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House of Commons Hansard #72 of the 38th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was revenues.

Topics

Employment Equity ActRoutine Proceedings

10 a.m.

London North Centre Ontario

Liberal

Joe Fontana LiberalMinister of Labour and Housing

Mr. Speaker, pursuant to the Employment Equity Act, chapter 44, section 20, I have the honour to table, in both official languages, the 2004 annual report of the Employment Equity Act.

Committees of the HouseRoutine Proceedings

10:05 a.m.

Liberal

Tom Wappel Liberal Scarborough Southwest, ON

Mr. Speaker, I have the honour to present, in both official languages, the second report of the Standing Committee on Fisheries and Ocean which is unanimous. It is entitled “Here we go again...or the 2004 Fraser River Salmon Fishery”.

Committees of the HouseRoutine Proceedings

10:05 a.m.

Liberal

Bonnie Brown Liberal Oakville, ON

Mr. Speaker, I have the honour to present, in both official languages, the fifth report of the Standing Committee on Health. Your committee recommends that, notwithstanding the fourth report of the committee presented in the House of Commons on Friday, February 16, the government enact the proposed regulations amending the tobacco reporting regulations with an amendment.

I also have the honour to present, in both official languages, the sixth report of the Standing Committee on Health. We recommend that, notwithstanding the fourth report, the government take under consideration a recommendation with respect to the proposed regulations amending the tobacco reporting regulations.

Pursuant to Standing Order 109, the committee requests that the government table a response to this report.

I also have the honour to present, in both official languages, the seventh report of the Standing Committee on Health. Your committee adopted a motion on Monday, March 21, calling on the government to immediately extend compensation to all those who contracted hepatitis C from tainted blood.

Ways and MeansRoutine Proceedings

10:05 a.m.

Saint Boniface Manitoba

Liberal

Raymond Simard LiberalParliamentary Secretary to the Deputy Leader of the Government in the House of Commons

Mr. Speaker, there have been discussions among the parties and I believe you would find there is unanimous consent for the following motion. I move:

That all questions necessary to dispose of government order, Ways and Means No. 7, be put and disposed of this day immediately after the consideration of the business of supply.

Ways and MeansRoutine Proceedings

10:05 a.m.

The Deputy Speaker

The House has heard the terms of the motion. Is it the pleasure of the House to adopt the motion?

Ways and MeansRoutine Proceedings

10:05 a.m.

Some hon. members

Agreed.

(Motion agreed to)

PetitionsRoutine Proceedings

10:05 a.m.

Bloc

Pierre Paquette Bloc Joliette, QC

Mr. Speaker, I have the honour to present a petition signed by no fewer than 13,000 people, calling on the government to amend the regulations of the Textile Labelling Act and require companies to disclose the name and address of every manufacturing facility where clothing sold in Canada was made.

This initiative carried out by young francophone members of Amnesty International is designed to raise public awareness of the plight of individuals who are the victims of worker exploitation and give people the chance to make a choice in support of human rights.

It is therefore with great honour that I table this petition.

PetitionsRoutine Proceedings

10:05 a.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, I am pleased to present a petition on behalf of a number of Canadians, including from my riding of Mississauga South, on the subject of marriage.

The petitioners would like to draw to the attention of the House that the majority of Canadians believe that fundamental matters of social policy should be decided by elected members of Parliament and not by the unelected judiciary.

They therefore call upon Parliament to use all possible legislative and administrative matters, including the invocation of section 33 of the charter known as the notwithstanding clause, to protect the current definition of marriage being the lawful union of one man and one woman to the exclusion of all others.

Questions on the Order PaperRoutine Proceedings

10:10 a.m.

Beauséjour New Brunswick

Liberal

Dominic LeBlanc LiberalParliamentary Secretary to the Leader of the Government in the House of Commons

Mr. Speaker, I ask that all questions be allowed to stand.

Questions on the Order PaperRoutine Proceedings

10:10 a.m.

The Deputy Speaker

Is that agreed?

Questions on the Order PaperRoutine Proceedings

10:10 a.m.

Some hon. members

Agreed.

SupplyGovernment Orders

10:10 a.m.

Conservative

Tom Lukiwski Conservative Regina—Lumsden—Lake Centre, SK

moved:

That the House call upon the government to immediately extend the expanded benefits of the recent Atlantic Accord to all of the provinces since the existing equalization claw-back on non-renewable resource revenues severely curtails the future prosperity of Canada by punishing the regions where the economy is built on a non-renewable resource base.

SupplyGovernment Orders

10:10 a.m.

The Deputy Speaker

Since today is the final allotted day for the supply period ending March 26, the House will go through the usual procedures to consider and dispose of the supply bills. In view of recent practices, do hon. members agree that the bills be distributed now?

