Mr. Speaker, I am pleased to share with you the Bloc Quebecois's opinion on Bill C-3, to renew the Canadian equalization program.
First of all, we cannot properly appreciate this bill and its impact and propose amendments to it and deletions from it without considering equalization among the other kinds of transfers made by the Government of Canada to the provinces. Besides equalization, these federal transfers are established programs financing, which is the federal contribution to provincial health and post-secondary education programs, and shared cost programs, of which the Canada Assistance Plan is the most important.
Nor is it desirable to analyze this bill without looking at the reason behind equalization, which was entrenched in the 1982 Constitution, a Constitution that Quebec has not approved, by the way. By reviewing these two aspects of federal transfers, we will be able to demonstrate clearly that from the time ceilings were imposed in 1982, this equalization program no longer meets the objectives for which it was established. An examination of the other transfers will complete our analysis and show the need for a complete review of federal transfers. It will show the bankruptcy of fiscal federalism as designed on the basis of the Rowell-Sirois report of 1941, which I had an opportunity to analyze in my youth at university.
The spirit of the Rowell-Sirois report is mocked by the doings of this government and the previous one. For example, transfers help provinces which need them least. Is it any surprise that the gap between rich and poor provinces has been growing in the last ten years or so?
Indeed a close examination of the way federal transfers work reveals that since the mid-eighties transfers have increased more rapidly in the well-to-do provinces, namely Ontario, Alberta and British Columbia, than in the poor provinces, which should logically be the ones benefitting from such transfers. For example, between 1984 and 1991, total federal transfers have, on average, increased by 6.9 per cent per year for Ontario, and by 3.1 per cent only for Quebec. And Quebec is considered a not so well-to-do province.
Why do we have this situation, which I find absurd? Simply because of the very nature of federal programs, because of the federal withdrawal and, more specifically, because of the failure of Canadian fiscal federalism.
Let us take a closer look at the situation; let us examine each program, one at a time, starting with equalization. As the hon. member opposite said, the purpose of federal equalization is to reduce disparities between provincial governments regarding their ability to collect taxes and to impose taxes on their
territory, so that they can provide uniform services among them, such as regular public services. This capacity is measured by using various provincial and municipal taxes. And, as the document prepared by the federal Department of Finance says, equalization payments are calculated by using a formula established in the federal legislation. First, revenues which each province could draw from a typical, and therefore theoretical, tax base are calculated. Then, the overall ability of each province, on a per capita basis, to draw revenues from these sources is compared to a "representative standard", which is based on the fiscal capacity of the five provinces-this standard is currently estimated at $4,800 per capita, or roughly $5,000. If the total per capita capacity of a province is below that standard, federal equalization payments are used to bring revenues to that standard, so as to standardize the ability to provide public services.
In theory, based on this calculation, the average fiscal capacity of the seven poorest provinces should be more similar after making equalization payments to enable those provinces to provide comparable public services. In fact however, this is not the case at all.
Since 1988-89, because of the ceilings set, payments made to provinces do not enable them to reach that representative standard. According to the terms of these ceiling provisions, equalization entitlements of all the beneficiary provinces can no longer increase more rapidly than the economy, as measured by the gross national product. The ceiling for equalization was used twice in recent years: once in 1988-89, and again in 1990-91, in the middle of a recession that hit hard the economy of Canadian provinces, and especially that of Quebec.
During those two periods, this ceiling translated into a loss of revenue of more than $2.9 billion for the beneficiary provinces. I might add that Quebec, because of its distinctive features, especially from a demographic point of view, absorbed more than 60 per cent of that loss, including $1.8 billion for 1992-93 alone.
Mr. Speaker, you will remember, as will the members who are here, that this situation is what triggered the famous retroactive tax of the previous Minister of Finance in Quebec, the late Gérard D. Lévesque. So, by extending this ceiling on equalization, the federal government is once again putting Canadian provinces in a difficult position.
Moreover, this ceiling reduced the transfers that provinces should have received to maintain their fiscal capacity standard, so much so in fact that this capacity currently varies by as much as 12 per cent between have and have-not provinces. That finding is not mine, nor that of my colleagues from the Bloc Quebecois. This statement was made by a great federalist from Quebec, the present Minister of Finance of that province,Mr. Bourbeau, who, when it was announced that the equalization agreement was being extended, made some veiled criticisms, since a great federalist does not lash out at one of his colleagues, but he nevertheless criticized the government for extending the application of this ceiling.
