Tony Valeri

[Federal-Provincial Fiscal Arrangements Act, February 8th, 1999]

Madam Speaker, I have a couple of comments on what the hon. member said.

One comment concerns the property tax issue. He is correct that the auditor general has flagged it as an issue of concern. The federal government has indicated that the property tax issue is one that the provinces and the federal government are continuing to discuss. It is a bit of a difficult situation.

Some provinces were recommending that we go to market value assessment although it does not necessarily allow a province to generate the same type of revenue when we compare the market value assessment of a home in British Columbia equivalent to a home in Quebec for instance. That has some flaws in it as well. For the information of the hon. member, the property tax issue would remain on the agenda until there was a solution that is acceptable to the provinces and to the federal government.

The hon. member also went on to talk about the impact on British Columbia that commodity prices are having and why British Columbia is not receiving any sort of equalization given the economic turmoil it is going through. I advise the hon. member that there is a fiscal stabilization program. The federal government compensates even the have provinces if their revenues decline more than 5% due to economic circumstances. Even for the have provinces there is a safety net with respect to drops in revenue.

The hon. member said that equalization provides a disincentive for provinces to raise revenues. It is hard to believe that a have-not province would take into consideration the fact that it is receiving equalization and based on that receipt of equalization that it would not engage in any type of economic activity, that it would not want to create employment for its people. I dispute the argument that equalization is a disincentive to provincial economic development.

I offer the opportunity to the hon. member to speak to that, to put himself in the shoes of a provincial finance minister or premier who would say “I am not going to work in partnership with businesses in my community because we are receiving equalization. We do not want any sort of economic development in this province until we have no more equalization and then we will engage in economic development”. I just do not follow that argument.

[Federal-Provincial Fiscal Arrangements Act, February 8th, 1999]

Madam Speaker, I have a couple of comments.

The hon. member made reference to the situation in Saskatchewan. I reiterate that I do not want the hon. member to give the illusion to those individuals watching this program that there is a different formula for Saskatchewan. The equalization formula is calculated one and the same. We end up with different results because of the varying capacities and abilities of provincial governments to raise taxes. There is no inequity there.

The hon. member made reference to the fact that Quebec has a higher per capita rate than does Saskatchewan and that somehow that is unfair. If we go down that road and if I follow the logic of the hon. member, the have provinces that do not get any equalization are being treated unfairly. He said that Saskatchewan has a lot of roads so it should get more. Quebec does not have as many roads but it has a lot of ports. Saskatchewan does not have ports. Should we follow that line of thinking? Then we get on to the whole subsidization issue.

The member made reference to the amount of the increase in equalization. He did not think it was very much. Will the hon. member go back to Saskatchewan and tell the people that he does not support an increase in equalization payments for the province of Saskatchewan?

[Federal-Provincial Fiscal Arrangements Act, February 8th, 1999]

Madam Speaker, I am pleased to open debate at second reading of Bill C-65, which proposes to amend the Federal-Provincial Fiscal Arrangements act.

This legislation involves the renewal of two federal programs—the provincial personal income tax revenue guarantee program and the equalization program—each for an additional five years.

Under the revenue guarantee program the federal government protects those provinces participating in tax collection agreements from large revenue reductions resulting from changes in federal tax policy. The major portion of this bill, however, deals with equalization, a program that in many ways defines the generous spirit of Canada.

Hon. members will be aware that the commitment to equalization payments is enshrined in section 36(2) of the Constitution. These payments exist so as to enable provincial governments of varying levels of affluence to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

Equalization has a long tradition. It was established as a program in 1957 and has been continuously renewed and improved ever since. This government's commitment to equalization was clearly evident from the fact that this program was exempt from the restraint measures of the past five years when Canadians were facing a $42 billion deficit.

The most recent official estimates made last October indicated that receiving provinces would get almost $9 billion in 1998-99 from the federal government under equalization. These estimates will be updated later this month.

