Debates of June 6th, 2002

Supply

[Lorne Nystrom, NDP, Regina—Qu'Appelle, SK]

Madam Speaker, I want to stand today to say a few words about the motion before the House which was moved by the Alliance.

When we start talking about equalization and the overpayment to the provinces, the first thing that comes to my mind is that this is a government across the way that cannot count the overpayment to the provinces it is now trying to collect in terms of equalization.

We have had the consistent budgets of the former minister of finance where he has been consistently underestimating the surplus, not just by a small margin, but radically underestimating the surplus. Last year was a very good case in point, where he had a budget in December estimating the surplus to be about $1.5 billion.

Before I get into the rest of my remarks, I want to say that I am splitting my time with my colleague from Winnipeg Centre who will talk more specifically about some of the impacts of the motion vis-à-vis Manitoba and the overpayment in the province of Manitoba.

In general we have had across the way a minister who has really underestimated the surplus, year in and year out. He said the surplus would be $1.5 billion for fiscal 2001-02. As it turns out, the surplus will be more like $7 billion or $8 billion or even $10 billion for fiscal 2001-02. He cannot count and the government has not been able to count, as I said a minute or two ago. It does this year after year.

It is okay to be frugal. It is okay to be prudent. In the past we had a Conservative government led by Brian Mulroney that could not count the other way. It kept saying that we would have a small deficit and the deficit got larger and larger. I see my good friend from Nova Scotia hanging his head in shame as he recalls those days in the Conservative Party when the deficit started to bloom each and every single year, hitting at one time a $40 billion deficit in one particular fiscal year. It really went out of control. The thing about the NDP in Ontario is that it is very good at estimating whatever the surplus or deficit might be.

What I am talking about here is the ability to count. Because if we cannot count and we do not know what the numbers are, it is very hard for people to do any planning if they are not sure what the balance sheet will be at the end of the year. It is hard for the provinces to do planning as well. We are see that now in spades in some provinces, particularly in Manitoba as it worries about this huge overpayment and whether part or all of it might be collected by the federal government.

As we know, the federal government has a taxation agreement with all the provinces except Quebec. It collects these taxes and then makes payments to the provinces in terms of the share of the money that the provinces get.

I also want to spend a few minutes this morning talking about the importance of having an equalization system in the country. This has been part of Canadian fiscal federalism now for quite some time. I can remember many years ago when this was a very important issue in the House in terms of how we create the equality of conditions between the wealthier provinces and the poorer provinces in the country. I remember this during the Trudeau years. I also remember during the constitutional debate when we decided as a country, as a parliament and as provinces to enshrine the principle of equalization in the Constitution of Canada as one of the defining elements of what the country is all about, the creation of the equality of condition between the provinces.

Regardless of whether people come from a poorer province or a wealthier province, the citizens of that province have equal rights to a decent public education, to decent health care, to a decent standard of living and to decent services. If people come from oil rich Alberta where there is a lot of money because oil was discovered there or whether people come from New Brunswick, which has not over the years had the same fiscal ability, people still have the right as citizens of those provinces to have equality of condition. That is what equalization has been all about.

Recently we have had, in particular from the Alliance Party, a movement that is calling into question whether these equalization payments should be there at all or whether these equalization payments should be as high.

Coming from a province like Saskatchewan, which usually gets equalization but a very small part of it, very small payments from equalization, or sometimes does not receive any equalization at all, let me say that it is very important that we defend the principle of equalization and modernize the formula for equalization so that we have greater equality among the provinces.

People should be aware that the Reform Party now the Alliance Party wants to curtail equalization payments. We made a very clear statement about this a week or so ago when the member talked about Atlantic Canadians and how they had developed a psychology of dependency on payments from the federal government. At a press conference he said that other areas and not just Atlantic Canada had this same psychology of dependency.

I wonder to what areas he was referring. He is obviously referring to the other recipients of equalization, which historically have been the provinces of Saskatchewan, Manitoba and Quebec. That kind of narrow minded philosophy is very dangerous. It is not the position of somebody who should be a national leader with a national vision of equality across the country. This is the position of someone with a narrow regional vision who does not see a role for the public sector or for public services as a way to enhance the common good in the country.

It is important to reinforce the idea of proper equalization, that it be updated and that the formula be modernized to ensure that every Canadian, regardless of where they came from and regardless of the province's historic wealth or lack thereof, has an equal opportunity to participate in the public good.

When we look at the motion before us, it is very important to reinforce those ideas. The government across the way has to provide more accurate forecasts as to what the revenues are. We can plan to put more money into public services.

Last year, if the federal government had taken its $10 billion surplus and reinvested two-thirds of that in the economy in terms of our infrastructure, think of the jobs that could have been created. If the federal government had invested some of that money in public health care, we could have had a stronger public health care system in Canada. Unfortunately the provinces' shares have gone up over the last couple of decades and the federal government's share has gone down.

With federal investment we could have a national pharmacare program or a home care program with national standards. However the federal government cannot properly count money coming into the federal treasury. At the end of the year, because of current legislation, any surplus goes automatically toward the national debt and that cheats the country of proper debate on where these surpluses should go. That is why it is important that we have more accurate accounting from across the way.

If the Liberals cannot count figures more accurately, then the very least we should have is a fiscal stabilization fund. At the end of the year any surplus would go into this fund and then parliament, on behalf of Canadians, would decide how much money would go into improved services, how much to the national debt and how much into tax cuts. We could then have a democratic debate in the House of Commons to indicate where taxpayer money would be spent. That is the way we should go, but unfortunately we do not have it today.

Last year there was a surplus of $17 billion. The federal government said that the surplus would be much smaller. What happened to that $17 billion? Every penny of that $17 billion went to pay down the national debt. If Canadians were consulted, I think they would have said that it was important to pay a significant portion on the national debt, but not everything. I believe they would have said to put some of that money into health care, public education, the farm crisis and infrastructure.

[An hon. member]

What about the 50:50 formula?

[Lorne Nystrom, NDP, Regina—Qu'Appelle, SK]

My colleague from Winnipeg asked me what about the 50:50 formula? The federal government puts 50% of extra money into improved services for Canadians and 50% of the money into paying down the national debt and lowering taxes. There was a lopsided proportion where the government put $100 billion into tax cuts over five years. Now it is putting the entire surplus into paying down the national debt and the services that ordinary Canadians need are falling by the wayside.