SupplyGovernment Orders

10:10 a.m.

Some hon. members

Agreed.

SupplyGovernment Orders

10:10 a.m.

Conservative

Tom Lukiwski Conservative Regina—Lumsden—Lake Centre, SK

Mr. Speaker, it is truly a pleasure to rise in this assembly today to speak to the motion because equalization is truly a unique Canadian program.

First conceived in 1956 and implemented in 1957, which as we know was coincidental with Newfoundland entering Confederation, this is a program that treats all Canadian provinces equally, in terms of wealth distribution. In fact, the program was designed to allow all provinces to have the ability, in relative terms, to offer the same basic programs and benefits to its citizens at relatively the same tax rate. In other words, the way the program works is to allow the have provinces, or the more wealthy provinces, the ability to assist financially those provinces who are considered to be have not, or poorer, provinces.

This is a very complicated program, and probably in Canada there is no more than a handful of people who actually understand the formula that goes into designing the equalization program. However, suffice it to say there are approximately 33 revenues bases that comprise this program. Out of those 33 revenue bases, 11 of them deal with non-renewable natural resources.

What we are asking today in this motion is that the non-renewable natural resources should be removed from the equalization formula.

Before I go on, Mr. Speaker, I will be splitting my time today with the hon. member for Prince Albert.

There are many reasons why we feel that non-renewable natural resources should be removed from the equalization formula, but I only will deal with two or three of them. I think that will illustrate exactly why the current formula is flawed.

First, right now it is almost a disincentive for many provinces to develop their non-renewable natural resources. The reason for that is quite simple.

Currently, under the formula, provinces are clawed back or taxed back on revenue derived from natural resource development, and I will make most of my comments designed around what is happening in Saskatchewan because I am far more familiar with my home province. We have the perverse situation where for every dollar that Saskatchewan receives from oil and gas revenue in past years, the government has clawed back or taxed back over 100% of the revenue. In other words, if we get $1.00 from an oil and gas sale, the government has taxed Saskatchewan anywhere from $1.03 to $1.08 in previous years. That is just perverse. It should not be allowed to happen.

There is no incentive for provinces to fully develop their non-renewable natural resources if they realize that the more money they make off natural resources, the more money the government will claw back. That program is deeply flawed and should be amended.

We have seen in years past, particularly in the year 2001-02, situations in Saskatchewan where the government has clawed back certain revenues from oil and gas exploration as much as 200%. Other provinces, particularly the Atlantic provinces of Newfoundland and Labrador and Nova Scotia, which cut a separate deal with the government, will only be clawed back up to 70%.

However, in Saskatchewan, particularly, the money that we gain from oil and gas revenues and all non-renewable natural resource revenues should be reinvested back into the province.

In Saskatchewan about 85% to 90% of all our oil and gas reserves are still in the ground. It is very difficult to get oil, particularly heavy oil, out of the ground. Saskatchewan has been an industry leader, with some new innovations such as horizontal drilling. Now we are looking at new and innovative ways to get oil out of the ground by pumping carbon dioxide into the ground, which ends up trapping itself but allowing more oil and gas to come to the surface. That requires an incredible amount of reinvestment in the province to employ these types of technologies and to employ the research and development required. However, how can we do that if the government is taking at least $1.00 to $1.03 for every $1.00 we gain from revenue? This should not be allowed to happen.

Second, I believe there is a very strong economic argument that suggests that oil and gas, non-renewable natural resources, should not be included in the equalization formula. I would like to frame this in the sense of a business model.

If I were a business owner and had a capital asset that I wanted to sell, converted that capital asset in my company into a cash asset, it would not show up on my income statement. It simply would be a balance sheet transaction. The income from my business is from the sale of my primary products. If I owned a shoe store, I would get my income and my profit and loss would be determined by the amount of shoes I sold. However, if I just converted a capital asset into a cash asset, that would not be considered income. It would be a balance sheet transaction.

What the government is doing with oil and gas, which should be considered a capital asset and when sold converted into a cash asset, is treating it as income. That is not the way the equalization program should work.

The economic indices and the tax revenue bases which compromise the economic argument for equalization suggest that revenue bases such as taxation, whether they be corporate, sales or personal, are the types of revenue bases which should determine the fiscal capacity or the net worth of a province. The government should not be allowed to take a capital asset that is converted into a cash asset and say that proves the net worth or the fiscal capacity of a province.

Finally, one of the most overwhelming arguments for why non-renewable natural resources should be removed from the equalization formula is the recent history with the new deal, the Atlantic accord, signed by the government with the provinces of Newfoundland and Labrador and Nova Scotia.

