Mr. Speaker, unfortunately, we will not be able to support this motion of our Conservative friends for certain reasons that I would like to explain today.
As has been said in this House several times, equalization is a pretty complex matter. People often joke that only a few Canadians and Quebeckers actually understand the system. In fact, though, the system is relatively simple, so simple actually that the goal of equalization was even enshrined in the Constitution. The goal of equalization was to ensure that public services could be provided of basically comparable quality and at basically comparable tax levels.
Nonetheless, it could not be as simple as that. Equalization has existed since 1957, but it has been modified several times both in order to reflect new realities, which is entirely to be expected, and occasionally for reasons that were more political than economic in nature. The result, especially over the last ten years, has been an equalization system that has ceased to play its role as the great equalizer. Instead, in several regards, the system has aggravated the disparities between the various provinces and Quebec.
We will not be able to support this motion for several reasons. It does not go far enough. What is needed for equalization is really in-depth reform. Nowadays, unfortunately, the equalization system no longer meets its original goal for various reasons, including the application of what is called the five province standard. This standard, according to which an average is calculated on the basis of only five provinces, results in an artificially low average. Some provinces are excluded from the calculation. Consequently, certain provinces that might have been entitled to equalization find themselves excluded.
As far as the government is concerned, it is a less expensive program. The government can therefore boast at the same time about having enormous surpluses while failing to meet the needs of the public.
The equalization system calculations also do not take all the revenues of the provinces into account. Certain revenues that should be considered in the calculation of equalization are excluded in sometimes arbitrary ways.
In addition, the equalization amounts are highly unpredictable. Even the October 2004 agreement fails to totally correct this situation because it is spread over several years, which is pretty sarcastic in my view.
Once again, the government is not getting at the root of the problem. It tries to find temporary solutions just in order to buy time, have it both ways, instead of getting at the heart of the problem and finding effective solutions.
In the current situation, faced with this very imperfect system, the government had no other choice than to negotiate special agreements with various provinces. As I said earlier, these special agreements have existed since the beginning of the equalization program. However, the recent agreements with Newfoundland and Labrador and with Nova Scotia have crystallized in a way the iniquities in the equalization system and highlighted virtually everything that does not work in the calculation of equalization.
It is important to say that we are not unhappy but actually very happy for the people of Newfoundland and Labrador and of Nova Scotia. Thanks to these special agreements, they will be able to improve their economy, enhance their prosperity, and develop their various industries more effectively while avoiding the fiscal clawback that can result from economic growth based on non-renewable natural resources.
At the same time, we should not forget that these agreements will provide the province of Newfoundland and Labrador with $2.6 billion and the province of Nova Scotia with about $1.1 billion by 2012. The result is an enormous increase in their tax revenue potential, which is not included in the equalization calculation.
This accord makes us happy for the residents of the provinces concerned, but it highlights what is wrong with the equalization system and skews data completely.
The Conservative motion seeks to extend this model to all the provinces and Quebec. I think this would spell the end of equalization. It would completely alter the nature of this system, which, while imperfect, is not beyond reform, at least that is our position.
Also, the second part of the Conservative motion does not go far enough in proposing only transitional measures.
Moreover, this motion penalizes in a roundabout way those provinces which have made a different choice, choosing to develop clean and renewable energy sources—I can think of hydro power in Quebec for instance—instead of basing their economic development on non-renewable and much more polluting energy sources.
The Conservative motion addresses a very real problem. Equalization is showing signs of age and is no longer achieving its mission. Instead of providing an efficient solution to these issues, the motion will increase the iniquities in the system.
That is why I encourage our Conservative friends to continue their consideration of the matter, up to a point, because the transitional measures put forward in the motion are clearly inefficient. The exemption of non-renewable resource revenues from equalization clawback should be extended only in combination with a comprehensive reform to restore fiscal balance to the provinces which have opted for alternatives to non-renewable resource development or those with not as great a potential as others in this area.
Let us not forget that this reform of equalization is part of a larger picture, which is the whole issue of fiscal imbalance. The motion completely overlooks the major impact of such things as federal transfers, the formulas for the calculation of land wealth or potential tax revenues from mining.
In recent months, the fiscal imbalance subcommittee has had the opportunity to visit a number of provinces and provincial capital cities. What was striking in the presentations by the various stakeholders was the realization that equalization is no longer the great equalizer. More amazingly, while there are real problems in every one of the provinces we have visited so far—Nova Scotia, Ontario, Saskatchewan—the problems vary from one province to the next.
Naturally, at first sight, it may seem like a good idea to say that, since each province is experiencing different problems, special agreements must be negotiated. However, I repeat that these special agreements are destroying the equalization program. This is quite unfortunate. Equalization enables each province to provide comparable services, services to which all Canadians and Quebeckers are entitled.
