Madam Speaker, I thank the Conservative Party of Canada for providing us with this opportunity to discuss fiscal relations between the federal and provincial governments. This is an important issue.
As members know, with the cooperation of the other two opposition parties, to which we are grateful, we launched the debate on what we call the fiscal imbalance. The federal government did not want to recognize the existence of an imbalance, but it is becoming increasingly part of the parliamentary culture. A special committee was even set up, with the support of the parties, following a motion by the Bloc Québécois, which I had the honour of presenting.
That motion called for the establishment of a special committee on fiscal imbalance. The committee must report by June 2 of next year on this whole situation, whereby the federal government has way too much money in its coffers, in light of its responsibilities, while provincial governments, including the Quebec government, do not have enough tax resources and tax room to fund public needs and priorities. These include health, education, income support for the poor, social housing and others.
We understand the outrage of the people of Newfoundland and Labrador, and of Nova Scotia. We sympathize with them. We also share the frustration of the premier of Newfoundland and Labrador, and we understand it. I think that an increasing number of Canadian provinces understand the frustration felt periodically by Quebec, because the federal government is not fulfilling its commitments. We have experienced that on many occasions with the Liberal Party of Canada, regarding the numerous promises and commitments made by the government, and it has left a sour taste in our mouths.
However, we feel that the motion of the Conservative Party is not the solution to achieve greater harmony in fiscal relations between the federal and provincial governments. It could even create more unfairness and more injustice than the problem that it seeks to correct for Newfoundland and Labrador and for Nova Scotia.
What is the situation? The whole debate is on equalization. In fact, what little was said during the election campaign on this issue dealt with as to whether, despite the oil revenues of Newfoundland and Labrador, the payments received by that province would be reduced under the equalization formula. Newfoundland and Labrador wanted the assurance that even if oil royalties were to increase in the future, this would not impact on the equalization payments that the province is getting.
Of course, a prime minister who is on the ropes, who fears that power is slipping out of his grasp, is ready to promise anything at all. That is what the Prime Minister did during the election campaign. His words were in the newspapers and on television. He promised that the issue of royalties would not affect the equalization payments of Newfoundland and Labrador and Nova Scotia.
He made that promise. He made a series of promises; he was casting them in all directions, and found himself empty-handed at the first ministers conference where he could not keep his word.
The problem, fundamentally, is the issue of equalization. We must understand what equalization is, and what it involves. We must understand what a negative effect a motion like this one by the Conservatives could have on the whole system, if the government were to implement it.
First of all, what is equalization? Equalization is the only program enshrined in the Constitution. It is the only income redistribution program that—since 1982—has been part of the Constitution. What equalization means is simply this: to ensure that, from sea to sea, provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.
This means that the richer provinces contribute, through the federal government, to lessening the disparities that may exist between themselves and the poorer provinces. The essence of equalization is to reduce these disparities and inequalities in order to better serve the population.
There is no other way to look at equalization. But now there is talk of differentiated equalization, in which the royalties obtained by a province would be set aside.
This would mean carrying on business as usual with an equalization formula that does not take into account this source of income, changing the very essence of equalization and creating the type of inequity that a constitutionalized equalization program is designed to correct. I repeat, this program is one of a kind.
How is equalization evaluated? The amount of money that each Canadian province is able to raise from taxpayers in the form of income tax, corporate tax, various other taxes like sales tax and property tax, revenue from natural resources in areas such as mining, hydro power and oil, is determined. Based on this, the fiscal capacity of each province, their respective ability to generate revenue from various categories of activities and taxpayers, is evaluated. Each province is evaluated using the same tax base, that is to say, the same revenue items. On the basis of this evaluation and of a standard corresponding to the average capacity of five out of ten Canadian provinces, it is determined whether or not a given province is entitled to equalization payments.
If a province is very rich and has a potential for revenue equal to the five province average, it will not be entitled to equalization. But a province whose capacity is lower than the five province average capacity to raise revenue from the taxpayers will receive equalization payments of an amount equal basically to the difference between the revenue it can raise per capita and the average of this per capita revenue for the five provinces used for calculation purposes. That is the amount that will be transferred to Quebec, Newfoundland and Labrador and other provinces.
For this plan to work, as I mentioned earlier, the same tax base absolutely must be used for each province. In other words, the same revenues have to be calculated for each province. This brings us to the Conservative Party motion. The Prime Minister made a promise during the election campaign that he did not keep, like so many of his promises—but we will come back to that later. The situation has changed. A source of revenue has just been taken out of the equalization formula that applies specifically to Newfoundland and Labrador. As a result, in calculating the fiscal capacity of Newfoundland and Labrador and comparing it to that of Quebec or Ontario we are no longer comparing the same thing since we do not have the whole picture.
Through an ad hoc agreement, we are creating unfairness right from the start. A mockery has been made of the spirit and the letter of the equalization program. We are no longer talking about equalization at all since differential treatment exists. An injustice has just been created.
What would justify taking away oil revenues from the tax base equalization calculation, which represents the fiscal capacity of each province, but leaving the revenues generated by hydroelectricity, for example? That is what the Conservative Party proposal is getting at. In Quebec, what right would they have to keep in the equalization formula things like income tax, corporate tax and so forth, including the dividends paid by Hydro Quebec to the Government of Quebec, while next door, in Newfoundland and Labrador, they would take away the oil royalties paid to the government of that province?
There is something inequitable here as well as a travesty of the equalization formula, and results in treatment that is unjust compared with that of the other provinces of Canada.
