Mr. Speaker, first, I want to thank my Conservative colleagues for this opportunity to discuss the important issue of equalization.
I listened carefully to the speech by the Minister of Finance. I think some of his information is inconsistent, particularly when he said, “We have taken note, in the past, of problems with the equalization formula. We have started to make corrections, to fix the inequities and to consider all the provinces as equal”. I must tell him that if we are questioning, now, the equalization formula and the special agreements with the provinces and if we are debating the pros and cons of such agreements, it is thanks to the Prime Minister and the Minister of Finance, and I do not mean that in a good way.
During the election campaign, when the current Prime Minister thought the rug was being pulled out from under him, when he felt the power slipping through his fingers, he travelled across Canada making lots of absurd promises and commitments.
One such commitment was to Newfoundland and Nova Scotia. During the election campaign, he promised that offshore oil and gas resources would be exempt. He knew quite well—or if he did not know, he is completely missing the boat—that he would create huge distortions in the equalization formula, if he carried through on his commitments, as in the case of the special agreement of $2.6 billion over eight years he concluded with Newfoundland on January 28, and another one for $1.1 billion over the same period with Nova Scotia.
By doing so, the Prime Minister and the Minister of Finance have created an extraordinary precedent. Obviously, amendments to the equalization formula have been made since 1957. Changes have been made for example to the revenue sources, part of the formula which determined how much equalization each province is entitled to. Some revenue sources were added, others were eliminated. At one point, the formula was based on a 10-province standard, and then on a 5-province standard. However, this kind of special agreement is unprecedented. This generosity of this agreement is also unprecedented.
This agreement totally altered the objectives of equalization as set out in subsection 36(2) of the Constitution. I will remind the Minister of Finance of this, if I may, since I have the impression sometimes that he does not fully understand what the program is all about. Subsection 36(2) of the Constitution says that equalization aims “to ensure... reasonably comparable levels of public services at reasonably comparable levels of taxation.”
The preamble to providing “reasonably comparable levels of public services at reasonably comparable levels of taxation” is to treat each province consistently fairly, based on a single formula. That is the principle of equity.
Parallel agreements that exclude offshore oil revenues, one of the 33 revenue sources used in evaluating the fiscal capacity of each province, that is the wealth of the province and its capacity to provide quality services at more or less comparable levels of taxation, skew the calculation.
This is the case for two provinces in particular, so the whole formula is skewed. The objectives of the equalization formula, objectives set out in subsection 36(2) of the Constitution have been skewed, and we are being told this is a first step to improvement. There has been no first step to improvement. It is a total travesty of equalization and its objectives, so much so that even Ontario is now complaining about it.
A week and a half ago, we were in Toronto in connection with the committee on fiscal imbalance, which I have the honour to chair. Ontario finance minister Greg Sorbara told us that, since this agreement, Ontario has been questioning its participation in the federal tax base and Canada wide programs. It is not that Ontario no longer wants to contribute to these programs, but rather it feels that, in a great gesture of generosity, with a specific agreement like this one, the government has undermined one of the basic principles of the equalization program, which speaks of equity.
There is no more equity. The Prime Minister has gotten us into an unprecedented mess. Such a mess that, instead of lessening the inequities between provinces and reducing fiscal imbalance, horizontal as well as vertical, the Prime Minister and the Minister of Finance have heightened disparities.
Let me illustrate the financial magnitude of this agreement with Nova Scotia and Newfoundland and Labrador. Huge amounts are involved. Equalization is paid per person, that is to say, on a per capita basis. If we take the amount that will be provided to Newfoundland and Labrador, for example, namely $2.6 billion over eight years, including $2 billion immediately from the Minister of Finance's surplus for the 2004-05 financial year, and apply it to Quebec on a per capita basis, the payment—listen to this—would be $38 billion over eight years for the Government of Quebec. That is if the generosity of this agreement with Newfoundland and Labrador is taken into account.
It is so generous and it so upsets the delicate financial balance of the equalization formula and its concern for inter-provincial equity that at the present time—it can be seen and we have heard it from Mr. Sorbara and from Messrs. Audet and Séguin in Quebec City—at this very moment, if this agreement is taken into account, the fiscal capacity of Newfoundland and Labrador has surpassed that of Quebec, of course, but Ontario's as well. The term fiscal capacity refers to the ability to generate revenue from property taxes, individual income taxes, the GST, etc., in short, the 33 sources of user fees and taxes taken into account in the equalization formula.