The last point I would like to make before my 10 minutes runs out and my friend from Winnipeg speaks is that public investment into social programs, such as health and education, into the environment, into infrastructure in Canada and into the farm crisis is good for all Canadians, not just for particular sectors. It strengthens the economy, creates jobs and creates a wealthier economy which gives us more money for social programs in the long run.

An example is the farm crisis where farmers are now suffering because of low commodity prices. The Americans have brought in a farm bill which increases subsidies by tens of billions of dollars; $180 billion over 10 years. What the western grain farmers are now asking for is trade injury legislation to the amount of about $1.3 billion from the federal government. The federal government can afford it. If it put that money into the farm economy, it would create jobs and wealth and would help every Canadian.

[Pat Martin, NDP, Winnipeg Centre, MB]

Madam Speaker, I thank my friend, the NDP finance critic, for sharing some of his time with me. Coming from the province of Manitoba, I felt it very important that I speak to this motion because I believe that the overpayment issue of the mutual trust fund refunds affects my home province in a disproportionate way. In fact the impact is far greater given our financial structure and financial base than it is to some of the other provinces.

Manitobans are very apprehensive, given that a complicated set of negotiations with the former finance minister appears to be at risk. We almost resolved or felt we were getting close to resolving this complex and thorny issue until such time as the person we were negotiating with disappeared from the bargaining table to be replaced by a new finance minister.

Recent headlines give us cause for apprehension. For instance, it says in a recent newspaper that the finance minister sides with the PM on the repayment of provinces and that the Prime Minister took a hard line view that the provinces must repay the money. The former finance minister argued that it was a federal government mistake.

I do not think we are being paranoid when I say that people in my home province are apprehensive that the deal seems to have fallen off the rails. I was very pleased when our finance critic offered me the opportunity to share with the House some of the Manitoba point of view on this issue.

The figure that has been bandied about in other speeches is that the overpayment to Manitoba was roughly $408 million. The figure that we are dealing with is $710 million. For a province with the size of an economy like Manitoba, this has a huge impact in our ability to operate. Of the $3.3 billion, $710 million is the impact on my home province, which is 4% of the population and almost 30% of this debt.

I will back up a little to explain why this has a disproportionate impact on Manitoba. It is true that Manitoba is fortunate to have a robust financial service sector but this means that the federal error has had a greater effect on personal income taxes in Manitoba than any other province. The effect in Ontario is the largest in absolute terms but the largest in practical terms is in Manitoba. These mutual fund trust refunds in other provinces are much smaller and as a result they affect the income tax revenues of both provinces to a much smaller degree.

As I mentioned, the minister of finance for the province of Manitoba had a series of indepth meetings with the former minister of finance federally. What he brought to the attention of the former minister of finance was a similar precedent setting situation. In the late 1980s we had a similar situation arise regarding equalization issues with corporate income taxes.

In this case the refunds were properly netted from the income tax payments remitted to the provinces. However corporate income tax shares were skewed and the entitlements within the equalization program were distorted. Therefore, we had problems because taxes on the capital gains of the mutual trust fund corporations were being included in the province's tax base even though the taxes were also refunded to the companies. Everyone can see this is a serious and very similar problem.

In that example, the federal government took swift, corrective action by amending the equalization regulations and the regulatory change was made immediately and retroactively. In other words, the hon. Michael Wilson, the former federal minister of finance, noted that the failure to act would have created an unjustifiable anomaly within the equalization program. He acted swiftly and corrected it.

I have copies of the correspondence that went back and forth between the former minister of finance, Mr. Clayton Manness, in Manitoba and the former federal minister, Michael Wilson. That arrangement, as I say, was quite satisfactory. They saw the problem, identified it, dealt with it and resolved it.

I do not think the people of Manitoba were as concerned then as they are today. They feel they are not getting that same sort of co-operation or recognition of the impact on Manitoba. It would be of no benefit to anyone if we were to penalize Manitoba by retroactively going back to 1993 and demanding full payment on all these overpayments. Other speakers have pointed out that especially in today's surplus environment it is particularly wrong to be going after this money in such a seemingly aggressive way.

I would like to point out that the $710 million the government says that the province of Manitoba should pay back is equal to one month's surplus in the EI account. The EI fund is showing a surplus of $750 million a month. Less than one month's surplus of the EI account could forgive this terrible burden that Manitoba is carrying. In my riding of Winnipeg Centre $20 million a year is pulled out of the riding in EI claims that would have been allowed under the old rules but are not under the current rules. That is just one example of how we are in an era of unprecedented surpluses. It is a terrible time in federal-provincial relations to go aggressively after the provinces, especially provinces like Manitoba where the impact would be severe.

The principles previously agreed to during the negotiations with the two finance ministers to resolve the issue were that the settlement arrived at should be comprehensive and fair. Both parties were willing to concede that. The approach should be responsible, and that should go without saying. Also revenue stability must be addressed. These have been detailed in Manitoba's position paper and they have been reiterated in a letter of March 22 from the Manitoba minister of finance to the former federal minister of finance. We felt that we were making inroads along that route and that we could look forward to a satisfactory resolution.

Therefore I do not understand the shift in mindset on the federal government side. What happened in the changing of the guard? Why can we not count on a deal that we thought we had with the previous finance minister? We do not have to revisit the case. If we were close to a resolution that both the federal government and the provincial government was satisfied with, why then is that deal in jeopardy today?

I would ask that question of members of the other side. I hope, in speeches from the Liberal Party members, they can answer that question in a more specific way because I have not heard them address it in any positive way. I have heard platitudes about the glory of the equalization program of which we are all in favour. The transfer of funds and the equalization of standards of living around the country is the greatest single achievement of Canadian federalism. However that is not what we are here to discuss. The motion we have before us deals with a specific overpayment regarding these mutual trust refunds, especially as they pertain to the provinces that are so negatively impacted by that.

The other thing we need to mention is that the four provinces affected are not the only ones impacted. The corrections are still being reviewed and we do not know the total effect of this. However of the $3.3 billion we are dealing with today, 90% of that was accumulated during the years 1997, 1998 and 1999. The years 1993 to 1997 are still under study. We do not really know the full effect of this anomaly yet.