If we use the existing October estimates, it is clear that these transfers are very significant indeed. They can make up between 15% and 40% of total provincial revenues and the payments are unconditional. It means that receiving provinces can use them as they wish and experience has shown that they play a significant role in improving the quality of a wide array of public services.

Currently seven provinces benefit directly from equalization payments: Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba and Saskatchewan.

There are also indirect benefits for all Canadians. We all benefit from knowing that we live in a country where the objective is to provide health care, education and basic public services at essentially the same level in all provinces.

In renewing the equalization program this bill proposes a package of improvements, improvements that aim to ensure that the program continues to accurately measure the revenue raising ability of each province.

The proposed modifications will be gradually phased in over the next five years so that the impacts on the provinces will be smoothed. In addition, this will give federal and provincial governments time to plan for changes in the amounts of the transfers.

The proposed modifications are expected, according to current estimates, to result in transfer increases of almost $50 million in 1999-2000, rising to about $200 million by the year 2003-04.

What makes this happen? There are three components to the equalization renewal package proposed in this bill. First, the equalization legislation will be renewed for five years. That provides a secure planning framework for the receiving provinces.

Second, the equalization ceiling and floor provisions will be improved. The ceiling provision provides protection to the federal government against unexpected increases in equalization payments. In other words, this prevents changing economic circumstances from unaffordably driving equalization payments through the roof.

The new ceiling will be set at $10 billion in 1999-2000 and will grow by the percentage change in gross domestic product. This change will ensure that the program remains affordable and sustainable over the five year renewal period.

The floor provision is the other side of the coin. It provides protection to the provincial governments against unexpected large and sudden decreases in equalization payments. The new floor will be applied equally across all receiving provinces. It will reduce the fluctuations in floor protection that can result from application of the equalization formula during a period of economic change. This will mean more predictable protection for provincial governments.

The third change is that improvements will be made in the measurement of the provinces' ability to raise revenues on their own. The equalization formula measures provincial revenue raising capacity by looking at over 30 different provincial taxes and comparing the results to a standard. It is on the basis of this exercise that the size of equalization transfers is calculated for each province.

However, the taxation environment is not static. It changes. The changes proposed in this bill are needed to ensure that the equalization program reflects existing provincial tax opportunities and practices.

These changes in measurement, which will be implemented through regulation, relate to five tax bases that require significant improvements and other tax bases that require technical changes because of revised or new data.

For example, changes are proposed for the measurement of the provinces' ability to raise sales taxes. The new base will now reflect the taxing practices of those provinces that have moved to the value added tax as well as those that have maintained the existing retail sales tax systems.

Similarly, because of increased activity related to games of chance, the treatment of revenues that flow from them needs to be updated.

The proposed changes will take into consideration the ability of provinces to raise revenues from casinos and video lottery terminals.

However, let us get the facts straight. We have not changed the revenues which equalization takes into account at all. Before the proposed changes we looked at all the revenues from all types of gambling and after the changes we continue to do so. What we have changed is our measure of which provinces have a high ability to raise these types of revenues and which provinces have a low capacity. Our measure of disparities has changed, not our measure of revenues.

For disparities, we used to look just at lottery ticket sales per capita. Now we look at lottery ticket sales per capita and the capacity that different provinces have to raise revenues from casinos and VLTs as measured by differences in their incomes.

The new way of measuring disparities is fairer to all provinces, but, let me emphasize once again, in no way encourages gambling.

In addition to this, a number of resources, such as forest products and natural gas, will be measured according to value rather than by volume as is currently the case.

At this point I would like to repeat what I said earlier about these modifications happening gradually. The proposed tax base changes will come into effect in stages over a five year period. This renewal follows more than two years of consultation with the provinces. Considerable tactical work was undertaken by both federal and provincial officials and was then reviewed by ministers of finance at both the federal and provincial levels.

I believe that hon. members will recognize that it has been important to fully analyse the equalization program in order to assess accurately what change is needed. I submit to this House that this has been done.