There is a history to this and, once again, we see that the different actions taken by this government have served to further destabilize the equalization program. For example, at the conference last October, the provinces were forced to accept an agreement on equalization. I come back to this once again: the special agreements with Newfoundland and Labrador and Nova Scotia have further destabilized the equalization program.
Ultimately, the Conservatives' motion is proposing an end to equalization. If the agreement on non-renewable natural resources were extended to all the provinces and there were to be no indepth reform, we would say, “Forget equalization and okay to the special agreements for all parties”. The Conservatives believe—as is their right—that this is the solution. We do not agree, obviously.
We believe that the Conservatives are making a mistake because equalization is supposed to ensure equity; it is supposed to ensure that the provinces provide comparable services. As a result, someone living in Quebec, Ontario, Saskatchewan or any other province or territory is guaranteed access to similar services in health and education, regardless of the revenue sources of Quebec, the province or the territory.
One of the effects of equalization is that, all too often, when there is development, there is a clawback.
We were in Regina yesterday, and the Premier of Saskatchewan and the leader of the opposition gave an extraordinary presentation, which exposed clearly the problem with equalization: when a number of economic developments take place, the rate of tax clawback compared to equalization could on occasion be in excess of 100%.
To simplify the figures somewhat, let us take the following example. If, after some economic development, the province earns an additional $1 million in revenue, it could lose $1.1 million or $1.2 million in equalization payments, in other words, more than the revenue generated by the development.
Understandably, in some cases this is not an incentive to economic development. On the other hand, the Premier of Saskatchewan explained very clearly to us that the government had never avoided moving on an economic development because of the clawback implications, and we must congratulate them on that.
So, under this equalization system, which has not worked all that well for some years, and even less well since last October's agreement and the specific agreements with Newfoundland and Labrador and with Nova Scotia, is again being threatened by the Conservative motion. This motion will inevitably increase the iniquities and create new ones as well. It will further complicate a program that needs instead to be simplified. This motion does not address the real problems of equalization, which require a thorough reform.
That thorough reform might address data better reflecting reality and giving an average of the tax potential of the various provinces and of Quebec. For example—and it seems to me that our Liberal friends ought to be able to understand this—when the average has been calculated based on five provinces only, it is not really a Canadian average, but rather an average of five provinces. If the standard were to be changed to ten provinces, the average would then reflect the economic reality and the reality of the tax potential of all of Canada.
To calculate equalization, we would need a better way to calculate property tax capacity. Here again, creative calculations are used to determine property tax capacity. In the calculation of equalization, all provincial revenues should be included. There might have been a time when it was necessary to exclude certain non-renewable resource revenues, but, in my opinion, that time is past. To determine actual capacity, all provincial revenues should be included. In a word, there are a number of solutions available.
With an ounce of goodwill, the government could implement these solutions without challenging the work of the expert panel on equalization established on March 21. This panel will focus mainly on the allocation of equalization payments, not on the functioning of equalization per se; not on the calculation method, but rather on how the amounts will be allocated.
As I said earlier, the equalization issue is part of a broader picture: the fiscal imbalance. Unfortunately, the government does not recognize this reality, and I must say that, as time goes by, I am increasingly getting the feeling that the government is alone in this position.
In Quebec for instance, we have 200 elected members: 125 members of the National Assembly and 75 federal MPs. Out of these 75, only 21 Liberal MPs fail to recognize the fiscal imbalance. During our tour, we heard presentations in Halifax. Many provinces recognize the fiscal imbalance as a problem. In Toronto, the Ontario premier recognizes the fiscal imbalance. I was in Regina, and the Premier of Saskatchewan recognized the fiscal imbalance. I do hope that this government will eventually realize how isolated it has become in its stubborn refusal to recognize these facts.
Changes to equalization are needed to try to resolve part of the fiscal imbalance. What does this mean? For now, it means improvements to equalization. Transfer payments for health and education need to be increased considerably. These are issues that are very important to our constituents.
In addition to addressing equalization and transfer payments, the government must transfer tax fields. One solution, for example, could be to transfer the GST tax field, or some of the personal income tax, or tax points for Quebec, while eliminating some other transfers. The government could consider these solutions, but it refuses to do so.
We currently have a minority government in Parliament. This allows us to help the government in its work. Naturally, I am referring to the Speech from the Throne. Although the resolution on the fiscal pressures—what some call the fiscal imbalance—is very weak, it is a step in the right direction. The creation of the Subcommittee on Fiscal Imbalance of the Standing Committee on Finance is an extraordinary step in seeking solutions to this problem. I am really looking forward to June 2, when the Subcommittee on Fiscal Imbalance tables its report.
In conclusion, the Conservative motion we are considering today will in no way resolve the equalization problem. In fact, it might make matters worse and increase the inequities. Rather than focus on special agreements and transitional measures, we should conduct a thorough reform of the equalization system, which would allow us to determine the real situation for all the provinces and to have a functional equalization system that meets the transfer needs of the provinces and Quebec.