I would argue that any resolution that we come to to deal with the outstanding $3.3 billion should also apply to whatever is found in the detailed auditing of the 1993 to 1997 period because that could be equally as large and we could be faced with the same debate one year from now when that study is finished.

I would appeal to the members on the government side and I would appeal to the current Minister of Finance and the Prime Minister to revisit their notes from the negotiations that took place between the finance minister of Manitoba and the former federal finance minister and honour the principle of those negotiations and the agreements that were tentatively struck. The people of Manitoba deserve that sort of recognition. It is also within the capacity of the federal government to show that to the other provinces as well.

[André Harvey, Liberal, Parliamentary Secretary to the Minister of Transport]

Madam Speaker, I am certain my colleague said more than he intended to when he said he heard nothing but platitudes from the government side. I will not even ask for an apology from him. I know he means well.

I would, however, like to point something out and take advantage of this opportunity to ask one little question of him. He has said, as you know, that the technical error started to show up in the accounting back in 1993, in other words that what was required to quantify the consequences of this technical error was in place.

At that same time, from 1990 to 1995, Ontario had an NDP government, which managed to take its deficit from $5 billion to, I believe, $15 billion within a single mandate, with all that technical information available.

I would like to ask my colleague whether they intend to follow the same principles as the Ontario NDP government applied at that time, or whether they intend to correct their platform.

[Pat Martin, NDP, Winnipeg Centre, MB]

Madam Speaker, I do not know whether it is the hon. member's comments or the translation but his question did not mean anything to me. I cannot understand what he is saying. Who is they and who is we? I would have to ask what he is talking about?

[André Harvey, Liberal, Chicoutimi—Le Fjord, QC]

Madam Speaker, what I mean is that he knows very well that the government considers the technical problem we are dealing with to be very serious.

Since he seems to have all the solutions and considers everything we have to contribute here as mere platitudes, I would like to ask him whether he intends to apply the same approach as the NDP did in Ontario, tripling the existing deficit within a single mandate.

[Pat Martin, NDP, Winnipeg Centre, MB]

Madam Speaker, I wish the hon. member would use what little time we have to deal with serious issues instead of frivolous questions like that.

What I was getting at and what I would like the government members to address is whether the deal that was being struck between the finance minister of Manitoba and the former federal finance minister will be honoured by the government and by the current Minister of Finance. That is the question I would like to put before the House. I do not wish to engage in some kind of back and forth match with the hon. parliamentary secretary, especially a meaningless debate that we seem to be having which serves no purpose.

I would like to deal with the state of the investigation of the years 1993 to 1997. The hon. parliamentary secretary seems to be knowledgeable with this file. Will he perhaps share with us some of the specifics of the investigation for that period? How is it going? Is the investigation finding gross overpayments? Will it constitute as much money as the years 1997 through 1999?

[Rick Borotsik, Progressive Conservative, Brandon—Souris, MB]

Madam Speaker, I have been looking at all the information that I have which has been gleaned from the province of Manitoba. The number I come up with, between the years 1993 to 1999 for Manitoba, is $408 million. The hon. member from Winnipeg indicated that this number was not the proper number, that it was over $700 million. Is that the number that extends into the budget year 2002? Where did this number come from?

[Pat Martin, NDP, Winnipeg Centre, MB]

Madam Speaker, I thank the member for his question. My understanding is that the $408 million deals strictly with the mutual fund audit surpluses, but there are other factors involved with the equalization formula that compounded and added to that. The figure that is being used and the figure we see, even in yesterday's Winnipeg Free Press , is $710 million total.

It is true though that for the fiscal year 2000 the overpayment was $168 million above and beyond, but that has been repaid. As of March 2002 Manitoba had to come up with $168 million and give it back to the federal government.

[The Acting Speaker (Ms. Bakopanos)]

I wish to advise the House that the motion presented by the hon. member for Saint-Hyacinthe--Bagot is in order.

[Bill Casey, Progressive Conservative, Cumberland—Colchester, NS]

Madam Speaker, it is a pleasure to rise on this issue today. I will be sharing my time with the distinguished member for Brandon--Souris.

We have experienced in the last few weeks and months incredible revelations about lost contracts, lost money, overpayments and even theft, as referred to by the Prime Minister. This is an incredible issue we are dealing with today. In the province of Ontario alone there was an overpayment of $2.8 billion. This is more mismanagement.

The issues that have thrown the House into chaos for the last few weeks are not something new and this is not an isolated issue. This is a good example. It is not a few dollars; it is $2.8 billion that was overpaid to Ontario.

How can an entity, even if it is the federal government, misplace, underestimate or whatever $2.8 billion. It is hard to get our heads around this on how the government could make such a big mistake. It is more mismanagement on behalf of the government who claims it is so competent and such a great manager.

It is more of the same thing that we have heard lately about contracts being issued over and over again for $500,000 and $600,000 but no reports in return and no value for these incredible amounts of money that we could be using for other purposes. Again, it is total evidence of mismanagement and lack of attention on the part of the government to what it is doing.

In the last few days we have discovered that the government is continuing to issue contracts to the same outfits that do not produce reports and charge these incredible amounts of money for things that we do not even have a clue what they are for. It is further evidence of a continual approach of incompetence in government affairs and the management of taxpayers' money.

The government has lost its focus and is unable to focus on the issues that involve our money, our investments and expenditures, and sharing with the provinces. The government is so embroiled with its own internal problems. Those problems are taking priority over everything.

The issue of $3 billion or $4 billion does not matter any more. The government will worry about that later. Those amounts of money do not matter to the government. It does not focus on them. It does not pay any attention to the softwood lumber issue which has devastated jobs across the country and has brought turmoil and confusion to the whole industry. There is confusion regarding the relationship between the United States and Canada. The government has not addressed it because it is busy dealing with its own internal struggles about who will be the boss and call the shots.

If the government demands that this money be returned it should also be required to pay the provinces back, as the previous speaker mentioned, for the overcharge in employment insurance funds. To me this is the fraudulent taking of money. On everybody's paycheques there is a box that says employment insurance premium. It is not an employment insurance premium any more. It is a tax. It is not for employment insurance. It will not serve unemployed people. It will not help retrain people or do anything except be a tax that will go to general revenues. It is taxation under false pretenses. It is fraud. Under any other circumstances, in the private sector or anywhere else, the government could be charged with fraud and obtaining money under false pretenses.

