Debates of June 6th, 2002

Supply

[Grant McNally, Canadian Alliance, Dewdney—Alouette, BC]

Mr. Speaker, I have an example of why Canadians are showing that they no longer trust the government. An individual named Pierre Corbeil who was a Liberal fundraiser somehow got hold of a list of grants in Quebec and was thrown in jail for influence peddling.

This is the kind of thing that has been going on. Is it not an example of why Canadians have lost trust in the government?

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

Mr. Speaker, my colleague raises just one issue. I wish it was only that one. That is the most glaring and the most recent.

When we go back to the issue surrounding the scandal known as Shawinigate many other names crop up repeatedly of individuals who should never have received money from the Canadian taxpayer. The money does not come from the federal government. It comes from the taxpayer. They should not have received it. There is almost a scandal a day attached to the government's arrogant way of governing and mismanagement of Canadian tax dollars.

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

Mr. Speaker, I am pleased to say that I will be splitting my time with the hon. member for Algoma—Manitoulin. I have no doubt that my colleague will be making an extremely important contribution to this debate.

With respect to the substance of the motion before the House, everyone agrees that this is an extremely serious technical problem. Overpayments were made over a period of almost ten years, for technical reasons. Corrective action was taken two years ago. With the assistance of the Canada Customs and Revenue Agency and the Department of Finance, the Canadian government is doing everything it can to try to find a solution which is fair for everyone. At least four provinces are directly affected by these overpayments. Since equalization payments are involved, this also affects the other Canadian provinces to a lesser extent, given that the proportion was altered slightly.

This is a significant problem, even if it does not involve $50 billion. But it is a question of fairness, and the government considers this a very serious matter. Our opposition colleagues often make very serious references to the auditor general's reports.

The role of the Canadian government is to work together with the auditor general, as it does on many other issues, to be sure that a reasonable solution is reached. Naturally, we must rely on the technical analyses of the auditor general, the Department of Finance and the Canada Customs and Revenue Agency.

In Quebec, we are used to this. It is always the federal government's fault. Even the temperature is blamed on the federal government. What I find surprising is that our Canadian Alliance colleagues are now spouting the same line. For all the opposition parties, individual or collective problems in this country are always the fault of the federal government.

Let us take health care in Quebec. The transfers were restored and there was good co-operation between the federal and the provincial governments, including the government of Quebec. It is not the federal government's fault if thousands of nurses have had to take early retirement. I have doctor friends who have had to take retirement.

Even with funding restored, there is a problem in the health sector. People need to be involved in sizing up the problem. There is an administrative problem as well, and this is true in all sectors.

I remember that, when we had the flood, some thought that the federal government was to blame. During my election campaign, the Parti Quebecois and the Bloc Quebecois held a press conference. One week before the election, they talked about the natural disaster that had occurred back home, the flood. The Canadian government was not present. It had not been invited. We had no responsibility regarding the flood, but we contributed to the restoring of major infrastructure to the tune of 90%.

When problems occur, we must face them with a minimum of serenity. Serenity and patience are good for one's health and also when dealing with issues. It is not true, as père Gédéon, the old Quebec television character, would often say, that it is the federal government's fault. We are all co-owners of the Canadian federation.

[Gilles-A. Perron, Bloc, Rivière-des-Mille-Îles, QC]

No wonder you changed parties.

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

Our role is to do everything we can to allow our partners to take part constructively in the improvement of fellow citizens' well-being.

In the issue before us today—

[Some hon. members]

Oh, oh.

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

I hear hon. members yelling. They want to deal with tax issues by holding a referendum in the fall on tax points, on tax fairness, a referendum that will cost between $50 million and $75 million. One does not need to be an actuary to figure out that what is needed to solve our problems is co-operation, not confrontation. We do not consult the public on commonly accepted practices.

