Madam Speaker, I welcome the opportunity to address the House at third reading of Bill C-18, an act to amend the Federal-Provincial Fiscal Arrangements Act with respect to the equalization program. The bill fulfils the government's commitment made by the Prime Minister at last September's first ministers meeting to lift the ceiling for the equalization program for the 1999-2000 fiscal year.
In addition to this commitment, the Prime Minister asked the Minister of Finance to consult his counterparts in the provinces and territories as to how best to ensure follow up. The Minister of Finance concluded his consultations before the bill was introduced on March 15.
At the first ministers meeting, landmark agreements were reached on a plan to renew health care, improve support for early childhood development and strengthen social programs. These agreements resulted, through Bill C-45, passed in the last parliament, in the largest federal contribution ever made for health, post-secondary education, early childhood development and other social programs.
Over the next five years, federal spending in these areas will total $23.4 billion, $21.1 billion of it under the Canada health and social transfer.
As hon. members know, the CHST is one of the three transfer programs through which the federal government provides support to the provinces for health care and other social programs. The other two programs are territorial formula financing and equalization. Equalization is the subject of today's debate. Today the federal government transfers approximately $40 billion to the provinces and territories through these three programs.
The purpose of the equalization program is to ensure that less prosperous provinces can provide reasonably comparable public programs and services to their residents without their taxes being out of line with those of more affluent provinces. Equalization has played an important role in defining the Canadian federation since it was established in 1957. In many ways it expresses the generous spirit of Canadians.
The program is unique among federal transfers in that its objective was enshrined in the Canadian constitution in 1982.
The constitution states as follows:
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.
Equalization is also unique in that it was one of the very few programs not touched during the period when the government was struggling to bring order to the nation's finances. This reaffirmed the importance the government attaches to the program as part of the essential fabric of the country.
Equalization payments are unconditional and provinces can spend the money as they see fit. In 2000-01 the seven receiving provinces, Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba and Saskatchewan, received payments totalling $10.8 billion.
Since 1993 the program has grown by 33% or $2.7 billion. This rate of growth of the program demonstrates clearly that the government understands what equalization means to receiving provinces.
According to the estimates, which are updated twice a year, the program is now at its highest level ever. Over the same period, other non-transfer program spending has grown by 2.6%. The latest estimates released in February by the finance minister show that payments to receiving provinces will be about $1.8 billion higher than estimated last October. These higher figures are due in large part to the exceptionally strong growth over the last two years in Ontario, one of the non-receiving provinces, not to the poor economic performance of receiving provinces. Those economies have been improving each year.
On February 27, 2001, the Minister of Finance announced that there would be an immediate increase in equalization payments of approximately one billion dollars. 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.
I would like to stress also, as I did during the second reading debate, that the equalization program is reviewed on an ongoing basis by federal and provincial officials to ensure that differences in the abilities of provinces to raise revenues are measured as accurately as possible. Those discussions are under way as we speak. In addition, the program is renewed legislatively every five years, most recently in 1999.
A province's capacity to provide public services obviously depends on how its economy is performing. Equalization payments therefore are based on a formula that measures the relative performance of provincial economies. The formula applies in the same way to all provinces and adjusts 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. Conversely, when a province's economy and therefore its fiscal capacity, or ability to generate revenues, decline relative to other provinces, its equalization payments automatically increase. In this way the program acts as an automatic stabilizer of provincial government revenues.
I would urge hon. members to keep in mind that individual provinces do not receive the same amount of equalization because they do not have the same economic circumstances. This year, for example, Saskatchewan needs $230 per person to be brought up to the equalization standard, while Newfoundland requires $2,000 per person. Equalization payments are also subject to ceiling and floor provisions.
The capping provision, which has been applied in only 5 of the last 20 years, enables the program to grow at a rate that the federal government can sustain. By setting a maximum payment level, this provision ensures that the program does not grow at an abnormally fast rate.
The floor provision is the flip side of this coin. It provides the provinces with protection against large and sudden decreases in equalization payments that would otherwise be warranted by the straightforward application of the formula.
The equalization ceiling does not cut entitlements, as some have suggested. Rather, the ceiling allows the program's growth to mirror the rate of growth in the economy and to grow at a sustainable rate. Based on the forecast for GDP growth in last October's economic statement and budget update, the ceiling will rise to $12.5 billion in the year 2003-04.
I would now like to turn to the specific bill we are debating today, which lifts the equalization ceiling for the 1999-2000 fiscal year and only for that year. As I explained earlier, lifting the ceiling fulfils the commitment made by the Prime Minister last September at the first ministers meeting. The final communiqué released at the end of the meeting 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 lifting the ceiling will not be known until the fall of 2002 when the final estimates for 1999-2000 become available, it is currently estimated to be $792 million.
That amount will be allocated among the seven eligible provinces on a per capita basis. In order to determine the payment that will go to each, the per capita amount is multiplied by the total population of each receiving province.
Each eligible province will receive an additional $67 per person. Viewed another way, here is the total breakdown per province. 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 receive $489 million. Manitoba's payment will be $76 million. Saskatchewan will receive $69 million.
In conclusion, the government realizes that not all parts of the country can generate the same revenues to finance public services. Federal transfers therefore help ensure two things: first, that important programs are adequately funded, and second, that all Canadians receive reasonably comparable levels of public services regardless of where they live. Bill C-18 contributes to achieving these goals.
It 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.
Further, it fulfils the Prime Minister's commitment to lift the equalization ceiling for the year 1999-2000, which means more money for receiving provinces.
Bill C-18 continues the tradition of fairness through which equalization has been delivered for over 40 years. I encourage all members to support the bill and pass it without delay.