I absolutely believe that the Prime Minister and the Minister of Finance did the right thing. It was a matter of fairness. They recognized that these provinces needed to keep 100% of their oil and gas reserves. They cut a deal, signed an accord and allowed these provinces to keep that money.

While I believe in the inherent fairness of that deal, I also believe, as the name suggests, that the formula for equalization should be equally applied to every province and territory in Canada. In other words, I do not believe the government can make one deal with one or two provinces and not apply the same deal to other provinces across Canada. The formula fundamentally must be the same. We must have the same equity, the same formula applicable to all provinces. We cannot go into a situation where the government says that it will treat one province differently than another. This is equalization and the same equalization formula must be applied to all provinces.

While I believe that Newfoundland and Labrador and Nova Scotia were treated fairly, I urge the government to give the same consideration to Saskatchewan.

I was born and raised in Saskatchewan and I will probably die in Saskatchewan. I love my province. I absolutely know one thing and that is the Minister of Finance loves Saskatchewan as well.

Saskatchewan people are some of the most honest, industrious, hard-working and optimistic people in Canada. We have faced our share of adversity over the years, starting with the dirty thirties and most recently with the drought and the frost situation affecting our farmers. However, one thing the Saskatchewan people have never done is complained unnecessarily. Unlike the comments of some of the members opposite who seem to categorize Saskatchewan people as whiners and complainers, all Saskatchewan people want is to have a fair deal.

That is why I urge all members of the House, when the vote takes place tonight, to recognize that in issues of fairness across the board everyone should vote in support of this motion without equivocation, without compromise and without exception.

SupplyGovernment Orders

10:20 a.m.

Conservative

Brian Fitzpatrick Conservative Prince Albert, SK

Mr. Speaker, yesterday I had the pleasure of participating as a member of the finance committee on fiscal imbalance. The committee met in Regina. I want to commend the Bloc member for Saint-Hyacinthe—Bagot who chaired the committee. He did an excellent job, and it was a very good meeting.

We met with the Premier of Saskatchewan, Mr. Calvert, Brad Wall, the leader of the opposition in Saskatchewan, and with a very fine individual, Ian Peach, who is the chair of a policy think tank in Saskatchewan. Basically the thrust of the meeting was to discuss horizontal fiscal imbalance, namely, equalization. It was a positive meeting. I think every member on the committee who heard Premier Calvert, Mr. Wall and the other individual was convinced when they left the meeting that there was a great injustice in the equalization formula as it pertained to the province of Saskatchewan.

Virtually every elected official in the province of Saskatchewan understands that Saskatchewan is not being treated fairly in this arrangement. There is no western lens with regard to equalization when it is applied to the province of Saskatchewan.

The Minister of Finance has said that Saskatchewan is being treated differently than Newfoundland and Labrador and Nova Scotia because Saskatchewan is a have province. There are numerous experts in the country, the Conference Board of Canada, Professor Courchesne and others, who have said that by just about every commonly used objective measurement of fiscal capacity Saskatchewan is anything but a have province.

In fact, Professor Courchesne says that by emphasizing non-renewable resources, Saskatchewan is in the strange position where, with a declining net per capita income, it loses equalization payments and becomes a poorer province through equalization. That is not the intent of section 36 of the Constitution Act. Other provinces have rising net per capita incomes and are receiving equalization.

I created a simple chart on Manitoba for the last 10 years. Over the last 10 years Manitoba has had a $1,500 higher per capita income than Saskatchewan, but the average difference in equalization payments in that period was $915 million in favour of Manitoba. It underscores exactly what Professor Courchesne is saying. This formula is just plain wrong. The Minister of Finance and members on the opposite side should understand that the equalization formula creates major problems for the province of Saskatchewan.

There are many sound reasons why non-renewable resources should be removed from the formula. Time does not permit me to deal with all of them, but I want to target a few of them. I would recommend that people read Professor Courchesne's paper on this issue. I would also recommend they read the Atlantic Institute for Market Studies. It has done some excellent work in this area. If anyone really wants to find out the injustice in Saskatchewan's case, one only has to read some of those articles.

This is simply bad policy. That is the first reason. It creates a major disincentive to develop a resource. In the past, some of the oil that was been developed in Saskatchewan had been clawed back at 127%. There is no sound economic reason for even trying to drill to find oil if it is going to be clawed back at 127%. It is a disincentive for development. Why develop the resource?

I will use the example of Newfoundland and Labrador as well. It is on the verge of developing a nickel mine in Labrador, the Inco project, which should be a big boost for Newfoundland. Newfoundland could lose as high as 90¢ out of every dollar that it receives from the nickel production in Labrador. One really has to question the merits of developing resources when the equalization formula has a huge disincentive for developing them.