Therefore, if the government were to demand that the provinces pay back the mistake that it made, it should also be required to pay back the employment insurance premiums which it has deliberately taken from people under false pretenses. What is sauce for the goose may be sauce for the gander.

The government is demanding money back that has already been spent on health care, social transfers and education. The provinces have already spent money in these areas where the government has cut back dramatically on its transfers to the provinces, not to mention the EI issue. The government has cut back on its transfers to the provinces by $6 billion a year. In 1995 alone there was $6 billion in cutbacks. If the provinces have to pay this money back the federal government should have to pay that $6 billion back to the provinces and so on and so forth for every other year where it cut back and broke agreements on health care and social services contracts with the provinces.

However, the money has already been spent on health, education and social programs. These clawbacks will do nothing except hurt the provinces who are already struggling, like Nova Scotia, with a deficit and a debt that is hard to overcome.

That brings me to another point, that of equalization payments. This was clarified by the Senate all party report released in March 2002 entitled “The Effectiveness of and Possible Improvements to the Present Equalization Policy”. Recommendation No. 7 states:

The government change the Generic Solution so as to increase the share of a province’s entitlements that are protected when its non-renewable natural resource revenues increase.

The provinces in Atlantic Canada have been fighting for months for exactly that. The premiers of Newfoundland, Prince Edward Island, New Brunswick and Nova Scotia all support this. The recommendation further states:

It may be that although the Accords have operated in a technically correct way they may not have realized their intent.

They have not, and again this is what the premiers have argued so much and strongly for in the last few months. Recommendation No. 8 states:

The government should undertake an evaluation of the Equalization provisions of the Atlantic Accords to determine if they have met the intent for which they were designed.

The presumption is that they have not. It goes on to state:

It was suggested that equalization payments are inadequate because they do not take into account the different developmental characteristics of each province.

This again involves transfers between the provinces and the federal government. It is a different issue but it involves the same concept and same principle where the government has not kept up to date on its transfer arrangements and formulas. It is cheating the provinces, and will in the future, out of their share of equalization payments in the same way it is now saying it made a mistake and overpaid some provinces $3.3 billion. Somehow it overlooked $3.3 billion. This is so indicative of the mismanagement of the government.

We think this is a good motion. We support it unless the government is prepared to pay back the transfer payments it took from the provinces and pay back the employment insurance premiums it stole from every employee and worker in the country.

[Rick Borotsik, Progressive Conservative, Brandon—Souris, MB]

Mr. Speaker, I thank my colleague from Cumberland—Colchester for his excellent comments, particularly when he indicated that if this were to come to pass in regard to moneys being collected from the provinces, money should be returned not only to the provinces but to other individuals, certainly with respect to EI. I never thought about that but there are literally tens of billions of dollars that have been taken out of the pockets of his constituents and my constituents that should be returned if this is the kind of philosophy that now is going to be carried on by the government.

However, first I would like to thank the Canadian Alliance for bringing forward the motion. I do support it, coming from the province of Manitoba. It is an excellent vehicle and opportunity for me as well as others to put forward our position with respect to this overpayment to the provincial governments of Manitoba, Alberta and Ontario in particular and how the government is going to resolve the problem.

I would also like to say that in a previous life I did have an opportunity to deal with budgets. On the municipal side, those budgets were very dependent upon provincial budgets. There were grants that were given to the municipalities and we waited for those grants and those dollars flowed. Once we received those dollars, we spent them on services for our own constituents.

The same is true with the provincial governments. They depend on the federal government, in some cases through their equalization and transfer payments, to be able to make up their budgets and put forward those dollars, through CHST for example, into services provided for their constituents. This is exactly what the province of Manitoba did. From 1993 until now, it has been putting those dollars it has been receiving into services for its constituents, into health care, education, social services, highways, you name it. Provincial governments are responsible for a lot of those services and now suddenly the federal government is suggesting that because of the 1993-99 overpayment, there has to be a payback.

It is nice to have Manitoba finally lumped into being a have province, Alberta and Ontario being the have provinces. Unfortunately, Manitoba being not quite as fiscally fortunate as to have the resources of Alberta and Ontario, we have in the past been seen as a have not province. That does not mean defeatist. It simply means that we do not have the resources that the other provinces have and we do depend on that equalization, but that is the cornerstone of our federation. That is the cornerstone of Canada: that we as citizens share and that we share with other provinces, including Manitoba, so that we can have similar services in all our areas.

The province of Manitoba brought this to the attention of the federal government a number of years ago. The federal government continued, right through this government from 1993 to 1999, not to assess the proper capital taxes on mutual fund trusts. In fact, Manitoba currently has a cost associated to it of $408 million. As the member for Winnipeg Centre indicated, however, over the other years that has amounted to somewhere in the neighbourhood of $700 million.

A comment was made by, I believe, the Minister of National Revenue. She stated:

The error doesn't affect taxpayers...because it was a government-to-government transfer of personal income taxes it collected on the provinces' behalf.

Basically she is saying that because it is province to province there is really no impact.

There is a substantial impact. When those dollars already have been spent and now are being calculated and recharged to that province, my province suffers because we do not have the ability to put forward those revenues in any other way, shape or form to support those services. So when the minister of revenue says that I take great exception to it, because it is not just province to province, it is the people, the taxpayers of that province, who ultimately are going to be impacted.

By the way, I will speak on behalf of my province of Manitoba. There are 99 members of parliament on that side of the House who come from Ontario. Ontario will be assessed somewhere in the neighborhood of $2.8 billion. As my colleague from Cumberland--Colchester would say, it will be 2.8 thousand thousands--

[An hon. member]

Million.

[Rick Borotsik, Progressive Conservative, Brandon—Souris, MB]

I am sorry, a thousand millions. You are right. I get confused with the big numbers.