I think that federal-provincial relations must be productive on all issues. And in the issue before us, which is the result of technical overpayments, we should not blame the Canadian government for everything. The federal government is aware that a technical error was made and our role is to objectively look at the consequences.

This is not easy. We are in the process of conducting a technical analysis, in co-operation with the auditor general, the Department of Finance and the Canada Customs and Revenue Agency. I am convinced that, in this case as in others, we will find a solution that will suit everyone.

The role of the Canadian government is not merely to transfer funds. The role of the Canadian government and of provincial governments is to assume leadership in important areas.

I have nothing against my colleagues in the Bloc. I will explain calmly, without too much distress, and I tell myself what counts is finding the right solutions. Indeed, I recall that for 30 years it was a historic debate. “The federal government has to transfer hundreds of millions for manpower training to us”. Finally, after some thirty years, we did.

I meet a lot of stakeholders and I can say that the work the Government of Canada did in the field of manpower training continues to be respected today. We transferred it. They said that the government transfers $600 million annually to Quebec to manage this sector.

However, many stakeholders say to me “It is too bad. We liked it when the Canadian government had its manpower training programs. There were officials in all our little rural municipalities, who supported the development of these sectors”. We did it because it involved, as we said at the time, historic demands by Quebec. Finally, the federal government agreed to transfer the funds.

Today, the scenario is being repeated with parental leave, which we have just increased from 6 to 12 months. In Quebec, there is a big campaign underway to get the Canadian government to transfer funds for parental leave.

In Quebec, there is no program at the moment. However, they think that our program is particularly well thought out. It is not yet finalized. Once again they say “Transfer the money to us”.

The members opposite are eager to ask questions. They may be assured that I will respond to their comments with considerable patience. I will not be aggressive. I will explain the facts.

They are campaigning to get the funds for parental leave. We already have the program. In recent months, we have extended it from 6 months to 12 months. The fact that a program works well under the Canadian government is no reason for transferring it to the provincial governments all the time.

I can think of all kinds of examples where I believe the government should take responsibility. Take the CFDC in my region. I remember that the PQ government wanted to transfer the CFDCs and integrate them to the structure that they had just created a few months before. As far as I am concerned, when a federal government structure works well, it should be respected by all of the provincial stakeholders. I think this is important, and we will continue.

In my region, we have Canada Economic Development. Members of the Bloc Quebecois seem angry when the Government of Canada implements progressive measures that work well. The Government of Canada is not there to fade into the background. We are here to show that the Government of Canada is capable of doing good work. We are doing this when it comes to research. Instead of striking committees, we will be building laboratories for areas of research that are critical for regional development. I think it is important to recognize this.

As for the issue at hand today, I am not worried about the decision that our government will make. The decision regarding the four provinces that are directly affected and also those that are affected indirectly will be made in the interest of all Canadian taxpayers.

[Gilles-A. Perron, Bloc, Rivière-des-Mille-Îles, QC]

Mr. Speaker, thank you for this opportunity to say a few words about my colleague from Chicoutimi—Le Fjord, although I do not know if I should use that term for the member across the way.

His speech addressed the actions of the government. I would like to remind him that I have already heard this same critic say such things as “What was scrapped in Canada was not the GST, but the health care system, particularly in Quebec”. These words were pronounced here in this very House on October 25, 1999.

A little later, referring to the action of the federal government, he said the following. “Yes, people are tired of the constitutional debate, but they certainly need a break from the provocation carried on for the past 30 years by the leaders of the Liberal Party of Canada”. This was on November 29, 1999, right here in this House.

Another quote of his, this time on poverty. “In the seven years since the Liberals took office, poverty in families and child poverty have gone up 50%.” This the member over there said on March 20, 2000 in this House.

Here then is the question I would like to ask him: When is he going to change hats again? When is he going to change parties again?

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

Mr. Speaker, the example comes from on high. The founding leader of his party was a member of just about every party in Canada. He even found that there were not enough parties, so he created a new one, the Bloc Quebecois. He quickly left it.