There is a second reason why we should not include non-renewable resources. They are capital assets. One of the academics used the analogy of a baker. A baker makes his income from making bread and selling it, but if he starts selling off his ovens to pay for his operation the baker eventually will be in trouble.

There is even a flaw in that argument. The baker's oven is sold to somebody else who can make bread, but when we sell oil and gas they are converted into energy and are permanently gone. We will never get them back. That is a sound reason for rejecting this inclusion in the formula.

It is double taxation. I asked the premier of Saskatchewan why we would develop these resources if we were going to get clawed back at 100% or higher. He said we would create employment, increase our corporate fiscal capacity in the province and broaden our property tax base, but the point of the matter is that all of those items are already caught under the equalization formula. Every one of those economic benefits is already caught and what we are doing is getting into double taxation, which is wrong. It is a doubling up on these things.

There is another reason why we should not be clawing back non-renewable natural resources at 100%. The reason is very simple. It is out of sync with modern economic theory. Capital is never taxed at these levels. Most capital does not attract any tax whatsoever under tax policy; it is only capital gains that does. The Minister of Finance should fully understand that. Also, it is only at half the rate.

The understanding of economic theory is that capital has to be treated a lot differently from income as it is at the foundation of an economy. Under this formula we are talking about a 100% clawback on capital. It is just plain wrong.

What we want in Saskatchewan, and what I think is wanted in every province, is for provinces to be able to develop their economies around their resources and to in the long term become true have provinces. All we are asking for in Saskatchewan is the same privilege that Alberta had back in the 1950s and 1960s when it could develop its non-renewable resource base and become in all respects a true have province. I think this current formula creates a major barrier for Saskatchewan to overcome.

If we are going to have an equalization program in the country, why not have an equalization program that has strong incentives for provinces to become true have provinces? It seems like this formula is bent and determined to keep certain provinces as have not provinces in perpetuity.

There are a lot of reasons why we would want to remove non-renewable resources from this formula for the province of Saskatchewan. I want to raise one further one. All these things are cyclical in nature. I remember when oil was $11 a barrel. I remember when potash was in the tank and other items were in the tank. This is just about the only engine we have in Saskatchewan right now. The prices are high right now, but two years from now we could be back in the tank on this whole deal.

Why a government would want to have 11 out of 33 of the tax bases focused on non-renewable resources defies imagination, because that creates a volatile equalization formula and it is extremely harsh for the province of Saskatchewan.

I want to conclude by proposing an amendment to our motion. I move:

That the motion be amended by adding the following:

and that it include a transition adjustment to equalization in order to provide compensation to provinces that would not benefit from the extension of the expansion of benefits.

SupplyGovernment Orders

10:30 a.m.

The Deputy Speaker

We will look at the amendment to see if it is in order and get back to the House in short order.

SupplyGovernment Orders

10:30 a.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, this is a very important debate. It touches not only on equalization but on the whole question of the gap in the horizontal and vertical fiscal arrangements.

On October 26 the Prime Minister and the premiers reached a new framework agreement on equalization so that over the next 10 years everything was basically set in motion with the agreement of all of the stakeholders.

Subsequently, with regard to Newfoundland and Labrador and Nova Scotia, the question about the offshore oil revenues came up. As a consequence, there was in February a change made to the treatment of the offshore oil revenues, taking into account that only a factor of 70¢ on the dollar was being taken into account with regard to their fiscal capacity. The bottom line is that there was a situation in Newfoundland and Labrador and Nova Scotia that was an inequity, which was identified and has been dealt with.

It appears that the question of Saskatchewan is an argument on a similar basis, but I am not quite sure. I would ask the member to explain how the Saskatchewan situation emulates the situation that existed in Newfoundland and Labrador and Nova Scotia.

SupplyGovernment Orders

10:30 a.m.

Conservative

Brian Fitzpatrick Conservative Prince Albert, SK

Mr. Speaker, I do not think there is a whole lot of difference. We are talking about clawback on oil and gas. The Newfoundland and Labrador situation is offshore, which is somewhat different. In Saskatchewan we have the asset underground, obviously, not offshore.

Other than that distinction, the net effect of the recent accord was to totally remove the revenues from the offshore oil from the formula. All we in Saskatchewan are saying is that we have oil too and it is very costly to extract. It is not light west Texas crude. It is heavy oil. It is very expensive oil and it takes a lot of money to extract it.

I would also make the point that in the middle of an election campaign when a Prime Minister is in a region of the country like Newfoundland and Labrador and makes a commitment to change the equalization formula because he says it is unfair to be clawing back these non-renewable resources, he is not just making a promise to Newfoundland and Labrador and Nova Scotia. He is making a commitment to every single Canadian across this country. He made a promise at that time. If he will not live up to the spirit of that promise with a national program like equalization, I would say that it is a promise broken.