It is important to build on this groundwork and finish the renewal. Our deadline is March 31, 1999, when the current five year equalization legislation expires. It is important to have new legislation in place before that happens.

I want to make it clear that the passage of this bill will provide important continuing benefits to Canadians by assisting provincial governments in providing services on which Canadians can rely. It will provide for the next five years a stable funding horizon for equalization. It will provide substantial support for the less affluent provinces, underscoring the priority the government has placed on equalization, and ensuring that equalization receiving provinces have resources to provide the services their people need and want.

The legislation intends to maintain the fairness with which the equalization program is delivered. It is important legislation and I believe hon. members will support the speedy passage of it.

[Transit Passes, February 8th, 1999]

Mr. Speaker, I congratulate the member for Kamloops, Thompson and Highland Valleys for putting forward this motion. The motion certainly gives us an opportunity to put on the table various views concerning the subject. It allows us to talk in general terms about the commitment we all have to the environment to ensure that it continues to be one which we cherish and one which we will continually take steps to improve.

The government recognizes that encouraging the use of public transportation is important. Other members have raised some concerns with respect to the measure, the fairness and the efficiency.

We have to ensure before we commit the government's scarce resources that any measures taken represent an efficient use of public funds. When we look at this particular motion, the bulk of tax assistance would accrue to individuals already using mass transportation. Although we have heard various numbers quoted today in the debate, the incremental increase in the number of transit users is expected to be small compared to the existing users. One could argue that the proposed measure would not be the most cost effective way to reduce greenhouse gas emissions.

We should also note that the tax system is not always the most efficient and effective mechanism for accomplishing various policy objectives. We all know that all levels of government have a variety of policy tools at their disposal and they must be careful to use each one properly.

We must be clear that the government recognizes the importance of sustainable development in all its aspects including its impact on climate change. The government is committed to pursuing the principle of long term sustainability across a wide spectrum of government activities. To provide leadership in this important area the federal government has required all of its departments to prepare sustainable development strategies for tabling in parliament. Federal departments are expected to update these strategies every three years and to provide annual progress reports on implementing them.

The Department of Finance which is responsible for tax policy had its sustainable development strategy tabled in parliament on December 10, 1997. The department recognizes that closer integration of economic and environmental goals is an important objective and has taken concrete steps toward furthering this objective in every budget since 1994.

Last year's budget provided an additional $50 million annually for three years. The funds will help lay a strong foundation including developing a national implementation strategy, carrying out public education, encouraging early action by Canadians, identifying best practices and mechanisms such as emissions trading, all with the objective of reducing the impact of climate change.

To co-ordinate efforts in this regard the Government of Canada announced the establishment of a climate change secretariat that will support the efforts of the ministers and will work with the provinces and stakeholders to develop the national implementation strategy to honour our Kyoto commitments to reduce greenhouse gas emissions. As part of this process a transportation issue table has been created to determine the most appropriate measures to reduce greenhouse gas emissions in the transportation sector. The table will examine the merit of the proposed tax treatment of transit passes along with other available options and will make recommendations to governments.

I want to thank the hon. member for bringing this important issue to our attention. I believe that the measure will be reviewed as part of the national process. It would therefore be premature to take any action in this regard immediately. I am sure I am like all members of the House who would like to make gains against greenhouse gas emissions, but I would also like to take a comprehensive approach, an approach that is all inclusive.

Governments in the past have sometimes taken a piecemeal approach to challenges that we face. We know the results. We have made progress in a number of areas. But we know that when we approach an issue from a comprehensive and all inclusive perspective, the results and the outcomes are ones that we are proud of and that we can live with.

The issue of greenhouse gas emissions is global. We have a global commitment to deal with it. We will deal with this issue in a collective fashion. It has been stated by other speakers that this initiative alone may not provide the results we are looking for.

It is questionable whether we will see an increase in ridership. This particular motion solely addresses the aspect of making the employer provided transit passes an income tax exempt benefit.