Nevertheless, the member enjoys quoting from my speeches. During the last election campaign, the Bloc Quebecois published all of my speeches. I guess they were pretty good, since I won by several thousand votes. I recommend they publish my speeches again in my riding. That would be most helpful.

If my speeches really were that bad, the Prime Minister has certainly forgiven me. This means that he is quick to forgive, because we are doing good work. My first concern—and I have not switched parties seven times, I only changed parties once—has always been my fellow citizens.

All of my constituents stood by me throughout this process, I guess. Rest assured that we will continue to do good work. I understand why the Bloc Quebecois is worried and nervous. According to the polls, they have the support of only 20% to 25% of voters.

We are looking forward to the next provincial election in Quebec. We know that their colleagues in the Parti Quebecois are in deep trouble. We are expecting, by the way, a Parti Quebecois leadership race in the fall. Their worries are understandable. I understand and share this concern of theirs.

[Rick Casson, Canadian Alliance, Lethbridge, AB]

Mr. Speaker, the member opposite said it was not the government's fault that this happened. I take exception to that.

It is the government that sends out these cheques, so if the provinces were overpaid then I, and many Canadians, would assume that it is the government's fault. It was indicated that the cabinet, the agencies and the provinces would get together to come up with a solution to this issue.

Does the member not understand and does he not think that the best solution for this problem is to forgive this money so it does not further deteriorate the health care, education and infrastructure systems in our country? If indeed this bill is sent back to the provinces, that is exactly what will happen.

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

Mr. Speaker, I thank my colleague for his question. I am sure that my colleague will understand that, in the whole process of government, before making any decision, it is important to have all of the relevant technical information.

This obviously requires very close work between the auditor general, the Department of Finance and the Canada Customs and Revenue Agency.

This work is currently being carried out. The calculations are in the process of being done. I am sure that our government will be fair in its solution to this problem, which affects all of the provinces, in fact, and indirectly, all citizens.

[Brent St. Denis, Liberal, Algoma—Manitoulin, ON]

Mr. Speaker, I wish to join the debate on the motion before us today which deals with the consequences of a problem that was recognized by the Canada Customs and Revenue Agency in its accounting processes.

This is an instance of the opposition failing to recognize that the government has done an effective job of recognizing and attempting to correct a problem immediately. Rather than recognizing this fact, the opposition would tie the government's hands as it tries to negotiate a solution with the provinces who I am sure will be willing to come to an agreement on the most appropriate course of action that is most fair to the taxpayer.

Indeed, an error was made and the error should be corrected. It is only fair for the provinces not implicated in the error that we do something about it. Because they do not have the mutual fund activity as these six provinces do, they have in effect been penalized.

As a result of the problem, the Government of Canada, based on the accounts provided by CCRA, overpaid six provinces under the tax collection agreements that it entered into with those provinces. Members of the House must realize that the impact of the accounting problem did not affect all the provinces equally or proportionally because it related to mutual fund trusts. These investment companies are based primarily in the four provinces of Ontario, Manitoba, British Columbia and Alberta.

The issue goes back to the introduction of the capital gains taxes in 1972. The problem for many years was virtually undetectable because mutual fund trusts only became a significant investment vehicle in the early 1990s. The overpayment to the six provinces was a result of a tax accounting omission in CCRA reports used by the Department of Finance to determine how much tax revenue to distribute to the provinces.

In the course of enhancing computer systems used for tax accounting, the CCRA identified a problem that caused it to initiate an indepth review. With some 2,200 separate accounts, CCRA's tax ledger system is complex.

The problem, in brief terms, is as follows. Mutual fund trusts pay federal and provincial income tax on capital gains as their business proceeds. Under circumstances set out in the income tax legislation, mutual fund trusts can receive a refund of both the federal and provincial portions of the tax paid once the investors realize the gains and pay tax themselves where the tax benefit has been transferred from the trust to the taxpayer.

