I will touch briefly on the question of offshore resources. In 1986 the Canada-Nova Scotia offshore accord was signed. The accord shelters a percentage of Nova Scotia's offshore revenues from equalization reductions for a transitional period of 10 years. Whenever the accord is triggered, Nova Scotia would be able to effectively shelter 90% of offshore revenues against equalization reductions in the first year. Thereafter, protection decreases by 10% each year until it reaches zero, at which time the tax rate would return to the normal 100%.

The accord was never meant to provide a permanent benefit to Nova Scotia. It was triggered in 1993-94 as offshore productions began in the Cohasset and Panuke gasfields. Since then Nova Scotia has received a total of $32 million from the accord.

We need to be clear about this. Any suggestion that equalization payments should remain intact while a province like Nova Scotia grows richer must be rejected. If we followed through on that proposition we would probably end up paying equalization to Alberta.

I wonder if the member for Kings—Hants could elaborate on those comments. I refer specifically to the analogy he drew in redeploying, let us say, ACOA resources in Nova Scotia to a reduction in corporate taxes. Does he see that at the provincial level or the federal level? How exactly would that work?

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

Mr. Speaker, I appreciate the question from the parliamentary secretary.

The notion was that ACOA, or funding for regional economic development programs like ACOA, could be used to address issues like corporate taxes which are an impediment to economic growth. The idea deserves further debate and discussion. That is the type of thing we should be doing at the finance committee, frankly. We should be taking a hard look at our economic development strategies.

That is not to say everything ACOA does is wrong. Some of ACOA's involvement has been successful. However I believe aggressive tax strategies could achieve more than direct government investment in businesses.

The Atlantic innovation fund has not yet, to my knowledge, made an investment in Atlantic Canada, although some of its $700 million has been announced three or four times in various forms. The program was announced in a great flurry of media activity in Halifax last summer in a pre-election move, after the Liberals were once again able to find Atlantic Canada on a map. With media and spin doctors present, they presented the oft-announced plan from a Brink's truck in front of the World Trade and Convention Centre in Halifax. The plan has yet to congeal.

In Atlantic Canada no one yet knows how the program will work or how the funding will be delivered. The Canadian Foundation for Innovation continues to invest in other parts of the country but is holding off to a significant degree in Atlantic Canada until the new growth or innovation fund is put together. It is not achieving its goals.

In terms of the clawback, there is a precedent from which Alberta benefited. The member said if that were the case Alberta would still receive equalization. That is not true at all. His argument is wrong because Alberta was able to achieve a level of self-sufficiency which prevented it from being able to receive equalization.

That is what we want to achieve in Nova Scotia. However in the interim we do not want to lose, in Nova Scotia, Newfoundland, New Brunswick or any recipient province, 81% or 81 cents of every dollar on clawbacks. That would prevent provinces like Nova Scotia and New Brunswick from reducing their corporate tax burden and debt burden and from effectively embracing the opportunities of the new economy.

[Loyola Hearn, Progressive Conservative, St. John's West, NL]

Mr. Speaker, I congratulate my colleague on his thought provoking speech. This is a topic where I am not sure whether the word we are using fits. We are talking about equalization. There is absolutely nothing equal about the issue we are discussing as it relates to the Atlantic provinces. There is an old saying that everyone is equal but some are more equal than others. Certainly in this case we have found out that some across the country are more equal than we are.

When I say I am not sure we are using the right word, I do not know if anyone else is sure we are using the right word. I refer particularly to government.

Some time ago I raised the topic, as I have done on several occasions, with the Minister of Finance. I raised it because it is perhaps the most important issue that could be addressed in the House, since it relates to the economic well-being of the country.

I am not talking just about Newfoundland or Nova Scotia or the Atlantic provinces. I am talking about the country. We have now what we could refer to as federal welfare. We have a Robin Hood system that takes from the rich, particularly in Alberta and Ontario, and helps those who need it. It helps those who, as we say, are not equal.

Are we making them equal, however, with the pittance we give them? No, we certainly are not. We are merely boosting their economies slightly.