I believe the member for Regina—Lumsden—Lake Centre made reference to making this tax deductible. There is a difference. In this motion we are only focusing on those individuals who are employed. There are individuals who are most in need like seniors who have benefits that local municipalities provide by offering them reduced rates for public transportation.

The issue should be approached from a much wider spectrum. Also it is being suggested at a time when there is a more comprehensive approach being taken by the government, by the stakeholders and by all the partners.

I know members who have engaged in this debate have talked about the support that is out there among the municipalities and environmental groups. The government is supportive of initiatives that will deal with greenhouse gas emissions. However, we must be cautious in ensuring that whatever we do we do it in a manner that will be efficient and will make best use of taxpayers dollars.

By moving on the motion as it is presently worded we would not be achieving our objectives in Kyoto and our objectives with respect to the tax assistance that we may be able to provide. With that being said, I would urge hon. members not to support the motion.

[Tax On Financial Transactions, February 3rd, 1999]

Mr. Speaker, in essence the hon. member was talking about the employment insurance fund. He often makes reference to the fact that the moneys in the employment insurance fund are being used for other purposes and how the government must take measures to stop that.

Again I remind the member that the auditor general in 1986 advised the government that any revenue which comes in from employment insurance premiums must flow into the consolidated revenue fund because the government stands behind the program.

In 10 of the last 17 years where the fund was in deficit it was the taxes of taxpayers who may not have paid any employment insurance premiums that went to prop up that account so that those individuals who were on benefits could receive those benefits. It is not just about the fact that those individuals who pay receive benefits. It is also about the fact that those premiums flow into consolidated revenues. In fact it is government that stands behind the program.

While the hon. member talks about the employment insurance program and how it is very necessary, we as a government believe that employment insurance provides a very effective and useful role for Canadians who find themselves temporarily out of work.

The actions taken by the government are directed toward ensuring that our economy performs in a way that small business and large business are able to create employment opportunities for Canadians.

Let us look at the record. Since October 1993 private sector jobs are up almost 1.6 million. Full time jobs are up over 1.2 million. During 1998 alone roughly 450,000 jobs were created and almost all of those were in the private sector.

Along with the employment insurance program, there are other measures that the government has taken to ensure the economy performs to its fullest. We will continue to do that so that Canadians who want to work have the opportunity to be employed.

[Finance, February 2nd, 1999]

Mr. Speaker, I think it is only proper that I take the opportunity to comment on what my hon. colleague has said.

I really want to focus on the budget plan. The member made reference to it in his opening remarks. The opposition party has gone to great lengths to provide an alternative to the upcoming budget. I really want to focus on that area.

When I reviewed the plan that was released, essentially what I found was that a lot of the promises were really based on some widely optimistic revenue assumptions.

When one combines the optimistic revenue and naive expenditure assumptions, it really results in a very unrealistic picture of future budgetary surplus. If one were to look at a three year period and go out to 2001-2002, they are actually predicting surpluses of about $30 billion to $35 billion.

That is actually much more optimistic than the private sector forecasters which is what the government uses in order to build its budgets. We go to the private sector. The private sector provides a consensus of what these forecasts should be and that is what we build into the actual budget.

The Reform plan assumes a revenue growth on average of 5.5% for the next three years. It is almost two times the private sector consensus. It also ignores the cost of maintaining existing programs like old age security and equalization.

There are other incremental costs of maintaining other existing programs. The member has not in any way included economic prudence in the revenue forecasts. That means that if the economy turns out ever so slightly worse than what was predicted, the plan is derailed.

The question is how to deal with the impact of a slower economy based on these overly optimistic assumptions. Either programs have to be cut or taxes have to be increased. Which is it?

[Finance, February 2nd, 1999]

Mr. Speaker, again I will address the CPP question. Because CPP does not flow to government revenues, when references are made to the CPP payroll tax, it is actually an inaccurate statement. Those revenues do not flow to the consolidated revenue fund.

With respect to the increase in revenues, certainly the vast majority of the increase in revenues is as a result of increased economic activity. Certainly it is the same experience I often hear the members opposite talk about, of how the increase in revenues of the Ontario government comes from increased economic activity. It is the same logic.