Due to a problem in CCRA accounting processes, which are audited by the auditor general, the provincial portion of the capital gains refund claimed by the mutual fund trusts was not being deducted in the computation of the provincial tax revenues. Instead it was deducted from federal revenues; a mistake.

Very simply, when mutual fund trusts paid provincial income tax on capital gains, the amount of tax paid was added to the payments to the provinces. However when the mutual fund trusts received a refund of provincial taxes paid, or the individual taxpayers made their claims, the amount was not deducted from the payments to the provinces.

As soon as the CCRA's internal review process indicated that the omission of certain data in its reports to the Department of Finance was resulting in overpayments to the provinces, the agency informed the Department of Finance and the auditor general. Remedial measures were put in place as soon as the auditor general confirmed that the problem was real and overpayments relating to mutual fund trusts were stopped.

Detecting the problem was not easy. The Auditor General of Canada herself noted that audit work had focussed on changes in systems and accounts, something that typified the CCRA's management of the process. The system for recording tax revenues relating to capital gains associated with the mutual fund trusts had not changed substantially since its inception in 1972.

Focussing on changes was indeed where the problem came to light. In the course of introducing computer processing to reporting for mutual fund trusts, CCRA discovered a problem. As members know, a great revolution in the application of computers to business and government has taken place over the last 30 years, a sea change in fact.

Members need not be reminded that one does not make dramatic changes to the tax accounting system without being absolutely certain. In their position the CCRA managers and staff were looking at a problem that had not been picked up before by the auditors. The problem was brought to the attention of the CCRA's commissioner in late December. On the very next day he ordered a full internal review to be certain that this was a problem.

When the report of this review was received by CCRA management on January 9 this year, the Department of Finance was informed and the auditor general was asked to review the CCRA findings and confirm that a problem truly existed. As soon as the auditor general confirmed that the problem was real, the CCRA implemented remedial measures. Additional ledger accounts were created for each of the provinces to ensure that provincial shares of capital gains taxes arising from mutual fund trusts were debited when refunds were issued.

As members are aware, people often blame computers and modernization for many of the problems that organizations experience. It is refreshing and heartening to see that an organization that has adopted technology as eagerly and energetically as the Canada Customs and Revenue Agency has benefited from its embrace of technology, not just through better service to Canadians but also by identifying problems that could have continued for much longer.

The House should also be grateful to the Minister of National Revenue and the management of the CCRA for being so upfront when the problem arose. At no time did they seek to avoid responsibility or blame for the problem. When action was required, they acted decisively. The House can be assured that the Government of Canada will demonstrate the same responsible leadership in addressing the consequences of this problem.

We should acknowledge that an error has been made and for the benefit of all taxpayers the error should be corrected and remedial action taken.

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

Mr. Speaker, I would like to just remind the member that it was the same Liberal government that had formulas for funding for health care back in the late 1960s when health care was put into effect. I remind him that at the time his government told the provinces that its portion of the funding would never fall below 50%. We know that is not the case now. In the case of Alberta, I think the federal government's contribution is only 12%.

National programs were put into effect and the provinces thought there would be a funding formula that would be adequate. They have had to go basically their own way in funding over the past several years as governments have backed out.

Also the health and social transfers grants were changed to the provinces in the mid-1990s as the federal government, the hon. member's government, balanced the budget. This had severe impacts on the provinces in terms of how they would fund their programs. At the same time these overpayments were occurring, almost 10 years of overpayments.

It would seem to me that the government does not have a very good record in this regard. It walks away from programs and program formulas when it is to its advantage, but when it is not to its advantage, now it wants the money back from the provinces after it has been spent. I would like a reaction from the hon. member to that.