This ceiling deals a blow to fiscal federalism as well as the Rowell-Sirois principles. Equalization has not been reaching the federative goal set originally, especially since the end of the Second World War.
Let us now examine established programs financing, another main element of the federal transfer program. Established programs financing represent the federal health and post-secondary education contributions to the provinces. Yet, the federal withdrawal from this area has been quite obvious. Since 1982, the federal government has been gradually opting out of established programs financing. For example, in 1990-91, basic contribution per capita was frozen to the 1989-90 level for fiscal years 1990-91 to 1994-95.
This freeze and the equal per capita cuts arising from this overall reduction program hit the have-not provinces more harshly. Again, not only is equalization not aiming for the goals originally set when the system was created, but even the other transfer programs are not as fair to the have-not provinces as they are to the have provinces.
In fact, since the average income of taxpayers is lower in the have-not provinces than in the rich provinces, the poorer provinces are less able to levy taxes even after equalization, with a current difference of 12 per cent, as we saw earlier.
Thus the have-not provinces must raise their tax rate more than the others to be able to maintain the health care and post-secondary education they offer their own people through the established programs financing.
The situation gets even worse when the equalization ceiling is reached as is the case since 1988-89, that is, when needs exceed the nominal GNP growth. Indeed, the additional revenues levied by the provinces do not bring additional equalization and the poorer provinces must make a greater effort than the others to levy even one dollar more per capita. In Quebec, for example, the loss in revenues resulting from all the changes made to the established programs financing since 1982 amounts to $1.8 billion for fiscal year 1993-94.
Since established programs financing provides for equal per capita transfers, another kind of unfairness has developed over the years in that 59 per cent of the funds are handed to the three richest provinces in Canada. As we have seen earlier, all of the transfer programs were originally meant to help the have-not provinces.
As for the shared cost programs, their operation raises the same kind of problems. The majority of existing programs do not do enough to reduce economic disparities in Canada since they favour the provinces that have a greater fiscal capacity and can afford a higher level of services. Again, the richer provinces are favoured by cost-shared programs.
Second type of problem, the fact that the federal government uses its spending power in various areas-and Quebec is well aware of this situation-leads to overlap, duplication and conflicting priorities which, in turn, unquestionably lead to a waste of public funds.
Third type of problem, here again, as was the case with the two previous programs, we are witnessing the progressive withdrawal of the federal government from several areas in which it had encouraged the provinces to make commitments. The circumstances are always the same. Because of its spending power, the federal government gets involved in areas that should be under provincial jurisdiction. Then, it decides that it does not want to be involved any more or that it cannot afford to be involved any more. Since its involvement has created a need over the years, its withdrawal forces the provinces to honour the commitment previously shared with the federal government.
Among cost shared programs, the Canada Assistance Plan is the most important of all federal transfer programs. If my memory serves me correctly, transfers under this program totalled $7.8 billion this year.
The Canada Assistance Plan, commonly known as CAP or the federal contribution to social assistance, is a good illustration of the problems associated with shared costs programs: first, the lack of explicit consideration of the gaps in needs and financial resources between provinces; second, the obligation for provinces to spend in accordance with the rules set under the plan, known otherwise as national standards that we traditionally have disliked in Quebec; third, inefficient management; and fourth, high administrative costs. Here again we have an absurd situation as far as shared cost programs are concerned, a situation that makes one question the value and strength of Canadian fiscal federalism.
Between 1984-1985 and 1989-1990, for example, federal transfer payments under the Canada Assistance Plan have grown at an annual rate of 11 per cent in the more advantaged provinces. Over the same period the less advantaged provinces showed an annual growth rate of 4.3 per cent only. As for Quebec, the growth rate was even less than the general average for the less advantaged provinces, amounting to 3.3 per cent over the same period.