When we look at the freezes and cuts that have been made to CHST transfers we realize, as someone already said today, that the federal government now pays something like 13% or 14% of health and post-secondary education costs. At one time it paid 50% of those costs. The provinces, none of whom are being helped by the federal government to bolster their own economies, are trying to manage excessive social costs. Health care in the provinces, because of an aging population and increasing costs, takes up most of the money in the pot.

Post-secondary education is left to try to survive on its own. The level of investment in education in the country is a shame, and our students are the ones who are paying.

In the past few weeks a lot of attention has been paid by provinces to equalization. Perhaps what government members should do, instead of debating the issue and sitting back and doing nothing as they has always done, is visit the areas Premier Hamm visits. They could then listen to his basic, down to earth, factual speeches about the benefit of letting provinces like Newfoundland develop their own resources.

That would not only give provinces like mine a measure of satisfaction, it would enable them to hold on to their revenues until they reached the Canadian average. They could then start contributing to the Canadian economy, and provinces like Alberta and Ontario would not need to give them welfare.

Provinces like Newfoundland could then start contributing to equalization. They could help bolster the economies of provinces that did not have the same resources, encourage those provinces to invest in their own economies and help them create the infrastructure necessary to develop resources and profits that would turn them into have provinces.

It is a very simple process. It was done in Alberta, even though the Minister of Finance told me it was not. When equalization was instituted Alberta's revenue started to be clawed back. The province was given, after a seven or eight year hiatus, a chance to invest its royalties in its infrastructure. It has since become not only self-sufficient but one of the major contributing partners in the country.

That is what Confederation is supposed to be about. Surely we can assist the process with a bit of common sense. That is all Premier Hamm of Nova Scotia is asking. That is all Premier Grimes of Newfoundland asked when he visited the Prime Minister last week. When Premier Grimes returned to Newfoundland from his visit to Ottawa he stated:

The prime minister is clearly committed to the notion that—provinces like Newfoundland and Labrador could keep more of their source revenues. My understanding and my impression from my meeting with the prime minister is that he is of the view that that's the right thing to do—as soon as they can do it, and there's no reason to wait.

Within minutes of the premier saying that, the Prime Minister's Office issued a terse release which said that the premier was wrong and that no commitments had been made.

We have a premier saying the Prime Minister committed to give Newfoundland a fair deal. We have the Prime Minister saying he is wrong and that he did not say such a thing. The Minister of Industry inserted himself, as he always does, and agreed with both of them, as he always does.

Getting back to the Minister of Industry, who was the premier of Newfoundland for years, we might ask if he took up the fight Premier Hamm is now taking up? Absolutely not. Did he take it up when he was a minister in the government opposite for a number of years? Absolutely not.

When did he take it up? He took it up during the last federal election in November, when he decided he was not going anywhere in Newfoundland. He ran in the safest Liberal seat in Newfoundland, the seat held by the former premier. After the first election he did not even have the nerve to stay there. He ran to what was the safest seat in the province, the only seat that had never been represented by anybody except a Liberal.

We saw what happened there after he left. A Tory was elected for the first time in history because of the impressions people had of the person who now wants to be Prime Minister of Canada.

During the election campaign he and his minister of tourism, who ran in my riding of St. John's West, campaigned on the slogan “New Team, New Deal”.

What was the new team? It was not a new team. It was the same old team. I took care of one half. I would have taken care of the other if he had had the nerve to run in that riding, the riding in which he lives. However he did not.

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

But they know him.

[Loyola Hearn, Progressive Conservative, St. John's West, NL]

But they know him, absolutely. They knew him there, and they will know him where he is now. They have known him everywhere he has gone.

The new deal he talked about was a new deal for Newfoundland in regard to equalization and clawback. What do we hear? We hear the Prime Minister say no. We hear the finance minister say he will not change it, even though he told me he will continue to look at it.

We have been looking at it long enough. Let us give provinces that have resources a chance to develop and invest in their own infrastructure so they can create more revenues to help those who cannot help themselves. That is what Confederation is all about, and it is about time we start practising what we preach.