It has often been said that we need to address the personal income tax challenges we face in the country, that personal income tax is uncompetitive when we compare it to other G-7 countries. We have started to make progress in that area. We have made a commitment to continue in that area to make it more competitive and deal with the issue of bracket creep by increasing the basic exemption. Certainly we realize that and want to ensure we can do that in a very sustainable fashion.

We do not as a government want to make any commitment with respect to tax reductions where we would find ourselves two, three or four years down the road having to reverse a tax decision because the government found itself without enough revenue and had to go back into a deficit. That certainly is not a policy of this government. We want to make sure that anything we do on the tax side is sustainable.

With respect to the reduction in the CHST, certainly the members opposite when they do make reference to the reduction in the CHST, they always make reference to the cash portion of the transfer. They should also make reference to the tax points which continue to grow in transfers to the provincial governments.

We can talk about where we have been but the impact of this debate is really to be focused on where we are going. It is only because of the hard work of Canadians and the commitment of Canadians in supporting the government in making the decisions it has had to make that we are now talking about what should be done and how the government should allocate a surplus.

[Finance, February 2nd, 1999]

Madam Speaker, I will address the CPP point first. The reason I did not address the CPP premium increase was because the CPP premiums do not flow to government revenues. They flow outside of government revenues, whereas EI contributions do flow to the bottom line of government. Any time we make any sort of change on EI premiums, it does impact on the bottom line. That would reinforce the point the hon. member made that Canada pension plan premiums do not flow to government revenues. That is why I did not make reference to that.

When the finance department works out its numbers, it does take into consideration the things I mentioned. I was addressing the number of individuals out there who were extrapolating a surplus of one month throughout the whole year without taking into consideration the reduction in revenues that flow into governments in the last quarter of the fiscal year.

It is important to note that any time there is an initiative on the part of the government, a reduction in EI premiums or the fact that corporate earnings are going to be less than they were the year before and when the corporations file in the last quarter of the fiscal year, the revenues flowing to government are less. All of these adjustments in the final quarter need to be factored in to what will be the underlying surplus.

What we were hearing through to the end of 1998 was that because the federal government was running a $9.7 billion surplus over eight months of the year that the final surplus should be extrapolated to be $18 billion or $20 billion because of the $9.7 billion figure. However, when one takes into consideration what in fact happens in the last quarter, that $9.7 billion goes down rather than increases.

[Finance, February 2nd, 1999]

Mr. Speaker, I begin by thanking the members who contributed to this debate. It is certainly a great opportunity for members to reflect what constituents are thinking in their ridings. Collectively it really reflects what Canadian priorities are in varying degrees.

I want to spend a few moments and point out what I consider to be the obvious. Canadians who are watching this program might not realize that the budget process itself under the Minister of Finance has been very open and transparent. It is really an exercise that some years ago was conducted behind closed doors with a lot of secrecy.

Now we have a process where we are engaging Canadians in the debate. Members of parliament are going back to their ridings and holding town halls on what should be the budget priorities for the government.

It is by encouraging and engaging members and Canadians that the whole budget process has certainly become a much more effective one.

Tonight's debate reflects many different views. Some members in this House talked about what their constituents have been saying to them. Some of them said that the government now needs to invest in program spending substantially.

Other members have said freeze program spending at its current level. Other members have said to cut taxes substantially right across the board. Others have suggested that any tax cuts remain something that is targeted, more moderate, focusing on lower and middle income Canadians.

Others have said to cut EI premiums more substantially and members again have said we need to reinvest more money into the employment insurance program. Others have said to pay down debt substantially and other members have said we need to pay down debt but we need to be quite cautious and we should not be too aggressive. There are other priorities.

Economists from right across this country have provided forecasts and some insight into where the Canadian economy is going. They have rarely developed any sort of consensus. There is as much disagreement among the economists themselves, again depending on the model they use.