SupplyGovernment Orders

10:30 a.m.

Conservative

Tom Lukiwski Conservative Regina—Lumsden—Lake Centre, SK

Mr. Speaker, I would ask my colleague to further explain a comment he made during his presentation about the differences between Saskatchewan and its fiscal capacity and some of the other provinces. It appears to me that in Saskatchewan the net per capita fiscal capacity is about the third lowest in Canada. Newfoundland and Labrador, I understand, is the lowest, but Saskatchewan is the third lowest.

Provinces like Manitoba and Quebec, and others of course, have a higher net per capita fiscal capacity, yet my understanding is that in the upcoming year Manitoba will be receiving approximately $1.6 billion in equalization payments, Quebec will be receiving $4.8 billion in equalization payments and Saskatchewan will be receiving only $82 million. I see some inequities there. I wonder if the member could expand upon that.

SupplyGovernment Orders

10:35 a.m.

Conservative

Brian Fitzpatrick Conservative Prince Albert, SK

That is a very good question, Mr. Speaker. This has intrigued me. It is why I went back over the last 10 years and compared us just with Manitoba. I could have used other provinces, but to me Manitoba seems to be a good comparison. Both provinces have a million people. They are side by side. There are some similarities between the two provinces.

It just shows me how flawed the formula is when we look at per capita income and per capita GDP. In most of these things in most years, Manitoba outperformed Saskatchewan but Saskatchewan is far short of Manitoba on receipts. It just reinforces Courchesne.

I also looked at Robert Mansell's study of fiscal federalism. He did extensive work from the period of 1961 up to mid-1995. I ran the numbers. The difference between Manitoba and Saskatchewan in that period was something like $600 million a year. Saskatchewan was at 85% of the Canadian average for per capita income and Manitoba was at 92%. I am not maligning Manitoba, but it underscores the deficiencies in fiscal federalism in this country and how Saskatchewan quite literally is getting shafted under this formula.

SupplyGovernment Orders

10:35 a.m.

Wascana Saskatchewan

Liberal

Ralph Goodale LiberalMinister of Finance

Mr. Speaker, given a topic as complex and contentious as federal transfer payments and interprovincial equity, it is only to be expected that there would be points of both agreement and disagreement in connection with the opposition motion that is before the House today.

For example, the motion calls for “expanded benefits” to flow from the Government of Canada to all the provinces. In fact, we are already doing that under the equalization program and under virtually every other federal transfer payment program. Federal transfers are now at an all time record high and they are rising year after year.

Let us look at some of the actual numbers. Equalization payments this coming year will total $10.9 billion, matching the highest level ever. The pool of federal equalization dollars available to help the less wealthy provinces will continue to go up at the annual rate of 3.5%. Over 10 years, the cumulative provincial gains will total more than $33 billion.

The Canada health transfer this coming year will total $19 billion in cash. Again, that is the highest level ever. It too will keep increasing by 6% per annum over 10 years. The cumulative provincial gains in cash for health care will total more than $41 billion. To that total we have to add also health related tax transfers from the federal government to the provinces, which today are worth about $11.5 billion per year. They too are rising.

Then there is the Canada social transfer. This coming year it will total $8.4 billion in cash, plus another $7 billion in tax transfers, and again it is on the rise.

In addition, there are several other existing federal transfers to help provinces with immigration, public infrastructure, ongoing social housing services, new affordable housing projects and much more.

Plus, we are currently adding two new federal transfers for child care and for municipalities, which will bring a further $5 billion each in new federal support for or through provinces and territories over the next five years.

Therefore, on the issue of bigger federal benefits obviously we are already moving in that very direction and the dollar values involved are very large.

In structuring all of this, the Government of Canada is constantly striving for fairness, but in a country as big and diverse and complicated as Canada, fairness is not a simple matter of one size fits all. The various provinces and territories unfortunately do not share the same geography, the same history, the same population bases, the same physical resources, both renewable and non-renewable, or the same level of economic development or future potential. A cookie cutter approach from province to province or from region to region has never worked in Canada and it likely never will.

With respect to the arrangements concluded earlier this year with Newfoundland and Labrador and with Nova Scotia under their pre-existing Atlantic accords, which are separate and apart from equalization, the straight extension of these arrangements to every other province, as appealing as that might sound, would not in fact increase benefits to all, nor would this apparently easy approach necessarily improve equity among provinces.