[Roy Cullen, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, what seems to be forgotten in the debate is that the development of offshore resources in Nova Scotia and Newfoundland promises new jobs, higher incomes and greater self-reliance for the people of both provinces. The people of Nova Scotia and Newfoundland will be the big winners, and that is the way it should be. Provincial treasuries will also benefit.

To suggest that equalization payments should remain entirely intact was never the intent. I come back to the comment made about the province of Alberta. While it is true that Alberta received equalization payments when they were introduced in 1957, only three tax bases were used at the time: personal income taxes, corporate income taxes and succession duties. As the tax bases were broadened Alberta failed to qualify. If we were to go back today to the original program of personal income taxes, corporate taxes and succession duties, Nova Scotia would receive about $740 million less per year.

We have the right balance now. There is an incentive for provinces to develop offshore resources. There is a transition away from equalization payments. The bottom line is that it provides a tremendous opportunity for these provinces to create new confidence, new employment and new career opportunities.

Given that argument, we have a formula that recognizes incentive and provides an equal footing for all provinces depending on their resource and taxation bases. Would the member agree that it is a fair and sound formula?

[Loyola Hearn, Progressive Conservative, St. John's West, NL]

Mr. Speaker, the hon. member is wrong if he thinks that I or anybody with a degree of common sense would agree with a stand like that. We are the ones who would make sure the country stays the way it is. He might want the rich to get richer and the poor to get poorer and for all of us to be subservient to the party opposite.

Nova Scotia, Newfoundland or any other province has no intention of asking to hold on to equalization payments while obtaining revenue from its resources. These provinces are asking for a phase in until they reach the Canadian average where they would then become contributors. They will not require any equalization payments after that because they will live on revenues that come from royalties.

The member is saying that these provinces are benefiting greatly and that the money is pouring in. If we listen to the Minister of Industry talk about how well these provinces are doing with their gross domestic product, everybody would think that Newfoundland is benefiting royally. Most of the profits are going outside the province. Oil is bypassing its shores and being processed elsewhere, as is its shrimp. These make up the two main components that create Newfoundland's GDP.

Newfoundland is not doing well because it is being treated like people on welfare: if they make 50 cents, the government takes it back. It is better for the people to stay home and do nothing than it is for them to work. It is better for Newfoundland and Nova Scotia to leave their resources in the ground or in the sea because then they will always have them. They will not be better off if they are under a government like this one which wants to keep them down. It is time that changed.

[Gurmant Grewal, Canadian Alliance, Surrey Central, BC]

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.

[Ken Epp, Canadian Alliance, Elk Island, AB]

Mr. Speaker, I would like to express my appreciation to the hon. member for Surrey Central for a very good speech on equalization payments, and on this particular bill. He has given both a political and a practical perspective to it.

Would he have any comments with respect to the overall picture, which is the need to provide adequate funding for the social services that are provided for our citizens across the country? He made some allusion to the fact that we agree with this, but I would like him to just reinforce that and to emphasize that the Canadian Alliance members believe we have to exercise a social conscience as we run the affairs of government.

[Gurmant Grewal, Canadian Alliance, Surrey Central, BC]

Mr. Speaker, we are here, in the highest chamber of the country, to serve Canadians. We should treat them equally. They have the right to be treated equally, irrespective of the province they live in. They should have equal access to the important government services.

However, the way our system works, different provinces have different sources of revenue. They have different volumes of revenue. Their incomes, in layman's terms, are not equal. The amount of money left for spending on the services, particularly the social services, may not be equal. Rich provinces have more money to spend on social services than the poorer provinces. That will lead to unequal services being offered to the citizens of the provinces. This is not right. Canada is a wonderful country. It is our moral responsibility to see that all Canadians, wherever they live, have equal access to important government services.