In the budget speech for 1990-1991, the federal government announced that it was also setting a 5 per cent cap on the growth of its transfer payments under the Canada Assistance Plan. This capping contributed to reducing the share received by the more advantaged provinces-thank goodness for that ceiling-which decreased from 55.1 per cent in 1989-1990 to 50.2 per cent in 1992-1993. But we are talking about a lot of money. A shared cost program such as the Canada Assistance Plan provides more than half the funds to provinces that need them the least, that is the richest provinces in Canada. That is why the federal transfer payment system is flawed.
The shared cost programs include many other programs besides the Canada Assistance Plan. In 1992-93, there were more than 60 federal-provincial agreements under which Quebec, as well as all the other Canadian provinces, were getting transfer payments. Since the early 1980s, the federal government has opted out from many of these programs, as it did with previous programs, so that provincial governments, including Quebec, are now in a very difficult position which is also forcing them to raise taxes, while the federal government washes its hands of the matter.
What are we doing with Bill C-3? What we are doing is carrying on with all the problems that I mentioned to you, the almost absurd problems in transfers to rich provinces as opposed to poor provinces. So we carry on with this nonsense by attacking only one type of these transfers which is called equalization. The government sticks to the same absurd position by keeping the ceiling previously established, a position which misrepresents the role that equalization payments should play.
The Bloc Quebecois is opposed to Bill C-3, because it simply renews the ceiling on equalization payments. This Bill is contrary to the goal of equalization payments which is to reduce the differences in the ability to raise taxes between the better-off provinces and the less well-off provinces .
If the government is unwilling to remove the ceiling it should, like the previous government, acknowledge the fact that it is putting into question the goal of equalization payments and the principle of fiscal federalism expressed in the 1941 Rowell-Sirois report.
The ceiling, when it applies, reduces the transfer payments that a province would have received otherwise to maintain the same standard of fiscal capacity as the other provinces. I will quote the Quebec Minister of Finance, although it is not very often that I refer to Mr. Bourbeau. Mr. Bourbeau said, in referring to the ceiling, that today there was a difference in fiscal capacity of about 12 per cent between the wealthier provinces and the poorer provinces, after equalization. The question therefore arises whether the poorer provinces are really in a position to provide public services comparable in quality to those offered in the wealthier provinces, and at comparable tax rates.
For a committed federalist to raise this issue, which goes to the very heart of Canadian federalism, is a clear indication that it is a problem that must be dealt with quickly, as soon as it reaches the Finance Committee with Bill C-3.
We must not forget that, as I said before, the ceiling applied from 1988-89 to 1990-91 caused recipient provinces to suffer a potential loss of over $2.9 billion. In this case, recipient provinces means those that are least able to absorb these tax losses. Quebec absorbed 60 per cent of this potential loss and thus suffered a loss of $1.8 billion in revenue.
Assuming that the GDP annual growth rate will be between 5 per cent and 6 per cent per fiscal year, the federal Department of Finance expects that applying the current ceiling provided in Bill C-3 will cause the recipient and thus poorer provinces to lose nearly $1.5 billion over the next five years. Quebec will again absorb 60 per cent or nearly $900 million.
Earlier, I had to smile when I heard the hon. member say that a change in the reference tax base used to establish equalization amounts for each province would give another $300 million to the poorest provinces and about $70 million to the province of Quebec. The mere fact of extending the ceiling for the next five years will cause Quebec alone to lose $900 million. If we take this loss of $900 million and subtract about $300 million gained over the next five years as a result of redefining the tax base, the result is still a net loss of $600 million for Quebec alone.
This will only happen if the forecast growth of nominal GDP over the next five years-the optimistic forecast made by the federal Department of Finance-is accurate. Recently I have seen figures of 5 to 6 per cent. In particular, a number of organizations in Quebec were talking about growth of around 4 per cent, so if we have 4 per cent growth and if there is a 4 per cent ceiling on equalization payments, losses may be well in excess of the figures I just mentioned.
The federal government, by tabling Bill C-3 and ignoring all the problems, incongruities and even absurdities found in other federal transfer payments, has made it clear that, like the previous government, it intends to shift the burden of the deficit onto the provinces and, by the same token, undermine the grand design of federal equalization. Like the Conservatives, this government will let the provincial governments take the blame for tax increases and wash its hands like Pontius Pilate.