[Brent St. Denis, Liberal, Algoma—Manitoulin, ON]

Mr. Speaker, even though he is a little off topic when he refers to health care, I would be more than glad to offer a response. He failed to recall in his comments that the provinces asked the federal government for a substitution of tax points in lieu of cash, believing practically that over time they would have more revenue from tax points than from a straight cash transfer from the federal government. In failing to acknowledge that, the hon. member is supporting a weak argument because the contribution of the federal government to the provinces for health care and social services is vastly higher than the 12% figure he quotes.

I really wish in fairness he would at least mention that the provinces asked for tax points from the federal government many years ago and received them. Had they not done that, they would be in a lot different position, even according to his own formulas, than they are now.

I would also add that if we do not deal with this overpayment and deal principally with the four provinces that received most of the overpayment, we will be unfair to the provinces that do not have an active mutual fund trust. It is a matter of fairness to the other provinces as well.

[Werner Schmidt, Canadian Alliance, Kelowna, BC]

Mr. Speaker, I am absolutely intrigued at the response of the hon. member to my colleague's question. There has to be a real issue here with regard to fairness. I was going to ask a different question but I have to take issue with him on the issue of fairness given the way things are being done in Canada right now.

Western Canada is getting a fraction of what is due to it on a per capita basis. If the government really wants to treat Canadians fairly, it had better distribute the funds in such a way so that all the provinces are treated at least on an equitable basis, per capita. That is the least the government could do.

[Brent St. Denis, Liberal, Algoma—Manitoulin, ON]

Mr. Speaker, notwithstanding my respect for the member for Kelowna, I think he is arguing that we do away with the very Canadian approach to equalization that has been the case for many years in Canada. To transfer federal dollars to the provinces strictly on a per capita basis in lieu of equalization is absolutely unfair. We do have different regional needs in this country. Some provinces have access to more resources than other provinces.

I suggest that, yes, he was intrigued by my response to his colleague's comments and question. I think he is intrigued because he probably needs to understand better the real needs of our regions across the country.

[Roy H. Bailey, Canadian Alliance, Souris—Moose Mountain, SK]

Mr. Speaker, I am very glad to join in the debate. I think most people have experienced what it is like to get a cheque and then be told “Sorry, we paid you too much”. We know how that hurts. I recall the first time that happened to me. I was a teenager working on a snowplow gang. I was overpaid $18.

[An hon. member]

Did you give it back?

[Roy H. Bailey, Canadian Alliance, Souris—Moose Mountain, SK]

Yes, I did give it back. I had no choice but to give it back for a number of reasons because I was still working for them at that time.

This is a very serious problem. It goes back to 1972. How much was a dollar worth in 1972 compared to 2002? I do not think anyone has brought that point up so far. If we translate a dollar that was overpaid in 1972 into a dollar today, it would be closer to $4. That would be absolutely wrong.

The hon. gentleman who answered a question from one of my colleagues talked about sharing and equalization. I am from the west, from Saskatchewan. I can proudly stand and say I know what I am talking about when it comes to sharing equally such things as heritage grants, foundation money and cultural grants. It is not there. We can prove it year in and year out. There is no sharing.

I will use the province closest to mine, Manitoba, to explain what would happen. An actuary showed me how to work this out. He used the provinces of Manitoba and Saskatchewan. He took their populations, which are relatively the same and their demographics and moved them up the scale. He took the spiraling cost of drugs and moved that up the scale. He took the cost of health care and moved it up the scale, but he left the federal grant of 12% to hospitals the same. Within a generation under the same conditions that exist right now, 100% of Manitoba's and Saskatchewan's budgets would go to health care.

If Manitoba was asked to return the $408 million accumulated since 1972, in a health care system like the one in my province which is foundering, all that would do is make a bad situation worse. We should never forget that health care delivery in Canada was based on the fact that the federal government would always contribute 50%, not 12%. The amounts of money that have been overpaid are far less than if the government was living up to its agreement of 50% toward health care. When we look at it in that way, the old adage is, a promise made is a debt unpaid.