It is hardly surprising that Mr. McGuinty and Mr. Sorbara have come out saying that this no longer makes sense. One cannot have special agreements like this, which upset and completely mess up a system that the government wants to improve. Instead of the system being improved, it has been messed up even more than it was. It can hardly be said that corrective action was taken when everyone revolts and wants to have special agreements like this.
Is the federal government not teetering on the edge of a slippery slope here and at risk of losing its balance because of this special agreement? Instead, a comprehensive approach to and reform of equalization and taxes and comprehensive reforms of them.
In fact, the equalization debate is actually part of a broader discussion about the fiscal imbalance. Everybody can see it in Canada, from Halifax to Regina. As a matter of fact, we were in Regina just yesterday with Premier Calvert. Everyone knows that it makes no sense for the federal government to have individual agreements like this and pit the provinces against each other in this way. Over the next five years, with special agreements as generous as the one for Newfoundland and Labrador and Nova Scotia, the federal government 's surpluses are expected to total $70 billion.
All provincial governments are staggering under the burden of their responsibility to provide quality services. These services are enshrined in the Constitution as part of the equalization program. Everyone wants to provide quality services, but front-line health, education and social services are the responsibility of each province. They are staggering under the load and do not have sufficient financial resources to be able to adequately respond to these fundamental needs, which rank among the highest priorities of Quebeckers and Canadians.
Meanwhile, the federal government is piling surplus on surplus. In the next five years they may well reach $70 billion. The federal government negotiates individual agreements in order to get the provinces bickering, so that it can ride to the rescue and be lord and master of the allocation of funds.
This approach is unacceptable. It cannot continue.
The minister was talking about equity. Allow me to give an example that disproves his statement. When we talk about treating the provinces fairly, the formulas and the weights for each province are based on very clear and very fair rules.
This special agreement has been reached with Newfoundland and Nova Scotia, which has already added more pressure to the fiscal imbalance caused by the election promises of the Prime Minister and the Minister of Finance.
In addition to this special agreement, another was reached with Saskatchewan. This year, it was decided to give that province $582 million. Even though the province was not entitled to equalization payments, the Minister of Finance, a native of Saskatchewan, found a way to manipulate the figures so that it would receive $582 million.
Since we are talking about equity, let us talk about it truthfully. While special agreements are being signed with certain provinces, the Government of Quebec is being asked to return an equalization overpayment it is claimed to have been paid in recent years, in the sum of $2.4 billion.
Side deals were made in order to exclude sources of significant income, as in the offshore oil revenues in Nova Scotia and Newfoundland. A side deal was reached with Saskatchewan that would pay it more than $580 million, even though it is not entitled to equalization, and British Columbia's equalization debt of roughly $132 million—if I am not mistaken—was forgiven. However, Quebec is being asked to reimburse $2.4 billion. This is fair. That is how the provinces are being treated fairly and according to strict and fair criteria invariable from one province to the next.
The Minister of Finance should be ashamed of the gulf between his actions and words, which he passes off as a solution to the equalization problem. This is no solution. Anything the government has done about equalization from the start simply makes an even bigger mess of it. The formula does not convey the fiscal capacity of the provinces very fairly. I will come back to this later.
There is a double standard when it comes to negotiating with Newfoundland, Nova Scotia, Saskatchewan, British Columbia and Quebec. We call that inequitable, unfair and irresponsible. The Prime Minister made a commitment that has put us in an unbelievable vicious circle where everyone is dissatisfied when they do not get a side deal like Newfoundland and Nova Scotia did.
Yesterday in Regina during a session of the Subcommittee on Fiscal Imbalance, which I chaired, I had the opportunity and immense honour of welcoming the Premier of Saskatchewan, Mr. Calvert. I must say, his presentation was extraordinary. He truly presented things as they are, with perhaps one of the best analysis that has been presented to the Subcommittee on Fiscal Imbalance since it began its work. We were very proud to include him among the distinguished guests of the committee.
Mr. Calvert mentioned the unfair treatment Saskatchewan has suffered with regard to equalization payment clawback rates. The Minister of Finance should show some sensitivity. He also said that his province has suffered as a result of the treatment of the mining sector. Under this miserable equalization formula, which should have been overhauled a decade ago, the mining sector is compared to a national average, which does not take into account specific regional and sectoral differences. This means that the Government of Saskatchewan's mineral resource revenues are unreasonably inflated and so its equalization payments are reduced accordingly.