For example, the Atlantic arrangements are applicable only if a recipient province is already eligible to receive equalization payments. In other words, their internal provincial revenue-raising capacity must fall short of the national equalization standard, which last year was about $6,200 per capita. This means by definition that four provinces, British Columbia, Saskatchewan, Ontario and Alberta, would be missed by the opposition's specific proposal.

Second, for the Atlantic arrangements to continue for the longer term, a recipient province would have to carry a provincial debt burden that is among the four worst in the country. By definition that would leave out the other six.

To illustrate where things stand at the moment on debt loads, the debt to GDP ratio in Nova Scotia is close to 43%. In Newfoundland and Labrador it is a whopping 63%. These are the two most heavily indebted provinces in the nation.

The average for all the provinces is some 25% and that is about where a province like Saskatchewan stands, better actually than the debt ratio of the Government of Canada, which is about 38%.

In this search for fairness and equitable treatment, which we are all in the House concerned about, it is not as simple or as easy as just extending the Atlantic arrangements. On the issue of equalization clawbacks, as mentioned in today's motion, it must be noted that such a mechanism applies in the present formula to all so-called overpayments under the equalization system, not just to those that result from non-renewable natural resources. It would therefore be difficult for a majority of the provinces, as things stand now, to accept a clawback exemption or exception for only non-renewable sources of revenue.

Indeed, Premier Hamm of Nova Scotia, Premier Binns of Prince Edward Island, Premier Lord of New Brunswick, Premier Charest of Quebec, Premier McGuinty of Ontario and Premier Doer of Manitoba, to be precise, three Conservatives, two Liberals and a New Democrat, are all on the public record clearly opposing this approach that is embedded in the opposition's motion today.

I make this point not to be critical of the benefits, which the opposition wishes to see extended, but to underscore the complex challenge of accomplishing that objective in a way that is perceived by all to be fair to all. Change in this very difficult area must be accomplished in a careful and thoughtful way.

That is why, before we began to tackle the various issues related to the equalization program through back to back first ministers' meetings last fall, we gave the provinces some guarantees about what would happen during a two year transition period. The equalization receiving provinces had at that time just experienced a sudden drop in their benefits in one particular year. It caught everybody by surprise. They complained that the program was too complicated, too unpredictable and not adequate to meet their needs. They said that they could not conclude a reasonable deal on health care unless they knew where they stood on equalization.

To accommodate all of that, we put a floor under the program to overcome that previous shortfall, bringing the benefits of equalization to $10 billion this year, then up to $10.9 billion next year and then indexed annually thereafter, as I mentioned earlier. We also eliminated the clawback effect for this year and for next year. We are distributing the available dollars according to an interim formula, pre-negotiated and agreed in advance with all of the premiers. That is for 2004-05 and 2005-06.

For the future we have commissioned a team of acknowledged, independent and impartial experts to consult with all the provinces and with others and to report back by the end of 2005 on the best possible allocation of equalization entitlements, ways to make these payments more stable and more predictable, the most appropriate methods of measuring disparities among the provinces, and the proper way to treat various provincial revenue sources, such as natural resources, property taxes and user fees, all of which have been the subject of interprovincial disagreements from time to time.

That gives a flavour of the difficulty and the complexity of dealing with this issue. At any given moment in time the equalization program has 1,320 moving parts, spread over four fiscal years, so one can imagine the difficulty in trying to achieve genuine fairness and equity out of that very complex picture.

The five distinguished Canadians who will be serving on the expert panel on equalization are: Mr. Al O'Brien, a retired deputy provincial treasurer from Alberta with a 35 year career in the provincial public service; Elizabeth Parr Johnston, a private consultant who formerly headed up both Mount St. Vincent University in Nova Scotia and the University of New Brunswick; Dr. Robert Lacroix, the much respected rector of the Université de Montréal; Fred Gorbet, a public policy adviser with 24 years of experience in the federal public service; and Michael Percy, the dean of the School of Business at the University of Alberta. Their nominations to serve on this important panel have been very well received. I sincerely thank each and every one of them for taking on a difficult but crucial assignment to make the equalization system better.

While we await the panel's advice on how to make equalization as effective and timely as possible, there are many other fronts upon which we can make and are making progress. The success and well-being of Canadians is not solely a function of intergovernmental fiscal transfers. They are important, obviously, but there are many other important ways in which the Government of Canada contributes to the provincial and regional strength and prosperity of this country.

For example, in the 2005 federal budget the Government of Canada is investing more than $1 billion over five years in Canada's regional development agencies. We are putting another $1 billion toward maintaining the momentum of our innovation strategy ensuring that all Canadians, east, west, north and centre, are fully a part of the knowledge based, technology driven and highly skilled world of the 21st century.

In British Columbia, among other things, the innovation agenda includes world leading particle physics research through the TRIUMF project.