There are two incidents which happened with AIDA. AIDA was a program designed to help the farmers who were destitute. I could cite 100 cases where farmers finally got relief, sometimes up to $50,000 and sometimes only $500 or $600, and then three weeks later they received a letter saying “We have calculated this incorrectly. Please return the money”.

One case that will always be in my mind as long as I live involved a lady who drove daily to Regina where her husband was dying from cancer. I worked on the case for her. Although she lived 200 miles away, I knew her. She received a total of $1,800 from AIDA. Two weeks later the phone rang in my office and she was in tears. A lot of the AIDA accounts had been miscalculated and she had been asked to repay $1,800.

To ask Manitoba to return $408 million to the federal coffers right now is asking it to make very severe cuts. The one place it would have to cut is health care and it is at a bare minimum right now.

The auditor general has told us that something like $7.1 billion or $7.2 billion has been set aside for foundations. Maybe the government could be human and instead of doing what it has previously done with foundation grants it could look at what is owing and remedy the situation. Even though the government may not ask for it all back, maybe it could say that in view of the programming and in view of the time when it started in 1972, it will give the provinces some consideration. That is what a government with a heart, a government that really cared about people would do.

If someone who owed me money was destitute, I would tell the person that I would take another look at the situation. That is what we on this side of the House are asking the government to do. We are asking the government to take another look at its own budget for this year. We are asking it to take another look at its foundation grants and all of the other grants it hands out across Canada.

I ask government members to ask themselves if they are doing the right thing. Is this the time for the government to say to the provinces “We made the mistake so now pay up”? I know some of the people opposite very well and I do not think the majority of them have that kind of heart. Intrinsically, I do not think they really want to do this. Let us give this some consideration.

[Jim Gouk, Canadian Alliance, Kootenay—Boundary—Okanagan, BC]

Mr. Speaker, I am going to start by being slightly controversial. We are looking for the federal government to show some compassion and forgive the overpayment that was made to the provinces. I will start with the question, should we forgive the overpayment to the provinces? The answer to that is no, we should not forgive the overpayment because there was no overpayment.

If we look at the transfer payments particularly in terms of health care, the federal government some years back convinced the provinces to sign on to something called the Canada Health Act. The provision of health care is a provincial jurisdiction but the federal government wanted in on it, as it seems to want in on so many things. The government said it wanted the provinces to sign on to its program and in return it would pay 50% of the cost of the program. That is one-half of the cost of providing health care.

The government share is now down to 14%. There was no overpayment. It was a small down payment on the money the federal government owes the provinces for a commitment it made many years ago, a commitment made, I might add, by a Liberal government.

There was no overpayment. We should keep that in mind as we debate today what to do with the transfers that were made and the question of whether or not too much was paid. It is not an overpayment. It is a matter of the government having given some of the provinces more than it intended but it is still under the amount to which the government actually made a commitment. The Canada Health Act is a great concept, provided the government lives up to the commitment it made.

Health care is in trouble in this country. We all know that. All of us collectively face it every day in our ridings. I doubt that there is anybody in the House who finds that constituents are really happy about their health care.

In the province of British Columbia we are facing a particular crisis. Our previous government ran up a tremendous debt. The federal government knows as well as anyone that when a government runs up a debt, it is harder to fund programs. It has to pay off the debt as well as the interest on that debt because it was irresponsible in the first place. We are struggling with this in my province.

We are also struggling with the fact that the federal government is not providing the money it committed to provide. Now we have yet another hurdle to overcome. The government said that the money it gave to the province, even though it is less than it promised, was actually more than it meant to give and therefore it is going to take some of it back. That is unconscionable.

As was said by the premier of Manitoba “This money was spent on health care, education and social services. It is not in a Swiss bank account. We did not funnel it out to our friends in advertising companies, publication companies and other fancy schemes. We did not spend it on fancy new executive jets. We spent it on services to the taxpayers of this country, the very people the federal government looks to, to provide them with their money”.

