Mr. Speaker, my challenge this afternoon is to keep members awake while we talk about equalization. It is an arcane piece of legislation and an arcane concept which is watched by quite a small number of very interested people because it affects how budgeting takes place, both here at the federal level and at the sub-national levels.
This has nothing to do with the offshore accord. That is entirely a separate negotiation. Bill C-24 has to do with the direct results of the first ministers meeting that occurred in September between the Government of Canada and the provinces, where they announced fundamental changes to Canada's equalization program and the territorial formula financing arrangement.
The framework was announced in response to concerns raised by equalization receiving provinces about the funding of equalization and the planning difficulties they have experienced in recent years caused by the swings in equalization payments. A number of finance ministers made the point as we travelled across the country that it was very difficult to make up a budget on the basis of equalization payments if in fact it is not known what it will be year to year.
The government heard that concern and has tried to address that concern through this bill by effectively setting floors and ceilings and a predictable stream of money for each equalization receiving province. This new framework represents probably the most important change in the program in its history. The legislation before us today is integral to effecting that change.
The intent of the changes to the equalization program and the TFF, the territorial funding financing arrangements, is to bring stability, predictability and growth to the overall level of funding for these programs, and to have third party advice on the best way for the Government of Canada to allocate payments among the provinces and territories. As the Prime Minister and premiers negotiated this formulization, it in fact achieves that. I hope this bill will enjoy the support of all hon. members in the House.
Bill C-24 proposes to provide these issues of stability, predictability and growth. I will outline shortly the legislative proposals contained in Bill C-24. However, first, it is important to present some background to the equalization and TFF programs in order to provide some context so that we can say this is where we were yesterday, this is where we are today, and this is where we hope to be tomorrow.
The program was put into effect in 1957 and the territorial program was put in place in 1985. The equalization part of the program has certainly been with us for quite a while and in part is how Canadians see themselves in terms of sharing the wealth of this great country. Both of these programs have been largely successful in providing support, while reducing regional disparities.
The intent of these programs is to ensure that all Canadians, no matter where they live, have access to reasonably comparable public services, that is the key phrase when we are looking at measuring the test of whether this program succeeds, without having to resort to economically damaging levels of taxation to fund the provision of these services. Those are the two ideas that we want to achieve here, having reasonably comparable public services without having resort to economically damaging levels of taxation.
The idea that Canadians should have access to the same high quality of health and social services regardless of where they live is fundamental to the fairness and integrity of the Canadian federation. This is so much so that it is protected by the Constitution in the form of equalization.
In short, the equalization program transfers money to the less prosperous provinces and territories in accordance with a formula based on the revenue raising capacity of each province. This means that as a province becomes more prosperous, its equalization entitlement declines. In effect, equalization is there to fill in the gap to ensure that all Canadians have access to high quality health and social services that they have come to expect and demand, regardless of where they live in Canada.
Moreover, it ensures that less prosperous provinces do not have to resort to economically damaging levels of taxation to fund the provision of these services.
Again, we are working on a balance here. In the less prosperous areas, they have limited ability to raise taxes, yet, simultaneously, Canadians, wherever they live, are entitled to a certain base of services. Hopefully that base will be achieved in part through the distribution of moneys under the equalization program.
I would like to return to the funding arrangements to the provinces and territories. The changes to these programs encompass three important elements: first, the new framework for equalization and territorial financing starting in the fiscal year 2005-06; second, an independent review of the programs by a panel of experts; and third, complete protection for provinces and territories against overall and individual declines in payments in 2004-05.
I would like to expand on each of these three elements: first, the new framework for equalization; second, the independent review; and third, the protection that is afforded in this fiscal year.
I will begin with the new framework for equalization and territorial financing. Starting in 2005, the government will establish a legislative financial framework for both equalization and territorial financing. The new framework will establish fixed payments levels, which will provide predictable and growing funding for provinces and territories. Funding levels for 2005-06 will be set at $10.9 billion for equalization and $2 billion for the territorial funding. These amounts thereafter will grow at a rate of 3.5%.
When we talk about the stability of predictability, there we have it. We know exactly the floor that we would be starting from. We know exactly the amount by which the program would increase.
The government is committed to reviewing the overall funding levels of equalization and TFF after five years. If appropriate, the government will make adjustments in 2010-11, taking into account evidence based measurements of the evolution of disparities and costs to the territories.
Let us hope, Mr. Speaker, that neither you nor I is talking about equalization in the fiscal year 2010-11.
The second point has to do with the expert review panel. The second element of the changes to the equalization is the establishment of an independent expert review panel. Our government recognizes that simply pumping more money into the system is not enough. We need to take a hard look at how the current level of equalization and territorial financing allocates moneys to the provinces and territories. That is why the new framework calls for a review to be conducted as to how the legislated equalization and territorial financing levels should be allocated for the provinces and territories in the fiscal year 2006-07 and beyond.