Therefore, one innovative or workable way, although it does not work at the moment, is the equalization payment formula. However, at the moment this formula is biased, unfair and unreasonable. It does not measure the different elements which compose or contribute to the equalization formula. That is why it is important that we sincerely put all our efforts into working on the equalization formula so that it provides a fair and equitable means to all provinces and Canadians from coast to coast.

[Ken Epp, Canadian Alliance, Elk Island, AB]

Mr. Speaker, I am very pleased to speak on this important debate on Bill C-18. This is a bill of a temporary measure, but it is good for us to be able to see it in the larger context.

I would like to say something about the basic philosophy of equalization payments. What it says is people in Canada who cannot afford certain services because of their wealth or lack of it are still entitled to basic services. I cannot emphasize enough that I agree wholeheartedly with this premise.

The Prime Minister sometimes says, when he speaks of helping those in need, that this is the Canadian way. Unfortunately, in our political environment, it is all together too selective at times. We see certain people who have their needs met almost instantaneously and others have to work for years and years to have their needs met.

I am thinking of the tainted blood scandal and the hepatitis C victims. These are people who, because of a lack of proper procedures by the federal government, were injured by that very specific shortcoming of the federal government. Other provinces, such as Ontario, said that these victims should all be compensated for their loss, but not all of them were. In the federal government scheme of things there was a very narrow window defined. If they were outside of that window, it was too bad.

It so happens that my uncle died from hepatitis. He left a widow. He was in that exact category. He was diagnosed with a brain tumour. The operation was successful and he bounced right back. Before the operation he had problems with headaches and disorientation. However, his recovery took very long. He was always ill. Eventually they diagnosed that he was a victim of tainted blood. He had received hepatitis via his blood transfusions during the operation. He was outside the window for compensation. Is there any compensation for that loss? It seems not, so they fight and fight. Yet others receive aid very quickly.

In the larger scheme, when an election is coming and there is a flood, the promises of compensation and aid to farmers suffering from the disaster are immediate and are large. If it is not during an election or if it is in an area where there does not seem to be a great deal of political capital to be gained, it appears to us, as objectively as we try to look at it, that there is some bias on whether or not that helping hand is extended. I personally believe that we need to give a helping hand to those who cannot afford these things.

I grew up in Saskatchewan. I was born on the prairies, a first generation Canadian, my parents having been youngsters when their families escaped from Russia and came to Canada to make it their home. I remember very well in the early years of my life, which would have been in the 1940s, there was not a great deal of aid for people who were in distress. I know it is hard to believe I am that old, but I am getting there.

It was not an unusual occurrence for my family that the church community I grew up in would reach out a hand to those who needed it. Sometimes it was in the form of a loan. Sometimes it was in the form of outright gifts. Sometimes there were food transfers. That was the way things were done because we were people who were compassionate for those in need.

Later on when my wife and I were married we became aware of a couple who had come to Alberta from Ontario or even farther east. I do not remember which province they were from. They had moved to Alberta and they were in dire straits. They had no jobs and no income. He claimed that the police had stolen his car. We later found out that the police had confiscated it because they could not get into the trunk and they suspected there were drugs in it, but that is another story.

This couple was without food and without shelter. We did not go to a welfare agency. We did not see what we could do to get public funds for them. The way we thought was a natural thing. We knew these were people in need and we looked for ways to help them. I remember trundling groceries up to the second floor apartment that we had arranged for them. We made the payments on the rent for the first month or two so that they could get settled. One of the men in our group gave this man a job. We tried to help them.

Through the process of ever increasing taxation and with the present Liberal government and past Liberal style governments we have had over the last 40 or 50 years, we have had an increasing shift of social responsibility away from families, away from churches, and on to the government. Nowadays we end up with very little fiscal capacity as individuals and as families to actually accommodate the needs of people we encounter.

It is much more natural now to say we will see if we can help people get to the social services centre where there is a government program. This seems to be a general trend that our governments have taken over the last 30 or 40 years. In a way it is good, but it also has a tremendous downside, which is that while it trades on the fact that we as Canadians are compassionate to people in need, it takes away from us the capacity to actually exercise that compassion.