In my riding this has had a tremendous impact. We are facing hospital closures. I heard on the radio this morning that here in the Ottawa area people are in deep crisis because beds will be closed in some of the hospitals. In my riding the hospital itself is closing. This is fairly widespread and it is all because there is not enough money to run the programs. There is not enough money because the federal government has reneged on what it agreed to pay. Now the government is saying that even the underpayment it gave the province is really more than it intended and it wants some of it back.

The impact on the provinces where this applies will be absolutely overwhelming. This affects in particular rural communities. It is always tougher to provide services in a rural community because there is not the economy of scale.

We have said that it is more difficult to provide services in our country because it has a large geographic area with a sparse population in comparison to other countries, including the United States next door. We have a country that is as big or bigger than the United States, yet we have one-tenth of its population. It is expensive to provide those services. We understand that. But the rural communities have the same problem again relative to the urban communities.

Cutting back on the payments and then asking for additional money back would just increase the impact all the more. The federal government must stop this quest of trying to get money back from the provincial governments. The money was spent on the people of this country. What it would be doing is going to the people, not the governments, of each province and telling them that the services they received were too much, that it did not intend for them to have that much service from the governments of this country and that it wants them to give some of that service back. If the province gives back the money the impact is less services for the people of that province. Therefore it is really the individual taxpayer who the government would be requesting the money from.

What is the solution in the future? We are in a mess. We need to get out of it by having the federal government show some compassion, recognize the problem and recognize the fact that the money has indeed been well spent. There is no greater use for a tax dollar than that, although the government might challenge that.

How do we prevent this from happening in the future? I think the way we can prevent it is to go back to very old Reform Party policy.

The Reform Party approach first premised that we had far too much government in this country. The only justification for government is to do things for the people which they cannot or will not do for themselves. Therefore we reduce government to doing only those things. That means that government gets out of business and does not intrude on jurisdictions that have nothing to do with it. We reduce it to those things.

Having reduced it to that, we then bring it back as close to the people it serves as possible. We do that so that when something like this happens the government can be held accountable by the taxpayers at the closest level possible, where they can reach out and get a hold of these politicians and tell them to smarten up and do what it is that they are expected to do. It is a little harder, especially for us in the west, when decisions are made by people in the Prime Minister's Office thousands of miles away in Ottawa.

If we took this to its ultimate conclusion, I think it would be realistic to say that we could reach a point where it would no longer be necessary or feasible to pay federal income tax. It would be a shock to those people over there, I assure the House, if they no longer had their hands directly in the taxpayer purse. The government of course would need money to do the things that it must do because some things are best done at the federal level. However, instead of taking money from the people in our province individually and then reducing our own province, the province of those taxpayers, to begging for some of our own money back, the federal government would then bill the province a fee for services rendered.

How do we get equalization if we do that? We bill those provinces the fee on a structured basis based on the provincial GDP. Those better able to pay for the services would pay a little more for them. However, because the government would not have its consolidated tax barrel, which it merrily dips into whenever it wants, it would only be able to charge for a specific service provided. It would have to show the costs of operating that particular program and it would have to justify exactly what it does.

The alternative would be to go to that dreaded word that the media and some of our opponents like to play up, that is, a firewall. However we would not build a firewall around the province. We would build it around Ottawa. We would not build it to keep people out. We would build it to keep the federal bureaucrats and politicians in so that they could not keep raiding the provinces. This is not a battle for one province to stop all the other provinces from getting in. It is a matter of a problem created by the federal government in jurisdictional clashes between the federal and provincial governments.

The government has to realize that there is only one taxpayer. When it takes a dollar from that taxpayer, the only justification is to provide the services necessary for that taxpayer. The money that was paid to the provinces, what it calls an overpayment, was spent providing services to the taxpayer. Instead of asking for that money back, the federal government should applaud the provincial governments for making that provision.