In Atlantic Canada, it is a host of new initiatives under the Atlantic innovation fund and the NRC's Atlantic technology clusters.

In Quebec, among other things, it includes major new work in the field of genomics research and through the Canadian Space Agency located in Montreal.

In Saskatchewan, it is the Canadian light source Syncrotron, the new InterVac Vaccine Centre and the Petroleum Technology Research Centre which houses probably the world's most useful science on mitigating the effects of climate change.

In Ontario, it is more federal funding to the automotive sector and through all of our science granting councils and more help to universities to defray their indirect costs of advanced research in Toronto, Guelph, Kitchener-Waterloo, at Western and the list goes on.

We are also investing in vital public infrastructure in cities and communities, both large and small, in every corner of Canada. This includes $3 billion in the direct infrastructure initiatives for municipal and rural projects, for strategic projects and for border projects that are already up and running; plus $300 million more in the budget for the green municipal funds administered by the Federation of Canadian Municipalities; plus $7 billion more over 10 years through the full GST rebate to all municipalities; plus $5 billion more ramping up over the coming five years through the sharing of the federal excise tax on gasoline, and then an ongoing $2 billion per year thereafter for cities and communities from the Government of Canada.

I mention all these examples to underscore the point that federal investments in fairness and in equity and federal support for regional growth and strength is not limited to transfer payments. It goes far beyond that, billions and billions of dollars beyond equalization and other transfers to the benefit of Canadians everywhere.

Since the mover of the motion today and I both come from Saskatchewan let me close my remarks today with a couple of points specifically about my own home province.

Since 1957, since equalization first began, Saskatchewan has had to rely on these payments to keep its head above water. However recently that is beginning to change partly because of the adjustments that we made to the equalization program last year which brought an extra $710 million into Saskatchewan from the Government of Canada, and that is the biggest equalization bonus to Saskatchewan ever in history.

However the truly good news is that Saskatchewan does appear to be graduating from its historic reliance on equalization for a big chunk of the provincial government's annual budget. Not including equalization, Saskatchewan is now collecting its biggest provincial tax revenues in history and has joined the ranks of the three or four most fiscally secure provinces. Commodity price forecasters are projecting strong ongoing markets for oil and gas supplies worldwide and that augers well for Saskatchewan's fiscal future.

If this province needs to fall back upon equalization once again, the program will be there to help, hopefully an improved program as a result of the work of the panel.

Rather than struggling with the perpetual uncertainty and the minimized ambitions that such reliance upon equalization implies, Saskatchewan, happily, is increasingly in the position to break free from its historic limitations and to move boldly ahead. As the reform of equalization continues to unfold, I want to ensure that Saskatchewan is in all respects treated fairly just as I want every province in this country to be treated fairly.

The expert panel, for instance, will be asked specifically for its advice about how to deal with natural resources in the equalization formula. The cases to be made by Saskatchewan about how to adjust the formula for the future will be afforded a full and fair hearing.

At the same time, as we all strive to make equalization as robust and as fair as possible for Saskatchewan and for every other province, let us keep our eyes equally upon economic growth, investment, new business development, new jobs, the things that could propel Saskatchewan beyond the status quo of the last 50 years to a new kind of future, not boxed in by history or geography, distance or climate, politics or defeatism.

The Government of Canada must invest in Saskatchewan and in other parts of the country in more than just equalization. For example, it must invest in a bold plan about water development for the future, in energy development, in new innovations, science and technology, in value added in the livestock sector, and in social and economic infusion, particularly to attract new Canadians to Saskatchewan and to better engage our aboriginal population.

I am an optimist about Saskatchewan. This is the centennial year of the province, 1905-2005. While paying proud tribute to our past, we need to be equally focused on our future and we need to build that future. Would it not be great for the historians 50 years from now to analyze this time, to look back on these early years of the 21st century and say, “That's when Saskatchewan regained its momentum. That's when it gained its traction, its self-confidence. That's when Saskatchewan moved beyond old dependencies and limitations. It focused on growth. It believed in itself. It seized its future and it never looked back”.

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10:55 a.m.

Conservative

Brian Fitzpatrick Conservative Prince Albert, SK

Mr. Speaker, I had a discussion with Premier Hamm of Nova Scotia a few days ago. He said that he sure was glad that he does not live next to Alberta. A huge problem for Saskatchewan is that even if it could find a way to reduce some of its taxes which are not competitive with Alberta's, the equalization plan would be right there to club it over the head for doing it.

The payback was a one time thing. I agree with that. It was a good thing, but I remind the Minister of Finance that the federal government had clawed back things such as the sale of crown leases at the rate of 240%. This was an adjustment for some of the gross inequities that I think any fair-minded Canadian would realize is just wrong. It is a one shot deal. It is not like the Atlantic accord, which is a more permanent solution to the whole problem.