We start with a legislated amount of $10 billion in 2004-05. Then we move that up to $10.9 billion in the next fiscal year, and it is 3.5% thereafter. Hopefully the panel of experts will be able to tell us the best way in which to distribute that money among the provinces.
This review will, among other topics, look to the following priorities.
First, to evaluate the current methods for measuring fiscal disparities among the provinces and territories.
Second, to examine alternate ways to distribute equalization and territorial financing, including the possibility of bringing these allocations on economic indicators, such as GDP or disposable income, or based upon the expenditure needs of the province or territory.
Third, to review how fiscal disparities between various provinces developed over time, and to look at the costs associated with providing services in the territories.
Finally, to advise the government on whether it should set up a permanent independent body to advise the government on the allocation of the equalization and territorial financing payments.
I would like to stress that although the panel's role would be advisory in nature, our government is committed to listening to its recommendations and making decisions based upon that advice in consultation with the provinces and territories.
If this framework is adopted by Parliament, the panel would be asked to report back to the government by the end of 2005, which would be within a timeframe to have an effect on equalization and territorial financing allocations set for the fiscal year 2006-07.
This brings me to the third element if I may of the changes to the equalization and territorial formula financing arrangements providing fiscal protection for the provinces and territories. In order to provide greater stability to provinces and territories in 2004-05, the Government of Canada will ensure that equalization payments total a minimum of $10 billion.
As I said, we set a floor of $10 billion. Next year it is a ceiling of $10.9 billion and each year thereafter it is $10.9 billion multiplied by 3.5%. The territorial financing payments will have a minimum of $1.9 billion in 2004-05 which will go up to $2 billion in the years thereafter.
In addition, each province and territory will be guaranteed that its equalization or territorial financing payments for 2001-02 to 2004-05 will not be lower than was estimated in the February 2004 budget and included in the budget for those years.
With respect to the financial impact on the new framework, over the next 10 years, and subject to a review after the first fiveyears, the new framework for these programs will be $33.4 billion more in equalization and TFF payments to provinces and territories than the amounts in the 2004-05 estimated at the time of budget 2004, $9.5 billion for equalization and $1.8 billion for territorial financing.
That is $33 billion over 10 years on top of what already exists. This is no small change. In fact these proposed changes to the equalization and territorial financing formula framework amount to about $33 billion. This represents the most significant increase ever to these programs.
It is also important to point out that equalization and territorial finance payments are not the only sources of federal assistance for the provinces and territories. We have the Canada health transfer, the Canada social transfer, the equalization payments and then we have a number of other direct programs where the federal government provides assistance to the provinces in the delivery of services to all of our citizens. This money is in addition to that.
Indeed, hon. members will certainly recall that the Prime Minister and all the premiers recently signed the 10 year plan to strengthen health care, which will provide $41.3 billion in new health care funding. Therefore, we have the $33 billion in equalization and the $41 billion in new health care money.
The health plan includes key elements of systemic reform and the best terms ever for reporting and accountability. By meeting and surpassing every financial standard identified in the landmark report, known as the Romanow report, it turns the corner on the annual intergovernmental feud about health funding.
The health accord puts everyone's focus where it should be: on shortening waiting times; getting more health professionals and better equipment; improving primary care, home care and drug coverage; better services in the north and for aboriginal people; more health research and innovation; and improved public health and wellness.
It is important to note that the $41.3 billion health accord, when combined with the $33 billion for equalization and territorial financing, will result in a cumulative amount of 74 billion additional dollars expected over the next 10 years. It is new money transferred from the federal government to the provinces over that period of time.
By any stretch of the imagination this is a huge sum of money and it illustrates our government's commitment to ensuring that Canadians are treated fairly and have access to reasonably comparable levels of service no matter where they live in the country.
Our government recognizes the need to ensure that all provinces and territories can offer the best possible services to their citizens. The equalization and territorial funding formula programs are clear evidence of our commitment in that area.
To sum up, under the bill, $33 billion will be allocated for equalization payments over the next 10 years, $41 billion to the Canada health transfer allocated over the next 10 years. We have a commitment to an expert review panel so that it will know whether there is a better way in which to provide the program.
We have put forward a program where we think we have met a number of the stability and predictability concerns raised by the premiers and finance ministers with respect to them trying to set their budgets. They now know that they have a fixed base and that their base will increase on a regular annual basis.
There is no doubt in my mind that the commitment of the government, in partnership with the provinces and territories, is to continue to work toward improving the standard of living of Canadians from coast to coast to coast.
As I mentioned earlier, the legislation I outlined today reflects the most significant investment ever in the equalization and territorial financing framework. The legislation is vital to ensuring that Canadians, no matter where they live, can count on comparable levels of health care and other essential services.
I encourage hon. members to support the legislation as it was negotiated by the Prime Minister and premiers. I hope all members of the House will find themselves supporting the legislation and the work of the Prime Minister and the premiers.