That is $2.8 billion that will be reassessed to the province of Ontario. I want those members across on that side to substantiate that being recharged by the federal government. They can stand up and tell their constituents that there will not be more money for, are members ready for this, water services. There will not be more money for the highway systems. There will not be more money for the hospitals. There will not be more money for the school systems. All of that will be because $2.8 billion has to be paid back by the province of Ontario. Let them tell their constituents that the federal government, although it was the government's error and the government was made aware of it and was not charging it, now will enforce the fact that they have to pay it back. I would like to be there when they stand on that podium and on behalf of the federal government ask for the money back from their Ontario constituents.

I have a couple of quotes, but first let me say $3.3 billion is a lot of money. Let us make no mistake about that. It is a substantial amount of money. That $408 million for the province of Manitoba means as much as this does to the province of Ontario with the different levels of population and, as I said, with revenue centres available.

We have had examples of the government's largesse in the past with respect to taxpayers' dollars. Just recently we have talked about other ad contracts that have gone to certain corporations, with millions of dollars attached to them. We had a program that was implemented by the federal minister of finance of the day just prior to the last federal election, the energy rebate program. Do you remember that one, Mr. Speaker? It was $1.3 billion that the minister of finance put into place in a very short period of time and distributed to whole numbers of people across the country. The reason I mention it is that it was $1.3 billion that automatically or simply came in and was expended, half of what is being asked to be retained by the provinces here. It is not really an issue of money. It is an issue of the political will to be able to say that the government should leave the money where it is, where it went to with the provinces.

Also we have heard just recently that there will be surpluses. When there is a surplus on the federal side and then the government insists that money be paid back by the provincial side, particularly by my province of Manitoba, the government is saying that on the one hand it has the money, the provinces do not have any, it wants the provinces to pay back what they do not have, but that is too bad, it will take the money and spend it whichever way it as a federal government wants to. Quite frankly, there are a lot of people out there who do not have a lot of confidence in how the federal government is spending their money right now, let alone more money that they want to ask for from the provinces to spend in other areas and in other ways, shapes and forms.

In fact, the province of Manitoba, in its previous administration as well as the current administration, in my opinion has done an exceptional job in balancing its budget. It now has a very small, minor surplus going into this fiscal year but it has done so with caution and carefulness. It has been done by two administrations, by two different political parties. I believe it has been done to the betterment of the citizens of the province of Manitoba, but if the government starts asking for more dollars to come back from the provinces, it will have a very serious impact.

As for the Manitoba solution, I would like to quote the Manitoba finance minister of the day, Greg Selinger. He stated:

Manitoba proposes that the solution to the problems arising from this error should be based on the principles of comprehensiveness and fairness, responsible action, and a concern for fiscal stability.

What he is saying is that Manitoba knows it has done a good job provincially to try to have that fiscal stability and the federal government should not throw in a monkey wrench that will cause the provincial government some serious concerns and fiscal instability.

He went on to state:

The full facts must be known, and the full effects of the decisions on transfer payments must be factored in. Any correction to tax payments for previous years must result in parallel corrections to transfer payments in order to provide equitable treatment and assure the integrity of these programs.

What he is saying there is that the government simply cannot ask for the $408 million back unless it goes back to 1993 and factors in what would have been paid in transfer payments had these calculations been made properly back in 1993.

This is not a simple issue. What is simple is co-operative federalism. What is simple is fairness and equality. What is simple is this: do not impact the provinces of Ontario, Alberta and Manitoba, particularly to the extent where they will pass on those effects to their constituents when in fact those constituents are our constituents as well federally. I ask, please do not do this to the province of Manitoba, the province of Ontario and the province of Alberta.

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

Mr. Speaker, I listened with interest to both my colleagues. One of the things the member for Brandon--Souris mentioned was that the people of Atlantic Canada in particular are in a different groove. This was also reiterated by the member for Cumberland--Colchester. He mentioned that we are not defeatists, as some parties think, not at all. In fact we see a great ray of hope for the economy of Atlantic Canada, nor are we going to be defeated by the way we are being treated by the present administration in relation to funding.

I just wonder if my colleague would comment on how Atlantic Canada has been treated. I am thinking particularly of provinces that have rich resources, Newfoundland and Nova Scotia in particular. Others may have them also and in time they will be developed.

However, as our resources are being developed the only encouragement we are getting from the federal government is for it to say it is there, it is waiting, that we are to develop the resources and the federal government will take the revenues,. We will end up with no resources and be no better off economically. How can provinces, regardless of where they are geographically, improve their own lot in this country if, as they develop the resources and bring in revenue, that revenue is grabbed by the central government? It would be just the same as if we were being grabbed by a foreign country and were not able to reinvest in the province's concerns.

We can get on our feet economically if we get fair treatment. This is similar, in a way, to the clawback. We have a clawback on our resource funding similar to the clawbacks that we are seeing right now for Ontario, Manitoba and the other provinces involved. I would like the hon. member's comment on that.

[Rick Borotsik, Progressive Conservative, Brandon—Souris, MB]

Mr. Speaker, my colleague from St. John's is a defender of the province of Newfoundland and I give him full marks for that. He is absolutely correct. There has to be a consistency within the programs across the country. There has to be a fairness. I have talked about fairness and equitableness. That is what has to come.

There is a real serious issue right now with the resource issues in the Atlantic provinces. As I said, there has to be a consistency. What is good for one side of the country and one province must be good for the other side of the country and its provinces. Specifically with the resource sector, specifically with the oil and gas, it should be that the Atlantic provinces have the same ability to retain those revenues within their own boundaries so that they can then pass on those services through those revenues to their constituents.

The problem is with the equalization and the transfer. We have seen this in other levels of services. When a dollar is gained from that resource and that source, a dollar is taken away with respect to the transfer and the equalization. Unfortunately the provinces never get ahead. They are simply saying that they should be given the opportunity to compete and the opportunity to have the same levels and standards of service as other provinces in the country. They are asking for the opportunity of reducing their taxes.

The CA has consistently said to reduce the taxes and make sure that there are lower tax levels and we will have the economic activity. That is true, but if the money is taken away on one hand when a province develops a dollar on the other hand, it does not have the opportunity of reducing the tax levels and being able to compete on that level playing field. There has to be a consistency. There has to be equity in this area. I could not agree more. That is the way this country was developed and built. That is what our cornerstone is. That is the equalization that we talk about constantly in our constitution. I believe very seriously that we have to be more fair and more equitable with regard to the Atlantic provinces.