I think it is important to note that this debate is possible because as a country we finally managed to turn the corner. We have turned the corner from an era of deficits to an era of surpluses. We have turned the corner from a time when we were continually increasing the debt to a time where we are now decreasing the debt; a time where program spending was being cut to a time where we are now talking about reinvestment in Canadian priorities, reinvestment in health care and reinvestment in education.

The last number of speakers talked about reinvestment in the military and the importance of supporting our Canadian armed forces. There is agreement that there is a need to look at the quality of life that members of the Canadian armed forces are experiencing.

The focus is now on how we allocate this fiscal dividend. What do we do with the money that we have? Estimates have varied. I would like to make a few points about the actual amount. Economists have come forward and I have heard over the last couple of days figures ranging from a $6 billion, $7 billion to a $15 billion to $20 billion surplus per year.

It is important that I comment on the accusation that the $9.7 billion surplus recorded in the first eight months of 1998-99 points to a very large surplus at year end. That is not exactly true.

The surplus is expected to increase in December. That is when revenues are typically strong. But a simple extrapolation of the remaining months of the fiscal year would be highly misleading. We know that monthly deficits are expected in the final quarter of this fiscal year. Why? Because we know that the recently announced reductions in the employment insurance premium are effective January 1. That will have an impact on the final surplus number.

Revenues are typically depressed in January due to the payment of GST low income credits and refunds. We know that corporate income tax returns are expected to be down significantly in the February-March settlement period. Exchange funds earnings which are reported in March will also be significantly lower. Personal income tax refunds pertaining to the processing of the 1998 tax returns will further depress revenues in March 1999.

The income tax relief measures that were announced in the 1998 budget will take effect. These measures will cut personal income taxes as well, so we have a reduction in government revenues again.

These factors will all serve to bring the underlying surplus for 1998-99 below that recorded in 1997-98. It is important that Canadians realize and understand this and that members of parliament also understand that we cannot simply extrapolate a surplus of one month and take it throughout the entire year. Like businesses, we do have a cash flow and we have a cycle throughout the year so that revenues go up and revenues go down. In the end we will have to wait for that final number. There are additional pressures in this final quarter that will impact on the final number. While the surplus may be less than that recorded in 1997-98, this government will continue to build on past successes.

I have heard from members of the Reform Party, members of the Bloc, members of the NDP and from members of the Conservative Party that we need to focus on Canadian priorities. The Standing Committee on Finance toured the country asking Canadians what they would like to see in the upcoming budget. I believe the government will reflect what those Canadian priorities are because we know that budgets are much more than balancing numbers. Budgets are about people.

We will continue to reflect those Canadian priorities. We will continue to maintain a balanced approach. We will continue to follow through on the plan that we have adopted since coming to office. I know that the members of the NDP throughout the debate this evening commented on the fact that there is no plan that this government is following.

I want to reiterate that since coming to office there has been a plan, there continues to be a plan and what we are seeing is the successes of that plan. We now have a balanced budget. We are going into a surplus. We are reinvesting in Canadian priorities. We are providing tax relief. We are paying down the debt.

We are certainly doing that prudently. We are ensuring that we do not jeopardize the successes Canadians have experienced. We want to do more. We would certainly like to do everything we can, but we do not want to jeopardize this and neither do Canadians want to jeopardize our success and be too extravagant. We have lived for some 30-odd years with continued deficits and continued increase in debt.

We are committed. We have faced many challenges before. We have had to make tough choices. Government is about making choices. I think that the budget will certainly reflects choices that Canadians can agree with and certainly support.

I reiterate that this particular exercise is certainly a very useful one. I thank members who participated in this prebudget debate in ensuring that the government and the Minister of the Finance had the opportunity to hear their input. I certainly welcome any questions that may be addressed to me.

[Questions On The Order Paper, February 1st, 1999]

The total amount owed to Canada and its agencies by third world, i.e., low and middle income countries as defined by the World Bank, was $17.7 billion as of March 31, 1998.