I hope the government will come to its senses, show some compassion, recognize that the money has been well spent and stop trying to take yet more money out of the pockets of the taxpayers and basically asking them to return services.

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

Mr. Speaker, I congratulate my colleague who has just spoken and who made us really aware of the difficulties this would present to a province like British Columbia which is now in the have not category, which is a very big change in short period of time.

I remember the province of British Columbia contributing to the equalization formula for a great many years, I believe ever since it was set up, until just recently. Various provincial governments made things so difficult that it drove out investment. British Columbia is now a have not province and will be able to claim under the equalization formula.

Does my colleague believe that the federal government bears some responsibility for having miscalculated this program for at least 10 years? Does that fact not have to enter into the mix, that if the government is responsible it should bear some of that responsibility and not penalize the provinces?

[Jim Gouk, Canadian Alliance, Kootenay—Boundary—Okanagan, BC]

Mr. Speaker, certainly the federal government has to take responsibility and not just a part of the responsibility. It was the federal government's error. This was not a bill from the provinces to the federal government. This was a calculation of money that the federal government was going to provide. It has gone on for years. It is a systemic problem.

As I mentioned in my speech in quoting the premier of Manitoba, the money that was overpaid was not stuffed in a Swiss bank account. It was not used on frivolous things. The money was used specifically to provide social services, health care and education for the people of our province and the other provinces.

Under those circumstances, given that it was the federal government's error, given that the payment was actually less than the amount it had committed to pay and given the fact that the money was well spent, it unquestionably should be dropped. The federal government should make whatever corrections it has to make for the future but it should not even think about coming to the provinces and reducing our services even more.

[John Duncan, Canadian Alliance, Vancouver Island North, BC]

Mr. Speaker, it is impossible to talk about the $3.3 billion without also talking about equalization and the impact it has on the provinces. We all know that the equalization formula is changed from time to time and that there is a lot of controversy involved every time that occurs.

It also occurs to me that when the government changes those equalization formulas it is well aware of the financial status of the provinces that are being impacted. Obviously the financial status of those provinces was impacted in some way by the $3.3 billion account. Given that is what must have occurred, is that not another complicating factor that would lead one to the conclusion that this should be forgiven?

[Jim Gouk, Canadian Alliance, Kootenay—Boundary—Okanagan, BC]

Mr. Speaker, yes, it is yet another example of why the federal government should, in its wisdom, which we hope it has, recognize that it should not be pursuing trying to collect back this money.

It even holds further. My hon. colleague talked about transfer payments and equalization payments. He is right. The formula keeps changing and that is exactly what it is. It is a formula that is subject to manipulation. That is why I honestly believe that if we get full efficiency from the government, if we reduce it to doing only those things that should be done by government and can best be done at the federal level, then we could get to a situation where we would no longer pay federal tax and the federal government would bill the provinces a fee for services rendered based on the provincial GDP which would become the equalization.

I believe that would be a far fairer system. It would be less subject to manipulation and it would most certainly be something that would hold the federal government far more accountable for the money it spends and the programs it runs.

[Paul Szabo, Liberal, Parliamentary Secretary to the Minister of Public Works and Government Services]

Mr. Speaker, this is an important issue for the House to be dealing with. I thank the member for moving the motion. In a nutshell the federal government overpaid four provincial governments about $3.3 billion with regard to moneys collected on their behalf.

The real question comes down to whether or not overpayments, errors, which occurred because people in good faith understood the information to be correct and it turned out subsequently not to be correct, should be recouped. It leads me to the fundamental legal premise that in legal proceedings when parties have a disagreement concerning matters, one of the premises is that they seek to put both parties in the position they would have been in had the matter been handled correctly the first time.

Arguments are now being made that, notwithstanding had it been done correctly, the $3.3 billion would have come back to the federal government. There are exacerbating factors or consequences for consideration to be given not to refund or possibly some other arrangement.