[Monte Solberg, Canadian Alliance, Medicine Hat, AB]

Mr. Speaker, I will be splitting my time with the member for Prince George—Peace River.

There are a number of issues that arise from the $3.3 billion overpayment that was discovered by the Canada Customs and Revenue Agency at the end of January. Just to remind the House, between 1993 and 1999 there was an overpayment of about $3.3 billion: $2.8 billion to Ontario; about $408 million to Manitoba; $121 million to British Columbia; and about $4.4 million to Alberta. There are a number of issues that flow from this.

One is the issue of competence. How could an overpayment of that magnitude occur and escape the notice of the finance people at the CCRA who are supposed to be in charge of this? That is one issue and some people have addressed that. Another issue that flows from this is the propensity of the government to make these wild projections. Also there is the issue of high taxation.

The one issue I want to talk about is the issue of fairness. I want to do that by reminding people about some of the history of federal-provincial negotiations, discussions and transfers going back a number of years.

When we look back over the last number of years with respect to federal-provincial transfers and we go back to the beginning of the modern health care system in Canada, I want to remind the House that the agreement at the time medicare was brought in was that the federal government would fund 50% of health care and the provinces would be responsible for the other 50%. In exchange for agreeing to that, the provinces were to be bound by the Canada Health Act. That was the agreement the two sides came to.

Consequently after that period, although the provinces adhered to their side of the bargain and abided by the Canada Health Act, the federal government broke its contract with the provinces and started to reduce the level of transfers to them. Subsequent to that there were a number of agreements between the federal government and the provinces establishing new levels of transfers through the CAP. There were all kinds of different transfer programs over the years but federal governments kept breaking the deals.

The last example of that, and the most famous one of modern times, was in 1995 when the federal Liberal government broke a deal with the provinces to fund health care to a certain level in Canada. It arbitrarily cut $25 billion in transfers for health care to the provinces. The result was that the provinces had to cut funding for hospitals. Because of that there were, and still are today, much longer waiting lists for surgery. As well, money was not available to provide funding for nurses and doctors and many of them went to the United States.

The provinces took the political heat for these arbitrary cutbacks by the federal government. When it came to protest this, the protestors did not go to the lawn of Parliament Hill, they went to the provincial capitals and protested.

The federal government has repeatedly broken deals with the provinces with respect to funding health care. Now we have a situation where there is an overpayment to the provinces, such as the $2.8 billion to Ontario, which the federal government is preparing to demand be paid back. As an example, Ontario in particular has been cheated out of billions of dollars because in 1995 the federal government arbitrarily broke an agreement it had reached with the provinces. It really strikes me as odd that the government is even contemplating forcing the provinces to pay back this money when it has cheated them out of billions and billions of dollars for health care, $25 billion since 1995 alone. That is the point I really wanted to make.

Even more galling is that now we are in a situation where because of these huge cuts in transfers to the provinces, the federal government is running a big surplus of $10 billion a year. There is so much money that the government is starting to hide it in all kinds of trust funds which the auditor general has taken issue with and has suggested is completely improper. With all this money pouring in, running a surplus of $10 billion, the government is driving up spending as much as it can in order to eat it up.

The point is simply that the provinces are the ones that had to increase spending dramatically for health care. They are not in the same rosy situation the federal government has been in. They are the ones that had to drive up spending for health care. They are struggling to maintain a balanced budget but because the federal government cut the transfers for health care so dramatically, it now has big surpluses and again is taking issue with the idea that the provinces should not have to pay back the overpayment that was made to them.

I want to make another point about fairness. I talked about the long history of broken contracts between the federal government and the provincial governments, with the federal government always being the one breaking the contracts.

Back in the 1980s when we ran into the financial wall and the government of the day was trying to figure out a way to deal with its budget problems, it imposed a cap on transfers to the have provinces, whereas the have not provinces continued to get larger transfers that reflected the increase in the cost of health care to some degree. The provinces of Alberta, Ontario and British Columbia at that time were regarded as have provinces. Coincidentally those are three of the four provinces that received an overpayment.

I want to argue that during the 1980s when the federal government imposed this new regime that it arbitrarily decided to do certainly without the concurrence of the provinces, it threw everything out of whack. The age old formula we used to have in determining how the transfers should be paid to the provinces was completely changed. It was the have provinces, Alberta, British Columbia and Ontario, that paid even more. Remember that through equalization and just about every program the government runs, they already pay more. By coincidence they are the ones that were given an overpayment between 1993 and 1999.

One could make a pretty good argument that they have already paid over and over again, especially through the 1980s, much more than anyone else because they were have provinces. One could make a successful argument that they are getting back money that was really owed to them over the course of time.

Having said that, I am certainly not arguing that we should make this a habit. I want to argue that the federal government has made a big error, but now that the money has been spent by the provinces at a time when they are really pinched and when the only way to recover the money would be to probably take a whack out of health care again because it is one of the biggest budgets, the federal government should leave it alone and just promise never to do it again. Clearly that is the appropriate approach. If we do not do that, we will be in exactly the same situation we were in in 1995 when the federal government cut transfers to the provinces for health care. Again it was the provinces that took the heat at that time, not the federal government.

My argument is a simple one. Over many years the federal government has broken contracts with the provinces. It has cut their ability to fund health care. This is a bit of money coming back the other way, granted through a mistake, in kind of an ad hoc way. I do not think we want to see that continue, but now that it has been done and because the only solution would be to cut deeply into programs like health care, we need to let sleeping dogs lie.

We urge the federal government to vote in favour of the motion.

[Charlie Penson, Canadian Alliance, Peace River, AB]

Mr. Speaker, the member for Medicine Hat has a very good understanding of the history that has led to a lot of the difficulties with the provinces from the federal government side of things.

I would like to ask him more about the history of the former finance minister and the Liberal administration from 1993 to the moment. They have not been very good at doing the books for the country.

They seem to have overestimated the need for employment insurance premiums from both employees and employers. There is something like a $30 billion surplus in that fund. Even last year there was $3 billion more than was needed. They have been putting money into foundations, $7 billion, which the auditor general says is really hurting the accountability factor and reporting to parliament.

The former finance minister was good at low balling or underplaying the surplus. Last year he estimated the surplus would be $1.5 billion. Many economists are saying it looks like it will be more like $7 billion to $10 billion. This was a fairly consistent way in which the former minister operated.