This would seem to be like giving a kind of premium to the oil-producing provinces, or in other words a premium for non-renewable resources, one paid for by the provinces that produce clean energy, renewable energy. Sort of like Hydro-Québec subsidizing oil exploration in Newfoundland and Labrador.
There is something rather illogical about all this debate, which creates a link between the particular needs of Newfoundland and Labrador and an equalization formula, which today's motion totally distorts. Either there is equalization in Canada, or there is no longer equalization in Canada.
This being a program enshrined in the Constitution and one of the principles of fiscal federalism, proposed in 1947, if I remember correctly by the Rowell-Sirois Commission, which addressed fiscal federalism, redistribution of wealth, and equitable treatment, for example for both east and west, I think that it would be worthwhile maintaining it.
However, if we want to look at reforming equalization, there are ways of doing so. There have been discussions on this for close to a dozen years, federal-provincial conferences, meetings between civil servants. No one knows where we are at now, because there are 33 variables in this pesky formula. There are all sorts of ins and outs, ups and downs. As the saying goes, why make something simple when you can make it complicated? One might say the equalization formula has evolved this way over the years. There has been talk of correcting it for 12 years, but no success. There are ways, however.
I would like to point out three problems that exist at present.
At the beginning of my remarks, I explained that an average is taken of the revenues of five provinces. This five-province average is used as a standard to determine whether or not a province should receive equalization payments. The potential tax revenues of Ontario, Quebec, British Columbia, Saskatchewan and Manitoba are taken and added together and then divided by five. It is a simple arithmetical average. Then the potential revenue of each province is compared to this five-province average, and the provinces with revenues less than the average are entitled to equalization payments.
Still, what is the logic behind it? Only five provinces are used in this exercise, but there are 10 provinces in Canada, and the territories, of course, but equalization only counts the provinces. Why take five provinces and not all ten? It would be a much more representative, Canada-wide standard of wealth than taking only five provinces. A number of the recipient provinces have been asking for this modification for a long time. It would give a much more accurate picture of each province's ability to generate tax revenues.
Why too are revenues not measured correctly? As I said, why make it simple, when you can make it complicated? This is a case where the economists at Statistics Canada and the Department of Finance have shown true originality in recent years to do intellectual backflips lending at econometric heights that are so difficult and so technically complex that the ordinary person is quite discouraged.
Why not, for example, evaluate the actual real estate taxes in Quebec and in the other provinces? Well, no; they used what is called in economic analysis a “guesstimate”. I would not want to speak ill of economic analysis; that would be shooting myself in the foot and cheering for the other side, but there are things we do well and things we do not do so well, and this is one we do not do well.
Therefore, they use what is called a “guesstimate”, which is an estimate of the potential real property taxes each province could raise, even though it is easy, by simply looking in a Statistics Canada catalogue, to find the real value of property taxes in Quebec, Ontario, or anywhere.
That correction alone would change the whole thing and would provide an accurate picture.
I will just give one example regarding property taxes. Based on these guesstimates or approximations that are so convoluted and technical that they are beyond most people's comprehension, in Quebec, the per capita real estate wealth is a surprising $71,406. This is the assessment of the per capital real estate wealth, as calculated under the equalization formula. However, the actual wealth figure for 2002 is around $30,621. So, the amount calculated is more than twice the actual figure. Do members see my point?
This has the effect of increasing Quebec's fiscal capacity. Moreover, the difference between Quebec's capacity and the five province average is inaccurate, because revenues are artificially inflated. The fiscal capacity in terms of property taxes is the figure I mentioned, the real capacity. However, under the formula, this capacity is more than double the actual figure.
There is also the unpredictability factor. We have been talking about it for years. It is not normal to be told, “Over the past three years, you received overpayments totalling $800 million. You must repay that money”. In fact, all the provinces would have to give back money. We doubt that Saskatchewan had to repay its $590 million, but we will get back to this later on. We are taking a close look at the issue.
In my view, Quebec is being pushed to pay back its $1.2 billion equalization overpayment. Reimbursement can be made over 10 years. How nice. Nonetheless—this is where we have our doubts—how come Saskatchewan, which owes $590 million to the federal government because of an equalization overpayment, would appear not to have to pay and may have its debt forgiven?
The amounts fluctuate from year to year. One year equalization might be positive: an additional $400 million. The following year it could be a whole different story. Two years ago an overpayment was made because our income tax estimate changed and GDP growth also differed from our estimates. It constantly varies like that. There are ways to correct this.
If all these major discrepancies—and a few others that I will not get into—were corrected, Newfoundland and Labrador alone would receive an additional $168 million in equalization payments for 2004-05. Simply correcting equalization would give it $168 million more. Nova Scotia would get an additional $291 million. I am talking about a lot of money: some $323 more per capita for Newfoundland and Labrador and $311 more per capita for 2004-05 for Nova Scotia.
No injustice or preferential treatment would result. The spirit and the letter of the equalization formula would not be distorted. By correcting the positive aspects of equalization and the imperfections I just described, additional money could be given to Newfoundland and Labrador and Nova Scotia. It is a question of the equalization formula and maintaining the spirit and the letter of equalization.
During the election campaign, we read the agenda of the Conservative Party of Canada. It was very clear. For this reason, we are worried about this going beyond excluding the oil revenues of Nova Scotia and Newfoundland and Labrador.
The Conservative agenda states that non-renewable resource revenues should be excluded from the equalization formula. Would that apply across Canada and would that mean that supporting a motion such as this would basically open the floodgates even further and keep potential hydroelectricity revenues in the formula, as I mentioned earlier? It makes no sense.
We want to change the equalization formula. We are prepared to work with all the parties in this House, but, for the reasons I just mentioned, we cannot support this motion.