We are taxed to death. I was talking to an individual just yesterday and said that as a young family the decision was made that my wife would be a full time mom, so I was the sole wage earner. Even then our marginal tax rates were 40% to 45%.

I taught a night class instead of having my wife take a job. I taught full time in the daytime and I taught a couple of night courses to supplement our income. I used to say I worked Tuesday nights for Trudeau and Thursday nights for my family. Basically people live on half of their incomes.

One of the reasons I became a member of parliament was to try to address the question of the huge overtaxation. My family and thousands of families like us have lived on something between 30% and 50% of our income. I believe in personal charity. Over the years, besides having 50% of my earnings taken away from me for taxation, I have usually given between 10% and 20% of my income to charities.

In addition, since we were looking at retiring on only my pension which was not that great I put a little into RRSPs. Another 8% to 10% went into that. I had 30% of my salary left. We struggled month after month to pay the bills.

The situation has not changed a great deal. I can say it is great that we live in a country where everyone has free health care. I concur with that, but it has to be done efficiently. The federal, provincial and municipal governments took their taxes from money I had worked very hard for. I really needed a greater income for my family. I am speaking now of before I was a member of parliament. I do not want anyone to conclude that I am crying because I do not earn enough here. We struggled and said that if they were to take that money they had better use it very wisely.

One reason the Conservatives fell out of grace with many people in the west was that they were not perceived to be handling the money properly. They were not addressing the question of the debt. They were not addressing the question of huge interest payments.

I resented the fact that half of my income went to taxes and of that 30% was being used for interest payments on a debt which had burgeoned out of control because of lack of fiscal control by the government. That is why I came here.

Today we are talking about equalization payments. While I am in favour philosophically of helping people who need help, I am not in favour of doing that in an inefficient, wasteful or unfair way.

In passing, I should like to make a statement about equalization payments. Since they are done based on provincial numbers, there is no recognition of the fact that poor people are living in all provinces. Over the years I have thought of this often. Here is a specific example.

I was a young teacher with a young family, trying to make ends meet, making $6,000 a year. Through my unemployment insurance, it was called UI in those days, I was subsidizing a fisherman who made $18,000 a year. It somehow seemed to me unfair because I had no eligibility to ever make a claim. This was especially the case in those years when I was a student and my part time job required that I make UI contributions. I would quit in fall to go back to classes and I was not eligible to receive any benefits. That money was going to subsidize people who were making 20, 3 or 40 times as much as I was.

That is one thing the equalization program does not address. If we have poor people living in the so-called have provinces, they are proportionately disadvantaged compared to in some cases rich people who are living in the have not provinces. The well off people in the have provinces are paying huge amounts of money. I guess the Liberal way is to tax them to death.

When we proposed to level off the tax burden for those who make an adequate amount of money, we were told all we wanted to do was give tax breaks to the rich. The fact of the matter is that the equalization program gives transfers to provinces where some very rich people live, and those people benefit from those transfers.

I will put this in perspective. Most people here know the history of transfer payments. I picked up a book which had a chapter on them and found out a few things that were rather interesting. For fiscal year 2001 it is estimated that the total cash payments from the federal government to the provincial, territorial and local governments will total almost $25 billion. That is a lot of money.

I play with mathematics as some people play on the golf course. Whenever I have an opportunity to do some simple math I do it for recreation. Some time back I built a spreadsheet showing the major federal transfers to the provinces. From 1980 until 1999 I have a breakdown of the total major federal transfers from the federal government to the individual provinces.

It is fascinating to see that in that 20 year period Newfoundland received a total of some $22.5 billion in transfers; Prince Edward Island, $4.9 billion; Nova Scotia, $28.7 billion. New Brunswick, $24.9 billion; Quebec, $178.3 billion; Ontario, $154 billion; Manitoba, some $30 billion; Saskatchewan, almost $20 billion; Alberta, close to $40 billion; and British Columbia, almost $53 billion.