I ask my colleague from Medicine Hat, is that not an irresponsible way of accounting by the federal government?

[Monte Solberg, Canadian Alliance, Medicine Hat, AB]

Mr. Speaker, I always find it very funny that two successive finance ministers lecture those in the private sector on their accounting practices while at the same time the auditor general routinely rips apart the federal government for its poor accounting. Of course there is the scandal right now in public works and other departments where there does not seem to be any accounting at all, no paperwork. I always find it odd that the federal finance ministers get up and hector those in the private sector on their accounting practices.

My friend is right. I was the finance critic for the reform party and the Canadian Alliance for a number of years. When I first started out, the finance minister was high balling the size of the deficit by billions of dollars. Then he would bring in a deficit that was much lower and would trumpet that. It was a political tool. It completely misrepresented the financial situation of the country. Surely to goodness the federal government should have some kind of obligation to accurately represent what the financial situation of the country is.

The same thing applies to the EI account. My friend is completely right. In that situation we have a notional account that many people felt should run a surplus to a point where there would be enough money in that account to withstand a recession. Many economists have said that should be somewhere in the range of $15 billion. It is now double that and it is getting higher and higher. The federal government has an obligation to lower premiums so that workers do not continue to fund increases in spending by the government. That is another example.

My friend also mentioned foundations. There was all kinds of year end spending that was completely guided by the government's attempt to spend the money so that it did not have to go toward paying down the debt.

There was all kinds of creative accounting. I have only touched on a few.

[Maria Minna, Liberal, Beaches—East York, ON]

Mr. Speaker, I want to go back to the comments of the member for Medicine Hat. It seems that everything is the problem of the federal government and the provinces are saints and have done absolutely nothing wrong. Perhaps he should represent the Canadian people at the provincial level. Yes, there were cuts as we all know to get rid of the deficit. It is not a big secret. However in the health care system, after the last health accord the funds have all been replenished in the system.

The problems in the provinces were not due simply to the cuts that took place at the time. There were a great many other problems in the provinces themselves including their own cuts.

I will use my own province of Ontario as an example where tax cuts after tax cuts were made even at the expense of dealing with its deficit and debt situation. We replenished per capita funding to Ontario which had been taken away previously. That was a huge windfall of close to $1 billion. However the hon. member refuses to talk about that. In Ontario now it is a per capita basis transfer of moneys.

[Monte Solberg, Canadian Alliance, Medicine Hat, AB]

Mr. Speaker, I think the member is completely wrong. It is like the federal government takes away $10 and gives back $5 and says it has replaced everything. That is exactly what it did with respect to the transfers.

I point out that when Ontario was introducing its tax cuts, it was raising the level of health care spending at the same time. In cutting taxes, Ontario made its economy that much more vibrant which allowed more revenues to come in so that it had the capacity to increase spending for health care. That is how the province handled it. In fact, that is a good model for the federal government and it should follow it.

[Jay Hill, Canadian Alliance, Prince George—Peace River, BC]

Mr. Speaker, it is a pleasure to join in the debate on the opposition motion, the last opposition motion before we break for the summer recess.

If the government decides to demand the $3.3 billion in capital gains refund overpayments from the four provinces including the $121 million from British Columbia it will be a massive blow to those provinces, particularly British Columbia. I will focus my remarks on the devastating economic and moral impact repaying the overpayments would have on the province of B.C.

Clawing back $121 million could not come at a worse time for British Columbia. The provincial finance minister announced earlier this year that for the first time in recent history B.C. has become a have not province. Finance minister Collins also announced that British Columbia's budget deficit for the coming year would be a record $4.4 billion.

If that is not bad enough, the Conference Board of Canada predicts real GDP growth in B.C. this year will be a paltry 1.8%, the weakest performance of all provincial economies. The board also said the softwood lumber dispute with the United States is keeping the outlook for forestry gloomy and that rising interest rates would suppress housing starts next year. Furthermore, the value of B.C. exports declined 24% in the first quarter of this year mainly because of the major reduction in demand for energy products.

To battle the bleak economic forecast the B.C. government has had to make tough cuts and spending halts. The government will cut all ministries except health care and education by 25% over the next three years. The provincial government is currently restructuring education and health care. Given this depressing economic climate the federal government's demand for $121 million for its own mistake will have a negative effect on the lives of all British Columbians.

Time and time again the federal government has demonstrated a callous neglect for B.C. It is turning its back on British Columbia on almost all major industrial fronts. Farming is under threat due to the recent U.S. farm bill and the dramatic increase in subsidies to U.S. farmers. What is the federal government's response? It has done nothing.

Offshore drilling for oil and gas is another issue. B.C. is dependent on the co-operation of Ottawa to start exploring for oil and gas. This is an opportunity, given the success in Newfoundland, for the federal government and the B.C. government to work co-operatively and be proactive on this front for the betterment not only of British Columbians but all Canadians.

I have raised the issue of the mountain pine beetle time and again in the House. The mountain pine beetle is eating up massive amounts of forest in the B.C. interior. Yet the request for $60 million of federal assistance over five years to help solve the problem has been ignored. Where is the federal government's help? It is nonexistent.

There is also the potential impact of softwood lumber tariffs on B.C.'s economy. The forestry sector directly accounts for about 9% of the province's total economic output. Approximately 20,000 forest sector jobs province wide, or one in five, are expected to be lost as a result of restructuring in the industry between 2001 and 2003. Up to 50,000 jobs could be adversely affected by the tariffs. What has been the government's response? It has directed less than $100 million toward the softwood lumber crisis. If the situation was not so serious it would be laughable.

How can the government justify giving $158 million to three marketing companies in Quebec for advertising and sponsorships, companies which could not possibly employ more than a few hundred people, while giving only $100 million to a situation affecting 50,000 potential jobs in B.C.?

Now more than ever the province of British Columbia needs co-operation and a little understanding from the federal government. It does not need an economic blow that would require it to take $121 million out of its budget to repay a mistake made by the federal government.