Quite often in question period the Minister of Finance refers to the Grant Devine regime. I want to put something in perspective. I remember 1981 and 1982. Marc Lalonde was the minister of energy. He forecast $100 a barrel for oil in this country. He painted a rosy picture. It was $40 a barrel then, which would be about $80 a barrel now. The prospects were never ending; Saskatchewan was going to be a rich province forever and a day. It was only a matter of time before those things collapsed. Grain prices collapsed and interest rates were 19%.

I am not trying to defend the Devine government. The member opposite knows that I was never an enthusiastic supporter of the direction of the Devine regime, but I am pointing out that there are a whole lot of things that happened in Saskatchewan in the 1980s.

Anybody governing that province would have had a very daunting task. I think the Minister of Finance was a member of the provincial legislature at that time and was well aware of a lot of the problems. Most people would say that the national energy program itself extracted close to $2 billion out of the Saskatchewan economy in those times as well, which was not a good thing.

I wanted to put some fairness into this. Surely the Minister of Finance is not saying that equalization should punish provinces because they do not agree with a government they may have had in the past. Should we punish Quebec because we did not like the Duplessis government back in the 1950s or 1960s? I do not understand the argument.

The equalization formula should measure a province's current fiscal capacity and try to meet the intent of the Constitution. Making reference to some government in the 1980s and saying to a province that it is not entitled to equalization because one did not agree with its politics back then is a poor argument and quite honestly, an unfair one.

I do not want to start pointing fingers at other provinces saying that I did not like the NDP government in B.C. at a different time or a government in another province. I do not see how that serves this debate. I wanted to bring that to the attention of the Minister of Finance because I think his argument is flawed.

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10:55 a.m.

Liberal

Ralph Goodale Liberal Wascana, SK

Mr. Speaker, in previous debates I have made the references to which the hon. gentleman refers simply as a matter of putting the current situation into some context. While the debt load in Saskatchewan is relatively low compared to most other provinces, at about 25% or thereabouts of provincial GDP, the fact of the matter is that the debt load today would be a much lighter burden if the course of events in the 1980s had gone in a different direction. That is just historical context.

That is not to say that Saskatchewan should not be entitled to all the benefits of federal legislation and federal programs like equalization and all the others. It is simply to put the matter in context. There is no argument being made here about punishing the province for the previous failures of a previous administration. It is simply to explain why some of that burden exists now 15 or 20 years later.

On the matter of the payments that were made to Saskatchewan last year, I am very pleased that those payments were made. I think Professor Courchene, who was referred to earlier, performed a valuable public service by doing the kind of analysis that he did in pointing out in particular the problem with crown leases and for last year a payment of $120 million was made in order to correct the deficiencies in those old calculations about crown leases.

I would also add that we made the commitment to Saskatchewan to keep that analysis of previous errors in calculation methodologies going and to bring it up to date constantly. In fact this year we will be making another payment to Saskatchewan in respect of that same problem, in the order of about $6.5 million more, intended to get rid of those old issues and to make sure that the excessive clawbacks to which the hon. gentleman referred are fully corrected.

On top of those corrections, we have added $590 million more because of the floor we have put under the system for this year. I hope that the good work of the panel will give us valuable advice about how to adjust this system for the future so old problems do not occur and that all provinces, including Saskatchewan, will be treated fairly based upon the panel's advice.

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11 a.m.

Conservative

Tom Lukiwski Conservative Regina—Lumsden—Lake Centre, SK

Mr. Speaker, the Minister of Finance talked about the Saskatchewan net to GDP ratio of approximately 25%. My information has it at about 34%. I wonder if the minister could confirm that.

He talked about the payments last year to Saskatchewan of $710 million, but he failed to recognize that there was also an equalization adjustment of $223 million, in effect clawing that money back. Therefore, the net to Saskatchewan was not $710 million.

I stated several reasons why I believe that non-renewable natural resources should be removed from the formula. There are many more which I will not get into now because of time, but one of the indices which I think is a true indicator of the net fiscal capacity or the net worth of a province is what I mentioned earlier, and that is the net per capita fiscal capacity. It shows that in 2003 Saskatchewan was the third worst in Canada with under $20,000.

Provinces such as Manitoba and Quebec had a higher net per capita fiscal capacity, yet they were receiving an enormous amount of money more than Saskatchewan. Projected for 2005-06, Manitoba which has a higher net per capita fiscal capacity than Saskatchewan is going to receive $1.6 billion. Quebec will receive $4.8 billion. Saskatchewan will receive only $82 million. I wonder how the minister can justify this as being fair to Saskatchewan.