From 1980 to 1999 the total major federal transfers to the 10 provinces was $556 billion. That does not include Yukon and the Northwest Territories. At that time Nunavut did not exist. That amount essentially is equal to our national debt. If we add in the Northwest Territories and Yukon, the total major federal transfers to the provinces and territories for the 20 year period was $573 billion. By a strange coincidence that is almost equal to the present value of our national debt.

We agree with transfer payments, but they must be made wisely. It looks to us as if we could have had zero debt if they would have been managed better. I am not in any way suggesting that transfer payments should not have been made, but meanwhile with the growing rate of the debt there are interest payments due every year. The federal Liberal, then Conservative and then again Liberal governments did not address this issue until we came along and pretty well pushed them into it. The debt is out of hand. We are now spending $30 billion a year on interest payments. That should not be the case.

It is also interesting to find out that the whole idea of transfer payments is almost as old as history. It is included in our constitution. As a matter of fact most of us know that the repatriated constitution of 1982 has a clause in it which supports the concept of equalization payments. The formal system of equalization payments as we have come to know it today actually came into being in the mid-1950s when I graduated from high school. Now a very complicated formula is used which I wish I had time to explain to people.

I have been on the finance committee now for several years. Several years ago we had experts explain to us how the federal system of equalization works.

I remember with some amusement that during those hearings I asked one of these officials, after he had gone through a number of convoluted explanations of how these different things work, if there really was anyone who understood this totally. He looked at me and said probably not. He sort of admitted that even he, being one of the officials, did not know everything about it. He specialized in one area.

It is indeed very complicated. The federal government, in computing the amount of transfer payment, does not to compute how much income each province earns. Rather, it has a formula which, in 34 categories, looks at how much income the provinces could earn. There are different categories for the building of a national average. From that national average, the federal government computes, province by province in each category, whether each province in each category is in a surplus or deficit situation.

I remember when the government added the lottery category about five or six years ago. It was not a question of how much money a province earned through lotteries but how much it could earn. At that time, the equalization payments to Manitoba dropped by about $50 million. Why? Because even though there were literally thousands of people in Manitoba who on principle did not support the lotteries, it was deemed that it could have raised this money if those people would have bought those lottery tickets.

The fact that they did not buy the tickets meant that the provincial government did not have the income. If the people of Manitoba could be persuaded to buy lottery tickets, that would give their government more money. The fact that they were not persuaded took the money away from the provincial government and the formula took the federal transfer payments from Manitoba as well, because the federal government deemed that this was an amount that the province could have earned.

We have documented in the public accounts and other sources the formulas that are used to compute these payments. If I look at the lottery ticket revenue, according to this formula Newfoundland is $31 million short on lottery revenue. P.E.I. is $2.4 million over. Quebec is $63 million under. This qualifies the different provinces for transfers based on whether they are in a positive or negative situation. Alberta is in the plus category by $159 million. Consequently its equalization revenue is actually increased because of the amount of revenue that it presumably could earn using lotteries.

That is just one category. There are many others. They include the sale of licence plates for vehicles. They include many other categories. All 34 categories are listed in this documentation. It is interesting to see how, by using this formula, the government is able to arrange for different amounts of money, sometimes motivated for or by political reasons, for transfers to the provinces.

In conclusion I will simply say that we support in principle utilizing the wealth that we have in order to provide a comparable level of services to all of our citizens across the country.

Privilege

[Hedy Fry, Liberal, Secretary of State (Multiculturalism)(Status of Women)]

Mr. Speaker, I rise on a question of privilege. Yesterday was international day for the elimination of racial discrimination and recognition of the current existence of hate and racism throughout the world. Yesterday I mistakenly linked the city of Prince George with a specific hate activity. I regret that and I apologize to the people of Prince George.

I am very proud of what communities have accomplished in this country to counter racism and hate and to promote cultural diversity, especially the city of Prince George's city council task force on hate activities.

As Secretary of State for Multiculturalism, racism and hate activities are very important and serious issues to me, as I know they are to Canadians by the prompt and immediate actions taken by municipalities and communities throughout the country to counteract such activities.