This brings me to another point: The new finance minister justified his decision to ask for the overpayment to be repaid by saying it is common practice and that the government is maintaining its fiscal policy of reducing the national debt. Why does the minister find it acceptable to hide behind the Liberal policy of reducing the debt while overseeing a ministry that has been diverting funds to foundations to avoid paying the surplus toward the debt? I am speaking of the roughly $7 billion that has been hidden away in foundations which are largely unaccountable and which, by the auditor general's own accounting, she cannot get at to see where the money is going or where it is to be spent.

These types of justifications and hypocritical actions, like the government's dishing out of hundreds of millions of dollars to Liberal friends and contractors while in the same breath it demands an economically strapped province to pay for a mistake it did not make, only add to the growing perception that the federal government does not care about British Columbia. The government's arrogant and dictatorial style of governing is fueling the increasing sense of cynicism and hopelessness Canadians from coast to coast have toward our federal political system.

This brings me to the morally negative impact the federal government's actions are having on the province of British Columbia, an impact it will further by demanding repayment of the $120 million.

By and large the people of British Columbia read the same news stories as people in Ottawa. Do members think British Columbians are uplifted when they read that B.C. must pay Ottawa $120 million and then turn the page and read that the Prime Minister paid $101 million for two new Challenger jets he did not need? Are they uplifted when they read that over $158 million was awarded to three Quebec marketing agencies that coincidentally happened to have donated $246,000 to the federal Liberal Party since 1997? Are they uplifted when they read that the former defence minister paid his ex-girlfriend $36,000 to produce a 14 page report on post traumatic stress disorder when his own department was also studying the issue? Are they uplifted when they read that $1.6 million was given to Groupaction Marketing for three contracts? As if that were not enough, the public then finds out two of the reports were identical. One cost $575,000. The other, which the government never received, cost $550,000.

Why would the government demand the money back just to give out billions of dollars in federal programs that have been proven to be deeply flawed like the HRDC billion dollar boondoggle, Shawinigate or the sponsorship program? Does the government think its demand for $121 million from B.C. will restore hope and trust in the political system among British Columbians?

The new finance minister should follow in the footsteps of his predecessor who advocated forgiving past revenue overpayments to the provinces. Political gains and leadership infighting should not be allowed to adversely affect millions of people's lives, jobs, hopes, education and health care.

Given the callous disregard the government displays on a daily basis for the tax dollars with which it is entrusted, is it any wonder Canadians have given up on democracy? They do not bother to vote anymore. Before he became Prime Minister the current Prime Minister promised Canadians in the red book of 1992-93 that he would restore trust and integrity to government. Yet time and again he has done everything possible to destroy that trust. Is it any wonder Canadians throw their hands up in despair and say the system is so wrong they might as well vote Liberal and have it all?

It is frightening to see this happening in a supposed democracy. Why would the federal government want to rub salt in the wounds of British Columbia as it struggles with the damaging softwood lumber tariffs? British Columbians would not mind repaying the money if they felt Ottawa would manage it wisely and contribute tax dollars fairly to all the provinces. However with the federal government's track record why would B.C. want to give the government its hard earned money and be forced to cut social programs so the money could be burned up in smoke by some Liberal government spending boondoggle?

In conclusion I will quote from Mark Twain's autobiography because it is pertinent to my point about Canadians giving up on the system and the actions of the federal government affecting the morality of Canadian society. Mark Twain said:

To lodge all power in one party and keep it there is to insure bad government and the sure and gradual deterioration of the public morals.

[Rick Casson, Canadian Alliance, Lethbridge, AB]

Mr. Speaker, I thank my hon. colleague for a great presentation on how the whole issue is affecting his province of British Columbia.

The hon. member raised issues that do not only pertain to British Columbia. He talked about the farming sector having been devastated by the federal government's inaction on trade issues. The pine beetle infestation in British Columbia is horrendous. We went through it a few years ago in parts of Alberta. It can be very damaging but nothing is being done. By allowing the softwood lumber agreement to lapse the federal government has created tremendous hardship for the people of B.C. Every time the government puts its hands into the fishing industry it mismanages it.

A lot of us in the House cut our teeth in municipal politics before we came to this place. Can the hon. member comment on the cloud that hangs over the ability of provincial governments to properly budget and forecast? It is something that eventually affects the grassroots level of government and the taxpayer. Municipalities know full well that if the provinces are hit with the repayment a lot of it will come to rest with them. Could my hon. colleague comment on that?

[Jay Hill, Canadian Alliance, Prince George—Peace River, BC]

Mr. Speaker, I thank my hon. colleague for his question and for his observations about how it would affect not only British Columbia but the other provinces. The federal government may demand them to pay it back despite the fact that it was no fault of their own and that it occurred a number of years ago. As my hon. colleague has pointed out, the money has been invested at the municipal level . It has also been invested at the provincial level for things like health care, education and social services.

The overpayment problem we are addressing today points to something the Canadian Alliance, and before it the Reform Party of Canada, have pointed out consistently since arriving in this place in 1993: The Liberal government has been intent on addressing the deficit by downloading the problem to the provinces. It has done this consistently through the years it was balancing the budget.

The government has done this primarily in three ways: First, it cut transfer payments to the provinces. Second, it pursued a policy of overtaxation. Third, it benefited from a period of great economic prosperity to dramatically increase its tax revenues, especially GST revenue. We all recognize this. We do not need an economist to explain it to us.

With regard to the comments of my hon. colleague, we must remember that there is only one taxpayer. I think that was his underlying point. Clawing back the money would have a negative impact on British Columbia which is struggling to make ends meet and is making difficult choices that affect every British Columbian. It is not very popular when a provincial government does these things. It happened in Alberta under the present premier. It happened under Premier Harris in Ontario. The governments of those provinces had to make tough choices to get their fiscal houses in order.

British Columbia is trying to do the same thing. Clawing back the extra $121 million of overpayment from B.C. would be cruel and unusual punishment by a federal government that has shown itself to be inept at managing the nation's finances.

This is coming out more and more often. Almost a scandal a day has been coming to light to show how the federal government wastes taxpayer money. The bottom line, as my hon. colleague says, is that if the government claws back the money it will ultimately be reflected at the grassroots level. It will hit the municipalities, the regional districts, the counties and the provinces. Whether in B.C., Manitoba, Ontario or whatever province, it is at the municipal level that services will ultimately be cut to pay back the overpayment. That is where we will see the big difference.