The panel of experts should have asked to seek a solution to this situation. In passing, the panel members are highly respectable individuals, such as Robert Lacroix, an economist and my university thesis advisor.
Mr. Lacroix is a very competent economist with a great deal of experience. Furthermore, he is a nice person and he was my professor. As a result, I cannot criticize my alma mater, the Université de Montréal, and the economics department, as well as the then department head, who was Robert Lacroix, my professor and thesis advisor. All joking aside, I am extremely pleased that Mr. Lacroix is on this committee along with various other people whom I respect, of course.
However, their mandate is not to review the parameters of equalization or, for example, the treatment afforded mining or property taxes. This is not something Quebec alone is demanding; almost all the other provinces are asking that the parameters of the equalization program relating to revenue sources and fiscal capacity be overhauled.
It is, for example, so easy to introduce provincial property values directly into the formula that some technologists somewhere have found a way to make things so complicated, to develop approximations and to tell us that variables had to be taken into account, ones that were totally wrong. As a result, we end up today with an evaluation of Quebec's property tax capacity for 2002 at $71,400 per capita.This figure is arrived at using a convoluted process that makes no sense and gives some people with some rather original ways of thinking the latitude to complicate the formulas. In fact, with the latitude to come up with just about anything. This figure of $71,400 is supposed to be Quebec's per capita property tax capacity.
The real figure for 2002 was in the order of $30,000. With the formula the government used, it is over twice that. What does this variable end up doing? Inflating Quebec's property tax potential and reducing equalization payments accordingly. Over the years, the government has used a number of similar ruses to avoid having to measure true tax potential and to get away with paying less in equalization payments than the recipient provinces ought to have been entitled to.
As for the yardstick, fiscal capacity is evaluated and there are already problems with the assessment, as we have seen with property taxes. The average is calculated on the basis of five provinces. Why five, when there are ten provinces and two territories? Because, at some point, the arbitrary decision was made to use five rather than ten because this meant paying less to the recipient provinces. The federal government did calculations using the 10 province standard and found the figure too high, so it lowered the number to 5. Why? Had they used the real average, that is the average of fiscal capacity for all of Canada, including all the provinces and territories, they would have come up with a far better figure. That too needs to be corrected.
Yesterday, I also spoke to Mr. Calvert about the mining industry. Corrections need to be made there as well. This is not the mandate of the committee of experts, but it should be taken care of. I will give an example. There needs to be the intellectual honesty and the political honesty to explain the real reasons and to say that reforming the equalization formula would correct a good number of interprovincial inequities and allow us to achieve the constitutional objective of equalization, which is to provide public services of comparable quality with comparable levels of taxation. If this were done, Saskatchewan would receive $364 million more a year. This would be the case if the property tax base—the distinction when it comes to the mining industry—were corrected and if we used a 10 province standard rather than a 5 province standard. This should please Mr. Calvert and my colleague from Prince Albert, who, by the way, does more to defend the interests of Saskatchewan than the Minister of Finance does. I commend him on this. Yesterday, at the committee hearings, he correctly indicated he would work to defend the interests of that province.
True corrective measures need to be taken with equalization that take into account interprovincial equity and the true fiscal capacities of the provinces. The government's divide and conquer approach in making side deals with a given province must end, otherwise the other provinces will rise up against it, as we saw with Newfoundland and Labrador and Nova Scotia.
We must reform equalization payments, but we must also settle the fiscal imbalance issue. That is the mandate of our committee and I hope that the Minister of Finance listens to it today. In the end, part of the federal government's expected $70 billion surplus over the next five years must be redistributed to the provinces through the transfer of tax fields and by changes in the equalization formula to provide equitable benefits to all recipient provinces. In that way, even the provinces which do not receive payments, such as Ontario, could recover some of the room to manoeuvre they once had.
For example, Ontario had a deficit of $6 billion this year and $10 billion the year before. The Government of Quebec is also headed towards a deficit this year and next year. It is not reasonable to be accumulating surpluses here and creating problems of this sort for the provinces.
I hope that the Minister of Finance has understood and that the Conservative Party has realized that we cannot support such a motion. On the other hand, we are prepared to work toward more general and more suitable solutions for all provinces.